EPA issues stringent “Tier 3” rules for vehicles and refineries . . . EPA publishes proposed amendments to the Oil and Gas New Source Performance Standard Rule . . . Committees in the House move forward on bills that would preempt EPA’s proposed Coal Ash Rule, and require sign-off from the Secretary of Energy for regulations imposing a $ 1billion or more in costs . . . EPA and environmental groups petition Supreme Court to hear Cross-State Air Pollution Rule case . . . Better put a RIN on it: EPA imposes huge penalties on individuals who fraudulently claimed Renewable Identified Numbers under the Renewable Fuels Standard program . . . Two district court decisions could have broader implications for Clean Air Act New Source Review enforcement actions . . . An under-populated D.C. Circuit receives new challenges to an alphabet soup of recently-promulgated EPA rules, including CISWI, RICE, and major boilers . . . A World Resources Institute study argues for controls for fugitive methane emissions from upstream natural gas systems.

• EPA Proposes New, Stringent Standards for Vehicle Emissions and Fuels. EPA has proposed to significantly reduce emissions of conventional air pollutants from cars and trucks while at the same time reducing the amount of sulfur in the nation’s gasoline supply. The proposed “Tier 3” emissions standards for cars and trucks were published along with updated fuel requirements on March 29. The standards will have significant implications for automakers, fuel producers, and the environment. For additional information, see our April 2, 2013 Issue Alert: http://www.vnf.com/1109.
  
  
• EPA Revises Utility MATS Limits for New Power Plants. On March 28, EPA issued a final rule that imposes less stringent limits for emissions of mercury and air toxics from new coal and oil-fired power plants. The revised Utility Mercury and Air Toxics (Utility MATS) rule partially replaces a rule that EPA originally promulgated in February 2012. EPA’s more stringent 2012 rule was challenged by utilities and others in the D.C. Circuit (White Stallion Energy Center, LLC v. EPA, D.C. Cir. No. 12-1272). The new Utility MATS rule does not affect national emissions standards for hazardous air pollutants (NESHAP) for existing power plants, which EPA also issued in February 2012. The revised Utility MATS rule is available here: http://www.epa.gov/mats/pdfs/20130328notice.pdf.
  
  
• EPA Proposes to Adjust Global Warming Potential for Greenhouse Gases. On April 2, EPA proposed to increase the global warming potential (GWP) for several greenhouse gases (GHGs), and to lower the GWP for others. Global Warming Potential is a measure of how effective the GHG is at retaining heat in the atmosphere and contributing to climate change. GWP is expressed as a measure of the heat-trapping potential of a particular gas relative to the heat-trapping potential of carbon dioxide. The most significant change involves a proposed increase in the GWP of methane: EPA proposes to raise methane’s GWP from 21 to 25 (meaning that the heat-trapping potential of methane is 25 times that of carbon dioxide.) EPA is also proposing to lower the GWP of two other GHGs that are emitted by power plants—nitrous oxide and sulfur hexafluoride. If finalized, the changes will likely affect the amount of GHGs that entities subject to EPA’s Mandatory GHG Reporting Rule must report, and could affect whether certain entities meet the Rule’s threshold for reporting (the reporting threshold is 25,000 metric tons of carbon dioxide-equivalent per year). In addition, EPA’s move could affect the prices at which certain types of GHG emissions and offset projects trade in voluntary markets and in California’s cap-and-trade program. The proposed rule is available here: https://federalregister.gov/a/2013-06093.
  
