Regulation of Greenhouse Gases: Expanding PSD to Include GHGs Troutman Sanders LLP/Trinity Consultants July 20, 2010

1. Regulation of Greenhouse Gases:Expanding PSD to Include GHGsTroutman Sanders LLP/Trinity ConsultantsJuly 20, 2010 PRESENTED BY Margaret Claiborne Campbell Charles S. Carter Troutman Sanders LLP Troutman Sanders LLP 600 Peachtree St. NE, Ste. 5200 434 Fayetteville St. Atlanta, GA 30308 Raleigh, NC 27601 (404) 885-3000 (919) 835-4100 www.troutmansanders.com

2. Tailoring Rule Recap:PSD & Title V Purpose: limit the number of sources subject to PSD / Title V by increasing statutory applicability thresholds Phased Approach: • Jan. 2, 2011 – “anyway sources” • July 1, 2011 – GHG-only sources • July 1, 2013? – lower thresholds • Apr. 2016 Rule – smaller sources? Legal Justification • Avoid “absurd results” • “Administrative necessity” • One-step-at-a-time doctrine

3. Overview • PSD Applicability • Timing Issues • Substantive PSD Requirements: BACT

4. PSD Applicability(TheBasics) • Preconstruction permitting program • New “major sources” of regulated air pollutants • Sources that emit or have potential to emit > 100 / 250 tpy • Existing major sources undertaking a “major modification” • Physical or operational change that results in a significant net emissions increase of a regulated pollutant(and not otherwise subject to an exclusion) • EPA-defined “significance thresholds”

5. “GHG” as a PSD-Regulated Pollutant Six compounds regulated as a single regulated pollutant known as “GHGs:” • Carbon dioxide (CO2) • Methane (CH4) • Nitrous oxide (N2O) • Hydrofluorocarbons (HFCs) • Perfluorocarbons (PFCs) • Sulfur hexafluoride (SF6)

6. PSD Applicability: GHGs • Emissions of all six GHGs are summed on a mass basis and CO2 equivalent (CO2e) basis and compared against the applicable thresholds. • Mass thresholds (statutory) • Major source – 100/250 tpy • Modifications – 0 tpy • CO2e thresholds (Tailoring Rule) • Major source – 100,000 tpy • “Modifications” – 75,000 tpy

7. Timing Issues • 2010 – January 1, 2011 • Keep GHGs / efficiency in mind in setting BACT for traditional pollutants (Johnson II April 2, 2010) • Phase-in for GHG regulation beginning January 2, 2011

8. Phase-In for PSDStep 1: “Anyway Sources” January 2, 2011 – June 30, 2011 • PSD for GHG only applies to sources that would have to get a PSD permit anyway for traditionally regulated pollutants. (i.e., no PSD permitting due solely to GHGs) • Threshold: GHG emissions > 75,000 tpy CO2e

9. Phase-In for PSDStep 2: GHG-Only Sources July 1, 2011 – June 30, 2013 • Sources that are major for GHG only will become subject to PSD (“major” = 100k tpy; “mod” = 75k) • EPA expects over 900 more PSD permits each year that are not already subject to permitting • Mostly major modifications of existing sources already • EPA estimates cost of an application for the average industrial source at $84,500 (866 hours) • Could require a 42% increase in permitting resources

10. Phase-In for PSDStep 3: GHG-Only Sources • EPA is making a “binding commitment” to undertake another rulemaking to reduce the applicability threshold (50,000 tpy) • Rulemaking Schedule • Proposal: 2011 • Final: 2012 • Effective 2013

11. Transition Provisions • Proposed Tailoring Rule did not address transition policy. • Johnson Memorandum (April 2, 2009): no need for transition policy. • 1/2/11 is 9 months away • Have time to get required PSD permits • Only addressed in response to comments in final Tailoring Rule

12. Transition Provisions:Little or No Grandfathering GHG PSD requirements will not apply to: • Step 1 (“anyway”) sources with final PSD permits before January 2, 2011 • Not required to begin construction prior to 1/2/11 • Step 2 (GHG only) sources that “begin actual construction” prior to July 1, 2011. • State minor NSR construction permits alone are not enough • “Commence construction” (a binding contract) is not enough • Departure from past EPA practice

13. Transition Provisions:Little or No Grandfathering “Begin Actual Construction” • Regulations provide no one may “begin actual construction” of a PSD major source or modification without a PSD permit. 40 CFR 52.21(a)(2)(iii). • Regulations define it to mean initiation of permanent physical on-site construction including, but not limited to, installation of building supports, foundations, underground pipe work, and permanent storage structures. 40 CFR 52.21(b)(11)

14. Transition Provisions:Implications & Options • Expedite pending PSD applications / permits • Obtain a PSD avoidance permit limiting increases below the thresholds • Expedite construction • Seek relief: “nothing in this rule forecloses our ability to further address [unanticipated] impacts as necessary by adopting rule changes or using other available tools” 75 Fed. Reg. at 31,594

15. PSD Permit Applications for GHGs If you must obtain a PSD permit: • Best Available Control Technology (BACT) • Air Quality Analysis • No NAAQS / increments for GHGs • Additional Impacts Analysis • Growth, soils and vegetation, visibility • Class I area Impacts • No increments • Air Quality Related Values

16. What Is BACT? Under the PSD program, state of the art control technology is applied to affected emission sources BACT is based on “the maximum degree of reduction of each pollutant subject to regulation . . . on a case by case basis, taking into account energy, environmental, and economic impacts and other costs, achievable for such facility . . .” CAA Section 169(3).

17. How Is BACT Selected? • Once the affected source(s) are defined in the permit application, the RACT/BACT/LAER Clearinghouse (RBLC) is consulted • The RBLC data base contains source-specific “information on Best Available air pollution technologies that have been required to reduce the emission of air pollutants from stationary sources (e.g., power plants, steel mills, chemical plants, etc.). This information has been provided by State and local permitting agencies.” • But the RBLC data base is for traditionally regulated pollutants, not GHGS

18. What Is GHG BACT? • Since the RBLC data base does not include GHGs, EPA has had to start from scratch create a new approach and data base for GHG BACT • October 2009 – EPA Clean Air Act Advisory Committee recommends creation of a GHG BACT workgroup • EPA establishes workgroup with representatives from State & local agencies, industry & agency staff

19. GHG BACT Workgroup Workgroup began project in fall of 2009 Key issues – • Defining the “source” • Traditionally the source has been defined by the application, with BACT then based on controls applied to similar sources • With the goal of reducing GHG emissions to the greatest extent, a broader approach to define the source in terms of the intended purpose in order to consider alternate means of production that emit fewer GHGs • And should other sources not being modified at a facility also be included

20. GHG BACT Workgroup (cont.) • Alternate approaches could include consideration of energy efficiency, use of renewables, requiring use of combined heat and power or demand-side management • Technically feasible – Is carbon capture & sequestration (CCS) demonstrated to be commercially achievable?

21. GHG BACT Results Workgroup output – • Industrial sector by sector technical guidance on BACT, e.g., portland cement, EGU categories EPA to issue broader policy guidance – • Expected by year end, including definition of source, availability of technologies • Not expected to issue for comment, only to receive stakeholder input