Ju ly 29 , 2009

EPA Has Ample Legal Authority to Establish De Minimis Exemptions in Area Source Rulemakings

In area source rulemakings, EPA is clearly authorized to establish HAP thresholds below which it may impose different requirements than those applicable to larger area source facilities, units or operations

– or, indeed

, below which it will not impose any requirements. This authority can be found in both (i) EPA’s discretion in setting Generally Available Control Technology (GACT) st andards, and (ii) EPA’s inherent ability not to regulate in cases where doing so would produce trivial or no benefits. EPA can also accomplish the same result via its ability to categorize and subcategorize area

sources.

A

. EPA’s Discretion in Setting G ACT Standards

EPA itself has ably explained the breadth of its discretion to set MACT standards. The following is taken essentially verbatim from the preamble from the recent final area source rule regarding Aluminum, Copper and Other Nonferrous Foundrie s, 74 Fed. Reg. 3035, 30371

- 72 (June 25, 2009):

[ I ] n section 112(d)(5), Congress gave EPA explicit authority to issue alternative emission standards for area sources. Specifically, section 112(d)(5), which is
titled ``Alternative standard for area source s,'' provides:

With respect only to categories and subcategories of area sources listed pursuant to subsection (c) of this section, the Administrator may, in lieu of the authorities provided in paragraph (2) and subsection (f) of this section, elect to pr omulgate standards or requirements applicable to sources in such categories or subcategories which provide for the use of generally available control technologies or management practices by such sources to reduce emissions of hazardous air pollutants.

See CAA section 112(d)(5) ( emphasis added ). There are two critical aspects to section 112(d)(5). First, section 112(d)(5) applies only to those categories and subcategories of area sources listed pursuant to section 112(c).

. . . Second, section 112(d)(5) provides that for area sources listed pursuant to section 112(c)(3), EPA `` may, in lieu of'' the authorities provided in section 112(d)(2) and 112(f), elect to promulgate standards pursuant to section 112(d)(5). Section 112(d)(2) provides that emission standards established under that provision ``require the maximum degree of reduction in emissions'' of HAP (also known as MACT). Section 112(d)(3), in turn, defines what constitutes the ``maximum degree of reduction in emissions'' f or new and existing sources. See section 112(d)(3). [] Webster's dictionary defines the phrase ``in lieu of'' to mean ``in the2 place of'' or ``instead of.'' See Webster's II New Riverside University (1994). Thus, section 112(d)(5) authorizes EPA to promulga te standards under section 112(d)(5) that provide for the use of GACT, instead of issuing MACT standards pursuant to section 112(d)(2) and (d)(3). The statute does not set any condition precedent for issuing standards under section 112(d)(5) other than tha t the area source category or subcategory at issue must be one that EPA listed pursuant to section 112(c)(3)

. . . .

[ ] EPA [ does not need to ] provide a rationale for issuing GACT standards under section 112(d)(5), instead of MACT standards.

. . . Had C ongress intended that EPA first conduct a MACT analysis for each area source category, Congress would have stated so expressly in section 112(d)(5). Congress did not require EPA to conduct any MACT analysis, floor analysis or beyond

- the

- floor analysis

befo re the Agency could issue a section 112(d)(5) standard. Rather, Congress authorized EPA to issue GACT standards for area source categories listed under section 112(c)(3).

. . .

Although EPA need not justify its exercise of discretion in choosing to issue a GACT standard for an area source listed pursuant to section 112(c)(3), EPA still must have a reasoned basis for the GACT determination for the particular area source category. The legislative history supporting section 112(d)(5) provides that

GACT is to encompass:

methods, practices and techniques which are commercially available and appropriate for application by the sources in the category considering economic impacts and the technical capabilities of the firms to operate and
maintain the emissions co ntrol systems.

See Senate Report on the 1990 Amendments to the Act (S. Rep. No. 101

- 228, 101st Cong. 1st session. 171

- 172). The discussion in the Senate report clearly provides that EPA may consider costs in determining what constitutes GACT for

the area source category.

Congress plainly recognized that area sources differ from major sources, which is why Congress allowed EPA to consider costs in setting GACT standards for area sources under section 112(d)(5), but did not allow that consideration in setting MACT floors for major sources pursuant to section 112(d)(3). This important dichotomy between section 112(d)(3) and section 112(d)(5) provides further evidence that Congress sought to do precisely what the title of section 112(d)(5)

states

— provide EPA the authority to issue ``[a]lternative standards for area

sources.''

. . .3 [ Further, cost is clearly ] relevant to GACT determinations and [ GACT standards relying on cost considerations are lawful ] . The U.S. Court of Appeals for the DC

Circuit has stated that cost effectiveness is a reasonable measure of cost as long as the statute does not mandate a specific method of determining cost. See Husqvarna AB v. EPA , 254 F.3d 195, 201 (D.C. Cir. 2001) (finding EPA's decision to consider costs on a per ton of emissions removed basis reasonable because CAA section 213 did not mandate a specific method of cost analysis).