  
• EPA Proposes to Change Guidance on GHG Emissions Credit for FFVs. On March 22, EPA published proposed guidance that could reduce the amount of credit automakers can get for sales of flexible-fuel vehicles (FFVs) that can run on fuel blends of up to 85 percent ethanol-to-gasoline (E85). Under EPA’s GHG Tailpipe rule, automakers must meet specified fleet-wide targets for fuel efficiency; however, automakers receive credit for sales of FFVs, based on an assumption that such vehicles will burn more renewable fuels over their lifetime than non-FFVs. EPA’s draft guidance would reduce the “F-factor”— the estimate of the amount of time FFVs will be burning E85 (as opposed to ordinary gasoline) – from 50 percent to 20 percent. The reduction in the F-factor could reduce the amount of fuel efficiency credits automakers could receive for sales of their FFVs. Comments on the draft guidance are due by April 22, 2013. The proposed guidance is available here: http://www.epa.gov/otaq/regs/ld-hwy/greenhouse/documents/draft-ffv-guidance-letter.pdf.
  
  
• EPA Proposes Reconsidered Oil and Gas NSPS Rule. On March 28, the EPA issued a proposed reconsideration of certain parts of its New Source Performance Standards (NSPS) for the oil and gas sector, originally finalized on August 16, 2012. For more information on the August 2012 rule, see our earlier update at http://www.vnf.com/news-alerts-701.html. The proposed amendments focus primarily on the application of the NSPS to natural gas storage vessels, and represent the agency’s response to industry concerns that the August 2012 version of the rule would impose costly requirements on an extensive universe of small facilities that do not have meaningful emissions of Volatile Organic Compounds. EPA and industry petitioners asked the Court of Appeals for the District of Columbia Circuit to hold legal challenges to the August 2012 rule in abeyance during the pendency of the reconsideration rulemaking. See our earlier update at http://www.vnf.com/news-policyupdates-799.html. The D.C. Circuit granted the requested order on April 3. The proposed rule is available at http://www.epa.gov/airquality/oilandgas/actions.html.
  
  
• Additional Executive Branch Developments:
• BLM proposes to update royalty and environmental protection rules governing oil and gas development in federal oil sands. See http://www.blm.gov/wo/st/en/info/newsroom/2013/march/nr_03_22_2013.html.
  
  
• CEQ requires federal agencies to consider climate change impacts when planning investments in water resources projects. See http://www.whitehouse.gov/administration/eop/ceq/initiatives/PandG.
  
  
• EPA announces new Science Advisory Board panel to review its analysis on the potential effects of hydraulic fracturing on drinking water. See the announcement, here.
  
  
• PHMSA proposes $1.7 million fine against Exxon Mobil for its July 2011 oil spill in Montana. See the proposal, here.
  
  
• EPA rejects 74,000 imported Chinese motorcycles and ATVs for failing to meet Clean Air Act emissions standards. See the rejection, here.
  
  
• EPA and Dominion Energy Inc., a multi-state electric power company, proposed to resolve Dominion’s alleged CAA violations through a settlement under which the company would retire a coal-fired power plant in Indiana, install pollution controls on two other plants, and pay $9.75 million for environmental mitigation projects and $3.4 million as a civil penalty. See http://www.epa.gov/enforcement/air/cases/dominionenergy.html.
  
  

• Senate Committee Holds Field Hearing. On March 27, the Senate Commerce, Science and Transportation Committee’s Subcommittee on Oceans, Atmosphere, Fisheries and the Coast Guard held a field hearing entitled “Assessing U.S. Preparedness and Response in the Arctic: The Opportunities and Challenges of Increased Marine Activity.” The hearing was held at the University of Alaska’s Anchorage campus. Witnesses included Department of the Interior Acting Assistant Secretary for Land and Minerals Management Tommy Beaudreau; Vice President of Exploration and Production for Shell Alaska Pete E. Slaiby; and Bering Straits Native Corporation Vice President Matt Ganley. Topics discussed at the hearing varied widely, but mostly focused on Shell’s decision to halt drilling activity for 2013 in both the Beaufort and Chukchi Seas after a containment dome designed to cap a spill was damaged by ice. Acting Assistant Secretary Beaudreau told the Committee that, according to the Department of the Interior report on the Shell decision to halt drilling, Shell “entered the 2012 drilling season without having finalized key components of its program, including its Arctic Challenger containment system, which put pressure on Shell’s operations and schedule and limited Shell from drilling into oil-bearing zones last summer.” Matt Ganley, Vice President of the Bering Straits Native Corporation, told the Committee of the Corporation’s intention to build infrastructure in the area that “will positively benefit the safety, security, and economic development of the region.” The full witness list and testimony is available at http://www.commerce.senate.gov/public/index.cfm?p=Hearings&ContentRecord_id=12a5ee11-a874-4c5f-b526-b7b5f2b54c35&ContentType_id=14f995b9-dfa5-407a-9d35-56cc7152a7ed&Group_id=373e344f-29c8-446a-87a8-ca27d7eb5e06.
  
