First Year of GHG Permitting Under Prevention of Significant Deterioration Program

More than a year has passed since greenhouse gas (GHG) regulation under the Prevention of Significant Deterioration (PSD) ...

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by Peter Glaser, Troutman Sanders

More than a year has passed since greenhouse gas (GHG) regulation under the Prevention of Significant Deterioration (PSD) preconstruction air quality permitting program became effective Jan. 2, 2011. This was the first foray by the Environmental Protection Agency (EPA) into regulating GHGs from stationary sources and remains controversial.

The EPA argued that including GHGs among pollutants regulated under the PSD program would not result in significant new business costs or a significant new burden to permitting agencies, particularly given that the EPA chose to “tailor” the statutory thresholds for PSD applicability so only the largest facilities would be subject to GHG requirements. Many in the business community predicted more dire results.

As of the one-year anniversary, 11 states and the EPA had issued at least 18 permits. During the first year, Michigan and the EPA each issued the most permits—three—while Iowa and Utah each have issued two permits. California, Kansas, Louisiana, Minnesota, New York, Pennsylvania, South Dakota and Wisconsin each have issued one permit. With dozens of applications still in the pipeline, more states are expected to join the neophyte list and issue their first GHG PSD permits.

Permits issued have lacked consistency in GHG requirements. Even with published EPA guidance such as “PSD and Title V Permitting Guidance for Greenhouse Gases” and white papers to aid in consistency and certainty, the final permits and corresponding permitting processes have varied. Missing is a settled set of emissions-control technology for determining the PSD requirement of best available control technology (BACT). Some permits have direct efficiency limits; others have indirect limits. Some permits require work practice standards; others have overall emissions limits. Some final permits have been challenged in court; others barely have received any comments during the public participation portion of permitting.

Key uncertainties hamper evaluation of GHG regulation under the PSD program:

Litigation. The validity of the EPA’s GHG regulatory program is on appeal in the U.S. Court of Appeals for the D.C. Circuit. The case has been briefed and argued, and a decision is likely in May, June or July. If the court overturns the EPA’s regulatory program, the agency might be forced to find a new approach. Whatever the result, an appeal to the Supreme Court is likely.

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Early days. Eleven states issued 18 permits with GHG limits in 2011, but dozens of more permits remain in the application phase. The extent to which GHG permitting is causing delays, increasing expense and resulting in material GHG-emission reductions remains undetermined.

Does the first year represent the future? With much attention focused on the new program, has the EPA been deliberately conservative in its approach to what GHG measures facilities must adopt? This is a significant question, given that the EPA is moving into its second phase of GHG regulation for stationary sources, the establishment of New Source Performance Standards (NSPS) for categories of stationary sources, beginning with electric generating units, continuing with petroleum refineries, and then moving to other sources, as well. The level the EPA sets the NSPS for GHGs is the minimum requirement that state and EPA regional office permit writers must set for GHG BACT in a PSD permit—it is the BACT floor. As the EPA sets NSPS for categories of sources, it may exercise much greater control over the stringency of GHG BACT requirements in permits. This is shown dramatically in the EPA’s proposed GHG NSPS for electric generation, where the EPA proposed that new coal-fueled generators cannot emit any more GHGs than a comparably sized combined-cycle generator fueled with natural gas. As the EPA stated, a coal unit cannot meet this standard without carbon capture and sequestration technology. This technology is not commercially viable, and there is no comprehensive permitting and liability system for the long-term sequestration of carbon dioxide. Thus, the EPA’s first foray into setting GHG NSPS—and therefore the PSD BACT floor—has resulted in dramatic consequences for the regulated industry. The EPA always has faced the dilemma in regulating GHG emissions that stringent permit requirements will be costly and controversial. Moderate requirements, although neither costly nor controversial, will not achieve much in GHG-emission reductions. If the PSD program is to reduce the nation’s GHG emissions, the EPA eventually might need to require more stringent reductions as it has begun for coal-fueled generators.

Will the EPA lower permitting thresholds? Under the Clean Air Act (CAA), PSD permits are required if sources potentially emit more than 100 or 250 tons per year of a regulated pollutant, depending on the type of sources. If applied to GHGs, these thresholds would require so many buildings and facilities to obtain PSD permits that the regulatory program would be overwhelmed. The EPA adopted a “tailoring rule” to establish higher statutory thresholds that would decrease in a four-step program. In steps 1 and 2, the EPA raised the major source threshold to 100,000 tons per year of carbon dioxide equivalent (CO2e) and established a permitting threshold for existing source modifications at 75,000 CO2e. Initially, the EPA committed to complete a step 3 rulemaking by July 1 to lower the thresholds (but no lower than 50,000 tons per year) and promised, as a step 4, to complete a study by 2015 and propose another rule a year later with possibly even lower thresholds. On Feb. 27, however, the EPA published a proposal under which it would not lower the threshold further at this time. According to the EPA, states do not have sufficient resources to handle the additional permit applications that will result from lowered thresholds. The business community likely is happy that the EPA is not lowering the thresholds, but the statute provides for regulatory thresholds of only 100 or 250 tons per year. Depending on the outcome of current litigation, the EPA might have to lower the thresholds.

