# United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 8, 2013 Decided July 12, 2013

No. 11

- 1101

C ENTER FOR B IOLOGICAL D IVERSITY , ET AL ., P ETITIONERS

v.

E NVIRONMENTAL P ROTECTION A GENCY AND L ISA P EREZ J ACKSON , R ESPONDENTS

A MERICAN F OREST & P APER A SSOCIATION , I NC ., ET AL ., I NTERVENORS

Consolidated with 11

- 1285, 11

- 1328, 11

- 1336

On Petitions for Review of Administrative Action of the Environmental Protection Agency

Ann Brew ster Weeks argued the cause for petitioners. With her on the briefs were Lisa J. Zak

, Frank Rambo

, Morgan Butler

, Kevin P. Bundy

, Vera P. Pardee

, Brendan R. Cummings

, David D. Doniger

, Meleah A. Geertsma , and Nathaniel S.W. Lawrence

. Jonathan F. Lewis entered an
appearance. USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 1 of 432
Perry M. Rosen , Attorney , U.S. Department of Justice,
arg ued the cause for respondents. With him on the brief was Scott Jordan , Attorney, U.S. Environmental Protection Agency.

Roger R. Martella Jr. argued the cause for respondent

intervenors. With him on the brief were Timothy K. Webster

, Lisa E. Jones
, Joel F. Visser

, Charles H. Knauss

, Shannon S. Broome
, Norman W. Fichthorn , and Allison D. Wood

. William R. Murray Jr. entered an appearance.

D. Cameron Prell

, Neal Cabral , and Lisa Sharp were on the brief for amicus curiae Nati onal Association of Clean Water Agencies in support of respondents.

Before: H ENDERSON , T ATEL , and K AVANAUGH , Circuit Judges

. Opinion for the Court filed by Circuit Judge T ATEL

. Concurring opinion filed by Circuit Judge K AVANAUGH

. Dissenting opinion fil ed by Circuit Judge H ENDERSON

.

T ATEL , Circuit Judge : As part of its ongoing effort to limit the emission of greenhouse gases, the Environmental Protection Agency issued a rule deferring regulation of

“ biogenic ” carbon dioxide

— non

- fossil

- fuel carbon dioxid e sources such as ethanol

— for three years

. Citing scientific uncertainty over how to account for biogenic carbon dioxide’s unique role in the carbon cycle, EPA justified this “Deferral Rule” on the basis of the de minimis , one

- step

- at

- a

- time, and administr ative necessity doctrines. Several environmental
groups now petition for review , arguing that EPA’s USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 2 of 433
invocation of these doctrines was arbitrary and capricious. For the reasons set forth below, we vacate the Deferral R ule

.

I.

Under the Clean Air Act

, if EPA det ermines that an “air pollutant . . . may reasonably be anticipated to endanger public health or welfare,” 42 U.S.C. § 7521(a)(1), it must regulate that air pollutant under the Prevention of Significant Deterioration of Air Quality (PSD) and Title V per mitting
programs. See Coalition for Responsible Regulation, Inc. v. EPA , 684 F.3d 102, 1 32

– 44 (D.C. Cir. 2012) (per curiam). T he PSD program , which applies to areas of the country that are classified as in “attainment” or “unclassifiable” for any national ambi ent air quality standard , 42 U.S.C. §§ 7407(d)(1)(A), 7471

, requires certain specified “major emitting facilit[ies]

, ” such as iron and steel mills, to obtain
state

- issued construction permits if they have the potential to emit over 100 tons per year ( tpy ) of “any air pollutant,” and all other sources to obtain such permits if they have the potential to emit over 250 tpy

, i d. §§ 7475, 7479(1)

. Under the PSD program, sources need permit s before starting a construction or modification project. See i d. § § 7411(a)(4), 7475, 7479(2)(C)

. T o obtain a PSD permit, covered source s must install the “best available control technology” (BACT) f

or all regulated air pollutants

— even for air pollutant s whose emissions levels are insufficient to trigger the PSD permitting requirement

. Id. § 7475(a)(4). In other words, if a source emits two regulated air pollutants

— say sulfur dioxide and particulate matter

— but triggers the PSD permitting requirement only because it emits 500 tpy of sulfur dioxide, it must install BACT for b oth

. The Title V program requires operational permits for stationary sources that have the potential to emit at least 100 tpy of any regulated air pollutant. See i d. § § 7661

– 7661 f. USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 3 of 434
In response to the Supreme Court’s decision in Massachusetts v. EPA

, 549 U. S. 497 (2007), EPA published an Endangerment F inding for greenhouse gases

— a “well

mixed” and “ aggregate ” group of six gases, including carbon dioxide (CO 2 )

. Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clea n Air Act (“Endangerment Finding”), 74 Fed. Reg. 66,496 , 66,499 (Dec. 15, 2009). Based on that finding , EPA issued a “cascading series of greenhouse gas

- related rules and regulations.” Coalition for Responsible Regulation , 684 F.3d at 114. Partnering with the National Highway Traffic Safety Administration, EPA first promulgated the Tailpipe Rule, which established motor

- vehicle emissions standards for greenhouse gases. See Light

- Duty Vehicle Greenhouse Gas Emission Standards and Corporate Average Fuel Econo my Standards; Final Rule , 75 Fed. Reg. 25,324 (May 7, 2010). Because the “Tailpipe Rule automatically triggered regulation of stationary greenhouse gas emitters under” the PSD and Title V permitting programs, EPA then issued two rules “phasing in stationar y source greenhouse gas regulation.” Coalition for Responsible Regulation , 684 F.3d at 115. In the Timing Rule, EPA concluded that major stationary emitters of greenhouse gases became subject to the PSD and Title V permitting requirements on January 2, 201 1

— the same date greenhouse gases were subjected to regulation under the Tailpipe Rule. See Reconsideration of Interpretation of Regulations That Determine Pollutants Covered by Clean Air Act Permitting Programs , 75 Fed. Reg. 17,004 , 17,007 (Apr. 2, 2010). And in the Tailoring Rule, EPA, recognizing that literal application of the PSD and Title V emissions thresholds would cover millions of sources, “tailored” the statutory thresholds to “reliev[e] [the] overwhelming permitting burden[] that would . . . fall on permitting authorities and sources.” Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 4 of 435
(“Tailoring Rule”), 75 F ed. Reg. 31,514 , 31,516 (June 3, 2010). T he Tailoring Rule staggers the applicability of the PSD and Title V permitting programs, “ starting with the largest [greenhouse gas] emitters.” Id. at 31,514. Under Step One of the Tailoring Rule, which became effective January 2, 2011, the PSD and Title V permitting programs apply only to “ ‘anyway’ PSD [and Title V] sour ces, that is, sources that are subject to PSD [and Title V] anyway due to their emiss ions of conventional pollutants, ” i.e., non

- greenhouse

- gas pollutants. Id. at 31,567. Under Step Two of the Tailoring Rule, which became effective six months later

, the PS D and Title V permitting program s appl y to sources with the potential to emit specified amounts of greenhouse gases

. See id. at 31,516. I n Coalition for Responsible Regulation, Inc. v. EPA

, this
court upheld the Endangerment Finding and Tailpipe Rule as

ne ither arbitrary nor capricious, concluded that the PSD and Title V permitting programs were unambiguously triggered when EPA issued the Tailpipe Rule , and rejected challenges to the Timing and Tailoring Rules on standing grounds. See Coalition for Responsi ble Regulation , 684 F.3d at 113

– 14.

This case involves biogenic carbon dioxide emissions, which EPA defines as carbon dioxide emissions “ directly resulting from the combustion or decomposition of biologically

- based materials other than fossil fuels and min eral sources of carbon.” Deferral for CO 2 Emissions from Bioenergy and Other Biogenic Sources Under the Prevention of Significant Deterioration (PSD) and Title V Programs (“Deferral Rule”), 76 Fed. Reg. 43,490, 43,493 (July 20, 2011). Biogenic carbon dioxi de emiss ions are generated from,
among other things, “the biological decomposition of waste in landfills, wastewater treatment [,] or manure management processes,” “fermentation during ethanol production,” and the “combustion of biological material, includi ng all types of wood and wood waste, forest residue, and agricultural USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 5 of 436

material.” Id. To use a familiar example

, power plant s running

on coal emit fossil

- fuel carbon dioxide whereas power plant s burning feedstocks emit biogenic carbon dioxide

.

Unlike fossi l fuels that emit greenhouse gases only through human

- induced combustion , b iogenic sources emit carbon dioxide via both natural and anthropogenic processes. A forest fire, for example, will emit biogenic carbon dioxide regardless of whether it was sparked by lightning or as part of a clear

- cutting operation

. D ead tree s emit carbon dioxide as part of the decomposition process. See Deferral for CO 2 Emissions From Bioenergy and Other Biogenic Sources Under the Prevention of Significant Deterioration (PSD) and Title V Programs: Proposed Rule (“Proposed Deferral Rule”), 76 Fed. Reg. 15,249, 15,252

– 54 (Mar. 21, 2011).