  
• Senators Send Letter Urging Increased Funding for Weatherization Assistance. On March 28, Senators Jack Reed (D-RI) and Susan Collins (R-ME) sent a letter to Energy Secretary Chu urging him to reprogram funds allocated in the Fiscal Year (FY) 2013 Continuing Resolution to fund the Weatherization Assistance Program (WAP). The letter, signed by 34 Senators in total, states that the 60 percent cut in funding will limit the functionality of the program in many states. The letter is available at http://www.reed.senate.gov/news/release/reed-and-collins-seek-to-save-weatherization-assistance-program.
  
  
• Senators Send Letter to EPA. On April 1, Senate Environment and Public Works Committee Ranking Member David Vitter (R-LA) and Subcommittee on Clean Air and Nuclear Safety Ranking Member Jeff Sessions (R-AL) sent a letter to Assistant Administrator of the Office of Air and Radiation, and current EPA Administrator nominee, Gina McCarthy. The duo expressed concerns with the proposed rule, "Startup, Shutdown, and Malfunction: Proposed Response to Petition for Rulemaking, Findings of Inadequacy, and Call for Plan Revisions." The rule would require State Implementation Plans under the Clean Air Act to remove certain exemptions from air regulations for facilities during the periods of start-up, shut-down, and malfunction. The letter requests “immediate response” to 8 questions regarding a variety of issues, including the EPA’s use of attorneys. The letter is available at http://www.epw.senate.gov/public/index.cfm?FuseAction=Minority.PressReleases&ContentRecord_id=cb2acf1b-e573-b075-39fc-109c6ff8b84b.
  
  
• House Committees Release Draft Bills, Announce Hearings. The House Energy and Commerce Committee released draft text of two bills, the “Coal Ash Recycling and Oversight Act of 2013” and “Energy Consumers Relief Act of 2013” and announced that the subcommittees with appropriate jurisdiction would hold hearings this week. As currently drafted, the “Coal Ash Recycling and Oversight Act of 2013” would preempt EPA’s proposed Coal Ash Rule and provide states with relatively greater authority over the regulation of coal combustion residuals from power plants. The draft of the “Energy Consumers Relief Act of 2013” would prohibit the EPA from finalizing any energy-related rule estimated to cost more than $1 billion if the Secretary of Energy determines that the rule will cause significant adverse effects to the economy. Similar bills were passed by the House during the last Congress. The text and committee authorized documents for the “Coal Ash Recycling and Oversight Act of 2013” are available at http://energycommerce.house.gov/hearing/coal-ash-recycling-and-oversight-act-2013 and the “Energy Consumers Relief Act of 2013” is available at http://energycommerce.house.gov/press-release/subcommittee-unveils-draft-legislation-protect-consumers-higher-energy-costs.
  
  
• Senators Send Letter to CEQ. On April 4, Senators John Barrasso (R-WY), Orrin Hatch (R-UT) and Jim Inhofe (R-OK) sent a letter to White House Council on Environmental Quality (CEQ) Chair Nancy Sutley urging CEQ not to impose requirements that Federal agencies consider lifecycle greenhouse gas emissions from U.S. products used overseas when evaluating the environmental impacts of export projects. The letter is available at http://www.barrasso.senate.gov/public/index.cfm?FuseAction=PressOffice.PressReleases&ContentRecord_id=d63cfc08-c207-e66a-5b11-13f6464bda0b&Region_id=&Issue_id.
  
