Over the last several months, much critical attention has focused on two environmental efforts: (1) EPA’s recently issued Clean Power Plan, which seeks reductions of greenhouse gas (GHG) emissions from existing power plants, and (2) the UN climate change negotiations in Paris, where President Obama helped the United States play a leading role in structuring a new global agreement, in large part based on the Clean Power Plan. But beyond those efforts, the Administration has set forth a broad and ambitious schedule for 2016, the final year of the Obama Administration, issuing separate, key regulations impacting the power generation and other energy-related sectors. These include GHG-related rules on fuel, transportation, aviation, and oil and gas development, as well as revisions of major power sector air pollution rules on remand from the Supreme Court and D.C. Circuit. Some of these rules will also be very controversial and likely to be challenged. Given all the work remaining on the Clean Power Plan as well as these other rules, it remains to be seen whether the relevant federal agencies can finish their work before a new administration enters the White House in January 2017.
GHG-related rules
Methane regulations
While the Clean Power Plan remains a key element in the President’s Climate Action Plan, the GHG reductions estimated to arise from that rule, 32% reductions from 2005 levels by 2030, do not reach the reductions the Administration has committed to in the global process. To help bridge the gap, the President promised new regulations on emissions of methane, a highly potent GHG, from the oil and gas sector, with a goal of 45% reduction in emissions by 2025. While regulations on capture of gases from hydraulically fractured gas wells has been on the books since 2012, the EPA proposed a broader set of regulations focused specifically on methane leakage from oil and gas production in August 2015.
These proposals, due in final form by June 2016, include a New Source Performance Standard (NSPS) for various new and modified sources in the oil and gas production process which were not covered by a 2012 standard. These include hydraulic fracturing for oil for which “reduced emission completions” would be required to capture methane. The NSPS also would establish broad leak detection and repair requirements across the sector and extend restrictions on equipment emitting methane and volatile organic compounds currently used downstream of production sites. EPA did not propose to cover existing wells unless they were re-fractured, but indicated it might revisit this issue in the future. Rather, EPA dealt with existing sources of methane by proposing a second rule, oil and gas Ozone Control Technique Guidelines (CTG), which would be used by states in ozone non-attainment areas and the 11-state Ozone Transport Region. The proposed CTG closely resemble the source limitations in the NSPS in terms of equipment and limits, but are not directly binding on states or sources. Finally, EPA proposed a new interpretation of “aggregation” with regard to determining whether oil and gas facilities are “contiguous and adjacent” to each other, and, thus, eligible for aggregation for purposes of determining whether the Clean Air Act’s Prevention of Significant Deterioration (PSD) program and Title V permit programs apply to a project.
These proposed regulations are significant for the oil and gas sector and are quite controversial. Given that they were proposed only in August, 2015, it is not clear if EPA will meet a June deadline.
PSD and De Minimis Rules for GHG Emissions
In another GHG-related regulation, EPA will propose in October 2016 how it will deal with de minimis emissions of GHGs from new or modified stationary sources already subject to permitting requirements under the PSD program. EPA’s initial “Tailoring Rule” had required all sources of GHG emissions above a regulatory threshold to undergo pre-construction permitting under PSD, even if those sources wouldn’t have met PSD thresholds for other pollutants. The rule was partially reversed and remanded by the Supreme Court in 2014, which allowed EPA only to regulate GHG emissions from sources already subject to PSD for other pollutants, and suggested EPA develop a valid de minimis GHG threshold.
GHG Emissions in the Transportation Sector
On the energy transportation front, EPA and the National Highway Transportation Safety Administration (NHTSA) are also set to finalize in July 2016 their proposed second phase of carbon tailpipe and fuel-efficiency standards for mid- and heavy-duty trucks and engines. While the first phase met with little controversy from industry, the most recent proposals, for model years 2021-2027, have raised concerns about achievability and cost. In addition, EPA has proposed to find that GHG emissions from aviation should be regulated, and in July 2016 will finalize that finding and indicate the types of standards it may set. Aviation GHG emissions have been under discussion in a global forum for some time, and EPA’s actions here are unlikely to raise serious concerns if EPA simply adopts the relevant international standards that may emerge from the international process in early 2016.
Renewable Fuels Standard
Finally, EPA will propose and issue new volume requirements in June and November 2016, respectively, for the 2017 Renewable Fuels Standard (RFS), having gotten back on track with its publication in December 2015 of RFS volumes for 2014-2016. It will propose 2018 biomass-based biodiesel volumes in June 2016 as well. The 2016 RFS volumes have been attacked by the oil industry as being too high and exceeding the capacity to blend in the U.S. fuel market, while the ethanol and biofuels interests argue the volumes should be higher to provide certainty and incentivize investment. EPA will need to decide in 2016 how it may propose a statutory “reset” of the advanced biofuel mandate, having set volumes for that fuel 20% below statutory levels for two years.