How will the election change things? Given the politics of climate change, what happens with GHG regulation under the PSD program likely will be influenced by the 2012 national elections. Will the president’s re-election lead to renewed assertiveness at the EPA on this issue? Will a Republican president lead to a different climate change approach? Those questions will be answered next year.

2011’s Avoidance Strategy

During the first year of the new GHG-permitting program, many sources obtained a PSD-avoidance permit—called a synthetic minor permit in some states—and forwent the BACT analysis and its resulting limitations. Under the avoidance permit, the facility must limit emissions increases below the thresholds that trigger PSD applicability. If a source stays under that threshold, no permit requirements apply.

Minnesota, for example, has issued avoidance permits. The Northern Natural Gas Co. requested that the Minnesota Pollution Control Agency (PCA) include a restriction of CO2e to its processes so the facility would not be subject to PSD. When issuing the final permit to CertainTeed Corp., the Minnesota PCA included in the permit that “a limit on greenhouse gas emissions (as carbon dioxide equivalent, CO2e) was added to the permit, because the permittee wishes to remain a non-major source under New Source Review.”

For Hormel Foods Corp., the avoidance limits were set at less than or equal to 94,700 tons per year of CO2e using a 12-month rolling sum for all CO2e-emitting sources at the facility.

In Ohio, the Lima Refining Co. facility requested and received permit provisions where emissions are limited based on an operational restriction of an annual heat input of 183,077 tons of CO2e per rolling 12-month period. The permit stated that “the permit establishes federally enforceable emission limitations for the purpose of limiting (the) potential to emit to avoid PSD requirements.” These examples indicate PSD avoidance has been viable for businesses.

The intersection of many CAA and state requirements sometimes might mean that a source’s complying with one set of rules might achieve or nearly achieve the requirements of other rules. Going through the full GHG PSD process rather than avoidance might make sense sometimes. It would allow the source to increase its production capacity while limiting regulated air pollutants using BACT technology; however, not all sources have found the constraints of remaining a minor source workable.

For example, slowing production to reduce emissions to avoid PSD might hamper attempts to grow business. A Utah facility considered avoidance, but after it weighed the constraints of avoidance vs. the difficulty of navigating GHG PSD permitting and its requirements, the facility obtained a PSD permit.

Permitting

The time requirements for issued permits have varied. Wisconsin Electric Power Co.’s biomass cogeneration facility submitted a construction application March 25, 2010. It received a permit a year later: March 28, 2011.

Similarly, the EPA received the Lower Colorado River Authority’s permit application on March 15, 2011, and issued a final permit within eight months.

In contrast, Pacificorp submitted the initial application for the Lake Side Power Plant in 2008. The final permit—after several addendums—was issued in 2011.

The duration of permitting depends on several factors: state agency guidance; data availability; public comment, involvement and the degree of controversy; EPA review; and any litigation.

Some state agencies have developed GHG-permitting expertise, and some have provided their own guidance to the GHG program on their websites and provided links to the EPA’s documents on initiating application. Part of the state-provided guidance involves the layout of permitting by which the state agency now must review more application information and its accompanying data, calculate and draft the permit limits, coordinate with the public, and seek EPA comments before issuing the final permit.

From the source’s perspective, more time and resources are needed to effectuate permitting, especially in developing the necessary data. The source applicant must provide information for the baseline determination of GHGs and calculations on the associated BACT technology for the corresponding industry application or equipment available. The EPA and state agencies can require data sets for each possible control technology or strategy if the source has not selected specific pieces of control equipment.

The EPA, for example, in its comments on York Plant Holding LLC, noted the heat rates of all the potential turbine models must be included to determine BACT limits.

Permitting can be extended when agencies request more information for the BACT analysis. Examples of more information requests include the Abengoa Bioenergy Biomass of Kansas project (the agency requested more environmental controls technology data) and Wisconsin Electric Power Co.’s biomass cogeneration facility (the supplemented application finally was considered complete nine months after the initial application).

Applicants have been required to bolster or supplement their current calculations or provide new analyses. These requests for more information might be because the regulating agency and applicant must maneuver through the unknown.

Even so, when the state and applicant finally reach the draft permit stage, the EPA and public still may comment on the draft. The state either must respond to those comments and revise its evaluation process or make specific permit modifications in what is often an iterative process of presenting GHG BACT information, getting comments and revising by presenting more GHG BACT information, having more comments and completing the cycle of constant revisions.

Although this process is similar to what PSD permit applicants face for all other pollutants, adding an air pollutant that wasn’t regulated before adds uncertainty.

This cycle of uncertainty and lessons learned could continue several years because only about a quarter of states have issued permits with GHG requirements.

To assist in permitting, the EPA has provided several white papers for specific industry groups. Additional cutting-edge descriptions in white papers and technological developments in an industry sector also can prolong the process. The EPA in its comment letters referenced “the industry standard” that should be considered in the BACT analysis.