  

• EPA Petitions Supreme Court to Review Cross-State Air Pollution Rule Decision. On March 29, the Department of Justice (DOJ), on behalf of the EPA, filed a petition with the U.S. Supreme Court asking it to hear the agency’s appeal of the U.S. Court of Appeals for the District of Columbia Circuit’s (D.C. Circuit) decision to vacate the Cross-State Air Pollution Rule (CSAPR), EME Homer City Generation, L.P. v. EPA, (No. 11-1302). CSAPR would have required power plants in 28 states to reduce their nitrogen oxides (NOx) and sulfur dioxide (SO2) emissions to help downwind states meet certain National Ambient Air Quality Standards (NAAQS) for ozone and fine particulate matter. The D.C. Circuit vacated CSAPR on August 21, 2012 for two primary reasons: first, the court held that EPA exceeded its authority by imposing Federal Implementation Plans on upwind affected states before allowing those states an opportunity to issue State Implementation Plans; and second, because the court found the rule might require upwind states to reduce their emissions by more than their “significant contributions” to a downwind state’s nonattainment. In its petition to the Supreme Court, EPA argues that the court’s decision, which established a “proportionality” requirement for future cross-state air rules, might make future pollution transport rules infeasible to design, thereby seriously jeopardizing downwind states’ ability to comply with NAAQS. Various environmental groups also filed cert petitions, arguing in part that the D.C. Circuit exceeded statutory limits on its authority to review the rule. For more information on the rule and the D.C. Circuit’s decision vacating CSAPR, see an August 23, 2012 VNF Alert.
  
  
• Supreme Court Denies Petition to Review NOx Air Standard. On April 1, the U.S. Supreme Court denied a petition seeking review of the D.C. Circuit’s decision upholding the EPA’s NOx air quality standard in American Petroleum Institute v. EPA, No. 12-760. API had asked the Court to review EPA’s 2010 NAAQS for NOx, which set a one-hour standard of 100 parts per billion (ppb) and retained 53 ppb as the annual standard. API had argued that the standards were “based on a purely hypothetical threat to public health.” The Court denied the petition for writ of certiorari without comment.
  
  
• Federal Court Finds BLM’s Failure to Consider Fracking in Violation of NEPA. In Center for Biological Diversity v. BLM, No. C-11-06174, a federal judge in the Northern District of California found that the Bureau of Land Management (BLM) violated the National Environmental Policy Act (NEPA) when it issued four oil and gas leases on federal lands in California without taking a “hard look” at the impacts of hydraulic fracturing. Under NEPA, federal agencies are required to assess the impacts that major federal actions may have on the environment, prior to the commencement of the action. The court gave the parties until April 15 to issue a joint recommendation of an appropriate remedy. The environmental groups that brought the lawsuit would like the leases invalidated or placed under an injunction until a detailed environmental analysis is completed.
  
  
• 15-Year Prison Sentence for Fake Biodiesel Credit Scam. On March 29, Jeffrey Gunselman, the owner of Absolute Fuels LLC in Anton, Texas, was sentenced to 15 years in prison, ordered to pay $54.9 million in restitution, and fined $175,000 after he plead guilty in December 2012, to multiple charges in a case involving falsified renewable fuel credits. Under EPA’s Renewable Fuel Standards (RFS) program, petroleum refiners are required to blend a predetermined volume of biofuels into the nation’s fuel supply. Refiners may demonstrate compliance with the RFS program by submitting Renewable Identification Numbers (RINs) to the agency. RINs are issued by the EPA to entities that produce or import renewable fuels. Gunselman falsely represented to the EPA that his business produced biodiesel as part of a scam to receive fraudulent RINs credits from the agency. He claimed his company produced more than 48.3 million credits worth of biodiesel RINs. After EPA issued the RINs to Gunselman, he sold them to oil companies and renewable energy credit brokers, and received approximately $41.76 million in payments. Gunselman’s sentence follows a separate, but similar case from earlier this year, when a federal judge sentenced Rodney Hailey to nearly 12 years and six months in prison for selling $9 million in fraudulent RINs. EPA has since issued a proposed rule that would establish an RFS voluntary quality assurance program to prevent RINs fraud. For more information see the February 13, 2013, VNF alert here: http://www.vnf.com/1110.
  