Other Key Rules for the Power Sector
Cost Considerations under MATS
EPA will also be finalizing other key air pollution rules for the power sector as a result of Supreme Court remands. In 2015, the Court reversed and remanded EPA’s Mercury and Air Toxic Standards (MATS) rule on the basis that EPA had not considered costs when determining whether it was reasonable and necessary to regulate hazardous air pollutants from coal and oil-fired power plants. MATS had already gone into effect when the Court ruled, and much of the industry had already come into compliance with its requirements. EPA has sought to avoid vacatur of the rule by rather quickly developing criteria for considering cost in its decisions to regulate. On December 1, 2015, EPA published its proposal, explaining how it considered costs and why those considerations still resulted in a decision to regulate. Specifically, EPA looked at annual compliance costs as a percent of power sales, annual compliance capital expenditures compared to annual capital expenditures, the estimated impact on retail price of electricity, and the impact on power sector resource capacity. For each metric, it concluded that the rule would only result in small percentage impacts, and, thus, was reasonable, especially compared to far larger estimates of public health benefits.
EPA will publish its cost consideration in final by late spring 2016, which is the time when the remaining power plants which had secured one-year delays must come into compliance with MATS, if the rule is allowed to remain in effect. EPA would then likely reissue MATS based on its new cost calculations. There is ongoing litigation in the D.C. Circuit concerning whether MATS should be vacated or allowed to remain in effect until EPA revises its regulatory threshold finding and takes further action. The Court may rule before the end of the year. EPA’s final cost determinations will surely be litigated as well, meaning legal uncertainties may remain for several years.
Revisions to the Transport Rule
On December 3, EPA also published its proposal for updating the Cross State Air Pollution Rule (known as the Transport Rule), which aims to ensure that emission of nitrogen oxides (NOx) and sulfur dioxide (SO2) from upwind states do not significantly hinder downwind states’ ability to meet national ambient air quality standards (NAAQS) for ozone and fine particulate matter. To do so, EPA issued federal plans to most Eastern and Midwestern states, imposing requirements for emission reductions directly on their power plants. The Transport Rule was upheld by the Supreme Court in most respects in 2014, but remanded to the D.C. Circuit for specific claims that some of the states were “over-regulated.” EPA has now proposed an updated CSAPR for seasonal ozone, which is based on a more recent and stricter NAAQS for ozone set in 2008. According to EPA, the new requirements, which begin in 2017, will cause plants to activate or upgrade existing controls or shift to lower emitting fuels, at an annual cost of $93 million.
In the proposed rule, EPA followed the same methodology as previously upheld by the Supreme Court, but reconfigured the NOx emissions budgets for 23 states for seasonal ozone, and made adjustments for the 11 states that were part of the D.C. Circuit remand, leaving two outside the regulation (EPA has not yet indicated how it will deal with the four state 2017 SO2 budgets which were also remanded). EPA will issue a final rule in late 2016, which will likely be challenged by at least some of the regulated states. The methodology used by EPA is very significant, because eventually the agency will need to update its regulations to meet even more recent and stringent NAAQS, including a 2012 fine particulate matter NAAQS and the very controversial ozone NAAQS set in October 2015 (which is also now in litigation). Indeed, EPA considers these revisions only a “partial solution.” Stricter NAAQS will likely require greater reductions from the power sector as well as potentially other sectors across more states.
Boiler MACT Tweaked
Finally, EPA recently finalized a rule reconsidering its revised air toxics standards for major source industrial boilers (Boiler MACT). On November 19, 2015, EPA published its final reconsideration by allowing alternative work practice standards for startup procedures and clarifying the definition of startup. These changes were meant to address industry concerns before the January 31, 2016 compliance deadlines. Litigation of the Boiler MACT will also now proceed so the ultimate fate of the rule will not be clear until late in 2016 or beyond, meaning any potential remands may fall to the next administration.
Other Power Sector Regulations
EPA issued a final rule on effluent discharges from coal-fired plants in September 2015 and regulations for coal combustion residuals (CCR) in April 2015. More recently, EPA clarified that the CCR rule would go into effect in October 2015 but certain inspection requirements would not begin until January 2016. These rules will continue to impose costs on coal-fired utilities, and the Obama Administration will fight continued efforts in 2016 to undo these regulations in the courts and in Congress.
New Rules for the Oil and Gas Sector
EPA and the Department of Interior are also proposing and finalizing a number of regulations applicable to upstream oil and gas production and refining. These include the methane regulations described above, as well as new effluent guidelines EPA may issue for the oil and gas industry.