S ignificantly for the issue before us , biogenic carbon dioxide has a “unique role and impact . . . in the carbon cycle.” Deferral Rule, 76 Fed. Reg. at 43,496. “Through relatively rapid photosynthesis

, plants absorb CO 2 from the atmosphere an d add it to their biomass, which contains roughly 50% carbon by weight, through a process called sequestration.” Proposed Deferral Rule, 76 Fed. Reg. at 15,252. C arbon dioxide emitted by fossil

- fuel combus tion i s reabsorbed over millennia, leading to a long carbon “debt” period. By contrast, carbon dioxide released by biogenic

sources will be sequestered when new plants are grown. The extent to which biogenic sourc es can serve as a carbon “ sink ” wil l depend on the type of source and its life cycle

. See id. at 15,252

– 54. Given biogenic carbon dioxide’s role in the carbon cycle , many state and federal programs treat biofuels

as “ renewable resource s and promote bioener gy projects when they are a way to address climate change.” Deferral Rule, 76 Fed. Reg. at 43,492. But to be clear, once carbon dioxide is released into the atmosphere, “it is not possible to USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 6 of 437
distinguish between the radiative forcing associated with a mole cule of CO 2 originating from a biogenic source and one originating from the combustion of fossil fuel.” Proposed Deferral Rule , 76 Fed. Reg. at 15,254. In layman’s terms, the atmosphere makes no distinction between carbon dioxide emitted by biogenic and fo ssil

- fuel sources.

In the Tailoring Rule, EPA acknowledged that “biomass or biogenic fuels and feedstocks could play [ a role ] in reducing anthropogenic [greenhouse gas] emissions.” Tailoring Rule , 75 Fed. Reg. at 31,590

– 91

. Yet responding to numerous reque sts that the Tailoring Rule exempt biogenic carbon dioxide emissions, EPA stated that because it “ha[d] not analyzed the administrative burden of permitting projects that specifically involve biogenic CO 2 emissions

, ” it would
not take a “final position” on whether an exemption or “different treatment of biomass combustion” was warranted. Id. at 31,591. As a result , the Timing and Tailoring Rules require biogenic carbon dioxide sources to obtain PSD and Title V permits

. Shortly after promulgating the Tailori ng Rule, EPA issued a Call for Information seeking technical and scientific information to “evaluat[e] different accounting approaches” for measuring biogenic carbon dioxide emissions. Call for Information: Information on Greenhouse Gas Emissions Associate d with Bioenergy an Other Biogenic Sources

, 75 Fed. Reg. 41,173, 41,174 (July 15, 2010). Specifically, EPA sought information about how to treat biogenic carbon dioxide sources differently for purposes of measuring the emissions that trigger the PSD and Ti tle V permitting
programs. For example, EPA requested comments on how to “determin[e] the net impact on the atmosphere of CO 2 emissions” and the “appropriate spatial/geographic scale for conducting this determination.” Id. at 41,176. Then in March USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 7 of 438
2011, EP A , citing its ongoing efforts to understand the unique characteristics of biogenic carbon dioxide, issued a notice of proposed rulemaking seeking comment on whether it should defer regulation of these sources for a three

- year period. See Pr oposed Deferral Rule , 76 Fed. Reg. at 15

, 251

. Simultaneously, it published a guidance document for determining BACT for biogenic carbon dioxide emissions from “anyway” sources that were regulated under the PSD permitting program at Step One of the Tailoring Rule. See Offi ce of Air and Radiation, U.S. EPA, Guidance for Determining Best Available Control Technology for Reducing Carbon Dioxide Emissions from Bioenergy Production (Mar. 2011).

Based on comments and studies received during the notice

- and

- comment period

, and foll owing up on the Call for Information , EPA issued a rule

— the one challenged here

— postponing regulation of biogenic carbon dioxide sources for three years . In support of this so

- called Deferral Rule , EPA repeatedly emphasized that “the issue of accounting fo r the net atmospheric impact of biogenic CO 2 emissions is complex enough that further consideration

. . . is warranted.” Deferra l Rule, 76 Fed. Reg. at 43,492. It explained:

The information collected to this point underscores the complexity and uncertainty associated with accounting for biogenic emissions of CO 2 and indicates that at present attempting to determine the net carbon cycle impact of particular facilities combusting particular types of biomass feedstocks would require extensive analysis and woul d therefore entail extensive workload requirements by many of the permitting authorities. In contrast to other sources of [greenhouse gas] emissions, these uncertainties and complexities are exacerbated USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 8 of 439
because of the unique role and impact biogenic

source s of CO 2 have in the carbon cycle. Further, methodologies are not sufficiently developed to assure that various permitting authorities would be able to perform the necessary calculations reasonably and consistently to determine the net atmospheric impact i n many, if not all, instances.

Id. at 43,496. To dispel these uncertainties , EPA announced that “ [d] uring the three

- year deferral period ” it would “conduct a detailed examination of the science associated with biogenic CO 2 emissions from stationary sources .” Id. at 43,492. EPA justified the Deferral Rule by invoking three principles of administrative law : the de minimis

, one

- step

- at

a

- time , and administrative necessity doctrines

. See id. at 43,496

– 99

. For instance, EPA reasoned that it would be a waste of r esources to regulate a biogenic carbon dioxide source that has a de minimis impact on the net carbon cycle. See id. at 43,499

.

T he Deferral Rule exempts from regulation biogenic carbon dioxide sources that trigger the PSD and Title V permitting programs at Step Two of the Tailoring Rule. The rule accomplishes this by amending the regulatory definition of “ greenhouse gases ” to exclude biogenic carbon dioxide. Thus, biogenic carbon dioxide sources that have the potential to emit over the statutory thresholds, as modified by the Tailoring Rule, need not obtain a PSD or Title V permit. See id. at 43,493. The so

- called “anyway” sources that obtained PSD and Title V permits during Step One of the Tailoring Rule , however, must still install BACT for their biogenic carbon dioxide emissions. See id. at 43,500

– 01.

The Deferral Rule contains a sunset provision : a bsent f urther agency action, on July 21 , 2014, biogenic carbon USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 9 of 4310
dioxide will be regulated und er the PSD and Title V programs, as modified by the Tailoring Rule. See id. at 43,490, 43,507

. Although the Deferral Rule is a temporary regulation, it functions

, in effect

, as a permanent exemption from the PSD permitting requirement for any biogenic carbon dioxide source constructed during the three

- year deferral period

. See i d. at 43,499. E xempted source s would have to obtain PSD permit s only if they undertake a modification project after the deferral period ends

. See id. The Deferral Rule is also voluntary. “Each state may decide if it wishes to adopt the deferral and proceed accordingly.” Id. at 43,502. At lea st one State, Massachusetts, is currently regulating biogenic carbon dioxide sources at Step Two of the Tailoring Rule. See Oral Arg. Tr. 3

– 4.

Center for Biological Diversity and several other environmental organ izations now petition for review. “We review the actions of the EP A to determine whether they are ‘(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; (B) contrary to constitutional right, power, privilege, or immuni ty; [or] (C) in excess of statutory jurisdiction, authority, or limitations.’ ” American Farm Bureau Federation v. EPA , 559 F.3d 512, 519 (D.C. Cir. 2009) (per curiam) (q uoting 42 U.S.C. § 7607(d)(9)) (alternation in original)

.

II

. Before considering the m erits of petitioners’ challenge, we must determine whether this case is ripe for review. See In re Aiken County , 645 F.3d 428, 4 34 (D.C. Cir. 2011) (explaining that the “ripeness doctrine, even in its prudential aspect, is a threshold inquiry”)

. Under the prudential ripeness doctrine, invoked by our dissenting colleague, see dissenting op. at 10

– 17, courts look at two factors in deciding whether to stay their hand: the “fitness of the issue s for judicial decision” USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 10 of 4311
and “the extent to which withholding a deci sion will cause hardship to the parties.” American Petroleum Institute v. EPA

, 683 F.3d 382, 387 (D.C. Cir. 2012) (internal quotation marks omitted).

The Deferral Rule satisfies the first factor because it functions as an exemption from the PSD permit req uirement for those sources constructed during the deferral period. See
supra at 10; Oral Arg. Tr. 13 (EPA conceding that the Deferral Rule permanently exempts sources constructed between July 2011 and July 2014). To be sure, once the deferral period ends, these sources’ “biogenic CO 2 emissions would have to be appropriately considered in any applicability determinations . . . conduct[ed] for future stationary source permitting purposes.” Deferral Rule, 76 Fed. Reg. at 43,499 (emphasis added). But under the PSD program , a source would be required to obtain a permit only for “a major modification determination.” Id. Given this, the question before us is whether EPA may exempt certain biogenic carbon dioxide sources

— not just the air pollutant itself

— from the PS D program. This is the type of “purely legal” and “sufficiently final” issue that is “fit[] . . . for judicial decision” and can be resolved without resort to the prudential ripeness doctrine. American Petroleum Institute , 683 F.3d at 387 (internal quotati on marks omitted).

