24 April 2018

Sidley Environmental Trends

Topics discussed this week include

  • EPA will streamline processes for issuing and implementing NAAQS
  • EPA guidance revives Significant Impact Levels for NSR permitting
  • IRS issues guidance on tax deductions for environmental settlement payments
  • White House announces One Federal Decision framework for NEPA process
  • EPA will not enforce 2015 restrictions on production and use of HFCs and will rewrite HFC regulations

EPA will streamline processes for issuing and implementing NAAQS. The White House in a memorandum issued April 12, 2018 (NAAQS Memorandum) instructed the U.S. Environmental Protection Agency (EPA) to take “specific actions” to reduce burdens on states and the regulated community under the National Ambient Air Quality Standards (NAAQS). The Clean Air Act (CAA) requires EPA to review existing standards every five years. Once a final standard is promulgated, a state must submit for EPA approval a state implementation plan (SIP) or EPA will issue its own federal implementation plan (FIP). Additionally, regulated entities seeking to obtain permits under the CAA must meet emission limits designed to satisfy the NAAQS, which could involve applying costly control technologies. The NAAQS Memorandum directs EPA to evaluate or revise existing agency processes for evaluating SIPs and permit applications. It also directs EPA to improve efficiency in issuing revised NAAQS. William Wehrum, Assistant Administrator for EPA’s Office of Air and Radiation (OAR), cited the Supreme Court’s decision in Utility Air Regulatory Group v. EPA, 134 S. Ct. 2427 (2014), to explain that EPA should reevaluate its reading of the CAA’s NAAQS provisions to avoid reaching “wacky” results, such as setting a NAAQS below background levels. Wehrum stated that OAR will seek to streamline its NAAQS review process to reduce some scientific adviser input and to rely on existing modeling data that may be less than perfect. EPA’s approach could signal that rather than revising the 2015 ozone NAAQS of 70 parts per billion (ppb), the agency will focus on revising the NAAQS process for future NAAQS. As a further indication of this approach, EPA recently issued a final rule retaining the existing nitrogen dioxide NAAQS of 100 ppb over one hour.

EPA guidance revives Significant Impact Levels for NSR permitting. As part of a suite of guidance on New Source Review (NSR) permitting expected this spring, EPA recently issued a guidance document and legal memorandum providing new guidance that will allow permit applicants to use significant impact levels (SILs) for ozone and final particulate matter (PM2.5) in the Prevention of Significant Deterioration (PSD) permitting program (SIL Guidance). Under the PSD/NSR program, regulated entities seeking to expand or build facilities in an area that is in attainment of the NAAQS must apply for preconstruction permits. A project that would cause a facility to exceed SILs must either offset emissions or conduct additional modeling to demonstrate that the project will not harm air quality. The SIL Guidance provides nonbinding SILs for ozone and PM2.5 for permitting authorities to use on a case-by-case basis in preliminary and cumulative impact analyses for ozone and PM2.5. EPA had sought to codify SILs in a 2010 rulemaking that the U.S. Court of Appeals for the District of Columbia Circuit (DC Circuit) subsequently vacated for failure to preserve the discretion of permitting authorities to require additional analysis. Sierra Club v. EPA, 705 F.3d 458, 463–66 (D.C. Cir. 2013). According to the SIL Guidance, EPA will use the information gathered through applying the new SILs to evaluate whether it will undertake a new rulemaking to codify the SILs. Meanwhile, the higher SILs will likely ease applicants’ ability to secure preconstruction permits under the PSD program.

IRS issues guidance on tax deductions for environmental settlement payments. As reported  in a previous Sidley Update, recent tax reform legislation (enacted in December 2017) prohibits companies from deducting any payments to a government — including federal, state and local — for the violation of any law. But the law creates an exception if the court order or settlement agreement identifies such amounts paid as restitution or to come into compliance with the law. The Internal Revenue Service (IRS) will consider on a case-by-case basis whether a settlement of environmental payments constitutes restitution or to come into compliance sufficient to allow tax deductions. In a recent IRS bulletin, the agency indicated that a court order or settlement that states on its face that a payment is restitution or to come into compliance will serve as an indication, but not a conclusive demonstration, that the amount is tax deductible. The agency is taking comments on how it might shape a proposed rule to address tax deduction issues under the new tax law through May 18, 2018.

White House announces One Federal Decision framework for NEPA process. Eleven federal agencies and the Federal Permitting Improvement Steering Council signed a memorandum of understanding (MOU) providing that one federal agency will serve as the lead agency to guide an infrastructure project through the entire federal environmental review and permitting process required by the National Environmental Policy Act (NEPA). Agencies will follow the timeline set by the lead agency, with the goal of completing review of a project within two years. The White House announcement of the MOU noted that according to a 2014 report by the Government Accountability Office, the median time for environmental review of a complex highway project is seven years. The MOU is the latest step in the administration’s efforts to promote increased efficiency and certainty for project proponents in the NEPA review and approval process. We discuss highlights from the MOU here.

EPA will not enforce 2015 restrictions on production and use of HFCs and will rewrite HFC regulations. The D.C. Circuit in 2017 held that EPA overstepped its authority in the agency’s 2015 hydrofluorocarbons (HFC) regulation that required the replacement of HFCs with substitutes with lower air quality impacts. In other words, the court held that EPA has no authority to require further substitution after an entity ends its use of ozone depleting substances as required by the CAA. Mexichem Flour, Inc. v. EPA, 866 F.3d 451 (D.C. Cir. 2017). EPA released guidance explaining that as a result of the court’s decision, it will not enforce the 2015 requirements and that it intends to undertake a new rulemaking to rewrite the HFC regulations. EPA’s guidance and any eventual rulemaking are likely to be challenged by environmental groups or manufacturers of HFC substitutes, who stated in a recent court filing that they will seek Supreme Court review of the D.C. Circuit’s decision by June 25, thus setting the stage for legal battles to come.

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