. . .

[ C ] onsideration of costs and economic impacts is especially important for determining GACT [ where ] , given [ a source category or su bcategory’s ] relatively low level of HAP emissions, requiring additional controls would result in only marginal reductions in emissions at very high costs for modest incremental improvement in control.

There appear to be no court decisions interpreting Se ction 112(d)(5), and so EPA enjoys the full measure of the discretion described above to interpret that provision in any reasonable way. See Chevron USA Inc. v. NRDC , 467 F.2d 837 (1984). Thus, EPA can conclude that, where work practice standards and management practices that have been implemented at a significant number of relevant area source facilities, and control equipment is not a cost

- effective alternative, such work standards and practices are GACT. Likewise, where most sources do not employ any sort of controls or practices, and emissions are so minor that even work practice requirements would be highly cost

ineffective, EPA has the discretion reasonably to conclude that no form of control requirement is “appropriat e for application,” and hence that GACT may consist of no
controls.

As noted earlier, cases involving MACT standards are inapplicable to GACT rulemakings. For example, both and Natural Resources Defense Council v. EPA , 489 F.3d 1364 (D.C. Cir. 2007) and Sierra Club v. EPA , 479 F.3d 875 (D.C. Cir. 2007) involved the CAA’s requirements for establishing MACT standards for major sources

, not GACT standards for area sources. Major sources by definition emit at least 10 TPY
of one HAP or 25 TPY of total HAPs

, and t here i s far less question that significant
emissions reductions c an be accomplished at these sources. Area sources, by contrast, have no emissions cutoff, and can thus have vanishingly small emissions. Neither
decision addressed EPA’s specific respo nsibilities under section 112(d)(5) to consider the economic impacts on area sources to address such potentially miniscule emissions or the technical capabilities of area sources to opera te and maintain control systems.

While the Court in NRDC cited in pa ssing the language of section 112(d)(1)

– the general requirement for emission standards (“EPA shall promulgate regulations establishing emission standards for each category or subcategory of major sources and area sources of hazardous air pollutants”)

– i t did not interpret section 112(d)(1) to take precedence over4 section 112(d)(5) where area sources are involved. Indeed, under the canon of statutory interpretation that the specific controls the general, the more specific authorization of
Sub s ection (d)( 5) should be read as governing over any general ambiguity inherent in Subsection (d)(1). In sum, nothing in either of these two c ourt decisions limits in any way EPA’s authority to determine that work practice standards and management practices constitute GACT for small area sources. Indeed, EPA can reasonably use its section 112(d)(5) authority to exempt low

- emitting facilities, units or operations from an area source rulemaking altogether by establishing a de minimis exemption for such
entities

.

B

. EPA’s Inherent De Minimis A uthority

In addition to EPA ’s discretion to require no controls for de minimis emitting area sources where no form of control is generally available (i.e., cost

- effective), EPA also has
inherent authority to set de minimis thresholds under Section 112(d)(5). The seminal case in de minimis jurisprudence is Alabama Power Co. v. Costle

, 636 F.2d 323 (D.C. Cir. 1979). In that case, the D.C. Circuit explained that categorical exemptions from the requirements of a statute may b e permissible “as an exercise of agency power, inherent in most statutory schemes, to overlook circumstances that in context may fairly be
considered de minimis .” 636 F. 2d at 360. The Court explained :

It is commonplace . . . that the law does not conce rn itself with trifling matters, and this principle has often found application in the administrative context. Courts should be reluctant to apply the literal terms of a statute to mandate pointless expenditure of effort

. . . . The ability, which we describe here, to exempt de minimis situations from a statutory command is not an ability to depart from the statute, but rather a tool to be used in implementing the legislative design.

Id

. ( emphasis added ). The Court also stated t hat:

Th e ability [to create c ategorical exemptions] is not an ability to depart from the statute, but rather a tool to be used in implementing the legislative design. [W] e think most regulatory statutes, including the Clean Air Act, permit such agency

s howings in appropriate cases.

Id

. More recently, in EDF v. EPA

, 82 F.3d 451 (D.C. Cir. 1996), t he Court set forth the existing de minimis standard:

As long as the Congress has not been extraordinarily rigid in drafting the statute . . . there is likely a basis for an implication of de minimis authority to provide an exemption when the burdens of regulation yield a gain of trivial or no value

.

Id

. at 466 (quotations omitted and emphasis added ).