With the U.S. Nitrogen Tennessee plant’s draft permit, the EPA questioned the BACT analysis regarding secondary or tertiary N2O emissions because the environmental control technology of nonselective catalytic reduction units already were being implemented at 12 other locations. The EPA said nonselective catalytic reduction units should have been considered.

Similarly, the EPA considers carbon capture and sequestration “both commercially available and technically feasible,” and eliminating this technology from the BACT analysis, in the EPA’s view, must be substantiated.

The EPA’s Role

The EPA’s guidance document says states have broad discretion in determining BACT limitations, and state agencies are not required to follow EPA guidance.

Nevertheless, the EPA emphasizes the need for a record to support all BACT determinations. In addition, the EPA commented on at least two dozen draft PSD permits involving GHG emissions and even some permit Pennwell web 250 177applications (whether solicited by the state agency or not).

The state agencies may or may not incorporate all of the EPA’s comments into the final permit, although the EPA does have authority to disapprove BACT determinations if it concludes a state has not met CAA requirements. The role of the EPA and the impact it has in permitting varies by state. To date, the EPA in its comments has raised the following themes: the need for numerical limits; the need to address startup and shutdown in a permissible way; the requiring that all GHGs be included in the BACT analysis; and the monitoring requirements for all GHGs.

The EPA can disapprove BACT determinations by disapproving Title V permit applications that contain BACT requirements the EPA deems were set improperly.

The EPA consistently has pushed for numerical limits in every circumstance where a state has left the permit condition as best practices or industry standard. From the first GHG PSD permit issued to Nucor Steel, the EPA has argued that operational standards can be used only in place of a numerical limit if a numerical limit is infeasible.

For instance, the EPA in response to the Effingham County Expansion Project application noted that Georgia Environmental Protection Division should “establish a numeric emissions limitation that reflects the maximum degree of reduction achievable for each pollutant subject to BACT.” The Louisiana Department of Environmental Quality, however, issued the permit without modifying emission limits.

In addition, the EPA commented that state agencies should provide a GHG permit limit during startup and shutdown (noting those limits could be less stringent than during normal operation). This theme appears in the draft permit comments for MidAmerican Energy Georgia Neal South Plant, Wolverine Power Supply Cooperative Power Plant, U.S. Steel Corp.’s Keetac Facility, etc.

Another example arose in the Palmdale Hybrid Power Project in which the EPA pushed for emission limits and work practices for equipment startup and shutdown.

The EPA also has commented on having all baseline information or including all possible sources of GHGs in the draft permit, e.g., comments for Hyperion Energy Center, the Cricket Valley Energy Center, Hoosier Energy’s Merom Generating Station and Crawford Renewable Energy’s facility.

The EPA noted that either equipment was left out of the analysis or not all GHGs were considered (most draft permits or applications considered CO2, but some left out SF6). Thus, sources seeking permits should include all GHG emissions and emission points.

All PSD permits must include sufficient monitoring requirements to ensure sources comply with emission limits in the PSD permit. The EPA in its review of the draft permits frequently criticized the sole use of a CO2 continuous emission monitor to track GHGs. The EPA emphasized that although CO2 is the major component of GHGs, the other five regulated GHGs must be considered. The EPA recommends using the CO2 monitor in addition to a calculated method for other GHGs using fuel factors.

The states have assimilated EPA comments to varying degrees. The EPA listed several pages of comments regarding the Nucor permit covering efficiency limits, the selection of BACT (not including all feasible technologies in the EPA’s view), the absence of numerical limits, etc.

The state, however, issued the permit without making the EPA’s suggested changes. Environmental groups immediately challenged the permit.

Regarding the Abegoa permit, the Kansas agency incorporated the EPA comments by revising the permit to include startup and shutdown in the limits, adding requirements for all GHGs including N2O and CH4 and clarifying the CO2-monitoring requirement.

Permit Content

PSD permits for GHGs have included regulatory requirements such as: efficiency limits (net or gross); direct vs. the indirect limit of CO2e; work practice standards vs. numeric limits; limitations for new plant construction vs. modifications; and specific control requirements. The permits also have varied in the types of gases controlled, CH4, SF6, N2O, and CO2e, and there are several permits with unique permit conditions. A table summarizing conditions in some permits may be found at http://troutmansanders.com/epa_GHG_permit_table.

The first-year experience of GHG permitting merits a grade of incomplete. With a down economy and a dearth of major new industrial facility projects and with the EPA’s maintaining PSD-permitting thresholds a thousand times above the statutory levels, permit applications and decisions have been limited. Most permits have not led to controversial permit conditions. On the other hand, these permit conditions have not required material GHG reductions, which could change with the advent of the EPA’s NSPS requirements.

With many more permits in the pipeline and a court decision and election nearing, the future remains uncertain.

Author

Peter Glaser practices energy and environmental law and is chair of Troutman Sanders’ climate change practice. He represents electric utility, mining and energy industry companies and associations on regulatory and commercial matters. He has participated in EPA rulemakings and judicial appeals and in state, federal and local siting and permitting proceedings. Reach him at 202.654.5611 or peter.glaser@troutmansanders.com.

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