Opinion ID: 187425
Heading Depth: 1
Heading Rank: 5

Heading: New Source “Offset” Credit for Past Emission

Text: Reductions CAA section 172(b) requires that each State containing a nonattainment area submit a nonattainment SIP meeting the requirements of section 172(c) pursuant to a schedule set by the EPA but not later than three years after a nonattainment area is so designated. 42 U.S.C. § 7502(b), (c). Section 172(c)(5) of 29 the Act requires that each nonattainment area SIP “shall require permits for the construction and operation of new or modified major stationary sources anywhere in the nonattainment area, in accordance with section 7503 of [Title 42].” Id. § 7502(c)(5). Section 173 sets out the permitting process, known as “New Source Review” (NSR), in greater detail, providing that a permit may be issued only if, inter alia, (1) the permitting agency has determined that by the time the source begins operation, sufficient offsetting emissions reductions are obtained that the emission levels from the offsets and the plan provisions represent RFP from the pre-permit levels, id. § 7503(a)(1)(A),8 and (2) the proposed source will “comply with the lowest achievable emission rate” (LAER), id. § 7503(a)(2).9 Section 8 Section 173(a)(1)(A) requires that the permitting agency determine[] that— (A) by the time the source is to commence operation, sufficient offsetting emissions reductions have been obtained, such that total allowable emissions from existing sources in the region, from new or modified sources which are not major emitting facilities, and from the proposed source will be sufficiently less than total emissions from existing sources (as determined in accordance with the regulations under this paragraph) prior to the application for such permit to construct or modify so as to represent (when considered together with the plan provisions required under section 7502 of this title) reasonable further progress (as defined in section 7501 of this title); . . . . 42 U.S.C. § 7503(a)(1)(A). 9 Section 173(a) also requires that (1) the new source owner or operator has demonstrated that all of its other major stationary sources in the State are subject to and in (or scheduled for) compliance with 30 173 further requires that “[s]uch emission reductions shall be, by the time a new or modified source commences operation, in effect and enforceable and shall assure that the total tonnage of increased emissions of the air pollutant from the new or modified source shall be offset by an equal or greater reduction, as applicable, in the actual emissions of such air pollutant from the same or other sources in the area.” Id. § 7503(c)(1). Subpart 2 specifically applies the NSR requirement to ozone nonattainment areas, CAA § 182(a)(2)(C)(i), 42 U.S.C. § 7511a(a)(2)(C)(i), and mandates increasingly stringent offset ratios as the ozone classification increases, CAA § 182(a)(4), (b)(5), (d)(2), 42 U.S.C. § 7511a(a)(4), (b)(5), (d)(2).10 The Phase 2 Rule allows proposed new and modified sources to meet this offset requirement using credits from sources that shut down or curtailed operations as long ago as 1977. 70 Fed. Reg. at 71,699 (to be codified at 40 C.F.R. § 51.165). The EPA has long allowed emissions reductions occurring before a permit application to qualify as offset credits under specified circumstances. Before 1989, such preapplication emissions reductions could be offset only if the proposed source was “a replacement for the productive capacity applicable emission limitations and standards; (2) the Administrator has not determined the implementation plan applicable to the attainment area site of the new source is not being adequately implemented; and (3) an analysis of alternatives demonstrates that “benefits of the proposed source significantly outweigh the environmental and social costs imposed as a result of its location, construction, or modification.” 42 U.S.C. § 7503(a)(3)-(5). 10 More generally, the Act requires that all SIPs, even those for attainment areas, include regulation of new and modified sources “as necessary to assure that national ambient air quality standards are achieved, including a permit program as required in parts C and D of this subchapter.” CAA § 110(a)(2)(C), 42 U.S.C. § 7410(a)(2)(C). 31 represented by the proposed offset credit.” Requirements for Implementation Plans; Air Quality New Source Review, 54 Fed. Reg. 27,286, 27,290 (June 28, 1989).11 The 1989 Rule eliminated this restriction for an area with an approved attainment demonstration. Id. at 27,292. In the Phase 2 Rule, the EPA “lift[ed] the requirement to have an approved attainment plan before using preapplication credits from shutdowns or curtailments as offsets.” 