Regarding the second factor, the parties will suffer hardship if we decline to decide this issue. We know from oral argument that a biogenic carbon dioxide source in Allendale, South Carolina, has been constructed without a PSD permit, m eaning that it has emitted more pollution than it otherwise would have but for the Deferral Rule. See Oral Arg. Tr. 5

– 6, 10. There may well be other such sources. Our dissenting colleague principally relies on a March 2012 declaration for the proposition t hat the number of sources USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 11 of 4312
impacted by the Deferral Rule is negligible. But we have no idea how many biogenic carbon dioxide sources have been constructed since March 2012, nor do we have any basis for predicting how many biogenic carbon dioxide sources wil l be constructed during the next year. Because the Deferral Rule authorizes certain sources to emit more pollutants than they would otherwise be allowed to under the Tailoring Rule, this dispute is ripe for review.

I I I.

Petitioners argue that the Deferral Rule violates the Clean Air Act ’s plain language

. They rely on the statute’s definition of “major emitting facility” : any “stationary source[]” that “emit[s], or ha[s] the potential to emit,” certain specified amounts of “ any air pollutant. ” 42 U.S.C. § 74 79 (1). Because EPA regulates carbon dioxide as an “air pollutant

, ” petitioners contend that the agency has no authority to exempt any sources of carbon dioxide, including biogenic sources, from the PSD permitting program

. Acknowledging the scientific

uncer tainty about biogenic carbo n dioxide ’ s role in the carbon cycle , petitioners argue that EPA can regulate biogenic

sources under the PSD permitting program while accounting for their uni que qualities at the BACT stage. For its part, EPA believes that it has authority under the Clean Air Act to treat biogenic carbon dioxide sources differently because these sources have unique characteristics that were “unquestionably unforeseen when Congress enacted [the] PSD” program. Respondent’s Br. 40. This statutory ana lysis , however, appears nowhere in the Deferral Rule. Instead , the Deferral Rule rests on the de minimis , one

- step

- at

- a

- time, and administrative necessity doctrines

. Because the “grounds upon which an administrative order must be judged are those upon whic h the record discloses that its action was based,” SEC v. Chenery Corp. , 318 U.S. 80, 87 (1943), the Deferral USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 12 of 4313

Rule must stand or fall on the merits of EPA’s invocation of the se doctrines.

We can easily reject EPA’s use of the de minimis doctrine

, which all ows agencies to grant regulatory “exemption [s] when the burdens of regulation yield a gain of trivial or no value

. ” Alabama Power Co. v. Costle , 636 F.2d 323, 360

– 61 (D.C. Cir. 1979)

. In the Deferral Rule, EPA stated that it had authority to exempt biogeni c carbon dioxide

sources that have “a negligible or positive impact on the carbon cycle and net atmospheric CO 2 levels.” Deferral Rule, 76 Fed. Reg. at 43,499. I n its appellate brief, however, EPA expressly disavows this doctrine, explaining that the Deferral Rule has a three

- year sunset provision whereas the de minimis doctrine “is used to establish permanent exemptions .” Respondent’s Br. 35. Given this concession, the Deferral Rule
cannot be sustained under the de minimis doctrine.

The one

- step

- at

- a

- time doctrine, which EPA does defend, authorizes agencies to promulgate regulations in a piecemeal fashion. EPA explains that it is proceeding one

- step

- at

- a

time

— that is, postponing regulation of biogenic carbon dioxide for three years

— in order to give it time to study the science underlying these sources and determine its precise regulatory approach. See Deferral Rule, 76 Fed. Reg. at 43,497 ( “EPA has . . . deferr[ed] the applicability of PSD and Title V to biogenic emissions of CO 2 from stationary sources for only as long as necessary for EPA to complet e the needed scientific study of these emissions, develop an accounting framework, and as appropriate conduct rulemaking specific to the unique nature and characteristics of these emission sources.”)

. According t o petitioners

, however, federal agencies have no authority to invoke the one

- step

- at

- a

- time doctrine “to diverge from [a] clear statutory mandate,” and here, they argue, the Clean Air Act unambiguously requires USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 13 of 4314
regulation of all carbon dioxide from whateve r source

. Petitioners’ Br. 56. But we need not decide whether the one

step

- at

- a

- time doctrine can justify an agency’s non

compliance with a clear statutory mandate or whether the Clean Air Act unambiguously requires the regulation of all carbon dioxide fro m whatever source because, as we shall explain, EPA’s invocation of the one

- step

- at

- a

- time doctrine

was arbitrary and capricious. See Grand Canyon Air Tour Coalition v. FAA , 154 F.3d 455, 477 (D.C. Cir. 1998) ( determining whether agency’s reliance on the o ne

- step

- at

- a

time doctrine was arbitrary and capricious).

The one

- step

- at

- a

- time doctrine rests on the notion that “[s]ince agencies have great discretion to treat a problem partially, we [sh]ould not strike down [a regulation ] if it [is] a first step towa rd a complete solution.” City of Las Vegas v. Lujan , 891 F.2d 927, 935 (D.C. Cir. 1989)

. Eschewing a precise doctrinal test for invoking the doctrine, we have remarked that the one

- step

- a t

- a

- time inquiry “ is in essence a pragmatic one.” National Associatio n of Broadcasters v. FCC , 740 F.2d 1190 , 1210 (D.C. Cir. 1984). W e have observed that incremental regulation is especially appropriate in response to evolving economic and technological conditions. See id. at 1210

– 11. We have also imposed outer limits on t he one

- step

- at

- a

- time doctrine : “it would be arbitrary and capricious for an agency simply to thumb its nose at Congress and say

— without any explanation

— that it simply does not intend to achieve a congressional goal on any timetable at all.” G rand Canyon A ir Tour Coalition , 154 F.3d at 477

. Although the “circumstances under which [an] agency may defer [ regulation ] . . . are [in]capable of being captured in a single doctrin e, ” National Association of Broadcasters , 740 F.2d at 1210, an agency invoking the one

- step

- a t

- a

- time doctrine must, at a minimum, articulate (1) what it believes the statute requires and (2) how it intends to achieve that goal. USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 14 of 4315
Otherwise, reviewing courts will have no basis for evaluating whether the agency is in fact taking “a first step toward a complete solution.” City of Las Vegas , 891 F.2d at 935. EPA itself put it well: “C ourts will accept an initial step toward s full compliance with a statutory mandate, as long as the agency is headed towards full compliance.” Deferral Rule, 76 Fed. Reg. at 43,498.

In this case, however, EPA failed to explain in the Deferral Rule what “full compliance” with the “ statutory mandate ” means. Specifically, although the Deferral Rule spends pages explaining the scientific uncertainty about biogenic carbon dioxide sources, the additional research EPA plans to undertake, and why three more years of study are warranted, the r ule

— as opposed to EPA’s brief here

— nowhere offers an interpretation of the Clean Air Act that would allow the agency to treat biogenic ca rbon dioxide sources differently. This deficiency is not merely the result of scientific uncertainty. For example, t his would be a very different case had the Deferral Rule interpreted the Clean Air Act as requiring permits only for biogenic carbon dioxide sources with an adverse impact on the net carbon cycle and explained that the agency had deferred regulation due to scientific uncertainty over which sources meet that standard

. Under those circumstances, we could have determine d whether EPA had correctly interpreted the statute and properly invoked the one

- step

- at

- a

- time doctrine. Here, by contrast, we simply have no idea what EPA believes constitutes “full compliance” with the statute. I n other words,
t he Deferra l Rule is one step towards

. . . what ? Wi thout a clear answer to that question, EPA has no basis for invoking the one

- step

- at

- a

- time doctrine.

EPA next invokes the adm inistrative necessity doctrine, which permits an agency to “avoid implementing a statute

. . . USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 15 of 4316
by showing that attainment of the sta tutory objectives is impossible. ” Sierra Club v. EPA , 719 F.2d 436, 463 (D.C. Cir. 1983). Under this doctrine, the agency must also adopt the narrowest feasible exemption. See id. (criticizing the agency for failing to explore “less taxing ways to enfor ce the law”).

Emphasizing both the possibility that biogenic carbon dioxide sources might have a negligible impact on the net carbon cycle and the “extensive workload of p rocessing permit applications,” EPA found that requiring permits for these sources “w ould frustrate the goals

. . . sought to [be] accomplish [ed] in the Tailoring Rule

. ” Deferr al Rule, 76 Fed. Reg. at 43,496. In doing so , EPA rejected a proposed middle

ground option: requiring biogenic carbon dioxide sources to obtain permits but only if t hey fail to make “ any effort to take into account net carbon c ycle impact s

. ” I d. Under this approach, all biogenic carbon dioxide sources that would have triggered the modified statutory thresholds would have had to take some steps to reduce their emission s, either voluntarily to avoid the PSD permit requirement or by installing BACT as a condition of obtaining a permit. EPA rejected this approach because it “could result in regulation of sources with trivial or positive impacts on the net carbon cycle.” Id

.

