United States: EPA Proposes Phased Tailoring Rule for Permitting Major Stationary Sources for Greenhouse Gases

EPA published the final version of the "Tailoring Rule," which is meant to address the applicability of the Clean Air Act's Prevention of Significant Deterioration (PSD) and Title V programs to major stationary sources that emit any combination of six greenhouse gases "GHGs" (measured collectively as CO₂ equivalent or "CO₂-e"). This Rule, which was posted to the EPA's website on May 13, is effective 60 days after it is published in the Federal Register. EPA has established a docket for this rulemaking under Docket ID No. EPA-HQ-OAR-2009-0517.

In this rule EPA establishes a minimum three-phase approach to permitting major sources of GHGs, with a potential for additional phases:

I. Phase One - Title V or PSD for Other Pollutants

• Phase 1 is effective on Jan. 2, 2011 for sources already subject to Title V and/or PSD due to their emission levels of other regulated pollutants ("anyway" sources).
• As of that date, any increase in total GHG emissions above statutory thresholds for mass (i.e., 100/250 tons per year (tpy)) and at least 75,000 tpy CO₂e (weighted GHG emissions total) at sources that are required to obtain PSD permits for other regulated pollutants, must satisfy PSD review and incorporate PSD controls for GHGs (e.g., Best Available Control Technology or "BACT").
• As of that date, any existing Title V major sources that applies for, renews, or revises its Title V permit must account for GHG emissions in its permit application (Note: no minimum threshold for GHG emission under Title V).

II. Phase Two - Designed for Largest Sources

• Phase 2 is effective on July 1, 2011 with no identified end date.
• As of that date, new sources that emit or have the potential to emit at least 100,000 tpy CO₂e GHG and that increase the total mass of GHG emissions above statutory thresholds (i.e., 100/250 tons per year (tpy)) must satisfy PSD review and incorporate PSD controls.
• As of that date, any physical change or change in method of operation at a major stationary source that results in a net increase of at least 75,000 tpy CO₂e will trigger PSD review and require PSD controls.
• As of that date, sources that emit at least 100,000 tpy CO₂e will be required to obtain a Title V permit if the source does not already have one.

III. Phase Three - Designed for Mid-Range Sources

• Expected effective date of July 1, 2013.
• Threshold levels for Phase 3 are undetermined at this point, but guaranteed to be no less than 50,000 tpy CO₂e for both new sources and modifications to existing sources at least until April 30, 2016.
• Specifics of Phase 3 not expected until EPA promulgates them through rulemaking by a self-imposed, mandatory deadline of July 1, 2012 (notice of the rulemaking due in 2011).
• EPA could establish permanent exclusions at this point for sources emitting below a certain threshold yet to be determined.

Throughout these three phases, EPA commits to exploring streamlining mechanisms, for example, defining the potential to exceed for various source categories, establishing emission limits for source categories that constitute "presumptive BACT," and developing general permit and/or electronic permitting procedures.

EPA also has committed to a pseudo-Phase 4 where EPA will complete a study by April 30, 2015 of the implementation progress and effectiveness of Phases I through III to determine whether EPA will establish lower thresholds to permit smaller sources (e.g., less than 50,000 tpy CO₂e). Any Phase 4 rulemaking for small sources based on its study would be promulgated by April 30, 2016. Alternatively, EPA indicates that its study may lead it to promulgate a permanent exclusion for small sources, if it has not already done so in Phase 3.

Consistent with its approach in the proposed Tailoring Rule, this final rule does not commit to ever permitting under PSD or Title V down to the statutory thresholds in the Clean Air Act. In the proposal, EPA proposed immediately applicable thresholds ranging between 10,000 tpy and 25,000 tpy CO₂e (depending on whether it was a new source or a modification to an existing source), based on two judicial doctrines for statutory interpretation by agencies: "absurd results" and "administrative necessity." In this new phased approach, EPA also uses the "absurd results" and "administrative necessity" doctrines, as well as and the so-called "one-step-at-a-time" doctrine to avoid addressing smaller sources close to the statutory threshold. EPA discusses each doctrine as separately and collectively justifying the phased approach to the "Tailoring Rule," in order to avoid untenable permitting volume at EPA and in states, and the heavy cost burden to smaller sources, if the statutory thresholds of 100 tpy and 250 tpy for PSD and Title V immediately applied to GHGs.

EPA estimates that, while capturing upwards of 67 percent of the nation's GHG emissions, the burden of this rule to be virtually non-existent, because it views the "Tailoring Rule" as regulatory relief, rather than regulatory requirements. The agency estimates that during the first two phases, over 6 million sources of GHGs that otherwise would required Title V permits and "tens of thousands" of sources that otherwise would require PSD permits will continue to be operated or constructed without a Title V or PSD permit. According to EPA, this will result in billions of dollars in avoided costs in each of the first two phases.

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