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Climate, Energy, & Air Update - July 4 - 17, 2013

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July 17, 2013

The Obama Administration released its regulatory agenda . . . A Seventh Circuit decision could limit EPA NSR enforcement initiatives . . . The United States and China entered into an agreement to carry out climate change mitigation measures . . . . A bipartisan group of Senators wrote a letter to DOE asking for expedited review of LNG export permit applications . . . Bill becomes law (!) . . . The D.C. Circuit vacated EPA’s rule deferring NSR permitting for CO2 emissions from burning biomass . . . A White House climate adviser said EPA’s revised proposal for GHG emission standards for new power plants will have a separate standard for coal-fired power plants.

EXECUTIVE BRANCH
  • Obama Administration Regulatory Agenda Indicates Intent to Tackle Important Energy, Air Issues. The Obama Administration has released its 2013 regulatory agenda, which provides information about expected timelines for proposal and issuance of major rules. The agenda does not bind agencies to its timelines, but is meant to provide notice of expected timelines for rulemakings. Some of the agenda’s highlights include plans by EPA to take action on the following rulemaking initiatives: revised proposed rules to regulate GHGs from new power plants (by Sept. 2013); a final rule setting effluent limitation guidelines for steam-driven electric power plants under the Clean Water Act (by May 2014); final Tier III automobile emission and fuel standards (by December 2013); and final rules to regulate flaring at petroleum refineries (by December 2014). Meanwhile, the Department of Energy’s regulatory agenda indicates that the agency aims to finalize a rule governing DOE coordination of federal agency approval for siting of electric transmission facilities (by December 2013). DOE also will implement numerous rulemakings related to device and building energy efficiency. The 2013 Unified Agenda is available here: http://www.reginfo.gov/public/do/eAgendaMain (use the drop-down menu to view the agenda of specific agencies).

  • White House Climate Advisor Heather Zichal Indicates that Revised NSPS GHG Rule Will Treat Coal, Natural Gas Facilities Separately. According to news reports, Heather Zichal, a top White House advisor on climate and energy issues, indicated to Senate Democrats in a closed-door meeting that revised proposed New Source Performance Standards for GHG emissions from power plants—which were sent to the Office of Management and Budget for pre-publication review on July 1—will include separate standards for coal-fired and natural-gas fired power plants. Previously, EPA had proposed to impose the same standard on all fossil fuel-fired power plants (except for combustion turbines), regardless of fuel type. It is unclear if the plan will further differentiate between other kinds of fuel (e.g., co-firing with biomass, fuel oil, etc.), or will regulate combustion turbines. The revised proposal is expected to be released by mid-September, with a final rule issued as expeditiously as possible thereafter. For a discussion of issues and options associated with power plant regulation, see our June 27 Alert: http://www.vnf.com/1102.

  • EPA to Reconsider Fuel Compliance Date, Other Requirements in Backup Engines (RICE) Rule. On June 28, EPA announced that it would reconsider the 2015 compliance date requiring use of ultra-low-sulfur diesel fuel (of 15 parts per million or lower) in backup stationary engines that generate electricity, as well as the requirement for engine operators to submit reports regarding information about the engines’ usage. The final National Emissions Standards for Hazardous Air Pollutants (NESHAP) for stationary reciprocating internal combustion engines (RICE) rule was issued in January 2013 and allows backup power generators to operate without emission controls for up to 100 hours per year. Previously, RICE engines were exempt from standards if they operated fewer than 15 hours. Further information about the final RICE rule can be found here: http://www.epa.gov/ttn/atw/rice/20130114emergencyfs.pdf.

  • U.S. and China Agree to Five Point Plan to Cut Greenhouse Gas Emissions. On July 10, the State Department announced an agreement between the United States and China to develop a plan by October 2013 to address the following:
    • Reduce emissions from heavy-duty and other vehicles: including through efficiency standards, cleaner fuels and emission control technologies, and more efficient, “clean freight.”
    • Promote carbon capture and storage: including bilateral cooperation to overcome barriers in the development of several large-scale, integrated carbon capture projects.
    • Increase energy efficiency in buildings, industry and transportation: including intensifying efforts to promote energy efficiency of buildings and utilization of innovative financing mechanisms.
    • Improve greenhouse gas data collection and management: including “building capacity for collection and management of greenhouse gas emissions data.”
    • Promote smart grids: including collaboration on building grids that are “more resilient, more efficient, and can incorporate more renewable energy and distributed generation.”

