Grandfathering and environmental regulation: The law and economics of new source review

Northwestern University Law Review

Volumn 101, Issue 4, 2007, Pages 1677-1733

  Nash, Jonathan Remy ^a,b   Revesz, Richard L ^c  

^a TULANE UNIVERSITY   (United States)

^b UNIVERSITY OF CHICAGO   (United States)

^c NEW YORK UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 37749039804     PISSN: 00293571     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (496)

1. For a discussion of the history of "grandfather clauses" and "grandfathering" from their origins in the context of voting rights through their current usage in broad areas of law including environmental regulation, see Heidi Gorovitz Robertson, If Your Grandfather Could Pollute, So Can You: Environmental "Grandfather Clauses " and Their Role in Environmental Equity, 45 CATH. U. L. REV. 131, 131-35(1995).
2. New York v. EPA, 443 F.3d 880 (D.C. Cir. 2006).
3. Id.,
4. petition for cert, filed, 75 U.S.L.W. 3296 (U.S. Nov. 27, 2006) (No. 06-736),
5. cert. denied, 127 S. Ct. 2127 (Apr. 30, 2007).
6. See infra note 164.
7. See Prevention of Significant Deterioration (PSD) and Nonattainment New Source Review (NSR): Debottlenecking, Aggregation, and Project Netting, 71 Fed. Reg. 54,235 (Sept. 14, 2006).
8. 411 F.3d 539 (4th Cir. 2005),
9. rev'dsub nom. Envtl. Def. v. Duke Energy Corp., 127 S. Ct. 1423 (2007).
10. 413 F.3d 3, 19-20 (D.C. Cir. 2005).
11. 126 S. Ct. 2019 (2006).
12. 458 F.3d 705 (7th Cir. 2006),
13. cert. denied, 127 S. Ct. 2034 (2007).
14. Envtl. Def., 127 S. Ct. 1423.
15. Supplemental Notice of Proposed Rulemaking for Prevention of Significant Deterioration and Nonattainment New Source Review: Emissions Increases for Electric Generating Units, 72 Red. Reg. 26,202 (May 8, 2007).
16. 458 F.3d at 709.
17. Steven D. Cook, EPA to Proceed with Emissions Test Rule in Face of New Source Review Decision. Daily Env't Rep. (BNA) No. 63, at A-2 (Apr. 2, 2007).
18. See generally Clean Air Act Amendments of 1970 §111, Pub. L. No. 91-604, 84 Stat. 1683 (1970). The Act in its current form is codified at 42 U.S.C. § § 7410-7671q (2000).
19. Clean Air Act, 42 U.S.C. § 7410(a) (requiring states to provide for all control measures necessary to achieve NAAQS);
20. Id. § 7409(b) (defining primary NAAQS as standards "requisite to protect the public health" that incorporate "an adequate margin of safety," and secondary NAAQS as "requisite to protect the public welfare").
21. Id. § 7411(a)(2). Stationary source is defined as "any building structure, facility, or installation which emits or may emit any air pollutant."
22. Id. § 7411(a)(3).
23. Id. §7411 (a)(4).
24. E.g., BRUCE BIEWALD, DAVID WHITE, TIM WOOLF, FRANK ACKERMAN & WILLIAM MOOMAW, GRANDFATHERING AND ENVIRONMENTAL COMPARABILITY: AN ECONOMIC ANALYSIS OF AIR EMISSION REGULATIONS AND ELECTRICITY MARKET DISTORTIONS 2 (1998), available at http://www.synapse-energy.com/publications.htm ("Participants in the original [c]ongressional debates, and official reports from the 1970s and 1980s, make it clear that lower overall emissions were expectedto result from gradual phase-in of new plants and new energy technologies. Unfortunately, it turns out that many old plants are remaining in service far longer than expected, causing an indefinite delay in the anticipated emissions reductions from facility retirement.");
25. Shi-Ling Hsu, Reducing Emissions from the Electricity Generation Industry: Can We Finally Do It?, 14 TUL. ENVTL. L.J. 427, 435 (2001) ("[P]olicy has been developed with the assumption that thirty-year-old plants would be soon phased out of production.");
26. Deepa Varadarajan, Note, Billboards and Big Utilities: Borrowing Land Use Concepts Iu Regulate "Nonconforming" Sources Under the Clean Air Act, 112 YALE L.J. 2553, 2564 (2003) ("[L]egislators assumed that the natural turnover of power plants obviated the need for extensive old source regulation . . . .");
27. see also Larry Morandi, Winds of Change: Controlling Emissions of Pollutants by Power Generators Can Be Done, But There's Lots of Disagreement on the Best Way, STATE LEGISLATURES, May 2003, at 26 ("Why the exemption for old facilities? The thinking at the time was that the older power plants would soon become obsolete and be replaced by newer, cleaner facilities."). Generally, however, scholars cite one another for this proposition, rather than contemporaneous legislative documents.
28. But see BIEWALD ET AL., supra, at 11 ("Thomas Jorling, Minority Counsel to the Public Works Committee that drafted the Clean Air Act, stated in interviews that the replacement of existing plants within normal operating lifetimes with newer ones that were subject to NSPS was implicit. David Hawkins, who was an influential attorney with the Natural Resources Defense Council who helped to shape the 1977 [Clean Air Act] Amendments[,] agreed that it was assumed that older plants would eventually be replaced.").
29. Most of the expressly supportive legislative history is recent, as legislators proposing amendments to the Clean Air Act in the 1990s looked back to the Act's passage. See, e.g., 136 CONG. REC. 36,007, 36,035 (1990) (Exhibit I submitted by George J. Mitchell) ("In 1970, the [Clean Air Act] required that new sources meet tight emissions standards. At that time, it was assumed that electrical utility units had an average lifetime of 30 years. But many utilities are now choosing to extend the life of their plants rather than meet the new source performance standards mandated under current law.");
30. id. at 6359, 6368 (1990) (statement of John H. Chafee) ("The rationale that is behind permitting these old plants to emit [at grandfathered emission capacity] is, first of all, they are inefficient, and at some point they arc so inefficient they arc going to be replaced."). Legislative history regarding the New Source Review Program, established in 1977, contains an express reference to "[o]lder plants with relatively short-remaining useful lives."
31. H.R. REP. NO. 95-294, at 185-86 (1977). Note that a 1970 Senate Report contains a parallel but more circumscribed acknowledgement that at least some existing sources may have "short life expectancies."
32. S. REP. NO. 91-1196, at 19 (1970).
33. See Hsu, supra note 18, at 435;
34. Varadarajan, supra note 18, at 2564 (quoting Hsu). Legislators were at least aware of such turnover. In the context of waivers for existing stationary sources emitting hazardous pollutants, the 1970 Senate Report states that "[t]he Secretary would be authorized therefore to waive the application of standards established under this section to such stationary sources which have short life expectancies after requiring the application of the maximum technology which could be applied to such facilities."
35. S. REP. NO. 91-1196, at 19. Legislators thus expected at least some existing sources to "die out" naturally.
36. Pub. L. No. 95-95, 91 Stat. 685 (1977).
37. See New York v. EPA, 413 F.3d3, 12-13 (D.C. Cir. 2005).
38. See generally 42 U.S.C. §§ 7501-15 (2000) (nonattainment);
39. id. §§ 7470-92 (PSD).
40. Id. § 7475(a)(4) (BACT).
41. Id. § 7479(2)(C) ("modification" for PSD).
42. Congress initially applied the PSD portion of the 1977 Amendments to new sources only, but quickly passed technical and conforming amendments to incorporate the NSPS definition of "modified" into the PSD program. Pub. L. No. 95-190, 91 Stat. 1393 (1977).
43. For PSD, this standard is the allowable NAAQS increment and visibility standards where applicable. 42 U.S.C. § 7475;
44. see also id. § 7410(a)(2)(D) (state implementation plans in NSR regions).
45. See generally id. §§ 7501-15.
46. Id. § 7503(a)(2) (LAER);
47. id. § 7501(4) ("modification" for nonattainment).
48. These three federal performance standards represent varying degrees of stringency: NSPS takes into account cost considerations and energy requirements, id. § 7411(a)(1);
49. BACT reflects "energy, environmental, and economic impacts" and emissions achievable through alternative fuel techniques, and can never exceed the level of emissions allowable under NSPS, id. § 7479(3);
50. LAER represents the "most stringent emission limitation" contained in a state implementation plan or achievable in practice, id. § 7501(3).
51. Id. § 7503(a)(1)(A), (c)(1), Emissions increases must be offset by obtaining and registering emissions reductions.
52. Under the NSR program, old, unmodified sources in nonattainment areas must meet emissions limits based on "reasonably available control technology" (RACT), the least stringent performance standard in the Act. Id. § 7502(c)(1).