  
• EPA Sued Over Both Major Source and Area Source Boilers Rules. On March 29, the D.C. Circuit received multiple challenges to EPA’s final rule amending the national emissions standards for hazardous air pollutants (NESHAPs) for major source boilers, JELD-WEN Inc. v. EPA, (No. 13-1086). Major source boilers have the potential to emit more than 10 tons per year of a single air toxic or 25 tons per year of multiple air toxics. EPA’s major source rule, which was finalized on January 31, was challenged by both industry and environmental groups. Environmentalists challenged the rule on the grounds that the standards are too weak and industry has too much time to comply. Industry challenges focus less on emissions standards and more on the rule’s implementation. Additionally, on April 2, industry and environmental groups filed petitions for review challenging the EPA’s NESHAPs rule for area source boilers, which was finalized on February 1, Louisiana Environmental Action Network v. EPA, No. 13-1105. Area source boilers are smaller than major source boilers and are typically used by hotels, universities and hospitals. Under the area source boilers rule, most boilers are exempt from obtaining CAA Title V operating permits and are allowed to meet the air toxic standards through work or management practices, rather than compliance with numerical emissions limits. Additionally, the rule will only require coal-fired area source boilers to meet emissions limits for carbon monoxide and mercury, while other fuel sources will be exempt from these emissions limits. EPA also received petitions for administrative reconsideration of both air toxics rules.
  
  
• D.C. Circuit Receives Challenges Over EPA RICE Rule. The EPA was sued on April 1 in the D.C. Circuit over the agency’s final rule setting NESHAPs for reciprocating internal combustion engines (RICE), Delaware Dep’t of Natural Resources and Environmental Control v. EPA, No. 13-1093. Otherwise known as emergency backup diesel generators, RICE are used by a variety of industries— agriculture, medical facilities, oil and gas production— to provide additional electricity production during peak demand periods or during emergency power outages. The final rule allows RICE to run without emissions controls for up to 100 hours per year— the prior rule exempted the engines for only 15 hours. The final rule also requires RICE to use ultralow-sulfur diesel fuel beginning in 2015 and allows certain stationary RICE to operate an additional 50 hour per year in nonemergency situations— including for peak-shaving generation. The petitioning environmental groups have expressed concerns that EPA’s rule will encourage RICE operation during the summer months when electricity demand is typically high and the risk of ground-level ozone formation is at its greatest.
  
  
• Federal Court Invalidates State NSR Enforcement Cases as Time-Barred. In a decision that could have implications for ongoing EPA enforcement actions based on allegations of decades-past violations of the CAA New Source Review (NSR) provisions, a federal court ruled that NSR enforcement actions by two states were barred by the statute of limitations. In New Jersey v. RRI Energy Mid-Atlantic Power Holdings, E.D. Pa., No. 07-cv-05298, Mar. 28, 2013), the U.S. District Court for the Eastern District of Pennsylvania granted defendant Metropolitan Edison Co.’s motion for summary judgment and dismissed claims by New Jersey and Connecticut that Metropolitan made modifications to its Portland Generating Station between 1983 and 1998 without obtaining required NSR Prevention of Significant Deterioration permits. The court held that the state claims are barred by the federal five-year statute of limitations.
  
  
• Sixth Circuit Upholds EPA Finding of NSR Violation at Preconstruction Phase. On March 28, the Court of Appeals for the Sixth Circuit held that EPA is not barred from issuing a notice of violation under the NSR provisions against a company on the basis of the inadequacy of its pre-construction projection of facility emissions. U.S.A. v. DTE Energy Co., 6^th Cir., No. 11-2328, Mar. 28, 2013. The Sixth Circuit reversed and remanded a lower court decision that ruled in favor of the facility owner, DTE Energy. Though it reversed the district court decision as going too far in circumscribing EPA’s authority over pre-construction emission projections, the Sixth Circuit decision also suggested that the agency’s oversight at that stage has limits. The decision states that “if the agency can second-guess the making of the projections, then a project-and-report scheme would be transformed into a prior approval scheme.”
  
