Changes to GHG PSD and Title V Rules May Help Oil and Natural Gas Facilities Seeking to Expand



On June 23, 2014 the U.S. Supreme Court ruled that EPA lacks authority to require air quality permits from facilities based solely on their greenhouse gas (GHG) emissions. The ruling invalidates several key elements of EPA’s Prevention of Significant Deterioration (PSD) and Title V Tailoring Rule (“the Tailoring Rule”) that was issued following the 2007 landmark GHG U.S. Supreme Court case, Massachusetts v. EPA, which paved the way for regulation of carbon dioxide (CO2) and other GHGs as pollutants under the Clean Air Act (CAA). The Court ruled that EPA could not change the major source thresholds legislated in the Clean Air Act; EPA argued, when the Tailoring Rule was developed, that relying on major source thresholds as defined in the CAA would result in “absurd results” (and hundreds of thousands of permits) when considering GHG emissions given naturally occurring levels of GHG pollutants in the environment.

GHG photo 1

While the court disagreed with EPA’s authority in changing the major source threshold as it related to GHGs, the court upheld EPA’s authority to establish a PSD de minimus increase trigger for sources otherwise subject to PSD regulations. In other words, the Supreme Court ruling declared that EPA can regulate GHG emissions from sources already subject to PSD and Title V permitting requirements due to their emissions of conventional criteria pollutants, including requiring the installation of Best Available Control Technology (BACT) for all pollutants, including GHG.

As a next procedural step, the DC Circuit Court must implement the Supreme Court’s decision, effectively requiring EPA to rescind or withdraw the vacated portion of the rule. EPA has released one guidance memo (as of the printing of this article) to the permitting agencies on how to proceed in the interim: http://www.epa.gov/region6/6pd/air/pd-r/ghg/memo-jmccabe-andcgiles2regions-on-caa-permitting-post-uarg-case.pdf. The path forward for facilities with permits in the approval pipeline will depend primarily on whether they are an “anyway” source (i.e., already subject to PSD or Title V due to conventional criteria pollutants). Any sources not considered to be “anyway” sources (i.e., triggering PSD for non-GHG pollutants) could see drastic reductions in their permitting requirements resulting from this ruling.

Impact on Oil and Natural Gas Operators

GHG photo 2Many traditional industrial facilities do not trigger permitting for GHGs alone, so this decision may not be particularly impactful; but the oil and natural gas industry is different. Many oil and gas facilities are sources of methane – a GHG pollutant with 25 times more global warming potential than carbon dioxide. Furthermore, there are very few options to limit GHG emissions from combustion sources (such as those commonly used in the industry including heaters, reboilers, engines, etc.). Consequently, the oil and gas industry (particularly the midstream industry) was finding that planned expansions and new processing or boosting facilities were triggering the significant permitting requirements under PSD. Many companies took production restrictions or committed to more costly electric motor driven compressors to keep from triggering PSD or Title V permitting for GHG.

The consequences of the recent Supreme Court decision on industry members are quite positive.

Following additional procedural steps, sources will no longer be required to seek PSD or Title V permits if they trigger these programs on GHG alone. This is clear moving forward, however there are additional procedural steps that EPA must take to finalize this change. As a practical matter, EPA has released a statement indicating that they “… will no longer apply or enforce federal regulatory provisions or the EPA approved PSD State Implementation Plan (SIP) provisions that require a stationary source to obtain a PSD permit if GHG are the only pollutant that 1) the source emits or has the potential to emit above PSD major source thresholds, and 2) for which there is a significant emissions increase and a significant net emissions increase from a modification.”1

Sources that currently have pending PSD and/or Title V applications will need to reach out to their state agency for next steps. EPA “does not intend to continue processing PSD or Title V permit applications for ‘Step 2’ sources or require new applications for such permits in cases where EPA is the permitting authority.”2 However, each state is likely still working through the administrative requirements and may not have yet made a clear decision on a path forward relating to current pending applications. Reach out to your local regulatory authority to ensure you receive updates or notices regarding any developments in this regard.

Sources that have been issued PSD and Title V permits that triggered these permitting requirements based on emissions other than GHG must still apply Best Available Control Technology (BACT). While the scope of the GHG permitting rule is limited, it is important to remember that the Supreme Court decision did not remove EPA’s authority to regulate GHGs altogether. Sources triggering permitting under PSD and Title V for non-GHGs will likely still face some kind of requirements relating to the reduction of GHGs through BACT.

Sources operating under PSD and Title V permits that were issued based on GHG emissions alone must reach out to their local regulatory authority to determine a course of action. When rules were modified to accommodate GHG emissions under PSD and Title V (also known as the GHG Tailoring Rule), states adopted the rules differently. Exactly how each state opted to adopt the GHG Tailoring Rule may impact whether or not the future vacature of the requirement to seek PSD and Title V permits for GHG alone will result in automatic permit and/or condition cancellation. Some states may have incorporated the rule by reference to the Code of Federal Regulations (CFR) – if and when the rules are removed, the provisions of those permits may no longer apply. However, some states may have adopted the Tailoring Rule into their SIP by simply pasting the federal rule into their own regulation – in order to remove requirements under those programs, additional steps by local permitting authorities may be required.

Conclusion

Oil and natural gas facilities in rapidly expanding areas may have been considering significant capital expenditure or throughput limits in order to avoid PSD and/or Title V permitting and ensure the fastest permit path possible. Seeking a PSD permit is an extremely lengthy process – one that can easily take 18 months to over 2 years. With this action by the Supreme Court, an oil and gas facility may be able to achieve expansion without requiring significant limitations or other expenses that otherwise would have kept the facility “minor” for purposes of PSD. Oil and gas companies may have also taken production limitations or committed to more costly installations like electric motor driven compressors. This ruling may provide companies an opportunity to request modifications to existing permits to allow higher production or the use of natural gas fired engines to drive compressors.

 

1 Memorandum, from Janet G. McCabe (US EPA, Acting Assistant Administrator, Office of Air and Radiation) to Regional Administrators, Regions 1-10; July 24, 2014
2 Memorandum, from Janet G. McCabe (US EPA, Acting Assistant Administrator, Office of Air and Radiation) to Regional Administrators, Regions 1-10; July 24, 2014