Opinion ID: 185121
Heading Depth: 3
Heading Rank: 1

Heading: introduction

Text: In the rulemaking, EPA distinguished between electricitygenerating units (EGUs) and non-electricity generatingunits (non-EGUs). Council of Industrial Boiler Owners(CIBO), a trade association whose membership consists ofcompanies and universities operating industrial boilers andturbines (industrial boilers), which constitute one categoryof non-EGUs, challenges the NOx SIP call for being based onthe following arbitrary and capricious actions by EPA: EPA'sfailure to determine whether non-EGUs are significant contributors, EPA's flawed cost assumptions in its determinationof cost-effective control measures for non-EGUs, EPA's erroneous calculation of non-EGU budgets, and EPA's arbitraryredefinition of the term EGU. We agree only that EPA'sredefinition of EGUs was arbitrary and capricious. 2. Significant Contribution of Industrial Boilers CIBO challenges EPA's decision to include non-EGU boilers in the rule without having isolated non-EGU emissions todetermine whether they significantly contribute to the interstate ozone transport problem and whether implementinghighly cost-effective emissions reduction measures on industrial boilers would ameliorate nonattainment in downwindstates. CIBO maintains that non-EGU boilers typically havesignificantly shorter stacks than EGUs and that their emissions, as a result, fall below the mixing layer that promoteslong-range NOx transport. Therefore, CIBO contends, industrial boilers as a group can have no impact on long-rangeozone transport. However, this factual claim fails in view ofcontrary evidence in the record. OTAG's Executive Reportstates as one of its major conclusions that [b]oth elevated(from tall stacks) and low-level NOx reductions are effective. Executive Report at 4. EPA reiterated this finding by OTAGin the NPRM, see Proposed Rule, 62 Fed. Reg. at 60,332, itrelied on the finding, and it appears that members of CIBOnever challenged it during the comment period. Therefore,we cannot say EPA's inclusion of non-EGUs in the group ofsignificantly contributing sources was arbitrary. 3. Cost-Effectiveness Calculation for Industrial Boilers' Control Measures CIBO also challenges EPA's conclusion that industrial boilers could achieve a 60% emissions reduction using highlycost-effective control measures, see Final Rule, 63 Fed. Reg.at 57,418, as based on flawed cost calculations. More specifically, CIBO lists the following alleged problems in EPA's costassumptions: - EPA's assumption of 10 years as the lifetime of allcontrol measures for industrial boilers, except for selectivecatalytic reduction and selective non-catalytic reduction controls, for which 20 years was assumed. - EPA's use of a 10% discount rate, not 7%, in its costeffectiveness analysis. - EPA's failure to take into account the fact that controleffectiveness can vary by as much as 10% to 20%. - EPA's failure to take into account cost and feasibilityimplications of load variability and firing of multiple fuels. - EPA's assumption of NOx emission allowance costs of$2,000 per ton, when emission allowances trade for $5,500 to$6,300 per ton. The general problem of these criticisms is that CIBOmerely lists several items as problems and labels all of themirrational without explaining why its claims should concernthe court. Given that almost all of CIBO's challenges involvetechnical details on which the court generally defers to theagency's expertise, CIBO's failure to explain why the socalled problems it identifies amount to an arbitrary andcapricious decisionmaking is fatal to its claims.7 Therefore, __________ 7 For instance, the last item on the list, that it is arbitrary andcapricious for EPA to assume NOx emission allowance costs of$2,000 per ton when emission allowances now trade for $5,500 to$6,300 per ton, is insufficiently explained. Of course, if the firms inthe market generating entitlement prices of $5,500 to $6,300 per tonwere regulated at the same degree of stringency as EPA contemplates for firms expected to be burdened under the present rule, the we reject CIBO's claims regarding EPA's underlying costassumptions about industrial boilers. 