A federal “tailoring rule” took effect on January 2, 2011 in all states except Texas. The tailoring rule sets thresholds for when emissions of greenhouse gases (carbon dioxide, nitrous oxide, methane, hydrofluorcarbons, perfluorcarbons and sulfur hexafluoride) will trigger the need to get so-called title V permits and to undergo a separate review process under a “prevention of significant deterioration” or “PSD” program.

During the first six months of 2011, a review will be required under the PSD program for existing facilities that are already covered by the program and that increase their greenhouse gas emissions by more than 75,000 tons per year of CO2-equivalent (a measure of global warming potential). During this time, existing major greenhouse gas emitters and new major sources obtaining title V permits for non-greenhouse gas pollutants will also be required to have permits covering their greenhouse gas emissions. However, no one will be required to get a title V permit solely on account of its greenhouse gas emissions.

During the last six months of 2011, the PSD program will be triggered for new facilities emitting more than 100,000 tons per year of CO2-equivalent or modified existing facilities emitting more than 75,000 tons per year of CO2-equivalent, regardless of whether these facilities trigger the need for a title V permit under the PSD program for other regulated pollutants. New and existing facilities not already subject to the title V program that emit or have the potential to emit more than 100,000 tons per year of CO2-equivalent will be required to obtain title V permits for their greenhouse gas emissions.

With the exception of Texas, all other states either have revised their respective state implementation plans that explain how states will implement the PSD program, or have ceded authority to EPA to issue permits under the tailoring rule to avoid any permitting delays. Texas takes the position that EPA does not have the authority to regulate greenhouse gas emissions from facilities in Texas and refused to cede permitting authority for greenhouse gases to EPA.

On December 30, 2010, EPA issued an “interim final rule” revoking approval it had given earlier to part of the Texas state implementation plan for air pollutants because the plan failed to address how new pollutants like greenhouse gases would be handled.

In the absence of an approved state plan for greenhouse gases, EPA would have assumed permitting authority for such gases on January 2, 2011. Texas would retain authority to issue permits for other regulated pollutants like nitrogen oxides.

The same day as EPA revoked its approval, Texas convinced a US appeals court in Washington to issue an emergency “stay” to block the EPA action. Until the dispute is resolved, facilities that are major sources of greenhouse gas emissions in Texas will probably have to postpone any planned new construction or major modifications to existing facilities that may trigger the tailoring rule since any permits that might be issued by Texas without limiting greenhouse gas emissions would almost certainly be challenged by citizen groups.

BACT

Permits issued under the PSD program must set emissions limits for a range of pollutants based on best available control technology or “BACT.” Now that greenhouse gases are regulated under the PSD program, the question becomes what is BACT for such emissions?

Section 169(3) of the Clean Air Act provides the following definition of BACT:

an emission limitation based on the maximum degree of reduction of each pollutant subject to regulation . . . emitted from or which results from any major emitting facility, which the permitting authority, on a case-by-case basis, taking into account energy, environmental and economic impacts and other costs, determines is achievable for such facility through the application of production processes and available methods, systems, and techniques, including fuel cleaning, clean fuels, treatment or innovative fuel combustion techniques for control of each such pollutant. Any proposed major stationary source or major modification which the [US Environmental Protection Agency], on a case-by-case basis, taking into account energy, environmental, and economic impacts and other costs, determines is achievable for such facility through application of production processes and available methods, systems, and techniques, including fuel cleaning, clean fuels, or treatment or innovative fuel combustion techniques for control of each such pollutant.

EPA released guidance in November to assist permitting authorities and permit applicants to determine BACT for greenhouse gases.

In this guidance, EPA suggests using the same five-step process that is already used to determine BACT for other pollutants regulated under the PSD program like nitrogen oxides.

