EPA Regulation of Greenhouse Gases Industrial Energy Consumers of America November 16, 2009

1. EPA Regulation of Greenhouse GasesIndustrial Energy Consumers of AmericaNovember 16, 2009 PRESENTED BY Peter Glaser argaret Campbell Troutman Sanders LLP Troutman Sanders LLP 401 9th Street, NW 600 PeacMhtree Street, NESuite 1000 Suite 5200 Washington, DC 20004 Atlanta, GA 30308-2216 202.274.2950 404.885.3410 www.troutmansanders.com

2. Congress EPA Copenhagen in December Courts CURRENT STATE OF PLAY

3. Supreme CourtMassachusetts v. EPA DecisionApril 2007 Greenhouse gases are Clean Air Act “air pollutants” which EPA must regulate if it finds endangerment to public health or welfare Case was in the context of GHG emissions from new motor vehicles, but precedent applies to sources across the economy

4. Proposed April 2009 – now at OMB and will be finalized before Copenhagen Finds that elevated concentration of six GHGs in atmosphere endangering both public health and welfare because of climate change effects EPA Endangerment Finding

5. Who Will Be Regulated? • Autos first – Strengthened mpg standards proposed 9/15/09, to be finalized by 3/31/10 – manufacturers support, dealers, others may oppose – EPA says minimal cost – comments due 11/28 • Large industrial sources next, including powerplants, refineries, industrial boilers, etc. → PSD for GHGs when auto regs finalized → Series of NSPS rulemakings likely beginning next year for categories of stationary sources

6. WHO ELSE? Numerous petitions to EPA by enviros in queue to regulate mobile sources: heavy trucks, planes, locomotives, ships, mobile engines – timing uncertain, proposals likely next year

7. Statutory threshold for PSD is 250 tpy: 1.2 million new regulated sources (!) Statutory threshold for Title V is 100 tpy: 6.1 million new regulated sources (!!) PSD Conundrum: Will EPA Be Forced to Regulate Small Sources?

8. EPA has proposed “tailoring” rule to limit PSD/Title V to 25,000+ tpy CO2e sources so as not to gridlock permit system – legal issues BUT: 100/250 tpy thresholds will remain in effect under state law unless changed. So EPA has not solved the problem and this will affect both large and small sources Comments due 12/28 “Tailoring” Rule

9. Are GHGs already “regulated pollutants” even before EPA makes endangerment finding and regulates? EPA Administrator Johnson: No EPA Administrator Jackson: On further review, we agree “Johnson Memorandum” Reconsideration

10. CAN AND WILL EPA PROPOSE CAP-AND-TRADE? • ANPR explored possibility of cap-and-trade as Section 111 New Source Performance Standard • Questionable legal authority. Enviros challenged in CAMR • Because of legal and political issues, EPA not likely to do in short term

11. PSD Permitting Automatically becomes effective when EPA issues auto regs NSPS Rulemakings for source categories likely beginning next year LARGE STATIONARY SOURCE REGULATION

12. PSD Permitting • CAA requires permits for new and modified facilities for “regulated” pollutants. GHGs will become “regulated” pollutant when auto regs go into effect. At that time new “major” sources of GHG emissions and “major modifications” will require PSD permit. • Permits will require BACT (Best Available Control Technology) • What is BACT? Case-by-case balancing of environmental, economic and energy factors. Must be commercially feasible.

13. WHAT IS BACT? • Stack CO2 controls not commercially feasible at this time • Best guess: near-term, BACT will be improved thermal efficiency • Thermal efficiency standards will have little effect on new facilities; could require capital upgrades to improve operating efficiency at existing facilities but only if they modify • EPA Guidance Document?

14. LARGE INDUSTRIAL SOURCES CAN EXPECT SPECIAL ATTENTION • Enviros will want unrealistic efficiency improvements • Enviros may want CCS immediately - Two-phase controls? - 10% biomass co-firing? • Aggressive lbs CO2/MWh standard designed to force conversion to gas/renewables/CCS?

15. The Modification Conundrumfor EGUs and Other Large Industrial Facilities • Modified = physical or operational change to existing facility that significantly increases emissions • Tailoring rule sets CO2 significance level at 10,000-25,000. Can they do that? Even 25,000 not a lot for large source, but 250 tpy is nothing • Is there anything left of RMRR exemption to modification?

16. New Source Performance Standards • Similar to BACT: until CCS economically feasible, NSPS will be improvements in thermal efficiency • Key fact: Unlike BACT, ultimately NSPS will apply to new and existing facilities, whether or not existing facilities modify • But different process, timetable for new and existing-modified vs. existing-nonmodified

17. NSPS Timing • New and Existing-Modified: - Series of one-year EPA rulemakings. Powerplants first up, with proposals beginning next year - Requirements likely to apply immediately upon rulemaking becoming effective • Existing-Nonmodified: - Both EPA and States must adopt standards – will take several years start-to-finish - Likely several-year compliance period thereafter: For first source category targets (EGUs), likely 2014+ before sources must comply, with possible phased compliance

18. Tort Decisions • 4 lawsuits asserting claims for tort of global warming • All 4 dismissed by the courts, but 2 dismissals were reversed on appeal – 2d and 5th Circuits • 1 settled and the other will be appealed to 9th Circuit which will likely reverse • Rehearing and then cert petitions to Supreme Court • Effect on legislation?

19. GHG Regulation Is Not All EPA Has In Store for Industry, Particularly Power Sector • New standards for ozone, PM-2.5, SO2 and NOx; post-CAIR; MACT for HAPs; NSR enforcement • Companies must assess cumulative regulatory effects • Will weight of new regulation start leading to closures of older facilities?

20. GHG Comment Deadlines Coming Up Fast • 11/27 – Auto Rule • 12/7 – Johnson Memorandum • 12/28 – Tailoring Rule