The D.C. Circuit has upheld EPA’s exercise of its de minimis authority because it allows the Agency to avoid undertaking continuing regulatory action where no meaningful risk5 exists. See Ohio v. EPA

, 997 F.2d 1520 (D.C. Cir. 1993). In Ohio , the Court found

reason able EPA’s exemption of certain remediated hazardous waste sites from a CERCLA review requirement because the exemption “square[d] with the health

protective purpose of the statute.” Id. at 1535. The Court stated that, “[t] o go beyond that [the statutory purpose] is to adjudge Congress incompetent to fashion a rational legislative design.” Id. at 1534

- 35.

As EPA itself has recognized, the Agency’s exercise of its de minimis authority, as well as its treatment by reviewing courts, uniformly has turned on the degree of risk at issue, not on the mass of emissions to be regulated. In a 1994 publication on de minimis emissions rates under Section 112(g) of the Act, EPA’s Emission Standards Division noted that “the concept of de minimis has been used by the courts for providing authority to regulatory agencies to make exceptions for regulation when the regulatory burdens of those affected by the rule would ‘yield a gain of trivial or no v a l u e

. ’ ” 1 EPA explained that the Agency’s exercise of de minimis author ity is important because it is “intended to prevent trivial emissions increases to be considered

. . . subject to regulation and needlessly drain administrative resources ”( emphasis added ). 2

EPA’s practice of providing de minimis exemptions from CAA mand ates was later articulated by then

- EPA General Counsel Jonathan Cannon in a discussion of EPA’s proposal for implementing the then

- recently promulgated NAAQS standards. In an October 6, 1997 letter to Congressman Bliley, Chairman of the House Commerce
Com mittee, Cannon stated that:

In providing common sense solutions to problems, EPA has previously applied de minimis principles where the strict application of the literal text of the Clean Air Act would produce trivial or non

- existent environmental benefits

. . . . For example, EPA believed it appropriate under de minimis principles to exempt the “submarginal” and “incomplete data” ozone nonattainment areas referred to above from the otherwise applicable requirement of Section 172(c)(9) to submit SIPs providing for certain contingency measures. 3

In the National Lime II decision, EPA persisted in using PM as a surrogate for nonvolatile metal HAPS despite the petitioner’s argument that it should refrain from doing so on de minimis grounds, given th e high costs of PM monitoring and the very low levels of such metals in Portland cement PM emissions. The D.C. Circuit upheld this

1 “Documentation of De Minimis Emission Rates

– Proposed 40 CFR Part 63, Subpart B, Background Document,” EPA Office of Air Quality, Emission Standards Division, February 1994, at 3 (quoting Alabama Power v. Costle, 636 F.2d 323 (D.C. Cir. 1979)).

2 Id . at 3

- 4 (stating that, in the con text of CAA § 112(g)(1), EPA “seeks to demonstrate levels of emissions increases that would result in a trivial risk to human health”).

3 Quoted in “State Implementation Plans,” 57 Fed. Reg. 13,498, 13,525 (1992) (emphasis added). See generally Hays and W etzler, “Federal Recognition Of Variances: A Window Into The Turbulent Relationship Between Science And Law Under The Clean Air Act,” 13 Journal of Environmental Law and Litigation 115 (1998) at n. 211.6 decision, stating that “EPA reasonably rejected this argument on the ground that the statute ‘does not provide from exceptio ns from emission standards based on de minimis principles where a MACT floor exists.’” Nat’l Lime Ass’n v. EPA , 233 F. 3d 625, 640 (D.C. Cir. 2000).

In fact, however, EPA appears to have created a de minimis exemption in a MACT standard for precisely s uch cost reasons, and to have done so four years after the National
Lime II decision. The Metal Parts MACT rule exempts surface coatings used at a facility in volumes of less than 50 gal/yr, provided the total amount of coatings exempted on that
basis doe s not exceed 250 gal/yr at the facility. See 40 C.F.R. § 63.3881(c)(3) (first published at 68 Fed. Reg. 129, 158 (Jan. 2, 2004)). In explaining the basis for this exemption, EPA’s response to comments document states: “The purpose of the small
volume exe mption . . . is to reduce the burden on sources that use small quantities of specialty materials that may have higher HAP contents than otherwise allowed by the

emission limits.” See http: //www.epa.gov/ttn/atw/misc/mmmm_bid_082003.pdf at 59. The basis for such an exemption seems particularly strong in this case because EPA was not using a de minimis argument to exempt entire subcategories of sources or particular pollutants from regulation , but only to avoid imposing the standards that it did apply on specific activities at major sources where the cost of regulation would have been especially b u r d e n s o m e

. 4

Whatever the legality of establishing a de minimis exemption for major sources, EPA’s legal basis for creating such an exemption is particularly assured in the case of GACT standards, where EPA can freely take costs and benefits into account when exercising its inherent power not to regulate de minimis circumstances. Alabama Power stated that agencies’ implied power to “overlook [de minimis] circumstances” may only be employed “ to make cost

- benefit decisions . . . based . . . on a fair reading of the specific statute, its aims and legislative history.” 5 However, as just noted abov e, Section 112(d)(5) do es allow EPA to take such considerations into account, precisely because they are being imposed on smaller, non

- major sources that are less able to afford them. As EPA noted in the preamble to the Chemical Manufacturing Area Sources proposed
rule :

[T] he Senate report on the legislation . . . describes GACT as:

* * * methods, practices and techniques which are commercially available and appropriate for application by the sources in the category considering economic impacts and t he technical capabilities of the firms to operate and maintain the emissions control systems.