W ithout deciding whether the middle

- ground option could pass muster under the stat ut e, w e agree with petitioner s that EPA’s rejection of that option was arbitrary and capricious. EPA has conceded “the possibility . . . that more detailed examination of the science of biogenic CO 2 will demonstrate that

. . . some biogenic feedstocks

. . . have a significant impact on the net carbon cycle

. ” I d. at 43,498 (emphasis added)

. As to these sources, the middle

- ground option would have had the practical effect of reducing their emissions ; by contrast, the Deferral Rule , which functions as USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 16 of 4317
a permanent exemption, does not

. EPA’s reason for rejecting the middle

- ground option

— that it would regulate biogenic sources with a trivial impact

— though perhaps accurate

, is thu s non

- responsive. Given EPA’s obligation to adopt the narrowest exemption possible, it should have explained why it rejected an option that would have reduced emissions from

sources the Deferral Rule permanently exempt s

. See Sierra Club , 719 F.2d at 464 (r emanding regulation because there was “no evidence that EPA ha[d] adequately explored . . . regulatory alternatives”).

This omission is especially troublesome because EPA has demonstrated that, notwithstanding the scientific uncertainty about measuring bi ogenic carbon dioxide emissions at the PSD applicability stage, the unique characteristics of these sources can be factored in at the BACT stage. The Deferral Rule still requires “anyway” sources that obtained PSD permits under Step One of the Tailoring Ru le to regulate biogenic carbon dioxide emissions. To assist those sources and permitting authorities in developing BACT standards, EPA issued a detailed thirty

- three page report on biogenic carbon dioxide. Presumably, permitting authorities are able to han dle the scientific complexity of regulating biogenic carbon dioxide as to these “anyway” sources. Furthermore, since the Deferral Rule is voluntary, States may regulate biogenic carbon dioxide sources under Step Two of the Tailoring Rule. Indeed, Massachus ett s is currently doing just that.

Finally, for the first time in its brief, EPA relies on the absurd results doctrine, which embodies “the long

- standing rule that a statute should not be construe d to produce an absurd result.” Mova Pharmaceutical Corp. v. Shalala , 140 F.3d 1060, 1068 (D.C. Cir. 1998). As EPA sees it, because “emissions of CO 2 derived from certain forms of biomass may not only fail to endanger public health and welfare, but in USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 17 of 4318
fact may benefit the public by reducing the net emissions of CO 2 ,” Respondent’s Br. 59, it would run afoul of congressional intent to regulate them. Responding to petitioners’ contention that EPA’s reliance on the absurd results doctrine is post hoc, the agency points to several passages in the Deferral Rule that menti on the doctrine. These references fall into two groups. The first

, and by far the larger

, appears in a summary of the Tailoring Rule’s leg al reasoning. According to EPA, the Deferral Rule fully incorporates the Tailoring Rule’s rationales , including the ab surd results doctrine

. See Respondent’s Br. 59

. But the Deferral Rule cannot rest on the Tailoring Rule’s invocation of the absurd results doctrine for a simple reason: t he two rules are aimed at different absurd results. The Tailoring Rule was intended to alleviate the crushing administrative burden on permitting authorities and sources

, see Tailoring Rule, 75 Fed. R eg. at 31,547; the Deferral Rule , by contrast, was intended to avoid regulation of biogenic carbon dioxide sources that have a negligible impa ct on the net carbon cycle. The second group, which appears in a section just ifying the Deferral Rule itself, mentions the absurd results doctrine only by analogy to the de minimis and administrative necessity doctrine s

. These passing references , however, fall far short of satisfy ing EPA’s “fundamental” obligation to “set forth the reasons for its actions.” Northeast Maryland Waste Disposal Authority v. EPA , 358 F.3d 936, 949 (D.C. Cir. 2004) (per curiam). For these reasons , we agree with petitioners that E PA’s reliance on the absurd results doctrine is indeed post hoc. See Calpine Corp. v. FERC , 702 F.3d 41, 46 (D.C. Cir. 2012) (explaining that an “agency decision[] may not be affirmed on grounds
not actu ally relied upon by the agency” ).

Because the Deferra l Rule cannot be justified under any of the administrative law doctrines relied on by EPA

, t his opinion

, contrary to our dissenting colleague ’s suggestion

, see USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 18 of 4319
dissenting op. at 8

, leaves for another day the question whether the agency has authority under the Clean Air Act to permanently exempt biogenic carbon dioxide sources from the PSD permitting program. If and when EPA adopts a permanent exemption for some or all biogenic carbon dioxide

sources , we will have the benefit of three years of scientific
stu dy, as well as fully briefed and contextualized arguments about EPA’s authority under the Clean Air Act.

IV

. For the foregoing reasons, we grant the petitions for review and vacate the Deferral Rule.

So ordered. USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 19 of 43K AVANAUGH , Circuit Judge , concurring: Under this Court’s recent precedent in Coalition for Responsible Regulation , Inc. v. EPA , this should be an easy case. The primary question presented is whether EPA has statutory authority to issue the Deferral Rule and thereby temporarily exempt biogenic carbon dioxide from the PSD and Title V permitting programs

. In my view, the answer is no. This Court has ruled that the statute requires pre

- construction and operati ng permits for stationary sources that emit or have the potential to emit certain specified amounts of an air pollutant, including carbon dioxide. There is zero basis in the text of the Clean Air Act for EPA to distinguish biogenic carbon dioxid e from other sources of carbon dioxide that EPA is requir ed (under our precedent) to regulate for purposes of the PSD and Title V permitting programs. See Coalition for Responsible Regulation , Inc. v. EPA

, 684 F.3d 102, 132

- 44 (D.C. Cir. 2012)

. As a policy matter, EPA may have very good reasons to temporarily exempt biogenic carbon dioxide from the PSD and Title V permitting programs. But Congress sets the policy in the statutes it enacts ; EPA has discretion to act only within the statutory limits set by Congress

. The statute does not give EPA the authority to distinguish a stationary source’s emissions of biogenic carbon dioxide from emissions of other forms of carbon dioxide for purposes of these permitting
programs

. 1

E PA cites three administrative law doctrines that, according to EPA, g ive it authority to grant the temporary exemption. But in a ddition t o the reasons given in Judge

1 Under current precedent, for EPA to exempt biogenic carbon dioxide, it presumably would have to tinker with the Endangerment Finding. Unless EPA does so, there is no statutory basis for exempting biogenic carbon dioxide from the PSD and Title V permitti ng programs. USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 20 of 432

Tatel ’s opinion for the Court, which I join in full, I would say that none of those doctrines applies in this case for an even more fundamental reason : The doctrines do not trump the fact that EPA simply lack s statutory authority to distinguish biogenic carbon dioxide from other forms of carbon dioxide for purposes of the PSD and Title V permitting programs

.

F irst , EPA relies on t he one

- step

- at

- a

- time doctrine

, which allows an agency to take incremental steps toward achieving a statutory mandate if taking incremental steps is consistent with the statutory text. See Grand Canyon Air Tour Coalition v. FAA , 154 F.3d 455, 477

- 78 (D.C. Cir. 199 8) (rule not arbitrary and capricious because it would achieve statutory mandate in conjunction with other proposed rules within a reasonable timeframe ). An agency typically invoke s that doctrine in response to a claim that an agency is exercising its statu tory discretion in an arbitrary and capricious manner.

B ut EPA has no such statutory discretion here . U nder the statute as this Court has interpreted it, EPA must regulate carbon dioxide under the PSD a nd Title V permitting
programs. Coalition for Res ponsible Regulation

, 684 F.3d at 144 (Clean Air Act “requires PSD and Title V permits for major emitters of greenhouse gases”). And t here i s no basis in the statute for distinguishing biogenic carbon dioxide from other forms of carbon dioxide.

Second

, EPA cites the admi nistrative necessity doctrine, which can excuse agency non

- compliance with a statute if the
agency lacks sufficient funds or resources

. See Alabama Power Co. v. Costle , 636 F.2d 323, 359 (D.C. Cir. 1979) (shortage of funds, of “time, or of the technical personnel needed to administer a program” grants agency authority “to cope with the administrative impossibility of applying the USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 21 of 433

commands of the substantive statute”). But EPA has the funds and resources to apply the PSD and Title V program s to biogenic carbon dioxide. I ndeed, in the Deferral Rule, EPA acknowledged that it has the resources to “apply PSD and Title V to all facilities with biogenic CO 2 emissions that emit at or above the Tailoring Rule thresholds .” 76 Fed. Reg. 43,4 90, 43,496 (July 20, 2011).

EPA decided against that option, however, because EPA thought it might be bad policy. Specifically, EPA said that “it is conceivable that as a result of the scientific examination of biogenic CO 2 emissions, [EPA] could concl ude that the net carbon cycle impact for some biomass feedstocks is trivial, negative, or positive.” Id. EPA reached that conclusion because it thinks that regrowth of plant life

– and the resulting recapture of carbon dioxide

– might “offset ” emissions of biogenic carbon dioxide. But the statute forecloses that kind of “offsetting” approach because th e statute measures emissions from stationary sources that “emit” (or have the potential to emit) air pollutants

. See 42 U.S.C. §§ 7475(a)

, 7479(1). The statute does not allow EPA to exempt those sources’ emissions of a covered air pollutant just because the effects of those sources’ emissions on the atmosphere might be offset in some other way

. Relatedly, EPA suggests that it has appropriately ba lanced the costs and benefits of regulating biogenic carbon dioxide under the PSD and Title V programs. But EPA i s not permitted to substitute its view of the costs and benefits of regulation for Congress’s view of the costs and benefits of regulation. S ee Sierra Club v. EPA

, 719 F.2d 436, 462 (D.C. Cir. 1983) (EPA not permitted to create exemption “based
upon its perceptions of the costs and benefits of enforcing the law”); Alabama Power Co.

