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Supreme Court Tells Industry That Annual Emission Levels, Not Hourly Ones, Will Trigger PSD Regulatory Controls

On that same day the Supreme Court issued its landmark decision in Massachusetts v. EPA, the Court also issued another important Clean Air Act (CAA) case, Environmental Defense v. Duke Energy Corp. The 9-0 opinion holds that the CAA standard for triggering prevention of significant deterioration (PSD) permit requirements is modification of a facility with a potential increase in annual levels of air emissions. Before this ruling, electric power companies and others argued that PSD requirements were only triggered if a modification could increase hourly air emissions. The effect of this change will be to impose PSD and New Source Review analysis on many more industrial facility expansions, and potentially subject these modified plants to rigorous emission controls. The United States Supreme Court’s unanimous decision in Environmental Defense v. Duke Energy, slip op., No. 05-848, 549 U.S. –- (April 2, 2007), reversed a Fourth Circuit opinion which had held that the definition of “modification” under the Clean Air Act’s (CAA) prevention of significant deterioration (PSD) regulations must be the same as regulations issued under the Act’s New Source Performance Standards (NSPS). Under EPA’s NSPS regulations, a “modification” occurs only if there is a change resulting in an hourly increase in emissions accompanied by an annual significant increase in emissions. In the PSD regulations, a “modification” occurs with an annual significant increase in emissions – no increase in hourly emissions is required. As expressed by the Court: It would be bold to try to synthesize these statutory and regulatory provisions in a concise paragraph, but three points are relatively clear about the regime that covers this case: (a) The Act defines modification of a stationary source of a pollutant as a physical change to it, or a change in the method of its operation, that increases the amount of a pollutant discharged or emits a new one. (b) EPA’s NSPS regulations require a source to use the best available pollution-limiting technology only when a modification would increase the rate of discharge of pollutants measured in kilograms per hour. (c) EPA’s 1980 PSD regulations require a permit for a modification (with the same statutory definition) only when it is a major one and only when it would increase the actual annual emission of a pollutant above the actual average for the two prior years. 549 U.S. at * 4-5. The Court found that the Fourth Circuit’s common interpretation of the NSPS and PSD regulatory definitions of “modification” would invalidate the PSD regulations, which first were enacted in 1980. Because the Clean Air Act limits judicial review of the validity of promulgated regulations on a time and forum basis (petitions must be filed in the D.C. Court of Appeals within 60 days of the final rulemaking), any invalidation of the PSD regulations is time-barred and cannot be used in defense of an enforcement action. See CAA Section 307(b), 42 U.S.C. §7607(b). This is a significant decision to plants or facilities subject to Clean Air Act regulation. If a CAA major source performs a modification that does not increase hourly emissions, it may nonetheless trigger PSD regulatory requirements and Best Available Technology (BACT) if that modification would result in a significant increase in annual emissions. An annual “significant increase” will vary by type of pollutant, but as an example, for nitrous oxides (NOx) and sulfur dioxide (SO2), a significant increase is forty tons per year (TPY). If a project does not fit within the statutory exceptions to PSD review such as routine maintenance, repair, and replacement – itself controversial and subject to interpretation – a project could trigger PSD and installation of BACT, if, for example, it allows the unit to operate with fewer outages per year or at a higher sustained capacity annually, resulting in an annual “significant increase” in emissions. The impact of this decision will require closer scrutiny of each project that in any way alters an air emissions source to determine prospectively whether the project will result in a significant increase in annual emissions of certain pollutants, and if so, whether that project falls within any potential exemption from PSD.