  
• Fifth Circuit Rules in Favor of EPA on Texas SIP Startup-Shutdown Defenses. On March 25, the Court of Appeals for the Fifth Circuit denied petitions for review by a state power company and environmental groups challenging decisions by EPA addressing certain provisions in the Texas CAA State Implementation Plan (SIP). Luminant Generation Co. v. EPA, 5^th Cir., No. 10-60934, Mar. 25, 2013. The court held that EPA acted within its authority when it partially approved and partially disapproved provisions in the Texas SIP granting facilities a limited affirmative defense to violations resulting from unauthorized excess emissions occurring during start-up, shut-down, and malfunction (SSM) events. EPA approved the SIP-based defense only as it applies to unplanned (SSM) events, but disapproved the defense as it applies to planned events. Environmental groups challenged the former, and Luminant challenged the latter.
  
  
• Suits Filed in D.C. Circuit Over EPA’s Solid Waste Incinerators’ Rule. On April 5 and April 8, the D.C. Circuit received challenges to EPA’s final Commercial and Industrial Solid Waste Incineration Units (CISWI Units) rule, published on February 7. CISWI Units are any combustion device that burn commercial and/or industrial waste. The rule finalizes standards of performance for new CISWI Units and sets emission guidelines for existing CISWI Units. The rule was challenged both by industry and by environmental groups, Portland Cement Ass’n v. EPA, No. 13-1111 and Louisiana Environmental Action Network v. EPA, No. 13-1120. In addition to setting performance standards, the rule also requires CISWI Units to use continuous parametric monitoring systems for particulate matter released from waste-burning kilns and large energy recovery units, and submit to periodic stack testing. Industry groups have argued that in order to comply with the rule’s emissions limits they will either need to install costly control devices or dispose of the solid waste in another manner.
  
  

• World Resources Institute Study Calls for Controlling Methane Emissions from Upstream Natural Gas Systems. A study by the World Resources Institute (WRI) recommends steps to reduce fugitive emissions of methane—a greenhouse gas—from upstream natural gas systems, which include wells, processors, and pipelines. The study acknowledges that current estimates of fugitive methane emissions vary widely, but asserts that the weight of the evidence shows emissions at all stages of the upstream system and significant benefits resulting from reductions. WRI estimates that EPA’s Oil and Gas NSPS and NESHAPS—which apply to new wells, compressors, controllers, and storage tanks—will reduce methane emissions (as a co-benefit to reductions in Volatile Organic Compound emissions) by 25 percent by 2035. The study also suggests that upstream systems could cost-effectively reduce methane emission by an additional 30 percent through use of three technology interventions: (a) plunger lift systems at wells during liquids unloading operations; (2) methane leak monitoring and repair; and (3) replacement of high-bleed pneumatic devices with low-bleed pneumatic devices. WRI outlines various policies that could drive further use of these technologies, including regulation of methane under section 111 of the Clean Air Act. The study is available at http://www.wri.org/publication/clearing-the-air.
  
  
• EIA: 2012 U.S. CO₂ Emissions from Energy Lowest Since 1994. The U.S. Energy Information Administration (EIA) reported that carbon dioxide (CO₂) emissions from the U.S. energy sector in 2012 were 5.3 billion metric tons, which is the lowest level since 1994. The agency also said that, with the exception of 2010, energy-related CO₂ emissions have declined each year since 2007. The EIA attributed the low level of emissions in 2012 to increased use of natural gas for electricity (and a corresponding decline in use of higher-emitting coal), and an unusually warm winter. See http://www.eia.gov/todayinenergy/detail.cfm?id=10691.   

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