70 Fed. Reg. at 71,676. The NRDC challenges both the EPA’s longstanding policy allowing pre-application reductions as NSR offsets and the EPA’s elimination in the Phase 2 Rulemaking of the approved attainment demonstration requirement. We reject as untimely the NRDC’s challenge to the general policy of allowing preapplication offset credits but we agree that eliminating the attainment demonstration requirement was arbitrary and capricious and therefore in violation of the APA. 11 The pre-1989 regulation provided: Emissions reductions achieved by shutting down an existing source or permanently curtailing production or operating hours below baseline levels may be credited, provided that the work force to be affected has been notified of the proposed shutdown or curtailment. Source shutdowns and curtailments in production or operating hours occurring prior to the date the new source application is filed generally may not be used for emissions offset credit. However, where an applicant can establish that it shut down or curtailed production after August 7, 1977, or less than one year prior to the date of permit application whichever is earlier, and the proposed new source is a replacement for the shutdown or curtailment credit for such shutdown or curtailment may be applied to offset emissions from the new source. 40 C.F.R. § 51.165(a)(3)(ii)(C) (1988). 32 CAA section 307(b), which governs judicial review of a rulemaking under the Act, requires that “[a]ny petition for review . . . shall be filed within sixty days from the date notice of such promulgation . . . appears in the Federal Register.” 42 U.S.C. § 7607(b)(1). As already noted, the EPA has allowed emission reductions from pre-application source shutdowns and curtailments to qualify as NSR offset credits since at least 1989. See 54 Fed. Reg. at 27,292. Thus, the deadline for filing a petition for review of section 51.165(a)(3)(ii)(C) insofar as it authorizes offset credits for pre-permit emission reductions is long since past and the court lacks jurisdiction to review it. See Motor & Equip. Mfrs. Ass’n v. Nichols, 142 F.3d 449, 460 (D.C. Cir. 1998) (section 7607(b)(1) “filing period is jurisdictional in nature, and may not be enlarged or altered by the courts” (internal quotation marks omitted)). Nonetheless, the NRDC contends that the EPA “reopened” the 1989 offset policy so as to make its challenge timely. We disagree. “The reopening doctrine allows an otherwise stale challenge to proceed because ‘the agency opened the issue up anew,’ and then ‘reexamined . . . and reaffirmed its [prior] decision.’ ” P & V Enters. v. U.S. Army Corps of Eng’rs, 516 F.3d 1021, 1023-24 (D.C. Cir. 2008) (quoting Pub. Citizen v. Nuclear Reg. Comm’n, 901 F.2d 147, 150-51 (D.C. Cir. 1990)) (internal quotation marks omitted). In this case, the EPA did not expressly reopen the issue of offsets for pre-application emission reductions. In its proposed rule, the EPA offered two alternative amendments to section 51.165(a)(3)(ii)(C), each of which eliminated the attainment demonstration requirement under certain circumstances. See Prevention of Significant Deterioration (PSD) and Nonattainment New Source Review (NSR), 61 Fed. Reg. 38,250, 38,311-14 (July 23, 1996) (Proposed Rules). In the Phase 2 Rule, the EPA selected the less restrictive of the two 33 alternatives.12 Neither alternative proposed changing the regulation insofar as it permits offset of pre-application emission reductions generally or even mentioned the matter. Further, other than eliminating the approved attainment demonstration requirement, the language of amended section 51.165(a)(3)(C) remains substantively identical to the 1989 regulation. Compare 54 Fed. Reg. at 27,299 (§ 51.165(a)(3)(C) as effective June 29, 1989), with 70 Fed. Reg. at 71,699 (§ 51.165(a)(3)(C) as effective Jan. 30, 2006). Accordingly, the subject of allowing offsets in general was not expressly reopened. See Nat’l Ass’n of Reversionary Prop. Owners v. Surface Transp. Bd., 158 F.3d 135, 142 (D.C. Cir. 1998) (“When an agency invites debate on some aspects of a broad subject, . . . it does not automatically reopen all related aspects including those already decided.”) Nor did the EPA constructively reopen the issue, as the NRDC contends. Under some circumstances an issue may be “deemed to have been constructively reopened even though it was not actually reopened” in a literal sense. Kennecott Utah Copper Corp. v. U.S. Dep’t of Interior, 88 F.3d 1191, 1214 (D.C. Cir. 1996). “A constructive reopening occurs if the revision of accompanying regulations ‘significantly alters the stakes of judicial review’ as the result of a change that ‘could have not been reasonably anticipated.’ ” Sierra Club v. EPA, 551 F.3d 1019, 1025 (D.C. Cir. 2008) (quoting Kennecott, 88 F.3d at 1227; Envtl. Def. v. EPA, 467 F.3d 1329, 1334 (D.C. Cir. 2006)). The EPA’s elimination of the attainment determination requirement did not work such a sea change. The basic regulatory scheme remains unchanged: pre-application offsets are permitted if certain requirements are met. The only change 12 Alternative 1 conditioned using offset credits upon an area being “current with part D ozone nonattainment planning requirements”; Alternative 2, which the EPA selected, did not. Phase 2 Rule, 70 Fed. Reg. at 71,673. 34 is the elimination of the attainment demonstration requirement—which was itself added in 1989 to replace the more stringent requirement that “the proposed new source [be] a replacement for the shutdown or curtailment.” 