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Pruitt Pulls Back on EPA "Second Guessing" in Enforcement Cases


On December 7, 2017, EPA Administrator Pruitt issued a memorandum to clarify how EPA will enforce the “projected actual emissions” (PAE) test due to uncertainties caused by the United States v. DTE Energy line of cases from the Sixth Circuit, discussed elsewhere in NSR Law Blog. The memorandum, “New Source Review Preconstruction Permitting Requirement: Enforceability and Use of the Actual-to-Projected-Actual Applicability Test in Determining Major Modification Applicability,” clarifies how the agency will treat industry projections and provides additional guidance on application of the “demand growth exclusion.”

ANALYSIS

Administrator Pruitt began the memorandum by noting the “presidential priorities for streamlining regulatory permitting requirements for manufacturing and other types of facilities.” He then noted that two Sixth Circuit cases, United States v. DTE Energy Co., 711 F.3d 643 (6th Cir. 2013), and United States v. DTE Energy Co., 845 F.3 735 (6th Cir. 2017), have “created uncertainty” about NSR applicability when the owner “projects that proposed construction will not cause an increase in actual emissions that triggers NSR requirements.” While stressing that EPA is still undertaking the presidentially-required review and will continue to proceed on a case-by-case basis, Administrator Pruitt stated that this memorandum provides guidance on:

  1. Consideration of post-project emissions in major modification applicability;

  2. The role of post-project actual emissions in major modification applicability;

  3. The EPA oversight and enforcement of pre-project NSR applicability analyses involving the actual-to-projected-actual applicability test; and

  4. The role of EPA-approved state and local NSR programs in implementing NSR requirements.

After recounting the development and requirements of the NSR program, Administrator Pruitt states that the NSR rule provides that “all relevant information” shall be considered in making such a projection, citing 40 CFR 52.21(b)(41)(ii)(a). Accordingly, pending review, “the intent of an owner or operator to manage emissions from a unit … represents relevant information in the context of projecting future actual emissions from that unit that could be considered along with other relevant information in making an emissions projection.”

With respect to the demand growth exclusion, the Administrator stated that “because increased emissions may be caused by multiple factors, the EPA has recognized that the source must exercise judgement to exclude increases for which the project is not the "predominant cause," citing the preamble to the 1992 rule.

The Administrator also stated that:

when a source owner or operator performs a pre-project NSR applicability analysis in accordance with the calculation procedures in the regulations, and follows the applicable recordkeeping and notification requirements in the regulations, that owner or operator has met the pre-project source obligations of the regulations, unless there is clear error (e.g. the source applies the wrong significance threshold). The EPA does not intend to substitute its judgement for that of the owner or operator by "second guessing" the owner or operator's emissions projections.

Memo, at 8. On EPA oversight and enforcement of pre-project NSR projections, the subject of the DTE Energy cases, the Administrator stated that: “the EPA does not presently intend to initiate enforcement in such future situations unless post-project actual emissions data indicate that a significant emissions increase or a significant net emissions increase did in fact occur.” Memo, at 8. In reaching this conclusion, the Administrator noted that EPA has prosecutorial discretion whether to take action and that “the court decision does not compel the EPA to pursue enforcement” where EPA’s analysis differs from a source’s analysis.

Finally, the Administrator stated that “the NSR requirements in a state plan must be at least as stringent as the federal rule requirements in 40 C.F.R. §§ 51.165 and 166 for the NNSR and PSD programs, respectively, but may be more stringent at the state’s discretion.” Thus, “in the absence of [] a SIP call,” it is the EPA-approved state regulations that govern NSR applicability.” Memo, at 8.

The Administrator’s December 7, 2017 memorandum does several things. First, it basically states that EPA will accept a source owner’s projection, including one that relies upon the source owner’s intent to manage emissions, at face value so long as the source owner complies with the evaluation, documentation and, where applicable, notice provisions, unless there is “clear error” such as application of the wrong significant threshold. Second, it states that EPA will review post-project emissions to see whether there is an actual exceedance of the significant threshold in the following five- or ten-year periods, as applicable. Finally, it states that EPA will defer to state regulations, and presumably state policy judgment, to use a more stringent test in that state, consistent with Administrator Pruitt’s approach to “cooperative federalism.”

COMMENTARY

Administrator Pruitt’s December 7, 2017 memorandum is unusual in several respects. First, it represents a rare statement by an agency head taking a different position from the agency’s litigating position in a currently pending case. This by itself is noteworthy. Second, it represents an effort to rein back NSR enforcement efforts that have given less and less deference to state agency action in favor of subsequent review by EPA compliance and enforcement staff. The memo accomplishes this by focusing on whether the procedural requisites are met: did the source complete the required projection using the correct legal framework--rather than whether EPA agrees with each judgment under the test. As a result, the scope of EPA enforcement review is considerably narrowed, albeit with a promise of rigorous review of the five- or ten-year actual emissions data.

The December 7, 2017 memorandum is also important for what it states about the demand growth exclusion. EPA enforcement and recent cases had greatly limited the usefulness of the demand growth exclusion by adopting a stringent view that if a project was related to an increase in any way, then the project failed to the second, “unrelatedness” prong of the demand growth test. In this memorandum, Administrator Pruitt disavows that approach, instead stating that the question is whether the growth in “predominantly” unrelated to the project. If this distinction holds, it represents a substantial strengthening of the demand growth exclusion and an increase in its usefulness.

In sum, the December 7, 2017 memorandum represents another step by Administrator Pruitt in restoring his vision of “cooperative federalism” that grants more autonomy and authority to state and local authorities in the construction permitting context. We saw this vision first in Pruitt's decisions in the PacifiCorp Energy Hunter and Big River Steel Title V appeals, where he rejected claims that the Title V objection process was an appropriate forum for challenging state and local permitting authorities’ PSD decisions. In those decisions, he took the position that the underlying PSD permit proceeding was the appropriate forum for challenging a permit. In this memorandum, Administrator Pruitt extends that theory by refusing to look “beyond” the permit to extra-record evidence, instead choosing to let the permit stand and enforce if and when data show that there was, in fact, a “significant” emissions increase.

MORE INFORMATION

NSR Law Blog previously discussed several of the DTE Energy cases and the change in Title V objection authority. Click on the following links to read more:

DTE I (first district court case)

DTE II (first Sixth Circuit case)

Title V objection change

 

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