On June 23, 2014, the Supreme Court, in a 5–4 decision,¹ affirmed in part and reversed in part the D.C. Circuit Court of Appeals' decision regarding the U.S. Environmental Protection Agency's ("EPA") greenhouse gas ("GHG") permitting regulations.

This ruling strikes down the EPA's "Timing Rule" and "Tailoring Rule" and has direct implications on state and federal GHG permitting programs. While the Court allows EPA to continue to require GHG reviews for large projects otherwise required to obtain or modify a Prevention of Significant Deterioration ("PSD") permit, the language of the opinion sends a strong message that EPA will need to limit GHG reviews in certain key ways if they hope to survive judicial scrutiny in the future.

Rejection of Timing Rule

The Court concluded that the Timing Rule was a misapplication of previous court rulings, as its decision in Massachusetts v. EPA was "not a command to regulate, but a description of the universe of substances EPA may consider regulating under the Act's operative provisions." The Court's analysis began by rejecting the EPA's contention that by implementing motor–vehicle greenhouse–gas standards, it would then be compelled to regulate sources of GHGs under the PSD program. In its 2010 Timing Rule, the EPA determined that once GHGs were actually being controlled under any part of the Clean Air Act, GHGs would also become subject to regulation under the PSD program.

However, as noted in the Court's opinion, the EPA has a history of assigning the term "any air pollutant" a "context-appropriate meaning." Under various programs, the EPA has interpreted the definition of "any air pollutant" as something other than "all airborne compounds of whatever stripe." As the Court noted,

As such, the Court held that there is no requirement that the EPA regulate GHGs under the PSD and Title V permitting programs merely because GHGs are air pollutants.

Rejection of Tailoring Rule

As to the Tailoring Rule, the Court was even more emphatic in its rejection, stating, "An agency has no power to 'tailor' legislation to bureaucratic policy goals by rewriting unambiguous statutory terms...[T]hey must always 'give effect to the unambiguously expressed intent of Congress.'" In recent years, the Supreme Court has been hesitant to overturn EPA's interpretation of environmental statutes under the Chevron deference rule, but in this case, the Court felt the EPA has clearly gone too far.²

Under the Clean Air Act, an emissions source is subject to PSD and Title V permitting requirements if it exceeds 250 tons per year of any air pollutant (or 100 tons per year for some types of sources). If these thresholds were applied to GHGs, churches, schools, restaurants, and offices would be required to obtain PSD permits for GHG emissions. In other words, the Clean Air Act was not intended to treat GHGs as a pollutant subject to PSD permitting requirements. In an effort to avoid these "absurd results," the EPA finalized the "Tailoring Rule" in which it established a new threshold of 100,000 tons per year for GHGs.

In rejecting the Tailoring Rule, the Court noted, "it is hard to imagine a statutory term less ambiguous than the precise numerical thresholds at which the Act requires PSD and Title V permitting. When the EPA replaced these numbers with others of its own choosing, it went well beyond the 'bounds of its statutory authority.'"

Applicability of BACT

The Court also determined that "anyway sources" – emissions sources that are required to obtain PSD permits regardless of its GHG emissions – can still be required to use the best available control technology ("BACT") to control greenhouse gases. However, in so doing, the court clearly articulated limits on how the EPA can apply BACT. Specifically, the Court articulated three important limitations that EPA will need to abide by:³

1) BACT must be based on an applicant's proposed facility, and cannot be used to order a fundamental redesign of the facility;

2) BACT can only be applied to pollutants that the source itself emits and cannot be used to require "reductions in a facility's demand for energy from the electric grid" and

3) GHG BACT applies only if the source emits more than a de minimis amount of greenhouse gases.

Path Forward

While the Court concluded that "anyway sources" may be required to meet BACT for GHGs as part of PSD permit reviews for other pollutants, the Court struck down EPA's ability to require PSD or Title V permits for GHGs in all other circumstances. Therefore, EPA will have to undertake new rulemaking proceedings to adopt regulations to address the Court's ruling to distinguish and deal with "anyway sources" and the rest of the regulated community and define a "de minimis" level below which BACT review will not be required of "anyway sources." At this point, it is unclear how states who have implemented GHG permitting programs will respond to the Supreme Court ruling. In Texas, immediate changes will need to be implemented to comply with state law, which limits the TCEQ's authority to require GHG permits in the absence of a federal mandate to do so.<sup>4

1</sup> Justice Scalia delivered the opinion of the Court, but only sections I and II were joined by a majority, Chief Justice Roberts and justice Kennedy joined the opinion in full, while Justices Thomas and Alito joined as to Parts I, II-A, and II-B-1. Justices Ginsburg, Breyer, Sotomayor, and Kagan also joined as to Part II-B-2. Justice Breyer filed an opinion concurring in part and dissenting in part, in which Justices Ginsberg, Sotomayor, and Kagan joined. Finally, Justice Alito filed an opinion concurring in part and dissenting in part, in which Justice Thomas joined.

² Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837.

³ It should also be noted that Section II-B-2 was joined by seven Justices.

⁴ See Tex. Health & Safety Code §382.05102(e).