INSIGHT: US hurtles toward 2011 regulatory train wreck

19 August 2010 16:39  [Source: ICIS news]

US headed for train wreck with GHG regulationsBy Joe Kamalick

WASHINGTON (ICIS)--The Environmental Protection Agency (EPA) is racing at full throttle toward a regulatory train wreck in January when its plans to limit US industrial greenhouse gases will collide with reality.

It is a looming catastrophe that could derail new US manufacturing, electric power and energy development - and apparently there is no way to avoid it.

Last week the Obama administration warned that new construction of or major modifications to US power plants, refineries and other industrial facilities could be blocked beginning 2 January 2011 because of EPA’s greenhouse gas policy.

To avoid that unhappy consequence, the agency proposed two urgent rules.

The first proposed rule would require state governments to quickly update their inspection and permitting plans to meet the 2 January start date for the EPA’s policy limiting greenhouse gas (GHG) emissions from major facilities.

In the second offered rule, the agency proposes to take over the emissions permitting responsibilities of state governments in January for states that are unable to update their environmental regulations by that time.

The EPA said that unless the two rules were made final before the end of this year, electric utilities, refineries and other major industrial facilities would not be able to proceed with plans to build new capacity or expand existing plants.

The agency said that its two-rule proposal was needed to ensure implementation of its December 2009 “endangerment finding”.

In that controversial ruling, EPA said it has authority under the 1970 Clean Air Act (CAA) to regulate emissions of carbon dioxide (CO2) and other gases as "pollutants" because they cause global warming and threaten the nation’s environment and human health.

In a related decision in May this year, the EPA issued its so-called tailoring rule, limiting the application of its greenhouse gases endangerment finding to only large facilities such as power plants, refineries, chemical facilities and other manufacturing sites that generate 25,000 tonnes or more of greenhouse gases annually.

Strictly speaking, the Clean Air Act provides that EPA regulate any facilities that emit covered pollutants in anything more than 250 tonnes annually.

If the EPA’s greenhouse gases authority in its endangerment finding was held to the 250-tonnes standard, the agency would be obliged to regulate carbon dioxide (CO2) emissions from millions of locations - office buildings, commercial sites, schools, hospitals, shopping malls, restaurants, almost any facility that uses more energy than a hot dog stand.

Faced with that impossible task, EPA decided to raise the jurisdictional threshold of the Clean Air Act from 250 tonnes to 25,000 tonnes - the tailoring rule - in order to limit its regulation of greenhouse gases to only major facilities, some 14,000 sites by EPA's estimate.

But it is state governments that have responsibility under the national Clean Air Act for issuing permits to businesses seeking to build or expand facilities, once their plans have been shown to meet the federal law’s provisions for environmental protection.

However, most state laws or regulations enacted pursuant to the Clean Air Act - known as state implementation plans (SIPs) - apparently do not cover carbon dioxide and other greenhouse gases.

As a result, the agency said, in most states “neither EPA nor the state currently has authority to issue ... a permit to sources of GHG emissions”.

That’s why EPA, in its first proposed rule of last week, would require 13 states to revise their statutes, regulations and implementation plans to cover greenhouse gases. 

The emissions rules of those 13 states are known to lack statutory authority to regulate greenhouse gases.

Apparently the legal authority of the remaining 37 states to regulate greenhouse gases is uncertain, so under the first proposed rule they would be required to determine whether their emissions regulations can be applied to greenhouse gases and inform EPA of the result.

The agency conceded that many states might not be able to amend their own statutes and regulations in time to meet the 2 January 2011 deadline for regulating greenhouse gases.

“EPA, states and the regulated community recognise that there may be circumstances in which states are unable to develop and submit those SIP revisions by 2 January 2011 or for some period of time beyond that date,” the agency said.

Consequently, EPA’s second proposed rule would have the agency take over, on 2 January, the states’ function in issuing emissions permits in any state that cannot revise its regulations by that time.

“These proposed rules illustrate how unworkable the Clean Air Act is to regulate greenhouse gases,” said Howard Feldman, director of regulatory and scientific affairs at the American Petroleum Institute (API).

No one knows for sure what’s going to happen come January, Feldman said.

Even assuming that EPA rushes through rubber-stamp approval of its two proposed permitting rules before year end, the system could well grind to a halt.

As EPA has itself acknowledged, the states are not likely to be ready to begin doing permit inspections as soon as January, and perhaps not for months or even years later.

So if the responsibility for issuing new construction or major improvement permits in the 50 states suddenly shifts to EPA, what happens?

Gridlock.

“That’s the big question,” said Feldman.  “Everyone is wondering if EPA has enough staff to take over permitting from the states.”

“EPA is saying that because of its tailoring rule there won’t be that many permits to handle, but who knows?” Feldman said.

In addition, both EPA’s endangerment finding and the tailoring rule are being challenged in multiple federal lawsuits by state governments, trade associations and even environmental groups.

Those lawsuits are grinding on and could take years to resolve, but there is a chance that a court might soon issue an injunction against EPA’s tailoring rule.

“If the tailoring rule gets struck down, then a whole lot of [emitting] sources would fall under the EPA’s greenhouse gases regulation,” Feldman noted.

That is, everything except the hot dog stands.

Feldman worries that in addition to a logjam of permit applications that EPA lacks staff to handle, the regulatory uncertainty will chill financing for new projects or major plant modifications even before they get to the permitting stage.

“In drilling and refining, we see where this could have a chilling effect on expansions that are supposed to be going forward now,” he said.

Among other things, US refiners are under separate federal directives to cut the benzene content in gasolines by 50% by the new year.  Feldman said that meeting that goal - which would require major plant changes for some refiners - could be delayed by the EPA’s greenhouse gases permitting process.

Feldman also said that a slowdown in US industrial facility construction or modifications - or financing for them - might be taking place now.  That is because the EPA’s endangerment ruling and greenhouse gases regulation do not grandfather permit applications that are now in preparation or pending before state agencies.

“In effect, the EPA’s greenhouse gases rule is in force now, because it will apply to permits now pending that would be issued or approved after the first of the year,” he said, “but those pending applications don’t reflect EPA’s greenhouse gas control requirements.”

The train wreck might already be happening.

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Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy


By: Joe Kamalick
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