      This new agreement follows the recent announcement by President Obama and Chinese President Xi Jinping that the United States and China have agreed to cut the production and use of hydrofluorocarbons (HFCs), which are used in refrigerants and insulating foams and also are greenhouse gases with a very high Global Warming Potential. In June, President Obama announced his action plan to address climate change, which includes many of the same goals that were outlined in the agreement with China: http://www.whitehouse.gov/share/climate-action-plan.

  • 2013 Renewable Fuel Standard (RFS-2) Targets Under Final Review. EPA has sent its 2013 RFS-2 targets for final approval to the White House Office of Management and Budget. The 2013 RFS-2 targets have been especially controversial this year because federal law prohibits increasing the percentage of ethanol that may be blended in gasoline (commonly known as the “blend wall”) but also requires fuel blenders to blend gasoline at greater concentrations. The blend wall may have contributed to the increased volatility seen in the renewable fuel credits (RINs) market, which saw prices jump from $0.05 at the end of 2012 to more than $1.00 in March 2013. EPA previously released its proposed 2014 targets for the three biofuels categories but the agency has not indicated whether these targets were altered before being sent to the Office of Management and Budget for final approval:
    • Corn ethanol: 13.8 billion gallons, up from 13.2 billion gallons in 2012;
    • Cellulosic ethanol: 14 million gallons, up from 8.65 million gallons in 2012;
    • Advanced biofuels: 2.75 billion gallons, up from 750 million gallons in 2012;

      In June, the EPA announced that ethanol produced from barley can qualify as a “conventional” biofuel source under the RFS. Some barley can also qualify as an “advanced” biofuel if it meets a threshold of reducing greenhouse gases by 50 percent compared to conventional fuels. In July, EPA issued a final rule approving the use of imported strains of Giant Reed and Napier Grass to meet the RFS-2. The final rule is available at: https://s3.amazonaws.com/public-inspection.federalregister.gov/2013-16488.pdf.

  • Additional Developments:
CONGRESS
  • House Republicans Announce July Agenda, Include Energy Bills. On July 5, House Majority Whip Eric Cantor (R-VA) sent a memo to House Republicans outlining the legislative agenda for July. The memo identifies three energy bills. H.R. 2218, the “Coal Residuals Reuse and Management Act of 2013”, would give states primary authority to regulate coal ash residuals (CCRs) from power plants, is sponsored by Rep. David McKinley (R-WV). H.R. 1582 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” and is sponsored by Rep. David Cassidy (R-LA). H.R. 1900, the “Natural Gas Pipeline Permitting Reform Act,” would alter FERC’s permitting authority over natural gas pipelines and is sponsored by Rep. Mike Pompeo (R-KS). The Cantor memo also identifies education and oversight legislation as two priorities for the month of July. The memo is available at http://majorityleader.gov/blog/2013/07/july-legislative-agenda-memo.html.

  • Senator Sends Letter to Pebble Mine CEOs. On July 8, Senate Energy and Natural Resources Committee Ranking Member Lisa Murkowski (R-AK) sent a letter to the CEOs of the Pebble Limited Partnership -- Anglo American and Northern Dynasty Minerals -- regarding the project description associated with the permit application for the development of the Pebble deposit in the Bristol Bay region of Alaska. In the letter, Senator Murkowski points to several statements by company representatives in which they made commitments to release a project description. The letter requests that the group “establish a timeline and stick to it.” Additional information is available at http://www.energy.senate.gov/public/index.cfm/republican-news?ID=4b0413c3-2ae4-4b84-8d21-de78e1a24b00 and the letter is available at http://www.energy.senate.gov/public/index.cfm/files/serve?File_id=3b2efb37-cdd2-4203-8568-72c405e2a4e4.