, 636 F.2d at 357 (“[T]here exists no general administrative power to create exemptions to USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 22 of 434
statutory requirements based upon the agency’s perceptions of costs and benefits.” ). A llowing an agency to substitute its

own policy choices for Congress’s policy choices in thi s

manner would undermine core separation of powers principles. The Constitution gives Congress the legislative power to set policy in the first instance, and agencies then must act within those statutory boundaries

– even if the agency believes it possess es expertise or policy views superior to Congress’s

. See F ederal P ower C ommission v. Texaco , 417 U.S. 380 , 400 (1974) (agencies cannot use administrative necessity “to overturn congressional assumptions embedded into the framework of regulation” by Congre ss); N atural R esources D efense C ouncil, Inc. v. Costle

, 568 F.2d 1369 , 1377 (D.C. Cir. 1977) (doctrine not a “revisory power” granting agency authority to act “inconsistent with the clear int ent of the relevant statute”).

Third , EPA has also invoked t he absurd results doctrine. The crux of EPA’s position is that it would be absurd to interpret the Clean Air Act in a way that would requir e EPA to regulate biogenic carbon dioxide

. But with EPA h aving already applied the PSD and Title V programs to carb on dioxide (and with this Court having agreed with that interpretation of the statute) , there is certainly nothing absurd about applying those pr ograms to biogenic carbon dioxide. It is hardly absurd for Congress to tackle the problem of emissions from th e smokestack in the first instance. And t he fact that an exemption for biogenic carbon dioxide would be better policy (in EPA’s view) does not make it absurd to apply the statute to biogenic carbon dioxide. See Landstar Express America, Inc. v. Federal M aritime Commission , 569 F.3d 493, 498 (D.C. Cir. 2009) (“A statutory outcome is absurd if it defies rationality.”). If it would be better overall USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 23 of 435

to exempt biogenic carbon dioxide from these permitting programs, EPA can always recommend that Congress do so

. 2

* * *

All of t hat said, I have mixed feelings about this case

. T hat’s because I believe, contrary to this C ircuit’s precedent, that the PSD statute does not cover carbon dioxide , whether biogenic or not. See Coalition for Responsible Regulation

, Inc. v. EPA , No. 09

- 1322 (D.C. Cir. 2012) (Kavanaugh, J., dissenting from denial of reh earing en banc). And as I see it, EPA’s decision to temporarily exempt biogenic carbon dioxide from regulation simply highlights the legal problems in apply ing the PSD program to greenhouse gases

, including carbon dioxide

, in the first place

. To review the bidding: EPA has read the PSD statute br oadly to cover not just the NAAQ S pollutants but also greenhouse gases

, although EPA

2 To be sure, the Executive may decline to follow a statutory mandate or prohibition applicable to the Executive if the President concludes that it is unconstituti onal, unless and until a final C ourt order says otherwise. But EPA has not cl aimed that the statutory requirement to apply these permitting programs to biogenic carbon diox ide would be unconstitutional. It is also true that the Executive possesses a significant degree of prosecutorial discretion to decline
to initiate criminal or civil enforcement actions against violators of a federal law. But EPA’s decision here is not such a non

enforcement action , and EPA has not claimed otherwise

. See Massachusetts v. EPA , 549 U.S. 497, 527

- 28, 533 (2007) (explaining difference between prose cutorial discretion and agency’s choice whether to regulate); see generally In re Aiken County , No. 11

- 1271 , slip op. at 2 n.1 ( D.C. Cir. 2012 ) (Kavanaugh, J. , concurring) (describing prosecutorial discretion) ; Seven

- Sky v. Holder , 661 F.3d 1, 50 n.43 ( D.C. Cir. 2011) (Kavanaugh, J., dissenting) (referring to possibility that a President might exercise prosecutorial discretion not to seek civil penalties against those who fail to comply with health insurance mandate). USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 24 of 436
expressly recogniz ed that such an interpretation would lead to a result that was “ so contrary to what Congress had in mind” and “in fact so undermines what Congress attempted to accomplish with the PSD requirements” that “it should be avoided under the ‘absurd results’ doctrine.” 74 Fed. Reg. 55,292, 55,310 (Oct. 27, 2009). To try to deal with those admittedly absurd results, EPA then has repeatedly re

- written the statute

– first in the Tailoring Rule and now in the Deferral Rule. But t he absurdities and anomalies flowing from EP A’s statutory interpretation just underscore how flawed EPA’s interpretation was from the get

- go

. EPA could have adopted a narrower interpretation of the PSD statut e that would have avoided tho se absurdities and, to boot, would have been more consistent w ith the statutory text and
structure . What we are left with now is a statute that is a far cry from what Congress intended or enacted

. So E P A is necessarily making it up as it goes along. Th at is not how the administrative process is supposed to work.

I n saying that, I do not want to diminish EPA’s vital public objectives in addressing global warming. The task of dealing with global warming is urgent and important at the nation al and international level. M y concern about EPA’s approach does not stem from policy beliefs (courts don’t have the authority or the expertise to assess policy well anyway ) but rather from separation of powers principles

.

But EPA’s broad interpretation of the statute was upheld by this Court in Coali tion for Responsible Regu lation

. Although I respectfully think the case was wrongly decided on this issue

, that’s water over the dam in this Court . We are bound to apply that precedent

. Under t hat case’s inte rpretation of the governing statute , EPA is require d to regulate carbon dioxide under the PSD an d Title V permitting USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 25 of 437
programs. There is no statutory basis for exem pting biogenic carbon dioxide. USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 26 of 43K AREN L E C RAFT H ENDERSON , Circuit Judge , dissenting:

We must decide whether the Environmental Protection Agency (EPA) may temporarily defer regulation of biogenic carbon dioxide (CO 2 ) emissions against a backdrop of uncertain but expanding scie ntific knowledge and rapid regulatory changes. Deferral for CO 2 Emissions from Bioenergy, 76 Fed. Reg. 43,490 (July 20, 2011) (Deferral Rule). I believe EPA can—and should—defer regulation until it has the time it says it needs to study and resolve the issue it is charged with regulating. I would therefore uphold the Deferral Rule. Alternatively, given that the Deferral Rule expires or will be superseded in a matter of months—and by then EPA will have at least crystallized the issue before us— we should hold the case in ab eyance as unripe. Accordingly, I respectfully dissent.

I. The Deferral Rule delays for three years—from July 20, 2011 until July 21, 2014—the EPA’s factoring in of biogenic CO 2 emissions “when determining whether a stationary source meets the” emissions thresholds for permitting under the Prevention of Significant De terioration (PSD) and Title V permitting systems of the Clean Air Act (CAA), 42 U.S.C. §§ 7401 et seq. See Deferral Rule, 76 Fed. Reg. at 43,492. Inso deferring, EPA has used, correctly, I believe, the longrecognized step-at-a-time re gulatory procedure. This procedure recognizes the r eality and complexity of administrative regulation. “In an ideal world . . . agencies would act only after comprehens ive consideration of how all available alternatives compor ted with a well-defined policy objective . . . .” Nat’l Ass’n of Broadcasters v. FCC , 740 F.2d 1190, 1210 (D.C. Cir. 1984). Nonetheless, “administrative action generally occurs agai nst a shifting background in which facts, predictions, and polic ies are in flux and in which an agency would be paralyzed if all the necessary answers had to be in before any action at all could be taken.” Id. Thus, USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 27 of 432
“agencies have great discretion to treat a problem partially” and we will “not strike down [a regulation] if it [is] a first step toward a complete solution, ev en if we thought it ‘should’ ” have been finished. City of Las Vegas v. Lujan , 891 F.2d 927, 935 (D.C. Cir. 1989). Moreover, “nothing in the [Administrative Procedure Act] precludes an agency from collecting data and monitoring real-world experience with regulatory standards before adopting new standards governing periods of time far into the future—especially in cases, as here, that involve unpredictabl e technological change. Indeed, gathering evidence before making a long-term decision is eminently sensible.” Pub. Citizen, Inc. v. Nat’l Highway Traffic Safety Admin. , 374 F.3d 1251, 1263 (D.C. Cir. 2004); see also id. at 1262-63 (agency’s te mporarily declining to make crash test requirements stricter was not arbitrary and capricious because it “offered rational reasons for adopting an ‘interim final rule’ establishi ng the unbelted crash test speed through August 2006 only” while it undertook “multi-year effort to obtain additional data”).