53. See H.R. REP. NO. 95-294, at 185-86 (1977) (discussing some employment and economic benefits of exempting "[o]lder plants with relatively short-remaining useful lives," for example, that it would be more cost-effective and efficient for old plants to incorporate cleaner technologies when they upgrade, rather than forcing them to retrofit immediately), The emphasis that NSR places on proliferating cleaner technologies on providing a guaranteed market for green vendors-supports the view that Congress assumed the gradual phaseout or modernization of old plants.
54. See S. REP. NO. 95-127, at 31 (1977);
55. see also NAT'L ACAD, OF PUB. ADMIN. (NAPA), A BREATH OF FRESH AIR; REVIVING THE NEW SOURCE REVIEW PROGRAM 14 (2003) [hereinafter NAPA] ("A vital aspect of this grandfather provision was the clear assumption of Congress that older, high-emitting sources would gradually be upgraded or phased out.").
56. The discussion in supra notes 18 and 19 is equally applicable to the 1977 Amendments since Congress incorporated the same core legislative scheme. Indeed, the case for assumed turnover is stronger in 1977 than in 1970 given that the 1977 Amendments were passed, in part, to correct the evident failings of the 1970 Act to improve the nation's air quality and promote clean technologies.
57. NAPA, supra, at 13.
58. Gradual phaseout of old, high-emitting sources would seem essential to the successive cleaning of generations of sources and more rapid progress toward the NAAQS, See id. at 1114.
59. See generally Standards of Performance for New Stationary Sources: Proposed Standards for Five Categories, 36 Fed. Reg. 15,704 (Aug. 17, 1971) (proposed rules).
60. See generally Rules and Regulations, 36 Fed. Reg. 24,876 (Dec 23, 1971) (final rales).
61. Standards of Performance for New Stationary Sources: Proposed Standards for Five Categories, 36 Fed. Reg. at 15,705;
62. Rules and Regulations, 36 Fed. Reg. at 24,877-78.
63. Rules and Regulations, 36 Fed, Reg. at 24,877.
64. 42 U.S.C. § 7411(a)(4) (2000).
65. The EPA described the routine maintenance exclusion as "common sense" in Requirements for Preparation, Adoption and Submittal of Implementation Plans; Approval and Promulgation of Implementation Plans; Standards of Performance for New Stationary Sources, 57 Fed. Reg. 32,314, 32,316 (July 21, 1992). Without the exclusion, the term "modification" could "encompass the most mundane activities at an industrial facility (even the repair or replacement of a single leaky pipe, or a change in the way the pipe is utilized)."
66. Id.
67. Standards of Performance for New Stationary Sources: Modification, Notification, and Reconstruction, 39 Fed. Reg. 36,946 (Oct. 15, 1974) (proposed rules).
68. Modification, Notification, and Reconstruction, 40 Fed. Reg. 58,416 (Dec. 16, 1975) (final rules).
69. 40 C.F.R. § 60.2(d)-(e), (aa) (1976).
70. The EPA later expanded this "bubble concept" to NSR and PSD programs. Requirements for Preparation, Adoption and Submittal of Implementation Plans and Approval and Promulgation of Implementation Plans, 46 Fed. Reg. 50,766 (Oct. 14, 1981).
71. The "bubble concept" came to national prominence in Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) (upholding EPA's plantwide definition of stationary source).
72. Modification, Notification, and Reconstruction, 40 Fed. Reg. at 58,419;
73. C.F.R. § 60.14(d).
74. Modification, Notification, and Reconstruction, 40 Fed. Reg. at 58,417.
75. Id. at 58,416, 58,418-19;
76. C.F.R. § 60.14.
77. Modification, Notification, and Reconstruction, 40 Fed. Reg. at 58,419-20;
78. C.F.R. § 60.14(e)(2). "Capital expenditure" was defined by reference to IRS rules.
79. Modification, Notification, and Reconstruction, 40 Fed. Reg. at 58,416.
80. Standards of Performance for New Stationary Sources: Modification, Notification, and Reconstruction, 39 Fed. Reg. 36,948 (Oct. 15, 1974).
81. Modification, Notification, and Reconstruction, 40 Fed. Reg. at 58,420;
82. C.F.R. § 60.15.
83. The "reconstruction" exception applies to PSD but not to NSR. 40 C.F.R. § 60.15.
84. Modification, Notification, and Reconstruction, 40 Fed. Reg. at 58,420.
85. Compare id. at 58,418 (amount of pollutant), and Rules and Regulations, 36 Fed. Reg. 24,877 (Dec. 23, 1971),
86. with Modification, Notification, and Reconstruction, 40 Fed. Reg. at 58,419 (emissions rate). In a recent case, the D.C. Circuit characterized these 1975 regulations as confused.
87. See New York v. EPA, 413 F.3d 3, 12 (D.C. Cir. 2005) ("[N]either the 1975 regulation nor its preamble explained why EPA found it necessary to offer these two separate glosses on 'modification.'").
88. Prevention of Significant Air Quality Deterioration, 39 Fed. Reg. 42,510, 42,513-14 (Dec. 5, 1974).
89. 42 U.S.C. § 7501(4) (2000) ("modification" for NSR, tracking "modification" for NSPS,
90. id. § 7411(a)(4));
91. C.F.R. § 60.2.
92. Emission Offset Interpretative Ruling, 44 Fed. Reg. 3282 (Jan. 16, 1979);
93. Prevention of Significant Air Quality Deterioration, 43 Fed. Reg. 26,380, 26,388 (June 19,1978).
94. Prevention of Significant Air Quality Deterioration, 43 Fed. Reg. at 26,380, 26,403-04.
95. 40 C.F.R. §§ 51.24(b)(2), 52.21(b)(2) (1978).
96. The EPA first promulgated the "routine maintenance" exception for NSPS in 1975, Modification, Notification, and Reconstruction, 40 Fed. Reg. 58,416 (Dec. 16, 1975),
97. and for NSR in 1978, Prevention of Significant Air Quality Deterioration, 43 Fed. Reg. at 26,380, 26,388.
98. See 40 C.F.R. § 52.21 (b)(2)(iii) (PSD);
99. id. § 52.24(f)(5) (nonattainment).
100. Prevention of Significant Air Quality Deterioration, 43 Fed. Reg. at 26,388.
101. Emission Offset Interpretative Ruling, 44 Fed. Reg. at 3282.
102. 636 F.2d 323 (D.C. Cir. 1979).
103. Id. at 401-03.
104. The court differentiated its upholding of the PSD "bubble" rule from an earlier D.C. Circuit ruling that invalidated the NSPS "bubble" rule, ASARCO Inc. v. EPA, 578 F.2d 319 (D.C. Cir. 1978). One significant difference between the two programs was the definition of "source": The NSPS rule allowed offsets from "any combination of facilities"-a "defect on which the ASARCO decision turned" -whereas the PSD rule did not.
105. Ala. Power, 636 F.2d at 402.
106. Id. at 400.
107. Id. The court made clear, however, that the EPA's discretion in this regard did not extend to exempting as de minimis all physical changes falling below a particular threshold.
108. See id.
109. Id. at 353.
110. Requirements for Preparation, Adoption, and Submittal of Implementation Plans; Approval and Promulgation of Implementation Plans, 45 Fed. Reg. 52,676, 52,735 (Aug. 7, 1980).
111. Id.
112. Id. at 52,735-36.
113. Emission Offset Interpretative Ruling, 44 Fed. Reg. 3282 (Jan. 16, 1979) (nonattainment);
114. Prevention of Significant Air Quality Deterioration, 43 Fed. Reg. 26,388 (June 19, 1978) (PSD);
115. Modification, Notification, and Reconstruction, 40 Fed. Reg. 58,416 (Dec 16, 1975) (NSPS);
116. Approval and Promulgation of Implementation Plans, Prevention of Significant Air Quality Deterioration, 39 Fed. Reg. 42,510 (Dec. 5, 1974) (PSD);
117. Standards of Performance for New Stationary Sources, 36 Fed. Reg. 24,876 (Dec. 23, 1971) (NSPS).
118. See NAPA, supra note 31, at 40.
119. Id. at 39.
120. Matthew C. Stephenson, A Tale of Two Theories: The Legal Basis for EPA 's Proposed Revision to the Routine Maintenance, Repair, and Replacement Exception, and the Implications for Administrative Law, 33 ENVTL. L. REP. 10,789, 10,789 (2003) ("[T]he scope of the [routine maintenance] exception is relatively narrow, its form is that of an open-ended, multi-factor standard, and its legal justification is not entirely clear ....").
121. Wis. Elec. Power Co. v. Reilly (WEPCO), 893 F.2d 901, 910 (7th Cir. 1990) (quoting Memorandum from Don R. Clay, Acting Assistant Adm'r for Air and Radiation, U.S. EPA, to David A. Kee, Dir. of Air and Radiation Div., U.S. EPA Region V (Sept. 9, 1988));
122. Varadarajan, supra note 18, at 2560-61.
123. WEPCO, 893 F.2d at 910 (quoting Memorandum from Don R. Clay, Acting Assistant Adm'r for Air and Radiation, U.S. EPA, to David A. Kee, Dir. of Air and Radiation Div., U.S. EPA Region V (Sept. 9,1988)).
