09 July 2020

Tenth Circuit Rejects EPA’s Position on Renewal of Clean Air Act Permits

On July 2, 2020, in Sierra Club v. United States Environmental Protection Agency, the U.S. Court of Appeals for the Tenth Circuit rejected the Environmental Protection Agency’s (EPA) interpretation of the scope of its obligations to review permits under Title V of the Clean Air Act (CAA). The court found that the plain language of EPA’s regulations requires EPA to review whether a state-issued Title V permit complies with all applicable CAA requirements, not only the requirements the state included in the permit. The issue may end up in the U.S. Supreme Court, as it diverges from a recent ruling by the Fifth Circuit.

Under the CAA, EPA sets national air quality standards and requires states to develop implementation plans to achieve those standards. A major source must have a Title V operating permit, which incorporates relevant state implementation plan rules and other CAA requirements that govern the source’s operations known as “applicable requirements.” 42 U.S.C. § 7661c(a). Typically issued by the relevant state, a Title V permit must be renewed every five years, and the state may renew a permit only if it complies with applicable requirements. If an owner/operator wants to modify its source, it also must obtain a preconstruction permit — covered by the CAA’s New Source Review (NSR) programs. Different sets of NSR permitting requirements apply depending on where the source is located and whether the modification results in increased annual emissions above certain emissions thresholds for specified pollutants.

In Sierra Club, Utah had granted a state minor NSR permit for modifications to a coal-fired power plant, which was incorporated into the plant’s Title V permit. That permit was not challenged. When the plant applied to renew its Title V permit, including the minor NSR permit requirements, Utah approved the renewal and EPA did not object. The Sierra Club petitioned EPA to object to the renewal, arguing that the plant should be subjected to (the more stringent) major NSR requirements. EPA declined, issuing an order finding that (1) the permit renewal process was not the appropriate place for challenging major/minor source determinations, and (2) whereas the state had found that a facility was a minor source, EPA’s review was limited to determining whether the permit incorporated the correct minor-source standards. Sierra Club appealed, arguing that the term “applicable requirements” meant all existing statutory requirements regardless of what requirements had been incorporated into the permit. The Tenth Circuit agreed. In rejecting EPA’s approach, the court held that while the CAA itself does not define the term “applicable requirements,” EPA’s regulations do, and those regulations “unambiguously refer[] to all requirements in a state’s implementation plan” including the state major NSR requirements. Opinion at 15. Accordingly, the Tenth Circuit vacated EPA’s order and remanded the petition to EPA for further consideration.