  • House Committee Holds Hearing and Mark-up on Permitting of Natural Gas Pipelines. On July 9, the House Energy and Commerce Subcommittee on Energy and Power held a hearing and, later that day, a mark-up, of H.R. 1900, the “Natural Gas Pipeline Permitting Reform Act.” According to Committee documents, H.R. 1900 would impose a 12-month deadline on FERC to approve or deny a pipeline certificate request; codify FERC’s 90-day regulatory deadline for all relevant agencies to approve or deny a permit application after FERC’s notice of completion of the final environmental assessment document relating to the project; and, require that a permit becomes effective if an agency does not issue a response within the 90-day timeframe. The Committee also passed H.R. 1582, the “Energy Consumers Relief Act of 2013,” and H.R. 83, a bill to require the Secretary of the Interior to assemble a team of technical, policy, and financial experts to address the energy needs of the insular areas of the United States and the Freely Associated States through the development of an energy action plan. The full committee is set to mark-up all three bills this week and, as noted above, the House is expected to vote on two of them in July. A webcast of the hearing, full witness list and committee-issued documents are available at http://energycommerce.house.gov/hearing/hr-1900-natural-gas-pipeline-permitting-reform-act and a webcast of the mark-up and full list of amendments considered are available at http://energycommerce.house.gov/markup/energy-and-power-subcommittee-vote-hr-1582-hr-1900-and-hr-83.

  • Senators Send Bipartisan Letter to DOE on LNG Exports. On July 9, Senators James Inhofe (R-OK) and Mark Begich (D-AK) joined 23 Republican and 11 Democratic senators in sending a letter to Energy Secretary Ernest Moniz encouraging him to review and make expeditious decisions on the remaining permit applications to export Liquefied Natural Gas (LNG) to countries not subject to a Free Trade Agreement. The letter expresses concern over DOE estimates that it may take up to eight weeks to review each of 20 outstanding LNG export proposals. The Senators warn that they are “concerned that the timeline for considering these applications may jeopardize our ability to retain a competitive position against other natural gas exporting nations.” The letter is available at http://www.inhofe.senate.gov/download/?id=dd4b69cc-c0da-409d-bf8c-e398883174ab&download=1.

  • House Committee Holds Hearing on Coal. On July 9, the House Natural Resources Subcommittee on Energy and Mineral Resources held a hearing entitled “Mining in America: Powder River Basin Coal Mining the Benefits and Challenges.” According to Committee-issued documents, the hearing was intended to “focus on the jobs, energy, and economic benefits related to the development of our natural resources in the Power River Basin in Wyoming and Montana.” Witnesses included Darrin Old Coyote, Chairman of the Crow Nation; and Mary Kendall, Inspector General (IG) at the Department of the Interior. Committee members focused their questions on a report issued by the IG that studied the Department of the Interior’s program for leasing federal coal tracts to mining companies. That report found that the Bureau of Land Management has lost more than $60 million from coal lease sales. A full list of witnesses and webcast are available at http://naturalresources.house.gov/calendar/eventsingle.aspx?EventID=336553.

  • Two Energy Bills Sent to the President for his Signature. On July 10, the Senate unanimously passed H.R. 251, the “South Utah Valley Electric Conveyance Act” and H.R. 254, the “Bonneville Unit Clean Hydropower Facilitation Act.” H.R. 251 conveys the electric distribution system in Spanish Fork, UT to the South Utah Valley Electric Service District. The South Utah Valley Electric Service District has operated and managed these facilities for decades. According to the legislation, the Bureau of Reclamation will no longer oversee the facilities. H.R. 254 authorizes the Secretary of the Interior to facilitate the development of hydroelectric power on the Diamond Fork system of the Central Utah Water Project (CUP). The bills, which were previously passed by the House, have been sent to the President for his signature. The House Natural Resources Committee authored Reports providing summaries and legislative histories for the bills. These documents are available at http://www.gpo.gov/fdsys/pkg/CRPT-112hrpt217/pdf/CRPT-112hrpt217.pdf of H.R. 251 and http://www.gpo.gov/fdsys/pkg/CRPT-112hrpt503/pdf/CRPT-112hrpt503-pt1.pdf for H.R. 254.