124. See, e.g., Christopher W. Armstrong, EPA 's New Source Review Enforcement Initiatives, 14 NAT. RESOURCES & ENV'T 203, 203 (2000);
125. Lisa A. Binder, Making Sense of the EPA's Reactivation Policy: An Industrial Plant that Shuts Down Temporarily May Be Considered New When It Reopens, L.A. LAW, June 2002, at 11.
126. David A. Golden, The Need to Reform NSR Reform, 12 NAT. RESOURCES & ENV'T 170, 171 (1998).
127. Id.
128. NAPA, supra note 31, at 40 (quoting EPA, New Source Review Reform 106-09 (1994) (preliminary staff draft)).
129. The EPA explained: In general, [the] new "clean unit" exclusion will allow States to exclude from major NSR[] proposed changes to existing emissions units that have installed major BACT or LAER within the last 10 years.... Under this exclusion, sources can make any change to a qualifying unit so long as the change will not increase the unit's emissions rate (measured in terms of the unit's maximum hourly emissions.. . ). Specifically, changes which do not increase the unit's hourly potential emissions would not be considered [] physical or operational change[s] and thus would not trigger major NSR.Prevention of Significant Deterioration (PSD) and Nonattainment New Source Review (NSR), 61 Fed. Reg. 38,250, 38,255 (July 23, 1996). See generally id. at 38,255-58.
130. The EPA explained: The EPA proposes to adopt for all source categories a pollution control project exclusion from the definition of "physical or operational change" within the definition of major modification. This proposed exclusion will shield these projects from being considered "major modifications" and subject to major NSR. As proposed, the exclusion encompasses add-on controls, switches to less polluting fuels and pollution prevention projects[,] and is subject to one overarching safeguard[,] first applied in WEPCO: that the proposed pollution control project cannot result in an emissions increase that will cause or contribute to a violation of a NAAQS or PSD increment.... [F]or pollution prevention projects, the permitting authority must find that the project is environmentally beneficial before such projects may qualify as [] pollution control project[s]. Id. at 38,261 (citations omitted).
131. See generally id. at 38,260-63.
132. See generally id. at 38,250.
133. Notice of Availability, Alternatives for New Source Review (NSR) Applicability for Major Modifications, 63 Fed. Reg. 39,857, 39,857 (July 24, 1998).
134. Hsu, supra note 18, at 436 & n.50 (referring to S. 2636, introduced in October 1998 by Sen. Leahy (D-VT);
135. H.R. 2980, introduced in October 1999 by Rep. Allen (D-ME);
136. and S. 2610, introduced in October 1998 by Sen. Lieberman);
137. Varadarajan, supra note 18, at 2554.
138. Announcement of Public Meeting, New Source Review (NSR), 64 Fed. Reg. 3890, 3890 (Jan. 26, 1999).
139. Michael Settineri, Reforming the New Source Review Program, 13 FORDHAM ENVTL. L.J. 107, 111-12 (2001);
140. see also Letter from John S. Seitz, Dir., Office of Air Quality Planning and Standards, to Participants (Dec. 20, 1999), available at http://www.epa.gov/ttn/nsr/gen/invite1.pdf.
141. See Thaddeus R. Lightfoot, Sand Through the Hourglass: PSD Enforcement and the Statute of Limitations, 32 ENVTL. L. REP. 11,342, 11,342 (2002).
142. NAPA, supra note 31, at 42-43.
143. 893 F.2d 901, 904 (7th Cir. 1990);
144. see also NAPA, supra note 31, at 42.
145. WEPCO, 893 F.2d at 908.
146. Id. at 908-09, 911-12. The project cost at least $70.5 million, had never before occurred at the facility, and was of the sort that "would normally occur only once or twice during a unit's expected life cycle."
147. Id. at 911-12;
148. see also mho Choi, Is the U.S. Environmental Protection Agency's Revised New Source Review Rule Moving in the Right Direction?: A Deepened New Source Bias, and the Need for Pursuing Sustainable Energy Development in Air Pollution Control Law, 35 ENVTL. L. REP. 10,316, 10,321 (2005).
149. WEPCO, 893 F.2d at 910, 913;
150. see United States v. Duke Energy Corp., 278 F. Supp. 2d 619, 638 (M.D.N.C. 2003) (identifying the "WEPCO factors" as "nature and extent, purpose, frequency, and cost"),
151. aff'd on other grounds, 411 F.3d 539 (4th Cir. 2005),
152. rev'd sub nom. Envtl. Def. v. Duke Energy Corp., 127 S. Ct. 1423 (2007);
153. United States v. Ohio Edison Co., 276 F. Supp. 2d 829, 852-53 (S.D. Ohio 2003) (same);
154. United States v. So. Ind. Gas & Elec Co., 245 F. Supp. 2d 994, 1015 (S.D. Ind. 2003) (highlighting the WEPCO factors of "the cost, magnitude, nature, and frequency of the proposed repairs and renovations").
155. But cf. United States v. Ala. Power Co., 372 F. Supp. 2d 1283, 1290 (N.D. Ala. 2005) (identifying the four WEPCO factors as "the nature, extent, purpose, and frequency of the work").
156. WEPCO, 893 F.2d at 909. The WEPCO case also addressed the EPA's determination of whether a plant's potential or projected emissions levels should be used to decide whether a physical or operational change produces significant increases in net emissions and therefore triggers NSR. Whereas actual-to-potential estimates assume maximum or continuous operation of the plant except as limited by permit, actual-to-projected-actual estimates assume ordinary operation-that the plant will operate at "present hours and conditions."
157. Id. at 918 n.14. The WEPCO court rejected the EPA's actual-topotential test in favor of an actual-to-projected-actual test for "like-kind equipment replacements" of the sort that WEPCO had performed. The EPA formalized the court's ruling in its 1992 rulemaking by allowing electric utility steam generating units to employ this actual-to-projected-actual test. 40 C.F.R. § 51.165 ( 1992).
158. See also NAPA, supra note 31, at 38.
159. David B. Spence, Coal-Fired Power in a Restructured Electricity Market, 15 DUKE ENVTL. L. & POL 'Y F. 187, 204-05 (2005) (discussing increased new source review enforcement in the Clinton administration).
160. See, e.g., United States v. La.-Pac. Corp, 682 F. Supp. 1141, 1162-63 (D. Colo. 1988) (holding that defendant corporation should have obtained PSD permits before constructing two new wood products plants).
161. NAPA, supra note 31, at 42.
162. Armstrong, supra note 72, at 203-04.
163. Id. at 204.
164. See U.S. GEN. ACCOUNTING OFFICE (GAO), CLEAN AIR ACT: NEW SOURCE REVIEW REVISIONS COULD AFFECT UTILITY ENFORCEMENT CASES AND PUBLIC ACCESS TO EMISSIONS DATA 10 (2003) [hereinafter GAO REPORT, UTILITY ENFORCEMENT];
165. NAPA, supra note 31, at 42.
166. Memorandum from Eric V. Schaeffer, Dir., Office of Regulatory Enforcement, Guidance on Appropriate Injunctive Relief for Violations of Major Source Review Requirements, at 5-6 (Nov. 17, 1998), available at http://www.epa.gov/Region7/programs/artd/air/nsr/nsrmemos/nsrguida.pdf;
167. see also Choi, supra note 87, at 10,326. The memorandum listed two situations in which NSR requirements were triggered, both involving potential emissions in excess of major source threshold or permit levels.
168. See Memorandum from Eric V. Schaeffer, supra, at 3.
169. See David M. Friedland & Laura K. McAfee, U.S. v. Ohio Edison and U.S. v. Duke Energy: Conflicting Interpretations of "Routine Repair" Defense 4-6 (Sept. 5, 2003), http://www.bdlaw.com/ assets/attachments/73.pdf;
170. NAPA, supra note 31, at 43. In addition to narrowing the "routine maintenance" exemption, the EPA also seemed to be narrowing the alternative fuels exemption.
171. See Armstrong, supra note 72, at 204. Regarding the cost factor of the "routine maintenance" analysis, the EPA typically examines the relative costs of improvements, not the absolute costs.
172. Friedland & McAfee, supra, at 6. Other factors the EPA considers include whether the work is performed by outside contractors or by in-house maintenance staff and whether the expenses are charged as capital expenses or as part of the operation and maintenance budget.
