EPA's Regulation of Greenhouse Gases and the Three Branches of Government
Submitted by Terry W. Roberson¹, Farnsworth & VonBerg, L.L.P., Houston

The main environmental issue facing the energy industry is federal regulation of greenhouse gases ("GHGs"). All three branches of the government will participate in the GHG debate over the next two years. The White House will continue to regulate what it has been unable to legislate. The 112th Congress has proposed legislation to implement democratic consent. Further, the Supreme Court may have to determine whether such emissions contribute to climate change.

Background

After 35 years of research, the legal authority for the federal government to regulate air pollution was granted in 1990. The Air Pollution Control Act of 1955 was the first federal legislation that issued research funds for air pollution. The Clean Air Act of 1963 established a federal program with the U.S. Public Health Services and authorized research into controlling air pollution. The Air Quality Act enacted in 1967 permitted the federal government to conduct extensive ambient monitoring studies and stationary source inspections. The Clean Air Act of 1970 ("CAA") authorized the creation of federal and state regulations to limit emissions from stationary and mobile sources. The major regulatory programs facing stationary sources were: the National Ambient Air Quality Standards ("NAAQS"), State Implementations Plans, New Source Performance Standards, and National Emission Standards for Hazardous Air Pollutants. Additionally, the U.S. Environmental Protection Agency ("EPA") was created on May 2, 1971 to implement the CAA regulations. The 1977 amendments to the CAA authorized provisions for the Prevention of Significant Deterioration ("PSD") or air quality in areas attaining the NAAQS. The 1990 amendment required all states to develop operating permit programs for stationary sources. Every major industrial source of air pollution must obtain a Title V Operating Permit, which includes air emission control requirements.

Administrative Branch

Recent Presidents were required to determine whether GHGs are pollutants and subject to regulation by the EPA. The Clinton administration found that GHGs were pollutants subject to regulation; however, the Bush administration concluded they were not. The judicial branch entered the debate in April 2007, when the U.S. Supreme Court held in Massachusetts v. EPA that the CAA authorizes the EPA to regulate GHGs, including carbon dioxide². It ruled that the EPA was required to determine if GHG emissions contribute to climate change. On December 18, 2008, the EPA issued a memorandum entitled "EPA's Interpretation of Regulations that Determine Pollutants Covered by Federal Prevention of Significant Deterioration (PSD) Permit Program." This was the EPA's first step to determine whether carbon dioxide is a regulated pollutant requiring a best available control technology in new PSD permits.

When President Barack Obama took office in January 2009, the EPA initiated the process to regulate GHGs. In April 2009, the EPA responded to the Supreme Court by issuing a proposed finding that GHGs threaten public health and contribute to global warming under Section 202(a) of the CAA. As a prerequisite to finalizing EPA's Corporate Average Fuel Economy (CAFÉ) standards for light duty vehicles, the EPA found in December 2009 that six GHGs endangered the public health and welfare and the emissions of these gases from new motor vehicles contribute to GHG pollution³. On March 29, 2010, the EPA signed a notice that it will continue to apply the December 2008 memorandum's interpretation of "subject to regulation." It finalized the regulation of GHG emissions from light duty vehicles on April 1, 2010. The CAA permitting program emissions thresholds for pollutants from stationary sources, e.g., factories, are 100 and 250 tons a year. However, GHGs are emitted in much higher volumes than other air pollutants so the threshold must be reduced by a tailoring rule. Otherwise, the level of permits in a state could increase from 20 to 2,000 due to GHGs. The EPA issued its final GHG tailoring rule on June 3, 2010 requiring GHGs be regulated under the CAA's PSD and Title V Operating Permit programs. State authorities had until August to notify the EPA whether they must make rule changes to implement the new regulations and when such changes would occur.

The Obama administration has been utilizing the EPA to regulate GHGs because they were unable to pass such legislation. The November 2010 election will affect U.S. energy policies, in particular cap and trade and the EPA regulation of greenhouse gases. Republicans gained over 60 seats in the House; the biggest shift since the Democrats lost 75 seats in the 1948 election. In a humbling November 3, 2010 news conference, the President stated both parties must unite and engage in an honest and civil debate about the issues⁴. The President's agenda is to reduce our deficit, provide clean energy initiatives, ensure our children have the best education in the world, and invest in technology that enables us to keep our competitive edge in the global economy. President Barack Obama faces a Republican held House that insists on cutting taxes and spending. The President and Congressional leadership must compromise to achieve any success on GHG legislation in the 112th Congress.

Legislative Branch

Congress faced regulation of GHGs in proposed cap and trade legislation during the past two years. This issue began gaining traction during the 2008 election cycle and was at its pinnacle prior to health care reform. On June 26, 2009, the House of Representatives passed the American Clean Energy and Security Act (H.R. 2454) to create jobs, increase energy independence, reduce pollution, and keep energy costs low⁵. Despite the success of cap and trade in the House, it continues to languish in the Senate. The first cap and trade bill, the Clean Energy Jobs and American Power Act of 2009 (S. 1733), was passed by the Senate Environment and Public Works Committee in November 2009 and placed on the Senate Legislative Calendar in February 2010. Next, Debbie Stabenow (D-MI) introduced the Clean Energy Partnerships Act of 2009 (S. 2729), which was referred to the Committee on Environmental and Public Works in November 2010. Eventually, a bipartisan effort began in October 2009 when Lindsay Graham (R-SC) and John Kerry (D-MA) announced their effort to pass climate change legislation in an opinion piece in The New York Times⁶. After Lindsay Graham (R-SC) dropped out in April 2010, John Kerry (D-MA) and Joe Lieberman (I-CT) drafted the most recent Senate counterpart, the American Power Act, that was released on May 12, 2010 and revised in July 2010⁷. Meanwhile, on December 9, 2010, Ted Poe (R-TX) introduced the Ensuring Affordable Energy Act (H.R. 6511), which has 25 original co-sponsors⁸. On the same day, the bill was referred to the House Committee on Energy and Commerce. The bill expressly denies appropriation of funds to the EPA to implement or enforce a cap and trade program. Democrats could not pass cap and trade legislation while controlling a majority of both the House and Senate. Therefore, the White House and Congress must compromise to ensure GHG regulations pass.