The Deferral Rule must be read in light of the fact that EPA did not regulate greenhouse gases (GHGs) under the CAA at all until the end of 2009, see Endangerment and Cause or Contribute Findings for Greenhouse Gases, 74 Fed. Reg. 66,496 (Dec. 15, 2009), and did not regulate them under PSD and Title V until 2011, see Prevention of Significant Deterioration and Title V Gr eenhouse Gas Tailoring Rule, 75 Fed. Reg. 31,514, 31,521 (June 3, 2010) (Tailoring Rule). By postponing regulation of biogenic CO 2 emissions under PSDand Title V, the Deferral Rule simply keeps in place the preUSCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 28 of 433
2011 status quo. The question, then, is whether the petitioners can compel EPA to act before July 21, 2014. 1
Although the step-at-a-time doctrine is “pragmatic” and cannot be “captured in a single doctrinal formulation,” we ask two questions when an agency us es it to “defer resolution of problems.” Nat’l Ass’n of Broadcasters , 740 F.2d at 1210. First, we ask whether the agency (1) has “made some estimation, based upon evolving economic and technological conditions, as to the nature an d magnitude of the problem it will have to confront when it comes to resolve the postponed issue”; and (2) “whether it was reasonable, in the context of the decisions made in the pr oceeding under review, for the agency to have deferred the issue.” Id. at 1210-11. Regarding the second question, “postponement will be most easily justified when an agency acts against a background of rapid technical and social change a nd when the agency’s initial decision as a practical matter is reversible should the future proceedings yield drastically unexpected results.” Id. at 1211; see also Massachusetts v. EPA , 549 U.S. 497, 527 (2007) (“[A]n agency has broad discretion to choose how best to marshal its limited resources a nd personnel to carry out its

1 Our review is highly deferential. See Interstate Natural Gas Ass’n of Am. v. FERC , 285 F.3d 18, 57 (D.C. Cir. 2002) (“The policy originates in past decisions; FERC did not here decide to continue it, in the sense of confronting the substance and making an affirmative decision; it decided onl y that it would defer substantive treatment to a different—and necessarily later—context. In essence, then, the claim is of a violation of the [Administrative Procedure Act]’s mandate that an agency decide matters within a reasonable time, and calls on us to compel agency action unlawfully withheld or unreasonably delayed. Our review is [therefore] highly deferential.” (quotation mark s and citations omitted)). USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 29 of 434
delegated responsibilities.”). I believe EPA’s rationale for the Deferral Rule easily fits within this framework. EPA has reasonably attempted to balance its acknowledged CAA duty to regu late GHGs with the reality that both EPA itself as well as other permitting authorities have limited resources and experience in this area. The Tailoring Rule, which EPA prom ulgated in 2010, created a phase-in process whereby, at first, only the largest GHG emitters would be subject to PSD and Title V on the basis of GHG emissions. Tailoring Rule, 75 Fed. Reg. at 31,516. The phase-in was necessary both to alleviate high costs to permitting authorities, id. at 31,533, and to give EPA time to decide how to permanently implement GHG regulation, id. at 31,526. EPA promulgated the Deferral Rule because of similar cost and scientific uncertainty. Specifically, EPA did not know in 2011 which, if any, bi ofuel feedstocks cause a net increase in atmospheric CO 2 levels when used as fuel for a stationary source. Deferral Rule, 76 Fed. Reg. at 43,492. EPA was concerned that, if it regulated all sources’ biogenic CO 2 emissions without taking net increase vel non into account, its regulation of the sources could result in high cost but negligible benefit. 2 EPA also concluded that immediate, one-

2 Earlier, EPA had predicted that, had it not adopted the Tailoring Rule’s phase-in approach, permitting authorities would have faced a 140-fold increase in PSD permitting activity, or $1.5 billion in additional annual costs; and a 400-fold increase in Title V permitting activity, or $21 billion in additional annual costs. Tailoring Rule, 75 Fed. Reg. at 31,539-40. Even under the phase-in approach, EPA projected a 42% increase in administrative costs per
year. Id. at 31,540, Table V-1. In the Deferral Rule, EPA reasoned that “requiring regulation of biogenic sources of CO 2 at this time may,” inter alia , “exacerbate[ ] the regulatory burdens . . . the Tailoring Rule was intended to avoid.” Deferral Rule, 76 Fed. Reg. at 43,499. USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 30 of 435
size-fits-all regulation of biogenic CO 2 could be counterproductive by discouragin g the construction of lownet-carbon stationary facilities. Id. at 43,496. Absent deferral, EPA concluded, permitting aut horities—primarily, states— would face a heavy administrative burden due to, inter alia

, the need to take the carbon cycle into account in determining best available control t echnology (BACT) during the permitting process. See id. at 43,492; see also id. at 43,496 (“[T]he extensive workload associated with analyzing and accounting for biogenic CO 2 emissions as part of processing permit applications from bioma ss facilities justifies exempting those sources for a period of time . . . . ”). While EPA attempted to alleviate th e administrative burden by promulgating interim guidance to help permitting authorities conduct BACT analysis for biogenic CO 2 emissions— explaining that in some instan ces, combustion of biomass can be considered BACT—the case-by-case analysis that permitting authorities, without the Deferral Rule, would be required to undertake imme diately “would likely be prohibitively time-consuming and complex.” EPA Office of Air & Radiation, Guidance for Determining Best Available Control Technology for Reduci ng Carbon Dioxide Emissions from Bioenergy Production 23 (Mar. 2011), http://www.epa. gov/nsr/ghgdocs/bioenergyguidance.pdf. Accordingly, EPA promulgated the Deferral Rule as an “initial step toward full compliance” with the statutory mandate to regulate GHGs. Deferral Rule, 76 Fed. Reg. at 43,498. The Deferral Rule expires on July 21, 2014, at which time biogenic CO 2 emissions will automatically be treated like all other CO 2 emissions unless, on or before that date, EPA “undertake[s] additional rulemaking to clarify the applicability of PSD and Title V permitting requirements.” Id. (citing Grand Canyon Air Tour Coalition v. FAA , 154 F.3d 455, 476-77 (D.C. Cir. 1998)); see also id. at 43,494 (quoting Massachusetts , 549 U.S. at 524 (agencies may implement regulatory programs USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 31 of 436
over time, “refining their prefer red approach as circumstances change and as they develop a more nuanced understanding of how best to proceed.”)). In the meantime, EPA planned to study the science and ultimately either establish an appropriate carbon accounting framework for biogenic CO 2 emissions or, to repeat, allow the Deferral Rule to expire and treat biogenic CO 2 emissions like other CO 2 emissions. My colleagues attack the Deferral Rule because it “nowhere offers an interpreta tion of the Clean Air Act that would allow the agency to treat biogenic carbon dioxide sources differently.” Maj. Op. 13-14. But EPA is not permanently treating biogenic CO 2 emissions differently. As the Deferral Rule explains, EPA believes, based on the evidence currently in its possession, that further study may support a decision to give special treatment to some biogenic emissions. Deferral Rule, 76 Fed. Reg. 43,496; see also id. at 43,499 (“EPA believes based on information currently before the Agency that at least some biomass feedstocks . . . have a negligible impact on the net carbon cycle, or possibly even a positive net effect.”). If further study does not bear this out, EPA has implicitly acknowledged that it will treat biogenic CO 2 emissions as it does other CO 2 emissions. Cf. id. at 43,498 (“[EPA] will be using the three-year deferral period to better understand the science as sociated with biogenic CO 2 emissions and to explore whether or not a permanent exemption is permissible . . . . ” (emphasis added)). 3

3 Contrary to my colleagues’ suggestion, the step-at-a-time doctrine does not require that an agency articulate precisely what constitutes full compliance with the statute at the time it takes an incremental step. Compare Maj. Op. 14 (criticizing EPA because “we simply have no idea what EPA believes constitutes ‘full compliance’ with the statute”), with Pub. Citizen , 374 F.3d at 1263 (permitting agency to delay “a final decision regarding the USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 32 of 437
To be sure, in Coalition for Responsible Regulation , 684 F.3d 102 (D.C. Cir. 2012), we he ld that “once the Tailpipe Rule set motor-vehicle emission standards for greenhouse gases, they became a regulated pollutant under the Act, requiring PSD and Title V greenhouse permitting.” Id. at 115. But, just as EPA proceeded gradually in regulating GHGs under the Tailoring Rule, EPA has delayed its regulation of a specific GHG via the Deferral Rule. 4 The fact that EPA is required to take action does not pr eclude it from phasing in the action using the step-at-a-time method. In Grand Canyon Air Tour , the Congress required the Federal Aviation Administration (FAA), within 120 days of enactment of the Overflights Act, to “prepare and issue a final plan for the management of air traffic in the air space above the Grand Canyon.” See 154 F.3d at 460. After the FAA promulgated only interim measures, the Grand Canyon Trust challenged it as “too little” and “too late.” Id. at 473. We rejected its challenge, declaring that, alt hough “it would be arbitrary and capricious for an agency simply to thumb its nose at Congress and say—without any explanatio n—that it simply does not intend to achieve a congressional goal on any timetable at all . . . . the FAA has not taken that course here. It has never defended the Final Rule as the sole means for [satisfying the statute], but only as the first of three steps.” Id. at 477; cf. Ala. Power Co. v. Costle , 636 F.2d 323, 357 (D.C. Cir. 1979)

maximum test speed for unbelted dummy testing” until agency completed gathering information a nd analysis). The rationale for a deferral period is that delay is necessary to allow the agency to determine what it is unable to determine at the time, i.e. , full compliance with a statutory mandate.