40 C.F.R. § 51.165(a)(3)(ii)(C) (1988) (alteration added); see supra note 11. That the NRDC’s challenge to the change may have merit, as indeed we conclude infra, does not provide a ground to conclude that the broader issue of allowing any pre-application offsets at all has been reopened. It simply means the particular change it challenges is unlawful. The “stakes” here are not quantitatively different from what they were in 1989 when a coalition of environmental groups argued to the EPA that the attainment demonstration requirement itself was inadequate to ensure RFP. See 54 Fed. Reg. at 27,291-92. Yet no one then challenged the general policy allowing pre-application offsets. Further, it could have been “reasonably anticipated” at that time that the EPA might subsequently eliminate the attainment demonstration requirement itself in favor of an alternative safeguard which would likewise allow more liberal use of preapplication offset credits, as in fact happened here. In sum, the EPA has done nothing since 1989 to reopen the general issue of allowing pre-application offsets either expressly or constructively. We next address the NRDC’s objection to the specific NSR revision that is subject to review in this proceeding—that the EPA erred in eliminating the attainment demonstration requirement. We agree with the NRDC that the EPA acted arbitrarily and capriciously when it did so. In the 1989 rulemaking, the EPA imposed the approved attainment demonstration requirement in order to comply with CAA section 173(a)(1), which allows an NSR permit to issue only if 35 the permitting agency determines that— (A) by the time the source is to commence operation, sufficient offsetting emissions reductions have been obtained, such that total allowable emissions from existing sources in the region, from new or modified sources which are not major emitting facilities, and from the proposed source will be sufficiently less than total emissions from existing sources allowed under the applicable implementation plan prior to the application for such permit to construct or modify so as to represent (when considered together with the plan provisions required under section 7502 of this title) reasonable further progress (as defined in section 7501 of this title); . . . . 42 U.S.C. § 7503(a)(1)(A) (1989). The EPA concluded that the “essence of [this] provision is that a new source may be allowed in a nonattainment area only where its presence would be consistent with RFP toward attainment of the NAAQS” and that this policy is satisfied if there is in place for the area a “fully approved SIP” since, “[b]y definition, any fully approved SIP has independently assured RFP and attainment.” 54 Fed. Reg. at 27,292. “[W]here an attainment demonstration is lacking,” however, the EPA concluded that “retention of the current shutdown credit restriction on offset transactions”—that is, for a pre-permit shutdown, “the proposed source is a replacement for the productive capacity represented by the proposed offset,” id. at 27,290—“is necessary both to assure RFP and to guarantee that a new source does not cause or contribute to a violation of the NAAQS.” Id. at 27,292. Nonetheless, when the EPA amended section 51.165(a)(3)(C) in the Phase 2 Rule, it 36 eliminated the fully-approved SIP requirement without adding any other safeguard to ensure that issuing a particular permit is consistent with CAA section 173’s mandate that total reductions “represent . . . reasonable further progress.” 42 U.S.C. § 7503(a)(1)(A). The EPA justified eliminating the requirement on the ground that the 1990 amendments to the Act “changed the considerations involved” in that they “emphasized the emission inventory requirement in section 172(c)(3) as a fundamental tool in air quality planning” and “added new provisions keyed to the inventory requirement, including specific reduction strategies and [milestones] that measure progress toward attainment from the base year emissions inventory or subsequent revised inventories” along with “several adverse consequences where States fail to meet the planning or emissions reductions requirements.” 70 Fed. Reg. at 71,677; see also Reconsideration Notice, 72 Fed. Reg at 31,739. But imposing post hoc sanctions for failing to achieve RFP milestones does not accomplish what CAA section 173 requires, namely, that the EPA ensure that “by the time the source is to commence operation, sufficient offsetting emissions reductions have been obtained” to produce RFP, 42 U.S.C. § 7503(a)(1)(A) (emphasis added). Because the EPA has not explained how the amended rule, stripped of the approved attainment demonstration requirement, ensures that emission reductions are achieved “by the time” the new source begins operation rather than sometime down the road after milestones have been missed, we conclude that eliminating the requirement is arbitrary and capricious. See N. Baja Pipeline, LLC v. FERC, 483 F.3d 819, 821 (D.C. Cir. 2007) (under arbitrary and capricious standard, agency conclusions “must be reasonable and reasonably explained” (citing Nat’l Fuel Gas Supply Corp. v. FERC, 468 F.3d 831, 839 (D.C. Cir. 2006))); Transactive Corp. v. United States, 91 F.3d 232, 236 (D.C. Cir. 1996) (“In order to ensure that an agency’s decision has not been arbitrary, we require the agency to have identified and explained the reasoned basis for 37 its decision.” (citing F.J. Vollmer Co. v. Higgins, 23 F.3d 448, 451 (D.C. Cir. 1994); Nat’l Treasury Employees Union v. Horner, 854 F.2d 490, 498-99 (D.C. Cir. 1988))).13