February 2, 2017
The Congressional Research Service (CRS) issued a report on January 24, 2017 analyzing how the 115th Congress and new administration may impact key Obama-era Clean Air Act (CAA) rules. The report’s primary conclusion is that the courts, not Congress or the Environmental Protection Agency (EPA), will be the primary venue for challenges to these rules. Whether this proves true, the report’s secondary conclusion—that the CAA’s regulatory structure faces an “unusual degree of uncertainty in 2017”—may be more relevant. Many companies are struggling to discern how this sudden uncertainty may impact their businesses. This legal alert highlights some of the CAA rules addressed in the CRS report and discusses potential outcomes and implications for affected industries. Our attorneys are following these developments and are available to discuss their impacts on your business.
Oil and Gas Air Rules
EPA finalized updates and amendments to the 2012 New Source Performance Standards (NSPS) known as “Quad Oa” on June 3, 2016. Thus, Quad Oa is immune from repeal under the Congressional Review Act (CRA), which applies only to rules promulgated after June 13, 2016. Nonetheless, there are two remaining avenues to challenge Quad Oa—administrative and judicial. With respect to the latter, both the 2012 and 2016 NSPS rules are the subject of pending litigation before the D.C. Circuit (in full disclosure, DGS represents a client in this challenge). The court granted an extension for the filing of briefing schedules and format until March 20, 2017 to allow the new administration to assess its litigation strategy. It is premature to speculate about the outcome of this litigation. If it does move forward, however, the case is unlikely to be fully briefed until later this spring with a decision unlikely before later in 2017.
This leaves administrative relief. The Trump EPA may attempt to revise the NSPS rules either through notice and comment rulemaking under the Administrative Procedure Act (APA) or through the unique “administrative reconsideration” mechanism under Section 307(d)(7)(B) of the CAA. The lengthy notice and comment rulemaking process would extend well beyond the 115th Congress and likely prompt further litigation at its conclusion. This is the most obvious path, however, for effecting widespread, structural changes to the rules, such as addressing the nature and scope of EPA’s authority to issue NSPS standards for the oil and gas industry. Administrative reconsideration would likely take less time, but it poses its own challenges, including the fact the reconsideration process for the 2012 NSPS has already concluded leaving only Quad Oa subject to this option. Further, EPA is arguably more constrained in how it can change Quad Oa through administrative reconsideration—a process most often used to fix a rule’s technical implementation. Thus, looking forward, we are unlikely to see substantive changes to the oil and gas NSPS before late 2017. In the meantime, the rules are effective, and companies must comply.
The BLM venting and flaring rule poses a different set of uncertainties (in full disclosure, DGS represents clients in this challenge as well). A federal court in Wyoming denied industry’s and the states’ motions for a preliminary injunction on January 16, 2017, and the rule took effect the following day. Although BLM phased in major portions of the rule (e.g., leak detection and repair and the flaring limits), other important portions of the rule (e.g., royalty provisions) are in effect. If the litigation proceeds, the case will be fully briefed by mid- to late-April, and a decision could come soon after. As with EPA in the NSPS litigation in the D.C. Circuit, it is possible that the Trump Administration’s BLM takes a different posture in the litigation. And it is similarly unclear how such a change would affect the litigation—especially given the numerous environmental groups party to the case.
The possible rescission through the CRA casts a long shadow over this rule, irrespective of the litigation. The venting and flaring rule has been discussed as one of the top priorities for CRA consideration. At the time of this legal alert, both chambers of Congress have introduced disapproval resolutions to repeal the rule, and the House of Representatives is likely to vote on its resolution later this week. While the timing of a Senate vote is less certain, it must occur within 60 legislative days of the start of the 115th Congress. One wrinkle is that a rule successfully repealed through the CRA may not be reissued in “substantially the same form” except under authority of a newly enacted law. The definition of “substantially similar” has never been tested. This begs the question whether full rescission of the venting and flaring rule would allow BLM to adopt a more limited fix to venting and flaring rules (i.e., NTL-4A) absent authorization from a new law. Accordingly, repeal of the rule through the CRA is not without risk for the oil and gas industry.
The Trump Administration has also discussed repealing the 2015 ozone standard, which was finalized in October 2015. Doing so would require full APA notice and comment rulemaking, and the lengthy process would almost certainly culminate in litigation. The consequences of doing so could be drastic. For example, places like the Denver Metropolitan Area, North Front Range 8-hour ozone non-attainment area have been designated “moderate” non-attainment under the previous, less stringent 2008 standard (75 ppb). If the 2015 standard is repealed, Colorado’s Front Range and other areas could be bumped up to “serious” non-attainment status under the 2008 standard, causing significant new provisions of the CAA to kick in. This would include the major source threshold for volatile organic compounds (VOCs) and nitrogen oxides (NOx) moving from 100 tons per year (tpy) to 50 tpy. Should this occur, hundreds of additional facilities could fall into major source status, posing widespread economic burdens for area businesses, potentially slowing future development, and placing an extreme permitting burden on the state regulatory agency.
Adding to the complexity surrounding ozone are the two different standards–2008 and 2015. In its 2015 ozone standard implementation proposal, EPA offered two options for reconciliation: (1) retain the 2008 standard in all non-attainment areas until each area meets the 75 ppb standard; or (2) revoke the 2008 standard subject to anti-backsliding criteria, leaving only the 2015 standard in place. Each comes with its own set of pros and cons. The comment period for the 2015 ozone standard implementation proposal has been extended until February 13, 2017, and businesses and industry trade associations should carefully weigh in given the high stakes for future business development in certain areas of the country.
Clean Power Plan
The marquee greenhouse gas (GHG) rule from the Obama Administration was the Clean Power Plan (CPP). Finalized in August 2015, the rule is currently stayed pending completion of judicial review. The D.C. Circuit heard oral argument on the rule in September 2016 and could issue a decision at any time. Following the change in presidential administration, however, industry groups and the states petitioned for further judicial review of EPA’s denial of administrative reconsideration. This could ultimately delay a decision from the D.C. Circuit should the court require additional argument. Such delay could have broader consequences for the fate of the CPP given the change in personnel at EPA and the Department of Justice. However, as the CRS report notes, there is general agreement that whatever the decision from the D.C. Circuit, it will be appealed to the U.S. Supreme Court. In the meantime, the new EPA may amend the CPP through notice and comment rulemaking. Given the significance of this rule, whatever course EPA takes will undoubtedly be challenged in court. Thus, resolution on the CPP is unlikely any time soon. One fascinating aspect of the CPP, which also carries implications for the NSPS rules and BLM venting and flaring, is the use of the social cost of carbon and the social cost of methane to justify the costs of GHG rules. If the new administration takes a different economic approach, including abandoning social cost considerations all together, the agencies may have difficulty justifying these or similar GHG rules from a cost-benefit standpoint.
Other issues that did not make the CRS list include questions about what the new administration will do with the Obama Administration’s Climate Action Plan and Methane Strategy, whether it will target the GHG endangerment finding, and how the new EPA will interface with state regulatory bodies in terms of State Implementation Plan (SIP) review and enforcement strategy. Needless to say, all of these issues are creating unprecedented regulatory uncertainty with respect to the CAA and the associated rules for numerous business sectors. This ambiguity affects day-to-day operations as well as risk calculus and planning over the long term. For example, unlike the past several years, now may be a good time to take advantage of state and federal audit policy and voluntary disclosure programs to bring facilities and assets into compliance.
The authors have significant expertise in air quality regulation and frequently assist clients in planning for risks—both short- and long-term—posed by air quality rules and regulations. Please contact us if you have any questions about this alert.