4 In Coalition for Responsible Regulation , we rejected a challenge to the Tailoring Rule, albeit on lack of standing. 684 F.3d at 113-14. USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 33 of 438
(“Certain limited grounds for the creation of exemptions are inherent in the administrative pr ocess, and thei r unavailability under a statutory scheme should not be presumed, save in the face of the most unambiguous demonstration of congressional intent . . . . ”). While the CAA requires EPA to regulate CO 2 , it does not foreclose, as one step toward full compliance, EPA’s deferring regulation of a unique type of CO 2 in order to study whether EPA can—and should—treat it differently. EPA does not defend the Deferral Rule as the sole or final means of dealing with biogenic CO 2 emissions nor has it thumbed its nose at the Congress. By July 21, 2014, EPA will take its next step—either by regulating biogenic CO 2 emissions like other CO 2 emissions by default ( i.e. , the expiration of the Deferral Rule) or by handling biogenic CO 2 emissions specifically. The necessary implication of the majority opinion is that, no matter the results of EPA’s study, EPA lacks authority to treat biogenic CO 2 emissions differently from other emissions. The CAA defines a major emitting source ( i.e. , a source subject to PSD and Title V permitting requirements) as a source that “emit[s] or [has] the potential to emit” abovethreshold amounts of a regulated pollutant “from” the source. 42 U.S.C. § 7479(1). The peti tioners believe, and my colleagues apparently agree, this language precludes EPA from considering “off-site” fact ors, such as the carbon cycle of the biomass used as a source’s fuel, in determining whether the source is subject to PSD. But the language has not precluded EPA from recognizing de minimis exceptions from the statute. Under the de minimis doctrine, “[c]ourts should be reluctant to apply the literal terms of a statute to mandate pointless expenditures of effort.” Ala. Power , 636 F.2d at 360. Unless the Congress has been “extr aordinarily rigid,” we will uphold an exemption from the statute’s literal terms “when the burdens of regulation yield a gain of trivial or no value.” Id. at 360-61. PSD and Title V are meant to protect against USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 34 of 439
harm resulting from the emissi on of regulated pollutants, see, e.g. , 42 U.S.C. § 7470, and EPA has found that GHGs such as CO 2 cause harm by accumulating in excess amounts in the atmosphere, see, e.g. , Tailoring Rule, 75 Fed. Reg. at 31,519. If EPA’s review shows, however, that the combustion of certain biomass feedstocks has no effect on—or even reduces—atmospheric CO 2 levels, EPA could then use this information to support a de minimis exception to the regulation of certain biogenic CO 2 emissions. Cf. Ala. Power

, 636 F.2d at 330 (“[T]he application of BACT requirements to the emission of all pollutants . . . no matter how miniscule . . . could impose severe administrative [and economic] burdens . . . . [T]he proper way to resolve this difficulty is to define a de minimis standard . . . . ”). Exempting from regulation a source with a negligible—and particul arly, a beneficial—effect on atmospheric CO 2 levels would be perfec tly consistent with the overarching PSD and Title V permitting regime—a regime which expressly does not regulat e “minor” sources that cause little harm because they releas e below-threshold levels of pollutants. See 42 U.S.C. §§ 7479(1), 7661(2), 7602(j). Given the availability of a de minimis exception, it is not as though, as the majority necessarily a ssumes, that the Deferral Rule delays the inevitable. 5

5 Moreover, to the extent it could be shown that the CAA is so “extraordinarily rigid” as to ba r EPA from considering off-site activity in determining a stationary source’s “potential to emit” CO 2 , EPA is also studying “the nature of the fuel combusted on site at the ‘stack,’ ” which does not involve off-site activity. Br. of Resp’ts 49. If EPA concludes it cannot consider off-site activity, it could adjust its regulation using only on-site activity like stack combustion. USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 35 of 4310
In sum, EPA’s decision to stop and think before regulating in a complex—and changing—area is eminently reasonable.

II. Alternatively, under the prude ntial ripeness doctrine, I believe we should not have reach ed the merits of this case. The ripeness doctrine prevents the court from prematurely adjudicating a dispute. Abbott Labs. v. Gardner , 387 U.S. 136, 148-49 (1967). The doctrine comes “from Article III limitations on judicial power and from prudential reasons for refusing to exercise jurisdiction.” Reno v. Catholic Soc. Servs., Inc. , 509 U.S. 43, 57 n.18 (1993). “The ripeness doctrine, even in its prudential aspect, is a threshold inquiry . . . .” In re Aiken Cnty. , 645 F.3d 428, 434 (D.C. Cir. 2011). The court stays its hand so the “ad ministrative process [can] run its course before binding part ies to a judicial decision.” Am. Petroleum Inst. v. EPA , 683 F.3d 382, 386 (D.C. Cir. 2012) (challenge to EPA rule continuing to regulate certain materials held unripe because EPA subsequently issued NPRM significantly changing regulatory scheme). This doctrine gives “the challenging party [time] to convince the agency to alter a tentative posit ion,” “provides the agency an opportunity to correct its own mistakes and to apply its expertise,” narrows the legal a nd factual issues at play and “comports with our theoretica l role as the governmental branch of last resort.” Id. at 386-87 (quotation marks omitted). It thus “ensures that Article III courts make decisions only when they have to, and then, only once.” Id. at 387.

We consider two factors in assessing prudential ripeness: (1) the “fitness of the issues for judicial decision” and (2) “the extent to which withholding a d ecision will cause hardship to the parties.” Id. (quotation marks omitted). USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 36 of 4311

A. Fitness for Review The first factor—fitness—is “meant to protect the agency’s interest in crystallizing its policy before that policy is subjected to judicial review and the court’s interests in avoiding unnecessary adjudication and in deciding issues in a concrete setting.” Id. (quotation marks omitted). We must consider, inter alia , “whether [the issue] is purely legal, whether consideration of the issue would benefit from a more concrete setting, and whether the agency’s action is sufficiently final.” Id. (quotation marks omitted). An issue is particularly unfit for revi ew if, by staying our hand temporarily, we need never address it. See Nat’l Treasury Emps. Union v. United States , 101 F.3d 1423, 1431 (D.C. Cir. 1996). We decline to review “tentative” agency positions because doing so “severely compromises the interests” the ripeness doctrine protects: “The agency is denied full opportunity to apply its expertise and to correct errors or modify positions in the course of a proceeding, the integrity of the administrative process is threatened by piecemeal review of the substantive underpinnings of a rule, and judicial economy is disserved because judicial review might prove unnecessary if persons seeking such review are able to convince the ag ency to alter a tentative position.”

Am. Petroleum Inst. , 683 F.3d at 387 (quoting Pub. Citizen Health Research Grp. v. Comm’r, FDA , 740 F.2d 21, 31 (D.C. Cir. 1984)). The Deferral Rule—a temporary rule that expires or will be replaced by July 21, 2014—is not fit for review. First, by staying our hand, we would give the petitioners an opportunity to convince EPA to promulgate a rule more to USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 37 of 4312
their liking. If EPA promulga ted such a rule, or simply allowed the Deferral Rule to expire on July 21, 2014, the petitioners’ challenge could be resolved. See also Tex. Indep. Producers & Royalty Owners Ass’n v. EPA , 413 F.3d 479, 483 (5th Cir. 2005) (EPA d ecision to defer permit requirements for certain oil and gas construction sites unripe because “[g]iven that EPA has sp ecifically stated its intent to examine, during the Deferral Peri od, the issue of how best to resolve questions . . . regarding section 402( l )(2) of the Clean Water Act, any interpretation we would provide would necessarily prematurely cut off EPA’s interpretive process” (quotation marks omitted)). Second, even assuming EPA issu es a supersed ing rule to which the petitioners object, the Deferral Rule will crystallize the issues raised by their challenge. See, e.g.