173. United States v. Ohio Edison, 276 F. Supp. 2d 829, 858-59 (S.D. Ohio 2003);
174. Friedland & McAfee, supra, at 5.
175. The scope of the "frequency" factor-whether "routine" should be defined relative to the particular unit or to all sources within the relevant industry-is under debate. Compare Requirements for Preparation, Adoption and Submittal of Implementation Plans; Approval and Promulgation of Implementation Plans; Standards of Performance for New Stationary Sources, 57 Fed. Reg. 32,314, 32,326 (July 21, 1992) (the WEPCO rule, seemingly favoring industry-wide approach for electrical steam generating units),
176. and United States v. Duke Energy Corp, 278 F. Supp. 2d 619, 630 n.8 (M.D.N.C. 2003) (rejecting the EPA's unit-specific approach as inconsistent with congressional intent and prior EPA interpretations),
177. aff'd, 411 F.3d 539 (4th Cir. 2005),
178. rev 'd, 127 S. Ct. 1423 (2007),
179. with Ohio Edison, 276 F. Supp. 2d at 861 (upholding the EPA's unit-specific approach),
180. and United States v. So. Ind. Gas & Elec. Co. (SIGECO), 245 F. Supp. 2d 994, 1007-10 (S.D. Ind. 2003) (same),
181. and FRANCIS X. LYONS, REG'L ADMIN., EPA, DETROIT EDISON APPLICABILITY DETERMINATION DETAILED ANALYSIS 2 (May 23, 2000), available at http://www.epa.gov/ region07/prograrns/artd/air/nsr/ nsrmemos/detedisn.pdf (defining "routine" relative to the particular unit),
182. and In re Tenn. Valley Auth., 9 E.A.D. 357, 393-94 (U.S. EPA Envtl. App. Bd. Sept 15, 2000), available at http://www.epa.gov/eab/ disk11/tva.pdf (
183. adopting unit-specific definition of "routine," though this decision was later voided by the Eleventh Circuit for lack of jurisdiction, Tenn. Valley Auth. v. Whitman, 336 F.3d 1236, 1239 (11th Cir. 2003)).
184. See EPA, NSR 90-DAY REVIEW BACKGROUND PAPER 10 (June 22, 2001) [hereinafter EPA, 90DAY REVIEW], available at http://www.epa.gov/nsr/documents/nsr- review.pdf;
185. Friedland & McAfee, supra note 96, at 6.
186. For more on reliability projects, see Makram B. Jaber, Utility Settlements in New Source Review Lawsuits, 18 NAT. RESOURCES & ENV'T 22, 23-24 (2004);
187. EPA, NEW SOURCE REVIEW: REPORT TO THE PRESIDENT 10 (June 2002), available at http://www.epa.gov/nsr/ documents/nsr_report_to_president.pdf [hereinafter EPA, NEW SOURCE REVIEW REPORT]. Note, however, that a district court in Indiana recently struck down the EPA's characterization of increases in actual emissions from averted shutdowns as a "significant net emissions increase" for purposes of NSR.
188. SIGECO, 245 F. Supp. 2d at 1020.
189. Armstrong, supra note 72, at 205 ("The NSR enforcement initiative has taken on the look of a surrogate for those regulatory initiatives that have stalled and may ultimately fail.");
190. Kevin A. Gaynor & Benjamin S. Lippard, Environmental Enforcement: Industry Should Not be Complacent, 32 ENVTL. L. REP. 10,488, 10,488 (2002) ("It is a fair statement that under EPA's legal theories, every utility in the country has been violating the new source review requirements since their inception in 1978,");
191. Varadarajan, supra note 18, at 2581.
192. Rolf R. von Oppenfeld et al., A Primer on New Source Review and Strategies for Success, 32 ENVTL. L. REP. 11,091,11,108 (2002).
193. See Armstrong, supra note 72, at 203 (noting that the EPA fined Georgia-Pacific $4.5 million and Louisiana-Pacific $11 million, for a total of $15 million in penalties);
194. NAPA, supra note 31, at 170-71, 179 (noting that in 1993, Louisiana-Pacific agreed to pay $11 million in civil penalties and install $70 million in new pollution control equipment; in 1996, Georgia-Pacific agreed to pay $6 million in penalties and install $25 million in control equipment; and in 2000 and 2002, the EPA settled with two other wood products companies, Wilamette and Boise Cascade, for a total of approximately $15 million in civil penalties and $99 million in control costs).
195. The four companies are Koch, BP-Amoco, Motiva/Equilon/Shell, and Marathon Ashland Petroleum. EPA, 90-DAY REVIEW, supra note 97, at 30.
196. For details on the civil penalties and control costs imposed, see NAPA, supra note 31, at 179.
197. This settlement was with Citgo Petroleum. See Choi, supra note 87, at 10,327 n.103.
198. E. Donald Elliott et al., Recent Clean Air Act Development, SH058 A.L.I.-A.B.A. 1, 4-5 (2003);
199. Choi, supra note 87, at 10,321.
200. The EPA reached final settlements with Tampa Electric in 2000 ($3.5 million in civil penalties and $85 million in control costs);
201. PSEG Fossil LLC in 2002 ($1.4 million in penalties and an estimated $337 million in installation costs); and Alcoa, Dominion Energy, WEPCO, and SIGECO in 2003; the EPA reached "agreements in principle" with Cinergy, Inc. and Virginia Power. NAPA, supra note 31, at 43,179;
202. Elliott et al,, supra note 103, at 5, 10;
203. Jaber, supra note 97, at 25. Regarding SIGECO, a district court ruled on a preliminary motion that the EPA's enforcement action was not barred by virtue of the state agency's prior approval of the challenged plant modifications as "routine maintenance."
204. United States v. So. Ind. Gas & Elec. Co., No. IP99-1692-CM/F, 2002 WL 1760699, at 4-5 (S.D. Ind. July 26, 2002) (holding that section 113 of Clean Air Act authorizes the EPA to bring an action for any violation of an applicable performance standard, and that the EPA would only be barred by state authorization of industry conduct if the EPA "knew the facts" of the state agency's ruling and engaged in "affirmative misconduct");
205. see Choi, supra note 87, at 10,321;
206. Elliott et al., supra note 103, at 5.The ninth electrical utility targeted in 1999 was the Tennessee Valley Authority (TVA). Instead of bringing a federal lawsuit against the TVA, the EPA filed an administrative compliance order. The Eleventh Circuit, however, has since voided the order on the ground that that the EPA's Environmental Appeals Board (EAB) lacked jurisdiction, leaving the TVA free to ignore the provisions of the administrative compliance order without risking additional penalties.
207. Tenn. Valley Auth. v. Whitman, 336 F.3d 1236, 1260 (11th Cir. 2003) (holding that the EAB lacked jurisdiction because the EPA had not first taken the TVA to the district court to allege violations before filing an administrative order);
208. see also Molly McDonough, EPA Enforcement Tool Struck Down: Appeals Court Says Right to Due Process Requires Court Proceedings, 2 A.B.A. J. E-REP. 2 (July 11, 2003). In August 2003, district courts reached conflicting decisions in two of the active lawsuits against utility industries. The Southern District of Ohio upheld the EPA's interpretation of the "major modification" provision under NSR on the ground that it is based on clear and unambiguous guidance from the Clean Air Act.
209. United States v. Ohio Edison Co., 276 F. Supp. 2d 829, 889 (S.D. Ohio 2003).
210. See also Friedland & McAfee, supra note 96, at 1-2. Only a few weeks later, however, the Middle District of North Carolina reached the opposite conclusion in a very similar case on the ground that the EPA's standard for "routine maintenance" was too strict, violating congressional intent and impermissibly deviating from previous agency policy.
211. United States v. Duke Energy Corp., 278 F. Supp. 2d 619, 637 (M.D.N.C. 2003),
212. aff'd, 411 F.3d 539 (4th Cir. 2005),
213. rev'd, 127 S. Ct. 1423 (2007).
214. Elliot Eder & Robin L. Juni, Has EPA Fired Up Utilities to Clear the Air?, 15 NAT, RESOURCES & ENV'T, 8, 8-9 (2002) ("In industry's view, [the] EPA is suddenly reinterpreting its regulations through selective enforcement but is not using the rulemaking process to place all coal-fired power generators in a uniform position. Thus targeted utilities (and their host state regulators) face tremendous uncertainty as to what constitutes compliance with preconstruction permit requirements for all sorts of... projects.");
215. see also ELEC. RELIABILITY COORDINATING COUNCIL, ERCC WHITE PAPER ON NEW SOURCE REVIEW 1 (2002), available at http://electricreliability.org/vc.php?cid=163 ("EPA's NSR rules, which for thirty years have been consistently applied ... are now being reinterpreted without any rulemaking change ..., causing major disruption in routine maintenance schedules, curtailing power output, and dismembering whole Titles of the Clean Air Act.").
216. OFFICE OF LEGAL POLICY, U.S. DEP'T OF JUSTICE, NEW SOURCE REVIEW: AN ANALYSIS OF THE CONSISTENCY OF ENFORCEMENT ACTIONS WITH THE CLEAN AIR ACT AND IMPLEMENTING REGULATIONS 40 (2002), available at http://purl.access.gpo.gov/GPO/LPS18007;
217. see also Choi, supra note 87, at 10,327.
218. NAT'L ENERGY POLICY DEV. GROUP, NATIONAL ENERGY POLICY REPORT: RELIABLE, AFFORDABLE, AND ENVIRONMENTALLY SOUND ENERGY FOR AMERICA'S FUTURE (2001).