  • House Passes Energy and Water Appropriations Bill. On July 10, the House passed H.R. 2609, the Energy and Water Appropriations bill for Fiscal Year (FY) 2014. The final vote was 227 to 198. On June 27, the Senate Appropriations Committee passed a significantly different version of the spending bill by a vote of 24 to 6. As an example, the Senate bill would increase funding for the Department of Energy’s Office of Energy Efficiency and Renewable Energy (EERE) to $2.28 billion, up from its pre-sequester level of $1.8 billion. The House, however, would combine EERE with the agency’s Office of Electricity Delivery and Energy Reliability, providing $983 million for both accounts. A significant difference also emerged in the funding decisions on ARPA-E, the early stage research funding program. A summary of the House bill and list of approved amendments are available at http://appropriations.house.gov/news/documentsingle.aspx?DocumentID=342114 and a webcast of the Senate Appropriations Committee mark-up and supporting documents are available at http://www.appropriations.senate.gov/news.cfm?method=news.view&id=ba47a4ea-f6df-4341-9716-89343ce3e8c6. The Senate has not yet taken action on its Committee-passed bill.

  • House Passes Farm Bill. On July 11, the House passed H.R. 2462, the “Federal Agriculture Reform and Risk Management Act of 2013” by a vote of 216 to 208. H.R. 2462 was brought to a vote in the House after an earlier version, H.R. 1947, failed to garner enough support for passage. H.R. 2462 omits the food stamp and nutrition title of the original, leaving just the farm and agriculture program titles. As passed by the House, the bill also eliminates mandatory funding authority for rural renewable energy and biofuel programs, and reauthorizes the programs at reduced discretionary funding levels. The bill does reauthorize the Sun Grant program, which was established to promote biobased energy and products. Shortly before the vote on the House floor, the President issued a Statement of Administration Policy announcing strong opposition to the bill. H.R. 2642 is significantly different from the farm bill passed by the Senate in June, S. 954, the “Agriculture Reform, Food and Jobs Act of 2013.” Additional information on S. 954 is available at http://www.vnf.com/news-policyupdates-853.html and a copy of the Statement of Administration Policy is available at http://www.whitehouse.gov/sites/default/files/omb/legislative/sap/113/saphr2642r_20130710.pdf. No official summary of H.R. 2462 was available as of press time.

  • House Members Create New Energy Efficiency Caucus, Introduce Bill. On July 16, House Energy and Commerce Committee Members Cory Gardner (R-CO) and Peter Welch (D-VT) announced the creation of the “Energy Savings Performance Caucus.” In a joint statement, the bipartisan duo stated that the caucus will focus on promoting performance contracting in government buildings. They also announced that they plan to introduce the “Energy Savings Through Public-Private Partnerships Act.” The bill would encourage federal agencies to enter into savings performance contracts and utility energy service contracts. Additional information on the caucus and the announcements is available at https://gardner.house.gov/press-release/gardner-welch-announce-creation-bipartisan-energy-efficiency-caucus and http://welch.house.gov/index.php?option=com_content&view=article&id=2429:gardner-welch-bill-targets-energy-efficiency-in-federal-buildings&catid=42:2013-press-releases&Itemid=32.
JUDICIARY
  • Seventh Circuit Affirms Dismissal of EPA Air Enforcement Case. In a decision that may limit an EPA enforcement initiative begun during the Clinton Administration, the U.S. Court of Appeals for the Seventh Circuit (Seventh Circuit) affirmed a district court’s decision to strike down EPA’s claims against five Illinois power plants brought under the Clean Air Act’s (CAA) New Source Review (NSR) permit program. United States v. Midwest Generation LLC, No. 12-1026 and 12-10517. The NSR permitting provisions require companies to obtain permits with stringent emission limits before making modifications to their existing plants that lead to significant increases in emissions of pollutants regulated under the CAA. In the 1990s, the EPA began bringing enforcement actions against many utilities and refiners, claiming that they had made modifications without obtaining required NSR permits. In a number of cases, the EPA allegations cited modifications that had been implemented several years in the past. It was the EPA’s position that the plants were committing ongoing violations of the NSR provisions each day they operated without the requisite permits, subjecting them to statutory penalties of upwards of $37,500 per day. Often, companies would settle with the agency in order to avoid even stiffer penalties. In the Midwest Generation case, the district court found that the NSR enforcement action was barred by the statute of limitations because it was filed ten years after the unlawful modifications were completed by the prior plant owner. The Seventh Circuit upheld this determination, finding that “today’s emissions cannot be called unlawful just because of acts that occurred more than five years before the suit began. Once the statute of limitations expired, Commonwealth Edison was entitled to proceed as if it possessed all required construction permits.” The Midwest Generation decision has already been used in a case involving similar NSR violation allegations in the U.S. Court of Appeals for the Third Circuit (Third Circuit). United States v. EME Homer City Generation, No. 11-4406. The power plant owner has asked the Third Circuit to rely on the Seventh Circuit’s decision and find that the statute of limitations likewise bars EPA’s enforcement action against EME Homer City Generation.