, Am. Petroleum Inst. , 683 F.3d at 388 (“In th e ongoing rulemaking, EPA could change its mind and keep the transfer-based exclusion, in which case the issue goes away; or, if EPA stays the course and abolishes the transfer-based exclusion, the dispute will become concrete and straightforward.”); Nat’l Treasury , 101 F.3d at 1431 (“[W]hile the broa d legal theory advanced by appellants may be as complete as it ever will, the facts upon which its resolution may depend ar e not ‘fully cr ystallized’ . . . . ”). The current dispute is whether EPA may postpone regulatory action based on insufficient information. If EPA promulgated a superseding rule exempting biogenic CO 2 from regulation, the dispute w ould be whether EPA may promulgate a permanent (or at least more crystallized) exemption. See Deferral Rule, 76 Fed. Reg. at 43,492-93; see also Am. Petroleum Inst. , 683 F.3d at 387 (finding lack of ripeness when “EPA responds that the pyrophoric properties USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 38 of 4313
of the catalysts warrant furthe r consideration to make sure they will not be disc arded during transfer”). 6
To be sure, “an agency can[not ] stave off judicial review of a challenged rule simply by initiating a new proposed rulemaking that would amend the rule in a significant way.” Am. Petroleum Inst. , 683 F.3d at 388. While EPA has not yet proposed a final rule, it has al so not engaged in a “thinly veiled attempt to evade review,” id. , but instead committed itself to act by a date certain—July 21, 2014. See Oral Arg. Tr. 28-29 (Apr. 8, 2013) (EPA’s Science Advisory Board has issued final report now being analyzed); see also Wheaton Coll. v. Sebelius , 703 F.3d 551, 552 (D.C. Cir. 2012) (“We take the government at its word and will hold it to it.”). For the foregoing reasons, I believe the Deferral Rule is not fit for review at this time.

B. Hardship to the Parties “To outweigh the[ ] institutional interests in the deferral of review, any hardship caused by that deferral must be immediate and significant . Considerations of hardship that might result from delaying review will rarely overcome the . .

6 The majority opinion does not bar EPA from ultimately exempting biogenic CO 2 from PSD and Title V regulation. Instead, my colleagues strike down a temporary agency position almost certain to be recast. They thus threaten the “integrity of [the] administrative process . . . by piecemeal review of the substantive underpinnings of a rule.” Pub. Citizen , 740 F.2d at 31; see also Am. Petroleum Inst. , 683 F.3d at 388 (“[T]o the extent API and EPA dispute whether some sort of transfer-based exclusion for hazardous secondary materials is necessary to comport with the concept of ‘discard,’ that issue also is best addressed once EPA finally decides whether to eliminate the transfer-b ased exclusion it adopted in the 2008 Rule.”). USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 39 of 4314
. fitness problems inherent in attempts to review tentative positions.” Am. Petroleum Inst. , 683 F.3d at 389 (emphases added) (quotation marks omitted). The petitioners argue, and my colleagues agree, Maj. Op. 10, that the hardship caused by the Deferral Rule is especially serious because the Deferral Rule could result in a “permanent” exemption from PSD permitting. Specifically, a stationary source constructe d during the deferral period without obtaining a PSD permit (because of its temporary biogenic CO 2 exemption) could, in theory, escape permitting forever because a PSD permit would then be required only if the source is modified. See 42 U.S.C. § 7475(a). It is possible, then, that even if EPA d ecides to regulate biogenic CO 2 emissions like all other CO 2 emissions, a source constructed during the deferral period would never need to obtain a PSD permit if it remains unmodified. The Deferral Rule does not open the floodgates as the petitioners and my colleagues fear . It allows a source to avoid PSD permitting only if (1) it has the potential to emit CO 2 as a result of biogenic emissions; (2 ) its potential to emit biogenic CO 2 exceeds Tailoring Rule threshol ds; (3) it is not otherwise subject to PSD permitting based on its potential to emit other pollutants or non-biogenic CO 2 emissions; and (4) it is able to obtain a minor source (non-PSD) permit and commence construction 7 no later than July 21, 2014. And a source could permanently avoid PSD permitting only if it met the above requirements and never underwent a “major modification

7 Tailoring Rule, 75 Fed. Reg. at 31,594 (“PSD preconstruction permitting requirements do not ge nerally preclude a source from continuing actual construction that began before the source was a source required to obtain a PSD permit.”). USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 40 of 4315

determination.” See Deferral Rule, 76 Fed. Reg. at 43,499. 8 At oral argument, the petitioners were able to name only one source—a facility located in Allendale, South Carolina—that has been able to avoid PSD permitting “in direct reliance on” the Deferral Rule. Oral Arg. Tr. 5-6, 10. The intervenors describe the number of sources that could take advantage of the Deferral Rule as “a handful,” Oral Arg. Tr. 32. The petitioners submitted with their opening brief the declaration of Ranajit Sahu, an environmental, mechanical and chemical consultant, listing ei ght sources he review ed that had obtained “minor source” (non-PSD) permits but “[e]scape[d] PSD [d]ue to the Biomass Exemption:” the Allendale facility plus seven others. Sahu Decl. at 14, 20-24. Six of them, however, obtained their minor source permits before the Deferral Rule was promulgated. Compare Sahu Decl. 22-24 (referencing Biogreen, Concord, Dorchester , Kershaw, Kamath Falls, Mancelona and Menominee facilities), with Sahu Decl. 5 (Biogreen obtained permit on December 15, 2010; Dorchester and Kershaw obtained permits on June 30, 2011; Klamath Falls obtained permit on December 30, 2010; Mancelona obtained permit on February 9, 2010; and Menominee obtained permit on May 11, 2011). If any of these sources commenced construction before July 2011, as is likely, the Deferral Rule would not affect that source because no source

8 The petitioners seem to concede that the hardship they face is remediable. Br. for Pet’rs 26 (“[E]ven if the plants commence construction under the illegal Exemption, upon a reversal of the Exemption they can be required to source more sustainably grown fuel and/or comply with more stringent limits requiring full operation and maintenance of their pollution control equipment.”). USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 41 of 4316
was subject to PSD based solely on CO 2 emissions before that date. 9
To sum up, not only is this case unfit for review but the hardship of which the petitione rs complain is hyperbolically overblown. The Deferral Rule does not deregulate scores of polluters. 10 Instead, it temporarily maintains the heretofore long-time status quo 11 for a limited number of stationary

9 While Sahu avers that “many” of the six facilities “have not commenced construction,” he does not identify any of the “many.” Sahu Decl. 20.

10 In discussing the hardship prong , the majority declares that “we have no idea how many biogenic carbon dioxide sources have been constructed since March 2012.” Maj. Op. 12. This assertion is way off the mark. The petitioners themselves could name only one source meeting the Deferral Rule exception. Their expert’s affidavit isolated only eight, six of which might not fit the exception. See
supra pp. 15-16 & n.9. If the petitioners have not been able to establish severe harm by now, we should not attempt to fill the jurisdictional gap in their challenge.

11 As an aside—my colleagues do not address this point—what the petitioners complain of is not massive deregulation but instead temporary maintenance of the status quo. Significantly, the harm they allege does not come from unregulated biogenic CO 2 emissions; rather, their primary alleged harm is that the Deferral Rule allows for the less strict regulation of emissions of certain

non -CO 2 pollutants (such as particulate matter and nitrogen oxides) from biogenic CO 2 emitters. But if a stationary source—biogenic or otherwise—has the potential to emit above-threshold amounts of a regulated pollutant other than GHGs, it must obtain a PSD permit and meet BACT not only for the pollutant(s) that made it subject to PSD but also for all pollutants emitted over certain thresholds (even for a pollutant not emitted in a quantity sufficient by itself to subject the source to PSD). See Deferral Rule, 76 Fed. Reg. at 43,493. While the Deferral Rule exempts from PSD a source whose USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 42 of 4317
sources that—until July 1, 2011—had never been subject to regulation as a major sour ce under PSD. Given these circumstances, and our role as “the governmental branch of last resort,” Aiken Cnty. , 645 F.3d at 434, I believe we should deny the petition; in the altern ative, we should hold the case in abeyance pending either the expiration of the Deferral Rule on July 21, 2014 or EPA action taken by that date. 12

biogenic CO 2 emissions alone make it subject to PSD, it does not allow a source with the potential to emit above-threshold quantities of other regulated pollutants to escape regulation. See id. at 43,492 (“This deferral applies only to biogenic CO 2 emissions and does not affect non-GHG pollutants or other GHGs . . . emitted from the combustion of biomass fuel.”). The Deferral Rule’s effect on PSD applicability, then, is minimal: as noted earlier, it simply preserves the pre-July 2011 status quo. Before July 1, 2011, a stationary source was subject to PSD if it had the potential to emit certain quantities of pollutants other than CO 2 . Under the Tailoring Rule, a source that was not otherwise subject to PSD became, as of July 1, 2011, subject to PSD based on its GHG emissions. The Deferral Rule exempts from this set of newl y-regulated sources those subject to PSD based only on their biogenic CO 2 emissions. Preserving the status quo for this limited category for—now—only a matter of months does not constitute “immediate and significant” hardship.

12 As my colleagues note, Maj. Op. 10, the Deferral Rule makes it optional for permitting authorities (e.g., states) not to regulate biogenic CO 2 emissions during the deferral period but they identify only a single state—Massachusetts—that continues to regulate biogenic CO 2 emissions. Maj. Op. 10. That only one permitting authority has seen fit to regulate biogenic CO 2 emissions during the life of the Deferral Rule underscores the reasonableness of EPA’s decision to study the science before imposing burdensome regulatory obligations to achieve uncertain and potentially negligible benefits. USCA Case #11-1101 Document #1446222 Filed: 07/12/2013 Page 43 of 43