219. Id. at 7-14;
220. GAO REPORT, UTILITY ENFORCEMENT, supra note 94, at 12.
221. EPA, 90-DAY REVIEW, supra note 97. The EPA followed through by holding four public hearings, hosting individual meetings, and reviewing over 130,000 comments from private citizens, environmental groups, state officials, and industry representatives.
222. EPA, NEW SOURCE REVIEW REPORT. supra note 97, at 2-3.
223. EPA, NEW SOURCE REVIEW REPORT, supra note 97, at 5-8 ("[A]S a general matter, available information indicates that NSR typically does not represent a significant barrier to the construction of new electricity plants [or of new refinery plants]."). The EPA cited substantial investment in new plants and refineries as evidence that NSR does not obstruct investment. The recent decline in investment in new greenfield refineries is not attributable to NSR, the EPA concluded, but rather to economic and environmental restrictions wholly unrelated to NSR.
224. Id. at 1,6, 8.
225. Id. at 14-17.
226. The EPA based its conclusions solely on the large volume of anecdotal evidence it received from industry sources, id. at 11, because the agency had no comprehensive data on projects that failed to go through on account of NSR.
227. See U.S. GEN. ACCOUNTING OFFICE (GAO), RPT. NO. GAO-03-947, CLEAN AIR ACT: EPA SHOULD USE AVAILABLE DATA TO MONITOR THE EFFECTS OF ITS REVISIONS TO THE NEW SOURCE REVIEW PROGRAM 4 (2003) [hereinafter GAO REPORT, DATA].
228. For more background on these investment conclusions, see EPA, 90-DAY REVIEW, supra note 97, at 18 (discussing the difference between retrofitting old plants, which can be technically problematic and expensive, and incorporating new pollution technology into new plants, an easier and cheaper process occurring during the design phase). In this 90-Day Review Report, the EPA suggested that most declines in new construction could be explained by non-NSR factors, for example, the high cost of natural gas and investment uncertainty in the electrical utilities market stemming from "deregulation and the emergence of non-utilities [in electric generation],"
229. Id. at 14, 24.
230. EPA, NEW SOURCE REVIEW REPORT, supra note 97, at 11, 21, 32.
231. GAO REPORT, DATA, supra note 111, at 8.
232. EPA, PSD & NSR Rule, 67 Fed. Reg. 80,186, 80,187 (Dec. 31, 2002). See also John Boyd, The New New Source Review: Teaching Old Sources New Tricks?, 11 SOUTHEASTERN ENVTL. L.J. 401, 410, (2003).
233. EPA, PSD & NSR Rule, 67 Fed. Reg. at 80,189. The changes were first proposed, in a slightly different form, in the 1996 NSR Simplification Proposal.
234. See Prevention of Significant Deterioration (PSD) and Nonattainment New Source Review (NSR), 61 Fed. Reg. 38,250 (July 23, 1996). The 2002 rules differ from the 1996 proposals in several ways, including: an expanded list of eligible PCPs; elimination of the "primary purpose" test for PCPs, by which a project could only qualify as a PCP if its primary function was to reduce pollution; a slight change in clean unit eligibility criteria; and an extension of clean unit status from five to ten years for all clean units, including those that qualify through functional equivalence to BACT or LAER standards. Compare EPA, PSD & NSR Rule, 67 Fed. Reg. at 80,232-33,
235. with Prevention of Significant Deterioration (PSD) and Nonattainment New Source Review (NSR), 61 Fed. Reg. 38,260-61 ;
236. see also Choi, supra note 87, at 10,332-33.
237. EPA, Final Rule, Prevention of Significant Deterioration (PSD) and Nonattainment New Source Review (NSR): Equipment Replacement Provision of the Routine Maintenance, Repair and Replacement Exclusion, 68 Fed. Reg. 61,248, 61,249-50 (Oct. 27,2003).
238. Id.
239. Requirements for Preparation, Adoption, and Submittal of Implementation Plans; Approval and Promulgation of Implementation Plans, 45 Fed. Reg. 52,676 (Aug. 7, 1980);
240. C.F.R. § 52.21(b)(2)(i) (1980).
241. EPA, PSD & NSR Rule, 67 Fed. Reg. at 80,198. Note, however, that electrical utility steamgenerating units will still use their current method of calculating baseline actual emissions, which is based on average annual emissions from any consecutive twenty-four month period from the five years immediately preceding the proposed modification. Id. at 80,198;
242. see also Requirements for Prepartion, Adoption, and Submittal of Implementation Plans; Approval and Promulgation of Implementation Plans; Standards of Performance for New Stationary Source, 57 Fed. Reg. 32,314 (July 21, 1992).
243. 40 C.F.R. §§ 52.2l(b)(2l)(ii), 51.165(a)(l)(xii), 51.166(b)(21) (1980). Note, however, that under the old rule sources could base their actual emissions on a different twenty-four month time period if they could show that it was more representative of normal operations.
244. Id. at § 51.21(b)(21)(ii);
245. see also Choi, supra note 87, at 10,322.
246. EPA, PSD & NSR Rule, 67 Fed. Reg. at 80,198, 80,199-200.
247. Id. at 80, 196-99. This "actual-to-projected-actual" calculation has applied to electrical utility steam-generating units since the WEPCO rulemaking, Requirements for Prepartion, Adoption, and Submittal of Implementation Plans; Approval and Promulgation of Implementation Plans; Standards of Performance for New Stationary Source, 57 Fed. Reg. at 32,314.
248. See supra note 89, With its December 2002 rule, the EPA simply extended this method to non-utility units.
249. See Robert J. Martineau, Jr., & Michael K. Stagg, New Source Review Reform: A New Year's Eve to Remember, 18 NAT. RESOURCES & ENV'T 3, 4 (2004). Some commentators suggest that this expansion of coverage will have little real effect given the current industry-wide use of potential-to-emit (PTE) limits; in effect, most states already use some form of the actual-to-actual test in assessing whether emissions increases will be significant.
250. See David A. Golden, The Need to Reform NSR Reform, 12 NAT. RESOURCES & ENV'T 170, 173-74 (1998);
251. see. also EPA, 90-DAY REVIEW, supra note 97, at 6-7 (discussing PTE limits, whereby a modified source agrees in its NSR or PSD permit or through incorporation into the EPA-approved state incorporation plan to limit its potential to emit, for example by installing pollution controls or by restricting hours of operation).
252. EPA, PSD & NSR Rule, 67 Fed. Reg. at 80,202-03. This demand growth exclusion has also applied to electrical utility steam-generating units since the 1992 WEPCO rulemaking, Requirements for Prepartion, Adoption, and Submittal of Implementation Plans; Approval and Promulgation of Implementation Plans; Standards of Performance for New Stationary Source, 57 Fed. Reg. at 32,314. Note that in 1998 the EPA had considered abolishing the exclusion, which then only applied to electrical steam-generating units, given the difficulty of differentiating increases owing to demand growth and increases owing to physical or operational change EPA Notice of Availability, 63 Fed. Reg. 39,857, 39,860 (July 24, 1998). The EPA has not only retained the exclusion for electric-generation units, but has extended the exclusion to all other industries.
253. See Choi, supra note 87, at 10,322-23. The D.C. Circuit found the EPA's change in position-from expressing "provisional dissatisfaction" in 1998 to fully embracing and extending the exclusion in 2002-to be legally irrelevant, and upheld the exclusion as consistent with the Clean Air Act and administrative law principles.
254. New York v. EPA, 413 F.3d 3, 31-33 (D.C. Cir. 2005).
255. Requirements for Preparation, Adoption, and Submittal of Implementation Plans; Approval and Promulgation of Implementation Plans, 45 Fed. Reg. 52,676 (Aug. 7, 1980). Federal courts had upheld the EPA's use of the actual-to-potential test as it applied to all but electrical utility steam-generating units.
256. See, e.g., Puerto Rican Cement Co. v. EPA, 889 F.2d 292, 296-97 (1st Cir. 1989) (upholding the EPA's determination that factory renovations lowering hourly emissions rate nonetheless caused an "increase" in emissions because of significantly higher production levels). The regulatory exclusion for increases in hours of operation or production rate still applied-but only when unaccompanied by construction or modification.
257. See 40 C.F.R. § 60.14(e) (1988) (NSPS program);
258. id. § 52.21(b)(2)(iii) (PSD program).
259. 40 C.F.R. § 52.21 (r)(6).
260. EPA, PSD & NSR Rule, 67 Fed. Reg. at 80,189. To the extent that PALs operate on a plantwide basis, they are analogous to the EPA's "bubble" program, under which the EPA determines compliance with emissions requirements on a plant-wide, and not an individual source, basis. See Nathaniel Lord Martin, Note, The Reform of New Source Review: Toward a More Balanced Approach, 23 STAN. ENVTL. L.J, 351,369 (2004).
