From: Schmidt, Lorie 

Sent: Friday, May 30, 2014 2:52 PM 

To: 'Cortney_Higgins@omb.eop.gov' 

Cc: Culligan, Kevin; Wayland, Robertj; Elman, Barry; Hoffman, Howard 

Subject: additional preamble text missing from legal discussion 

Cortney 

Kevin asked me to send you the attached document, which we believe addresses your question 

about a blank spot in the preamble where the legal issues were to be discussed. 

The attached document is section f (legal issues) in the discussion on state plans. I’m sorry I don’t 

know what page it is on in the preamble version you have, but if you search for “placeholder” that 

should take you to the right section. The attached document is intended to show the changes from 

the last preamble version that we sent you. 

Thanks 

Lorie 

Lorie Schmidt 

Associate General Counsel, Air and Radiation 

Office of General Counsel 

US Environmental Protection Agency 

(202)564-1681 

<< EGU GHG NSPS 111d Proposal Legal Section on Portfolio Approach 5-30-2014.docx >> 
VIII. State Plans 

* * * * 

f. Legal issues 

The EPA is proposing to interpret the relevant provisions 

in CAA section 111 to authorize state plans that achieve 

emissions reductions from affected EGUs by means of the 

portfolio approach. Section 111(d)(1) requires each state to 

submit a plan that “(A) establishes standards of performance for 

any existing source [for certain air pollutants] . . . and (B) 

provides for the implementation and enforcement of such 

standards of performance.” CAA section 111(a)(1) defines a 

“standard of performance” as “a standard for emissions of air 

pollutants which reflects the degree of emission limitation 

achievable through the application of the best system of 

emission reduction ... adequately demonstrated.” 

These provisions make clear that emission limits that are 

enforceable against affected EGUs appropriately belong in state 

plans because they clearly are “standards of performance.” 

However, the terms of CAA section 111(d)(1) do not explicitly 

address whether, in addition to emission limits on affected 

EGUs, state plans may include other measures for achieving the 

emission performance level. Nor do they address whether entities 

other than affected EGUs may be subject to requirements that 
contribute to reducing EGU emissions. Under the U.S. Supreme 

Court’s 1984 decision in Chevron U.S.A. Inc. v. NRDC, where the 

statute leaves a gap, the agency has discretion to fashion an 

interpretation that is a reasonable construction of the statute.1 

The EPA is proposing to interpret the phrases “standards of 

performance for any existing source” and “the implementation and 

enforcement of such standards of performance” to encompass and 

allow the various components of the portfolio approach. To the 

extent that a portfolio approach contains measures that are not 

standards of performance or do not implement or enforce such 

standards, the EPA is proposing to interpret section 111 as 

allowing state 111(d) plans to include measures that are neither 

standards of performance nor measures that implement or enforce 

those standards, provided that the measures reduce CO2 emissions 

from affected sources. 

The EPA’s proposed interpretation is based, in part, on CAA 

section 111(d)’s requirement that states set performance 

standards “for” affected sources. Although “for” could be read 

as meaning that the standards must apply to affected sources, 

[here, “for” is also reasonably interpreted to have a more 

capacious meaning: standards (such as EE and RE standards) are 

reasonably considered to be “for” affected sources if they would 

have an effect on affected sources by, for example, directly 

 

1 Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837, 842-44 (1984) 
causing emission reductions in affected EGU’s CO2 emissions by 

decreasing the amount of generation needed from affected EGUs. 

Under this interpretation, and depending on the specific 

provisions in the state plan, renewable energy and demand-side 

energy efficiency requirements would be “for” fossil fuel-fired 

EGUs where such standards result in reduced CO2 emissions from 

fossil fuel-fired EGUs, even if the standards do not apply 

directly to fossil fuel-fired EGUs. 

EPA also requests comment on another approach, whether 

“standards of performance for [affected sources]” is reasonably 

read to include the emission performance level (i.e., the state 

goal) on grounds that the level is “a standard for emissions” 

because it is in the nature of a requirement that concerns 

emissions and it is “for” the affected sources because it helps 

determine their obligations under the plan. 

Moreover, where the specific measure in the portfolio 

approach are not themselves a “standard of performance,” state 

plans may include measures that implement or enforce a standard 

of performance. For example, if the state’s plan achieves the 

emission performance level through rate-based emission limits 

applicable to the affected sources, coupled with a crediting 

mechanism for RE and demand-side EE measures, we propose that RE 

and demand-side EE measures may be included in the plan as 

“implement[ing]” measures because they facilitate the sources’ 
compliance with their standards of performance. We solicit 

comment on the extent to which whether measures such as RE and 

demand-side EE may be considered “implement[ing]” measures in 

state plans if they are not directly tied to emission reductions 

that affected sources are required to make through emission 

limits, and if they are requirements on entities other than the 

affected sources. 

In addition, the EPA proposes to interpret CAA section 

111(d)(1) to allow state plans to include components of the 

portfolio approach that are measures that would reduce emissions 

from affected sources, even if those measures are neither 

“standards of performance for existing sources” nor measures 

“for the implementation and enforcement of such standards of 

performance.” There is no specific language in CAA section 

111(d) or elsewhere in the Act that prohibits states from 

including measures other than performance standards and 

implementation and enforcement measures, provided that they 

reduce emissions from affected EGUs. 

This interpretation is consistent with the principle of 

cooperative federalism, which is one of the foundational 

principles of the Clean Air Act and which supports providing 

flexibility to states to meet environmental goals (provided 

minimum CAA statutory requirements are met). This general 
principle, especially when combined with the statutory directive 

that CAA section 111(d) regulations shall establish procedures 

“similar to that provided by section 110,” supports an 

interpretation of CAA section 111(d) that allows states 

sufficient flexibility in meeting the state goal set under CAA 

section 111(d) to include in their CAA section 111(d) plans 

other measures (i.e., measures that are neither performance 

standards nor measures that enforce or implement performance 

standards). The EPA solicits comment on all aspects of its 

proposed interpretation that states have this flexibility in 

selecting measures for their state plans under CAA section 

111(d).

An alternative interpretation of 111(d)(1) would suggest 

that the responsibility to achieve the state’s required emission 

performance level must be assigned solely to affected EGUs. As 

described elsewhere in this preamble, there are a number of 

State level CO2 programs that take this approach while still 

taking advantage of low cost reductions from EE and RE through 

the use of complementary measures. This alternative 

interpretation would be based on, for example: a determination 

that section 111(d)(1) must be read as precluding a state plan 

from including measures that are neither standards of 

performance nor measures for the implementation or enforcement 

of such standards; an interpretation that the state’s obligation 
to set performance standards “for” existing sources means that 

the standards must apply to affected EGUs and not to other 

entities; and an interpretation that measures “for the 

implementation and enforcement of such performance standards” do 

not include measures that are not intended or designed to assist 

affected EGUs in meeting the performance standards. EPA takes 

comment on whether it must adopt this alternative 

interpretation. If so, EPA also takes comment on whether there 

is a way, nonetheless, to allow states to rely on the portfolio 

approach to some extent and/or for some period of time. 

We request comment on all of these interpretations 

discussed in this section generally , and as well as the 

following specific issues. 

[Placeholder for a few specific requests for comment we 

will add related to the porfolio approach – we are still 

drafting these.] 

Finally, notwithstanding the specific requests for comment 

above, the EPA solicits comment on all legal issues under CAA 

section 111(d)(1) with respect to what measures can be included 

in a state plan and what entities must be legally responsible 

for meeting those measures.