Due to Congress' lack of success, the White House faces bipartisan scrutiny of the EPA's GHG regulations. As stated above, the EPA's endangerment findings face fierce opposition in the legislative and judicial branches. In June 2010, Lisa Murkowski (R-AK) introduced a resolution that nullifies the endangerment finding rule that was defeated in the Senate 47-53. In addition, Jay Rockefeller (D-WV) introduced the Stationary Source Regulations Delay Act in March 2010 that would suspend regulations for two years⁹. And, as stated above, the Ensuring Affordable Energy Act expressly denies the appropriation of funds to the EPA to implement or enforce "any statutory or regulatory requirement pertaining to the emissions of one or more greenhouse gases from stationary sources." On December 28, 2010, Fred Upton (R-MI), chairman of the Houston Energy and Commerce Committee, stated Congress should overturn EPA's proposed GHG regulations outright or enter a bipartisan compromise to delay its regulations until the courts rule on the EPA's endangerment finding and proposed rules¹⁰.

The EPA is expanding the industries to include permits for the exploration and production of natural gas. In December 2010, it issued a rule requiring that facilities that inject carbon dioxide underground must report GHG data to the EPA annually¹¹. This measure directly affects all operators that use hydraulic fracturing to capture natural gas and service companies that provide goods or services for fracking. In particular, numerous separate companies would be required to disclose confidential data regarding all fluids used in the process of fracking a particular well. The Federal Trade Commission submitted a comment to the EPA warning that this rule would make public competitively sensitive business information¹². Congress must determine whether a federal regulatory agency may require corporations to produce confidential data, i.e., the Coca-Cola formula, which will be made public in an effort to protect the public.

Judicial Branch

The judicial branch granted the EPA its authority to regulate GHGs. As a result of the Bush administration's delay in implementing such regulations, 11 states, three environmental groups, and two cities sued the EPA over its failure to update the pollution standards for fossil fuel power plants and petroleum refineries¹³. These two industry sectors emit nearly 40 percent of the GHGs in the U.S.; primarily carbon dioxide and methane. Prior to the settlement, the EPA implemented the GHG permit program that requires businesses to consider the best available control technology for reducing GHG emissions when they build a new plant or modify an existing one. The regulations seek to curb GHGs from power plants and other large stationary sources; however, the petitioner sought stricter rules. Under the settlement agreements, the EPA will propose new standards for fossil fuel power plants by July 26, 2011, and for petroleum refineries in December 10, 2011, and will issue final regulations in May 26, 2012 and November 10, 2012, respectively¹⁴.

Several states and energy organizations have filed multiple suits against the EPA challenging the new rules claiming the underpinnings that GHGs threaten public health by warming the planet are based on faulty data. The remainder of the article will discuss Texas' suits, because it has the most legal arguments and most recently filed suits.

On June 30, 2010, the EPA announced its final disapproval of Texas' Flexible Permits Program and imposed the federal government's judgment on the state¹⁵. They claim that Texas industries were allowed to pollute at higher levels and the state had no way of determining if the flexible permit holders actually complied with authorized limits; therefore, the permits would not hold up in federal court. Texas claims the rules are overreaching by the federal government and will harm its economy. For example, Congress found under Section 101 of the CAA that air pollution prevention and control "is the primary responsibility of the States and local governments." Texas legal battles are an effort to hedge President Obama's pressing regulations after Congress failed to pass cap and trade.

Texas is the only state that refuses to comply with the rules that took effect on January 2, 2011. The EPA announced in December the takeover for companies seeking to build or upgrade power plants or oil refineries in Texas, once it refused to award permits at the level of pollution the EPA mandates. Texas filed a motion for stay of the regulations in the U.S. Court of Appeals for the Fifth Circuit; however, the appellate court denied its motion on December 29, 2010¹⁶. The Fifth Circuit stated in the ruling that it still has the EPA's motion for dismissal or, in the alternative, to transfer to the D.C. Circuit before the panel. The next day, the EPA issued an interim final rule to seize control of GHG permitting in Texas¹⁷.

Texas immediately filed suit in the D.C. Circuit on December 30, 2010, challenging the EPA's regulations of GHGs on a new legal issue: did the EPA abuse its administrative powers by taking control of the permitting program without proper public notice? On the same day, Texas filed its emergency motion for a stay pending review to block the EPA from taking over permitting on January 2, 2011, and the appellate court granted the emergency. After the appellate court had a sufficient opportunity to consider the merits of the emergency motion, it lifted the brief stay on January 12, 2011. The Court's denial to prevent the EPA from federalizing the regulation of GHGs in Texas does not affect its ability to continue its suit against the EPA.

Conclusion

The White House will continue to implement GHG regulations on various industries without legislation from Congress. The 112th Congress faces two huge obstacles: (1) a divided Congress, a Republican held House and a Democrat held Senate, and (2) the presidential election in November 2012. Congress must begin a transparent debate on this issue now because politicians will be busy debating campaign promises, not legislation, in 2012. The U.S. Court of Appeals has several cases on their docket that seek to determine Congress' intent in regulating the CAA and whether such emissions contribute to climate change. The White House, Congress, environmental groups, energy organizations, and energy industry must compromise to ensure that our energy industries operate and produce goods in a green manner.