261. EPA, PSD & NSR Rule, 67 Fed. Reg. at 80,189, 80,206-09.
262. Id. at 80,208.
263. See Dennis D. Hirsch, Lean and Green? Environmental Law and Policy and the Flexible Production Economy. 79 lND. L.J. 611, 657 (2004).
264. See id. at 657-58.
265. The PAL may be renewed at a lower level if the source is emitting below eighty percent of its cap, EPA. PSD & NSR Rule, 67 Fed. Reg. at 80,209-10, 80,216, 80,219-20;
266. see also Hirsch, supra note 129. at 652 n.323 ("This [renewal] arrangement, .. give[s] participating facilities a perverse incentive not to reduce their actual emissions by more than 20% below the original PAL level," or, "[s]tated differently, . . . dissuades sources from reducing their emissions by more than 2% per year (on average) over the ten years of their permit term.").
267. EPA, PSD & NSR Rule, 67 Fed. Reg. at 80,232. Note that non-air pollution impacts will not be included in the "environmentally beneficial" calculation. Id. at 80,234.
268. Id. at 80, 189.
269. Id. at 80, 190, 80,223-29.
270. Boyd, supra note 114, at 401 n.6 (citing Katherine Q. Seeye, Nine Northeastern States File Suit over New Rules on Pollution, N.Y. TIMES, Jan. 1, 2003, at Al );
271. Press Release, Office of N.Y. State Att'y Gen. Eliot Spitzer, Nine States Sue Bush Administration for Gutting Key Component of Clean Air Act (Dec. 21, 2002), available at http://www.oag.state.ny.us/press/2002/dec/dec31b_02. html ("The Attorneys General believe that these changes are so sweeping and damaging that the Environmental Protection Agency can not make them without Congressional approval. The rollbacks violate both the Clean Air Act itself and the Administrative Procedure Act, which sets forth the process government agencies must follow to promulgate regulations.").
272. Press Release, Office of N.Y. State Att'y Gen. Eliot Spitzer, Ten States Seek to Put New Dirty Air Rules on Hold (Feb. 6, 2003), available at http://www.oag.state.ny.us/press/2003/feb/feb06a_03.html.
273. Steven D. Cook, Air Pollution: Senate Narrowly Rejects Effort to Delay EPA New Source Review Regulation Changes, Daily Env't Rep. (BNA) No. 15, at A-1 (Jan. 23, 2003).
274. GAO REPORT, DATA, supra note 111, at 16-17;
275. see also GAO Faults EPA on Air Standards; Agency Lacked Data to Ease Rules, CHI. TRIB., Aug. 26,2003, at 11.
276. EPA, New Source Review Reconsideration Fact Sheet, http://www.epa.gov/ nsr/documents/ factsheet.pdf (last visited May 27, 2007).
277. See Prevention of Significant Deterioration (PSD) and Non-Attainment New Source Review (NSR): Reconsideration, 68 Fed. Reg. 63,021 (Oct. 30, 2003) (where the EPA refined the technical definition of "replacement unit" and clarified that the PAL-baseline calculation for newly constructed units does not apply to modified units).
278. See also Martin, supra note 126, at 366.
279. New York v. EPA, 413 F.3d 3, 10 (D.C. Cir. 2005). The panel consisted of Judges Rogers, Tatel, and Williams.
280. Id. at 18, 23, 39-40.
281. Id. at 10.
282. Id. at 10, 36-39.
283. Id. at 10-11, 33-36;
284. see EPA, PSD & NSR Rule, 67 Fed. Reg. 80,279 (Dec. 31, 2002);
285. C.F.R. § 52.2l(r)(6) (2002).
286. EPA, Final Rule, Prevention of Significant Deterioration (PSD) and Nonattainment New Source Review (NSR): Equipment Replacement Provision of the Routine Maintenance, Repair and Replacement Exclusion, 68 Fed. Reg. 61,248, 61,249-50, 61,252 (Oct. 27, 2003). This rule was first released to the public in August 2003 via the EPA's website.
287. Id. at 61,251.
288. A "process unit" is defined as a "collection of structures and/or equipment that processes, assembles, applies, blends, or otherwise uses material inputs to produce or store an intermediate or completed product." Id. at 61,259. Excluded from this definition are non-emitting facilities that are distinct from the source's emitting components, such as administrative buildings and storage warehouses.
289. Id. at 61,262. Also excluded is pollution control equipment that does not serve a "dual purpose" as process equipment; examples of such non-excludable "dual purpose" technology are condensers, recovery devices, and oxidizers.
290. Id. at 61,260-61. Note that the installation of identical or functionally equivalent pollution control may also qualify for exclusion from NSR as a PCP.
291. See supra notes 132-34 and accompanying text.
292. In estimating costs, a source operator can choose amongst various measurements, including appraisal value, insurance value, and investment value as adjusted for inflation. Equipment Replacement Provision of the Routine Maintenance, Repair and Replacement Exclusion, 68 Fed. Reg. at 61,262. Replacement activities that are "related" must be aggregated in this cost-threshold calculation, though merely contemporaneous activities are not necessarily sufficiently related to require aggregation. Id. at 61,258. Note that the EPA maintains that this twenty percent cut-off is consistent with Wisconsin Electric Power Co. v. Reilly (WEPCO), 893 F.2d 901, 910-11 (7th Cir. 1990), in which the court deemed WEPCO's activities ineligible for the "routine maintenance" exception.
293. See supra note 55 and accompanying text. Using 1991 dollars, the EPA estimated that WEPCO's replacement of steam drums and air heaters cost between twenty-two and twenty-nine percent of the units' total replacement value. Equipment Replacement Provision of the Routine Maintenance, Repair and Replacement Exclusion, 68 Fed. Reg. at 61,257. Some commentators, however, have challenged the EPA's calculations of WEPCO's costs.
294. See Adrian P. Castro, Note, Far From Routine: Exempting Existing Sources From New Source Review Under the Equipment Replacement Provision, 33 HOFSTRA L. REV. 711, 746 (2004).
295. Equipment Replacement Provision of the Routine Maintenance, Repair and Replacement Exclusion, 68 Fed. Reg. at 61,252. Examples of basic design parameters are maximum heat input and fuel input specifications, as well as output-based measurements. Id. at 61,258-59. Source owners and operators can propose design parameters of their choosing to the reviewing authority.
296. Id. at 61,259.
297. Id. at 61,251-52, 61,257.
298. Catherine Cash & Gerald Karey, EPA Issues Final Rule 'Clarifying' NSR Restriction, INSIDE ENERGY WITH FED. LANDS, Sept. 1, 2003, at 1;
299. Castro, supra note 149, at 743. The Natural Resources Defense Council (NRDC) estimated that the rule will allow more air pollution from 17,000 industrial sources across the country.
300. See Press Release, NRDC, Bush Administration to Gut Clean Air Act (Aug. 22, 2003), available at http://www.nrdc.org/media/pressreleases/ 030822.asp.
301. Cash & Karey, supra note 152, at 3 (citing Conrad Schneider, an official with the Clean Air Task Force).
302. The courts have long ruled that the "grandfathering" provisions of NSR were not intended to provide "perpetual immunity" to existing sources. See, e.g., Ala. Power Co. v. Costle, 636 F.2d 323, 400 (D.C. Cir. 1979) ("The statutory scheme intends to 'grandfather' existing industries; but the provisions concerning modifications indicate that this is not to constitute a perpetual immunity from all standards under the PSD program.").
303. Cash & Karey, supra note 152. The first quotation is by Bill Becker, head of a state and local air pollution control association; the second is by Senator Joseph Lieberman.
304. See J.R. Pegg, States Sue to Block Bush's Clean Air Act Revisions, ENV'T NEWS SERVICE, Oct. 27, 2003, available at http://www.climateark.org/shared/reader/welcome.aspx?linkID= 26622;
305. Dan Fagin, Clean-Air Rewrite Finalized, Finally; Dozen States, Environmentalists Sue, NEWSDAY, Oct. 28, 2003, at A16.
306. Fagin. supra note 156, at A16,
307. See also Petition for Review, New York v. EPA (D.C. Cir. Oct. 27, 2003), available at www.oag.state.ny.us/press/2003/oct/ rmrr_rule_petition_for_review.pdf.
308. New York v. EPA, No. 03-1380, 2003 U.S. App. LEXIS 26520 (D.C. Cir. Dec. 24, 2003) (granting motion to stay enforcement of the routine maintenance rule).
309. See EPA Sends Decision on Reconsideration of Equipment Replacement Rule to OMB, Chem. Reg. Daily (BNA) (June 1, 2005).
310. OFFICE OF INSPECTOR GEN., EVALUATION REPORT, supra note 211.
311. News Release, EPA, New Source Review Response Stresses Improvements to Permitting Programs (June 6, 2005).
312. New York v. EPA, 443 F.3d 880 (D.C. Cir. 2006).
313. Id. at 883 (quoting 42 U.S.C. § 7411(a)(4) (emphasis supplied by the court)).
314. See Steven D. Cook, D.C. Circuit Will Not Reconsider Decision to Cancel Changes to New Source Review, 37 Env't Rep. (BNA) 1405, 1405 (July 7, 2006).