4 Another example of a de minimis exemption in a MA CT standard is the definition of a “batch process vent” under the MON, which does not include “[a] v ent from a unit operation, or a vent from multiple unit operations that are manifolded together, from
which total uncontrolled HAP emissions are less than 2 00 lb/yr . . . .” See 40 C.F.R. § 63.2550(i) (definition of “batch process vent,” paragraph (8)).

5 Id. at 361.7 Consistent with the legislative history, we can consider costs and economic impacts in determining GACT, which is particularly important when developing regulati ons for source categories, like this one, that have many small b u s i n e s s e s

. 6

GACT standards are, therefore, an area where EPA can freely take costs and benefits into account when exercising its inherent power not to regulate de minimis circumstances. If
i t is legally permissible, and sensible, to determine the costs of GACT regulation by reference to the ability of smaller sources to operate under those costs, it should be just as permissible

– because it is just as sensible

– to conclude that, at some poi nt, the amount of emissions reductions at a source are so miniscule or inconsequential that they do not warrant any cost of r e g u l a t i o n

. 7

C

. EPA’s Ability to Categorize and Subcategorize Area Sources

A third way that EPA can effectively create an exemption for de minimis sources is through its ability to Section 112 (c)(1) and (3) to define categories and subcategories of area sources in any reasonable way, subject possibly only to a requirement not to do so in a way that d efeats the purpose of the s ection

.

The legal basis for EPA to categorize and subcategorize area sources is categories into large and small facilities is well established. Section 112(d)(1) of the Clean Air Act provides that EPA “may distinguish among cla sses, types, and sizes within a source category or subcategory in establishing [ ] standards [under Section 112].” 42 U.S.C. § 7412(d)(1). In particular, EPA’s power to categorize and subcategorize may be exercised differently for MACT and GACT purposes, so that EPA may, for example, (i) establish a category solely of area sources (e.g., “open burning scrap tires

, ” 64 Fed. Reg. 38721, July 19, 1999 ) ; and (ii) establish a subcategory within an area source category without doing so for the same category of major sources (e.g

. , “small” and “large” prepared feed manufacturing facilities, 74 Fed. Reg. 36985, July 27, 2009).

Thus

– in a GACT rulemaking, at least

-- EPA could establish (or revise) a category to exclude sources with emissions below a certain threshold, or it could subcategorize an existing category by the basis of the same threshold and impose few or no requirem ents on the ‘below

- the

- threshold’ subcategory. For the reasons discussed in Part A above, nothing in Section 112(d)(1) should prevent either action, since EPA would be acting under Section 112(d)(5). Thus, w hatever Natural Resources Defense Council v. EP A

, 489 F.3d 1364 (D.C. Cir. 2007) may mean for subcategorization for MACT purposes, that decision has no bearing on EPA’s ability to subcategorize for area source purposes.

6 73 Fed. Reg. 58354.

7 This may have been the reason that EPA created a de minimis exemption in the acrylic/modacrylic fibers production area source standard, where the definition of “equipment” is limited to a device “in organic HAP service which contains or contacts greater than 10 percent by weight of acrylonitrile and operates more than 300 hours per

year

. See 40 C.F .R. § 63 .11398 (definition of “equipment”).8 Finally, EPA’s obligation under Section 112(k) to capture 90 percent of the emissi ons of each of the 30 area source HAPs would not necessarily prevent such categorization or subcategorization steps, even in the middle of an area source rulemaking. EPA's final Integrated Urban Air Toxics Strategy, which said that EPA "still intend[ed] t o meet [its] statutory obligation to list area sources accounting for 90 percent of the emissions of each of the 30 area source HAPs," added that EPA had "chosen to complete this list in stages, adding to, deleting from, or shuffling the list as we gather more and improved data." 8 Under this "iterative approach," EPA said "listing of a particular source category isn't considered a final agency action until EPA issues emission standards for that source category. Thus, we feel the list of area source categor ies is flexible both for the addition of new area source categories and/or the removal of area source categories, through public notice." 9 If EPA can shuffle the category list at any time, and each category is fluid until final standards are issued, then it should certainly be able to dr op off some
low

- emitting sources from a given category in the final rulemaking for that category.

8 64 Fed. Reg. 38720 (July 19, 1999).

9 Id. at 38721.