4. Determination of Non-EGU Component of State NOx Budgets CIBO contends that EPA's calculation of the non-EGUcomponent for the State NOx budget lacks adequate supportin the record and lists the following as problems: - Non-EGU inventories had errors. - EPA's use of Bureau of Economic Analysis growth factorto project 2007 emission levels have inherent error. - EPA employed crude extrapolations to identify largenon-EGU boilers. - The default boiler capacity file is not in the record andthe record does not reveal how EPA manipulated the data. - The source of Bureau of Economic Analysis growthfactors is not identified in the record, and the record does notshow how EPA manipulated the data. - It is unknown whether EPA credited NOx reductionsfrom fluidized-bed combustion technology. Again, CIBO merely presents a list of problems withoutexplaining why these alleged errors render EPA's rulemakingarbitrary or capricious. In addition, CIBO members hadrepeated opportunities to provide correct information forsome of these items during the rulemaking process. CIBO'spoorly articulated, blanket accusations at this late stage contribute little to improve the quality of agency rulemaking; therefore, we reject CIBO's challenges regarding EPA's calculation of NOx budgets for non-EGUs. __________ market price would be strong evidence that compliance would costfar more than the $2,000 per ton figure that EPA has used. No onewould pay $6,000 for an entitlement to emit a ton that he couldremove at a cost of $2,000; the price of an entitlement could notexceed the marginal removal cost. But if the prices to which CIBOpoints arose among firms more stringently regulated, there wouldbe no such contradiction. CIBO has not even endeavored to showequivalent stringency. 5. Definition of EGU More persuasively, CIBO contends that EPA revised thedefinition of EGU without adequate notice. Throughoutthe rulemaking, EPA defined an EGU as it did under the acidrain program, which excludes from the category of utilityunits those cogeneration units that sell less than one-third oftheir potential electrical output capacity or less than 25 MWper year. See 42 U.S.C. s 7651a(17)(C). However, twomonths after the promulgation of the rule, EPA redefined anEGU as a unit that serves a large generator (greater than25MW) that sells electricity. CIBO contends that EPA didnot provide sufficient notice and opportunity to comment onthis revision, especially considering that the industrial boilershave relied on the previous definition for a number of years. We agree. EPA maintains that it provided adequate notice in the May1998 supplemental notice, stating that deregulation of electric utilities means that it is not clear how ownership of theelectricity generating facilities will evolve. SupplementalNotice of Proposed Rule, 63 Fed. Reg. at 25,923. Given thatthere is no relevant physical or technological differencebetween utilities and other power generators, EPA proposed, all large electricity generating sources, regardless ofownership, should be treated the same. Id. There areseveral problems with EPA's response. First, it is undisputed that EPA was departing from the definition of EGUs asused in prior regulatory contexts, and EPA was not explicitabout the departure from the prior practice until two monthsafter the rule was promulgated. Neither the proposed rulemaking in November 1997 nor the final rule in October 1998introduced the new definition. EPA waited until the December 1998 correction notice to announce that it will classify asan EGU any boiler ... that is connected to a generatorgreater than 25 MWe from which any electricity is sold. Correction and Clarification to the Finding of SignificantContribution and Rulemaking for Purposes of Reducing Regional Transport of Ozone (Correction Notice to FinalRule), 63 Fed. Reg. 71,220, 71,223 (1998). After the December correction notice, EPA reopened the comment period for sixty days for comments on this and other issues. In EPA'sMay 1999 response to the comments, EPA, for the first time,discussed why the change was necessary and offered a justification largely based on recent changes in the electric powerindustry. See Responses to the 2007 Baseline Sub-InventoryInformation and Significant Comments for the Final NOx SIPCall 10-12 (May 1999) (Responses to Final Comments). As to the statement in the May 1998 supplemental noticethat EPA claims constitutes notice, this statement was givenin EPA's discussion of how the core group of sources for themodel trading rule should be defined, and not in the contextof a discussion about the general distinction between EGUsand non-EGUs for the purposes of calculating state budgets. Cf. Small Refiner Lead Phase-Down Task Force v. EPA, 705F.2d 506, 550 (D.C. Cir. 1983). Moreover, EPA also explicitlyobserved in the same May notice discussion about the modeltrading rule that [m]any of the definitions ... are the sameas those used in ... the Acid Rain Program regulations, inorder to maintain consistency among programs. Supplemental Notice of Proposed Rule, 63 Fed. Reg. at 25,923. Given the vague and conflicting signals that EPA was sending, it is an exaggeration to state that some general themeof the regulatory consequences of deregulation of the utilityindustry throughout rulemaking meant that