• Step 1 Identify all available control technologies. In this initial step, all available emissions control technologies for the greenhouse gas should be identified and ranked from most to least effective for emissions control.
• Step 2 Eliminate technically infeasible options.
• Step 3 Evaluate and rank the remaining emissions control technologies.
• Step 4 Evaluate the most effective controls and document the results.
• Step 5 Select the BACT. The highest ranked emissions control technology that has not been eliminated is selected.

Under the guidance, identified control technologies that are not considered “achievable” are eliminated from consideration. EPA explains that BACT is not achievable if the “permit applicant demonstrates to the satisfaction of the permitting authority that technical considerations, or energy, environmental or economic impacts justify a conclusion that the top-ranked technology is not ‘achievable’ in that case.”

EPA released two white papers discussing greenhouse gas emissions control technologies for coal-fired power plants and cement production facilities and set up a greenhouse gas mitigation strategies data base. The agency expects to continue adding information to the data base, including performance and cost information for greenhouse gas mitigation measures. EPA also expects to release additional white papers for other sectors of industry.

EPA recommended including carbon capture and sequestration, modification of production process or even fuel switching in the list of possible best available control technologies, but acknowledges that technologies like carbon capture and sequestration may be cost prohibitive and will ultimately be eliminated from consideration during the BACT analysis process.

The agency emphasized the role of increased energy efficiency as a best available control technology.

The biomass industry is awaiting additional guidance in January that EPA indicates will provide the framework to assess the environmental, energy and economic benefits of biomass for purposes of the BACT analysis.

In addition, EPA indicated that it expects to determine whether carbon emissions from bioenergy or biogenic sources should be counted for purposes of triggering the PSD program for greenhouse gases and, if so, how such emissions should be quantified. This guidance is expected in May. Many expect investment in biomass projects to cool until it is issued.

BACT for greenhouse gases will also be shaped by settlements to which EPA agreed to settle lawsuits requiring it to set “new source performance standards” for greenhouse gases from power plants and petroleum refineries under section 111 of the Clean Air Act. Section 111 requires the agency to establish federal emission standards for industrial facilities that cause or contribute significantly to air pollution. These standards act as the floor for determining BACT for specific industries. Under the power plant settlement decree, EPA must propose new source performance standards for new facilities and propose emission guidelines for existing facilities by July 26, 2011 and finalize the standards by May 26, 2012. EPA has said that it is unlikely that existing facilities would need to reduce greenhouse gas under any such new source performance standards until 2015 or 2016. Owners of many existing power plants may determine that it is not economical to comply with the new standards.

Clean Air Act New Source Review

Setting aside possible closures resulting from implementation of any new source performance standards, many fear that implementation of the tailoring rule and BACT for controlling greenhouse gas emissions will accelerate closures of coal-fired power plants across the country.

Even if such plants are not planning any modifications that would trigger the need to get a new permit under the tailoring rule, EPA and citizens groups may force shutdowns by pursuing new source review program violations.

Certain plant modifications that are considered major trigger review under the new source review program and may require adoption of new pollution control measures. Even though these modifications may have been made years ago, EPA can require facilities to comply with current BACT even if the modifications that were made many years ago would have triggered a less stringent BACT.

If new source review violations are found, it may make economic sense to close a plant rather than install a new BACT. For example, in May 2010, American Municipal Power announced that it would permanently retire its coal-fired power plant near Marietta, Ohio under a settlement to resolve violations of the new source review program. As part of the settlement, American Municipal Power must pay a civil penalty of $850,000 and spend $15 million on an environmental mitigation project. The settlement resolved allegations that certain work performed at the facility during the period 1981 to 1986 (before American Municipal Power even had an interest in the facility) and during the period 1988 to 1991 (after American Municipal Power had an interest in the facility) triggered the new source review program.

Although EPA will continue targeting investor-owned utilities for new source review violations, it now appears to be moving on to state- and municipally-owned utilities. It has been reported that dozens of Clean Air Act section 114 letters were sent to state- and municipally-owned utilities in Wisconsin and Ohio in December. Section 114 letters ask for information about past modifications at a facility and are considered by many to represent the start of an enforcement action.