315. Id. (quoting Scott Segal, Director of the Electric Reliability Coordinating Council).
316. Petition for Writ of Certiorari, EPA v. New York, 127 S. Ct. 2127 (2007) (No. 06-736), cert. denied, 127 S. Ct. 2127 (2007).
317. See Steven D. Cook, Effect of New Source Review Decision Limited by EPA Policy, Proposed Rule, 37 Env't Rep. (BNA) 662, 662 (Mar. 31, 2006).
318. Cook, supra note 13, at A-2 ("The [EPA] said it is moving forward with a proposed rulemaking to narrow the definition of the emissions increases that trigger new source review emissions control requirements . . . ."). Indeed, the EPA has indicated that this remains the case even in the wake of the Supreme Court's decision in the Duke Energy case.
319. See id.
320. United States v. Duke Energy Corp., 278 F. Supp. 2d 619, 640-42 (M.D.N.C. 2003),
321. affd, 411 F.3d 539 (4th Cir. 2005),
322. rev'd sub nom. Envtl. Def. v. Duke Energy Corp., 127 S. Ct, 1423 (2007).
323. The district court found support in the regulation's exemption from new source review for mere increases in hours of operation. See id.
324. Duke Energy, All F.3d at 550.
325. Id. at 542.
326. 458 F.3d 705, 709 (7th Cir. 2006). petition for cert. denied, 127 S. Ct. 2034 (2007).
327. See New York v. EPA, 413 F.3d 3 (D.C. Cir. 2005).
328. United States v. Ala. Power Co., 372 F. Supp. 2d 1283, 1298-99 (N.D. Ala. 2005).
329. United States v. Ala. Power Co., No. 2:01-CV-00152-VEH, 2006 WL 4012179, at 2-3 (N.D. Ala. Aug. 28, 2006);
330. Steven D. Cook, U.S. Court Reaffirms Decision on Emissions, Criticizes Conclusions from Seventh Circuit, 21 Toxics Law Rep. (BNA) No. 35, at 830 (Sept. 7, 2006).
331. The government appealed the district court's determination in October 2006. Government Appeals Summary Judgment by District Court in Alabama Power Case, 36 Env't Rep. (BNA) 2118, 2118 (2006).
332. The Eleventh Circuit subsequently asked the parties to brief the question of whether it had proper jurisdiction over the matter in light of the District of Columbia Circuit's exclusive jurisdiction to consider challenges to regulations. See Steven D. Cook, Eleventh Circuit Questions Jurisdiction to Hear Appeal in Alabama Power Case, 37 Env't Rep. (BNA) 2232, 2232 (2006). The appellate court has yet to decide the case and now presumably will consider the Supreme Court's holding in the Duke Energy case in its ruling.
333. Envtl. Def. v. Duke Energy Corp., 126 S. Ct. 2019 (2006).
334. See Envtl. Def. v. Duke Energy Corp, 127 S. Ct, 1423, 1435 (2007) (criticizing the district court for assuming that the EPA's decision to exempt mere increases in hours of operation would also necessarily exempt physical changes that resulted in increased hours of operation).
335. See id.
336. See Cook, supra note 13, at A-2 ('"The decision does not affect [the] EPA's plan to proceed with the emissions test rule,' EPA spokeswoman Jennifer Wood told BNA April 2.").
337. Id. (quoting Scott Segal, Director of the Electric Reliability Coordinating Council).
338. See supra note 11 and accompanying text.
339. See Steven D. Cook, EPA Preparing New Source Review Cases against Utilities Lacking Modern Controls, Chem. Reg. Daily (BNA) (Mar. 29, 2007);
340. Steven D. Cook, EPA Places Low Priority on Newly Detected Violations of Rules for New Source Review, Daily Env't Rep. (BNA) No. 189, at A-6 (Sept. 29, 2006) (describing letter from the EPA to Senator Inhofe that reaffirmed adherence to the hourly emissions standard in enforcement despite the D.C. Circuit opinion invalidating the regulatory provision);
341. see also Shi-Ling Hsu, The Real Problem with New Source Review, 36 ENVTL, L. REP. 10,095, 10,101-02 (2006) (noting the EPA's poor record at prosecuting new source review violations).
342. See BRUCE A. ACKERMAN & WILLIAM T. HASSLER, CLEAN COAL/DIRTY AIR 67-68 (1981) (discussing the "old plant effect" resulting from the Clean Air Act);
343. Robert W. Crandall, The Political Economy of Clean Air: Practical Constraints on White House Review, in ENVIRONMENTAL POLICY UNDER REAGAN'S EXECUTIVE ORDER: THE ROLE OF BENEFIT-COST ANALYSIS 205, 212 (V. Kerry Smith ed., 1984) ("[While r]etrofitting to get a given discharge rate is likely to be much more expensive than designing the plant and equipment to meet the same standard[,] [t]his does not mean . . . that the new source standards should be pressed so tightly that the incremental cost of control (per unit of pollution) is even higher than incremental costs at existing plants.");
344. Hsu, supra note 182, at 10,096-97 (describing the old plant effect in the context of new source review);
345. Nathaniel O. Keohane, Richard L. Revcsz & Robert N. Stavins, The Choice of Regulatory Instruments in Environmental Policy, 22 HARV, ENVTL. L. REV. 313, 315 n.10 (1998) ("When new source standards are sufficiently more stringent, . . . they can give rise to an 'old-plant' effect, precluding plant replacements that would otherwise take place.");
346. Matthew D. McCubbins, Roger G. Noll & Barry R. Weingast, Structure and Process, Politics and Policy: Administrative Arrangements and the Political Control of Agencies, 75 VA. L. REV. 431. 467 (1989) ("A clear implication of [grandfathering existing sources] was that existing facilities would be protected from the possibility that stringent air pollution regulation would hasten their obsolescence," thus avoiding "a 'least cost' strategy for achieving a given air quality target [that] . . . involve[s] replacing older facilities with newer ones.");
347. cf. Richard B. Stewart, Regulation, Innovation, and Administrative Law: A Conceptual Framework, 69 CAL. L. REV. 1256, 1270 (1981) ("Imposing [comparatively] stringent controls on existing plants may lead to plant closings and job losses . . . .").
348. Beyond the studies discussed in the text, see, for example, Crandall, supra note 183, at 212-13 (presenting empirical evidence of new source bias);
349. Randy A. Nelson, The Effects of Regulation on Capacity Utilization: Evidence from the Electric Power Industry, 29 Q. REV. ECON. & BUS. 37, 42 (1989) (finding a statistically significant decrease in the relationship of capital investment and capacity utilization after regulation, comparing samples from 1961-1969 to samples from 1976-1983);
350. Timothy J. Stanton, Capacity Utilization and New Source Bias: Evidence from the US Electric Power Industry, 15 ENERGY ECON. 57 (1993) (case study of electrical plants before and after the 1970 Clean Air Act, finding the least degree of regulation to be positively correlated with a higher capacity utilization, even though newer facilities were more efficient energy producers);
351. Byron Swift, How Environmental Laws Works: An Analysis of the Utility Sector's Response to Regulation of Nitrogen Oxides and Sulfur Dioxide Under the Clean Air Act, 14 TUL. ENVTL. L.J. 309, 406-09 (2001) (regulatory standards for both sulfur dioxide and nitrogen oxides created no incentive for the retirement of old facilities or the construction of new, more efficient facilities).
352. Randy A. Nelson, Tom Tietenberg & Michael R. Donihue, Differential Environmental Regulation: Effects on Electric Utility Capital Turnover and Emissions, 75 REV. ECON. & STAT. 368, 373 (1993).
353. Michael T. Maloney & Gordon L. Brady, Capital Turnover and Marketable Pollution Rights, 31 J.L. & ECON. 203, 206 (1988).
354. Id. at 215-22.
355. Randy Becker & Vernon Henderson, Effects of Air Quality Regulations on Polluting Industries, 108 J. POL. ECON. 379, 415 (2000).
356. Robert N. Stavins, Vintage-Differentiated Environmental Regulation, 25 STAN. ENVTL. L.J. 29 (2006).
357. Id. at 46
358. (citing Howard K. Gruenspecht, Differentiated Regulation: The Case of Auto Emissions Standards, 72 AM. ECON. REV. 328, 330 (1982)).
359. Id. at 50-56;
360. see also John A. List, Daniel Millimet & Warren McHone, The Unintended Disincentive in the Clean Air Act, 4 ADVANCES IN ECON. ANAL, & POL'Y 1 (2004) (finding empirical evidence that new source review retards modification rates while doing little to accelerate the closure of existing dirty plants).
361. But see Arik Levinson, Grandfather Regulations, New Source Bias, and State Air Toxics Regulation, 28 ECOLOGICAL ECON. 299 (1999) (finding no statistically significant differences in capital vintage or investment between plants in states that grandfather new sources of pollution, plants in states that have no air toxics regulations, and plants in states that regulate both new and existing sources).