EPA's lastminute revision of the definition of EGU should have beenanticipated by industrial boilers as a logical outgrowth ofEPA's earlier statements. See American Water WorksAss'n. v. EPA, 40 F.3d 1266, 1274-75 (D.C. Cir. 1994). EPA contends that even assuming that CIBO did not haveadequate notice and opportunity to comment on the EGUdefinition, the error has been cured because it reopened thecomment period on this issue after its announcement of therevision. See Correction Notice to Final Rule, 63 Fed. Reg.at 71,221-23. This response is to no avail. During the newcomment period, some commenters complained that there hadnot been sufficient notice and opportunity to comment on theEGU redefinition. See Responses to Final Comment, at 12. EPA's response to this charge primarily relied on the claim that there had been adequate notice prior to the redefinition,see id., and we have already rejected that argument. Therefore, we conclude EPA did not provide sufficientnotice and opportunity to comment for its redefinition ofEGUs and remand the rulemaking to EPA for further consideration in light of this opinion. C. INGAA Interstate Natural Gas Association of America (INGAA),a trade association that represents major interstate naturalgas transmission companies in the United States, contendsthat EPA did not provide adequate notice and opportunity tocomment on the control level assumed for large stationaryinternal combustion (IC) engines in its determination ofstate NOx budgets. We agree. EPA's NPRM in November 1997 assumed a 70% controllevel for large IC engines, see Proposed Rule, 62 Fed. Reg. at60,354, after considering and rejecting an 80% control level. See id. at 60,348. Then, in the supplemental notice in May1998, EPA continued to assume the 70% control level. SeeSupplemental Notice of Proposed Rule, 63 Fed. Reg. at25,908. EPA stated in the same notice that it intends tofurther analyze control approaches for IC engines and saidthat [a]s the above analyses are completed, EPA intends toplace them in the docket. Id. at 25,909. EPA did notpresent a new analysis until September 4, 1998, when itconcluded that a 90% control level was more appropriate forlarge IC engines. See Technical Support Document for Stationary International Combustion Engines 2 (September 4,1998). When the rule was finally promulgated in October1998, EPA stated that it was assuming a 90% control level. See Final Rule, 63 Fed. Reg. at 57,418. INGAA contends that EPA's switch from 70% to 90% forlarge IC engines was unanticipated and that EPA shouldhave allowed comments on the issue. Considering EPA'srepeated affirmation of the 70% assumption throughout rulemaking and rejection of a higher, 80% assumption earlier, a revision in its assumption less than one month before the finalrule was promulgated hardly provided adequate notice, especially given the magnitude of the consequences of the proposed change on the regulated bodies. Therefore, we remandfor further consideration on this issue.8 In addition, INGAA challenges EPA's definition of large ICengines. EPA, in the final rule, distinguished between largeand small sources by defining a cutoff level. 63 Fed. Reg.at 57,414. EPA assumed no control for sources below thecutoff level and defined small sources as units with a capacityless than or equal to 250 mmBtu/hr and with emissions lessthan or equal to one ton per day. See id. at 57,415. EPAadded that EPA is relying on a capacity approach first and atons per day approach second (where a capacity data is notavailable or appropriate) to define small sources. Id. at57,416. Then, in the December correction notice, EPA largely repeated the same methodology for determining the cutofflevel, but added that [a] stationary internal combustionengine and a cement plant were determined to be 'large' if its1995 average daily ozone season emissions were greater thanone ton. Correction Notice to Final Rule, 63 Fed. Reg. at71,224. INGAA contends that EPA did not follow its own standardin the correction notice and singled out IC engines andcement plants without explanation. Although EPA's variousstatements on this issue throughout rulemaking have notalways been very clear or entirely consistent, EPA wentthrough an extensive comment period on this issue, see FinalRule, 63 Fed. Reg. at 57,415-17, and we agree with EPA thatthe change that INGAA criticizes for being arbitrary ismerely a minor clarification that satisfies the reasonablenessstandard. __________ 8 INGAA further contends that, even putting aside the noticeissue, the documents that EPA relies on do not support EPA'sassumption of 90% control level. Because we are remanding on thebasis of the conclusion that there was inadequate notice, we do notreach the merits of the issue.