  • D.C. District Court Vacates SEC Oil Payment Disclosure Rule. On July 2, the United States District Court for the District of Columbia (D.C. District Court) vacated a Security and Exchange Commission’s (SEC) rule that required oil, gas, and mining companies to publically disclose the payments they make to foreign governments. American Petroleum Institute v. SEC, No. 1:12-cv-01668. The Dodd-Frank provisions of the Securities and Exchange Act of 1934 (SECA) require oil, gas, and mining companies to submit annual reports. However, the requirements do not specify whether the reports must be submitted publically or only to the SEC. The D.C. District Court found that the SECA generally uses the word “report” to refer to private disclosures, made only to the SEC.

  • D.C. Circuit Vacates EPA GHG Biomass Deferral Rule. On July 12, the United States Court of Appeals for the District of Columbia (D.C. Circuit) vacated an EPA rule that would have provided facilities burning biomass a three-year exemption from requirements to obtain an NSR permit for their carbon dioxide emissions (the Deferral Rule). Center for Biological Diversity v. EPA, No. 11-1101. Under the Deferral Rule, the EPA planned to defer regulating emissions from biomass sources for three years – until July 21, 2014 - so that the agency could study whether biomass-burning activities are “carbon neutral” if the biomass comes from sustainably managed forests. The D.C. Circuit found that once the EPA determined that carbon dioxide emissions endanger the public health and welfare, the EPA did not have authority under the CAA to exempt major stationary sources of such emissions from its CAA permitting requirements. The agency had argued that it could defer regulation based on three administrative law doctrines: the de minimis, one-step-at-a-time, and administrative necessity doctrines. The court found that none of these arguments was persuasive or applicable. Of note is the possibility that the EPA-commissioned study may find that biomass-burning activities are indeed carbon neutral, which would support the EPA’s decision to exempt these sources from certain permitting requirements. The D.C. Circuit acknowledged this fact: “[i]f and when the EPA adopts a permanent exemption for some or all biogenic carbon dioxide sources, we will have the benefit of three years of scientific study...”

  • Environmental Groups Sue EPA Over Decision Not to Make Endangerment Finding for Coal Mine GHG Emissions. On July 8, environmentalists filed suit in the D.C. Circuit over the EPA’s decision not to make an endangerment finding that would require EPA to regulate GHG emissions from coal mines. WildEarth Guardians v. EPA, No. 13-1212. Under section 111(b) of the CAA, the EPA administrator is required “from time to time” to revise the agency’s list of stationary sources that in the administrator’s “judgment,” causes or significantly contributes to air pollution that “may reasonable be anticipated to endanger public health or welfare (Endangerment Finding). EPA denied the environmental groups petition to make an Endangerment Finding on April 30 after determining that “the agency must prioritize its regulatory actions. This is especially the case in light of limited resources and ongoing budget uncertainties.” While the Supreme Court has generally given the EPA administrator significant latitude to determine when or whether the agency should make an Endangerment Finding, in the Court’s landmark 2007 decision Massachusetts v. EPA, the Court found when the EPA denies an endangerment petition, it must either determine that the source of GHGs do not contribute to climate change or the agency must provide “some reasonable explanation as to why it cannot or will not exercise its discretion to determine whether they do.”  
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