EPA Regulation of Greenhouse Gases September 30, 2009

1. EPA Regulation of Greenhouse GasesSeptember 30, 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 Determined Administration 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 – will be finalized within weeks or months Finds that elevated concentration of six GHGs in atmosphere endangering both public health and welfare because of climate change effects Once endangerment finding final, EPA must regulate. And not just autos. Precedent will apply across economy 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 • 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 • And don’t forget agriculture

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

8. EPA recognizes that application of PSD and Title V to small sources would gridlock permit system Will shortly be proposing “tailoring” rules to limit PSD/Title V to 25,000+ tpy sources Significant legal issues. Will anyone sue? “Tailoring” Rules?

9. “Johnson Memorandum” Reconsideration • Are GHGs already “regulated pollutants” even before EPA makes endangerment finding and regulates? • EPA Administrator Johnson: No • EPA Administrator Jackson: We will reconsider • When EPA actually regulates auto GHGs next year, this issue will become moot except for certain sources already in PSD process

10. NIGHTMARE SCENARIO:GHG NAAQS Under CAA, EPA must promulgate NAAQS for pollutants that are emitted by “numerous or diverse mobile or stationary sources” Endangerment Finding says danger to both public health and welfare at current GHG concentrations – meaning if there is a NAAQS, it must be set at level that would make entire country nonattainment area for primary GHG/CO2 NAAQS In ANPR comments, enviros took position EPA must set a GHG NAAQS – 2d Cir. precedent seems to confirm

11. 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

12. PSD Permitting Automatically becomes effective when EPA issues auto regs Applies to new and modified sources NSPS Rulemakings for source categories likely beginning next year - Applies to new and modified sources and, on a different timeline and process, to existing, unmodified sources LARGE STATIONARY SOURCE REGULATION

13. PSD Permitting • CAA requires permits for new and modified facilities for “regulated” pollutants. GHGs will become “regulated” pollutant when auto regs finalized. 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.

14. 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?

15. EGUS AND SOME OTHER LARGE INDUSTRIAL SOURCES CAN EXPECT SPECIAL ATTENTION • Enviros will want unrealistic efficiency improvements • Enviros may want CCS immediately (USCAP says commercially feasible by 2015) - Two-phase controls? - 10% biomass co-firing? • - Aggressive lbs CO2/MWh standard designed to force conversion to gas/renewables/CCS? • Friday’s EAB Desert Rock decision: IGCC must be considered in BACT step one as alternative to new conventional coal plant, at least for projects on federal lands and in 7 delegated states – contrary authority in two non-delegated states

16. The Modification Conundrumfor EGUs and Other Large Industrial Facilities • Modified = physical or operational change to existing facility that significantly increases emissions • Will tailoring rules set CO2 significance level at 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?

17. 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

18. NSPS Timing • New and Existing-Modified: - Series of one-year EPA rulemakings. Powerplants first up, with proposals beginning as early as end of this year/beginning next - 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

19. THOUGHTS FOR FUTURE It’s Time For Your Company To Get Ready For This • You cannot count on Congress baling you out with a more rational program • Companies must immediately begin assessing: (a) what the standards are likely to be; (b) when they are likely to be promulgated; (c) what the compliance times are likely to be; (d) how they will affect your company specifically; and (e) what your compliance scenarios are likely to be • Management will need to have this thought through in advance

20. THOUGHTS FOR FUTURE GHG Regulation Is Not All EPA Has In Store for Industry, Particularly Power Sector • New ozone and PM-2.5 standards; post-CAIR; mercury MACT; NSR enforcement • Companies must assess cumulative regulatory effects • Will weight of new regulation start leading to older coal plant closures?

21. THOUGHTS FOR FUTURE It’s Time For Your Industry To Get Ready For This • NSPS rulemakings are supposed to be as broad as an EIS in scope • Has your industry thought through all of the relevant information that should be placed in record, and lead-time to prepare that information? • Has your industry thought through political support? • The more that goes into the record – and the more support for your position you get - the longer the proceeding will take, the more likely you will get a good result and the more likely you can overturn the reg in court if you get a bad result

22. THOUGHTS FOR FUTURE The Congressional And EPA Debates Are Interrelated And Must Be Approached As Such • It ain’t over in Congress, even for this year • Legislation is still preferable to EPA regulation under current CAA by a mile, but not any legislation • Limited preemptive effect of Waxman-Markey

23. THOUGHTS FOR FUTURE There Is Going To Be Litigation, But Must Win To Affect Timing of Process • Current and likely litigation: (a) CA waiver; (b) endangerment finding; (c) “tailoring” rules; (d) NSPS • Very hard to get stay: litigation does not delay the process unless you win • Still, just threat of credible litigation keeps agency honest

24. THOUGHTS FOR FUTURE Cascading Effect Of CAA Regulation On Small Sources Is A Problem For EPA • PSD for small sources; NAAQS; Title V and Title V permit fees • Enviros may be their own worst enemies in trying to force this type of regulation • Possibility of small source regulation remains a tool in toolbox to moderate regulations

25. THOUGHTS FOR FUTURE 2d Circuit Nuisance Decision Is a Problem • GHG emitters can be held liable for tort of global warming • Further appeals likely, plus pending 5th Circuit decision • Potential impact on legislative debate

26. GHG REGULATION: HOW MUCH PAIN?