Interior’s Bureau of Land Management (BLM) is set to issue a rule limiting venting and flaring of natural gas from drilling projects on public lands potentially before the end of 2015. The rule is likely to focus as much on preventing waste of publicly-owned minerals as it is on health and safety. The agency will also propose a rule in Spring 2016 seeking higher royalties and rental fees charged to companies that drill on public lands. Interior’s Fish & Wildlife Service and National Park Service will issue rules tightening oversight of oil and gas drilling in national wildlife refuges and national parks, where companies have privately owned subsurface rights.
In response to the Deepwater Horizon disaster and concerns about increased offshore drilling, Interior’s Bureau of Safety and Environmental Enforcement (BSEE) will finalize rules for offshore oil and gas safety systems and offshore blowout prevention and well control in early 2016. BSEE and the Bureau of Ocean Energy Management will release a final rule governing oil and gas exploration in Arctic waters, despite the high profile decision of global oil and gas companies to cease testing in U.S. Arctic waters in 2015.
It is noteworthy that EPA has not proposed any regulation of hydraulic fracturing from the perspective of water use and water quality. EPA released a long-awaited study in May 2015 that did not find systemic water contamination issues resulting from hydraulic fracturing. Since it has only focused on methane releases from such drilling practices (and wastewater discharges to publicly owned treatment works), it is not likely the Agency will propose significant new regulations to protect surface and groundwater during drilling, leaving that to the states. Nor has EPA indicated any intent to propose GHG standards for refineries, a sector it had agreed to regulate in 2011 as part of a judicial settlement. EPA has evidently run out of time, interest or political will to take on these issues.
Power Project Development
Finally, federal agencies will issue or finalize new regulations impacting the siting of large facilities and transmission/distribution infrastructure. For example, EPA has proposed to use a programmatic environmental impact statement under the National Environmental Policy Act to assess the impacts from a proposal to allow “incidental take” of migratory birds under the Migratory Bird Treaty Act (MBTA). The MBTA makes it unlawful to harm migratory birds, and the Act has been use to force mitigation of damages to bird habitat, as well as a controversial basis for criminal violations for companies that unintentionally harm birds, e.g. wind farms. An incidental take permit would allow such companies to secure permits allowing some level of untended harm. BLM is set to release a proposed rule to amend its land-use planning process to improve its ability to plan and respond to local and broader issues, and will also finalize a rule providing competitive bidding for solar and wind development on federal lands.
While already final, EPA and the Corps of Engineers’ issuance of guidance on the scope of the waters of the United States will continue to draw the ire of project developers, farmers and others seeking construction projects impacting potential jurisdictional waters, including wetlands. It is possible that Congressional action or judicial action may reverse the guidance (which has been stayed in two courts), in which case EPA and the Corps would revert back to case-by-case considerations of such projects.
Timing Considerations
Timing is an important consideration for EPA and other agencies. Generally, to avoid the allegation they are issuing “midnight regulations” and the attendant heightened Congressional scrutiny, federal agencies will try to finalize as many important regulations as they can early in the final year of an administration. Failure to do so can empower a new and potentially hostile Congress – or President – to seek to roll back or challenge the regulations, including pursuant to the Congressional Review Act (CRA). The CRA authorizes Congress to pass a resolution striking down regulations within 60 legislative days of their publication, which can actually mean several months prior to a new administration. CRA resolutions move quickly through the legislative process, require a simple majority vote, and would be more likely signed by a new president from an opposing party. Moreover, in past administrations, new presidents from the opposing party have enacted brief regulatory “freezes” while recently-issued regulations were scrutinized.
A number of the regulations discussed above will likely fall into that period of concern in mid to late 2016. Thus, the onus is on the Administration to finalize as much of its regulatory program as quickly as possible. Even then, judicial challenges to these rules are inevitable and would not be resolved until a new administration takes office.
EPA will have to further balance its regulatory workload with its efforts under the Clean Power Plan, as it will still be finalizing model trading rules and a proposed federal rule in 2016 (though it may not issue a final federal rule until it determines a state will not comply) and making decisions on state plan submissions in September 2016. Some rules may even languish if the Administration lacks the political will to push them in an election year, where regulatory “overreach” is likely to be a divisive political issue.
Ultimately, timing concerns will depend on who is elected President in 2016. A Democratic President may well continue the path started by the Obama Administration, and rules not yet finalized in 2016 may be completed thereafter. In addition, a new Democratic-led EPA may continue to seek aggressive GHG regulation of the power generation, refining and other energy-intensive and emissive sectors. A Republican president, however, is less likely to continue this direction and may even seek to modify regulations deemed too costly or unnecessary to industrial sectors. In view of this risk, there is even more reason for the Obama Administration to pursue a regulatory race to the finish.