362. See BIEWALD ET AL., supra note 18, at 3 (finding that the complete elimination of grandfathering of old plants would reduce sulfur dioxide emissions by 7.3 million tons and nitrous oxide emissions by 3.3 million tons, amounting to a 75% reduction in the emissions of these pollutants by old plants, and that the elimination of the "old plant effect" would result in an approximately 40% reduction in total sulfur dioxide emissions and a 15% reduction in total nitrous oxide emissions);
363. Maloney & Brady, supra note 186, at 222-24 (finding that a 1% increase in the age of a plant results in a 1% increase in emissions and that, at the time of the study, regulations had caused a 27% increase in total emissions).
364. See Stavins, supra note 189, at 46.
365. We assume that plant owners will act in their economic self-interest, That need not be entirely the case; for example, plant owners might choose to reduce pollution for altruistic reasons. Cf. Timothy F. Malloy, Regulating by Incentives: Myths, Models, and Micromarkets, 80 TEX. L. REV. 531, 532-36 (2002) (questioning the notion that corporations are monolithic actors that seek always and only to maximize profits). But even if other motivations may drive owners to some extent, it is reasonable to expect that economic self-interest will remain a substantial consideration.
366. Cf. Jonathan Remy Nash, Too Much Market? Conflict Between Tradable Pollution Allowances and the "Polluter Pays" Principle, 24 HARV. ENVTL. L. REV. 465, 505-06 (2000) (arguing that tradable pollution permit regimes that "grandfather" permits to existing polluters give rise to a barrier to exit, i.e., an incentive "not to exit the industry[,] by shielding [grandfathered firms] from new competition"). The environmental regulation described in the text would probably not give rise to a barrier to exit since the issue is not one of competition from new market entrants: Electricity-generating utilities will either retain existing plants in existence (modernized or otherwise) or construct new plants. Nonetheless, the barriers to exit and new plant construction arise out of similar incentive effects.
367. See Becker & Henderson, supra note 188, at 415 (concluding, based upon empirical data, that "[g]randfathering of preregulation plants raises [plant] survival rates, limiting 'natural' plant turnover and keeping otherwise unprofitable operations in business").
368. See supra notes 189-90 and accompanying text.
369. See infra notes 204-06 and accompanying text.
370. See supra Part I.A.
371. See supra notes 32-35 and accompanying text. It is arguable that this regulatory exception extends transition relief beyond the scope contemplated by the statute; to that extent, it would be undesirable (and an illegal exercise of regulatory authority, besides). Still, as we have noted above, the routine maintenance exception has been around almost as long as the Clean Air Act itself and is usually seen as a logical implementation of the statutory grandfathering.
372. See id.
373. See supra notes 83-98 and accompanying text.
374. The $100 annualized cost of that option is less than both the $105 annualized cost of a new plant and the $110 annualized cost of the renovated plant.
375. The $95 annualized cost of that option is less than both the $105 annualized cost of a new plant and the $100 annualized cost of the existing, unmodified plant.
376. The $98 annualized cost of that option is less than both the $100 annualized cost of the existing, unmodified plant and the $103 cost of the renovated plant.
377. The $95 cost of that option is less than both the $100 annualized cost of the existing, unmodified plant and the $98 cost of the new plant.
378. Say, for example, that A is committed to undertake a renovation of a facility that would cost 19% of the facility's value. Undertaking simultaneous renovations costing another 6% of the facility's value may make sense if the additional renovations would result in the installation of a uniform technological standard; in other words, a 25% (by value) total investment may be economically efficient because of economies of scope. Cf. Becker & Henderson, supra note 188, at 383 (arguing, based upon empirical data, that "in setting up new plants or engaging in expansion of existing plants, relative to phased-in investments of the past, now plants in nonattainment areas make investments in bigger lumps (i.e., 'all at once,' relatively speaking), to avoid repeated negotiations and to ensure consistency of equipment specifications across what would have been different investment phases in the past"). The new regulations might nonetheless induce A to undertake only the 19% investment if the cost of complying with the stringent new source standards exceeds the benefits offered by the economies of scope.
379. See supra Part I.D.
380. To the extent that the new regulations mitigate the old plant effect, they do so in an undesirable way. The new regulations "solve" the old plant effect problem by simply lowering the comparatively higher standard and, as we have discussed above, this is generally not an advisable solution to the problem. See supra notes 203-06 and accompanying text. There may be reasons to accept some degree of grandfathering and the accompanying effects, including the old plant effect. But to the extent that the government seeks to reduce the old plant effect, the answer should be to limit grandfathering, not to repeal in part or in whole the new legal regime.
381. See, e.g., Brian H. Potts, Trading Grandfathered Air-A New, Simpler Approach, 31 HARV. ENVTL. L. REV. 115, 117-18 (2007).
382. See, e.g., Final Brief of Respondent U.S. EPA at 40-46, New York v. EPA, 443 F.3d 880 (D.C. Cir. 2006) (No. 03-1380) (arguing that the new regulations will create environmental benefits by encouraging those modifications that the previous new source review regime discouraged).
383. No empirical studies to date have specifically validated the hypothesis that the EPA's 2003 Equipment Replacement Rule standard reduces plant investment in routine upgrades or modifications at existing plants. NAT'L RESEARCH COUNCIL OF THE NAT'L ACADEMIES, INTERIM REPORT OF THE COMMITTEE ON CHANGES IN NEW SOURCE REVIEW PROGRAMS FOR STATIONARY SOURCES OF ALR POLLUTANTS 98 (2005) [hereinafter INTERIM REPORT], Perhaps surprisingly, there is scant empirical literature on the NSR standards even prior to the 2003 rule. The EPA and industry experts have asserted that NSR requirements have in effect made certain improvements too costly to be undertaken, though there is no empirical data available to substantiate this contention.
384. In the EPA's 2002 Report to the President regarding New Source Review, industry experts are cited for the proposition that the pre-Equipment Replacement Rule standard made routine maintenance and repair "cost prohibitive to undertake, which, in turn, can adversely affect the availability and reliability of plant operations and discourage such projects." EPA, NEW SOURCE REVIEW REPORT, supra note 97, at 9.
385. In promulgating the 2003 rule, the EPA relied on anecdotal information about plant maintenance and repair projects that did not go forward because of the NSR standard since there was an absence of hard data that demonstrated that NSR disincentivized "routine maintenance, repair, and replacement" projects. OFFICE OF INSPECTOR GEN., EPA, RPT. NO. 2004-P-00034, EVALUATION REPORT: NEW SOURCE RULE CHANGE HARMS EPA'S ABILITY TO ENFORCE AGAINST COAL-F IRED ELECTRIC UTILITIES 15 (2004), available at http://www.epa.gov/oigearth/reports/2004/20040930-2004-P-00034.pdf [hereinafter OFFICE OF INSPECTOR GEN., EVALUATION REPORT]
386. (citing GAO REPORT, DATA, supra note 111). A lack of empirical data on point may suggest an intrinsic difficulty in determining why specific "routine maintenance, repair, and replacement" projects did not move forward since NSR is one of several variables affecting a plant's choice to invest in maintenance and repair projects.
387. INTERIM REPORT, supra, at 94 ("Firms and industries indicate instances when the potential to trigger NSR requirements made or might have made plant upgrades too costly to move forward. However, there is no way to independently corroborate such reports[,] and rigorous statistical studies of this phenomenon do not exist, part[l]y because the lack of data and the difficulty in identifying the effects of NSR given all the varied influences of investment decisions.").
388. See generally supra notes 184-91 and accompanying text (discussing empirical studies).
389. See, e.g., Final Brief of Respondent U.S. EPA, supra note 210, at 68-89. The Administration also argued that in fact the proposed twenty percent safe harbor would not result in an emissions increase on a nationwide basis.
390. See id. at 89-99.
391. Swift, supra note 184, at 376-77.
392. See infra note 227 and accompanying text (discussing the flawed, yet typical, government approach of emphasizing the ancillary costs of additional regulation over the ancillary benefits).
393. See supra Part I.A.
394. See supra Part I.D.
395. See Potts, supra note 209, at 153 ("[Fifty-seven percent] of all fossil-fuel units (1,396 total units) [operating] in 2000 were built before the Clean Air Act was adopted in 1972."
396. (citing U.S. GEN. ACCOUNTING OFFICE (GAO), AIR POLLUTION EMISSIONS FROM OLDER ELECTRIC-GENERATING UNITS 3 (2002), available at http://www.gao.gov/new.items/d02709.pdf)).
397. Put another way, the new regulations are inefficient because they draw a bright regulatory line between two options-renovating an existing facility and constructing a new one-that are, at this juncture, economically close substitutes. As David Weisbach has elucidated in the context of anti-tax-avoidance legislation, regulatory line-drawing between close substitutes is inefficient since the bright regulatory line is more likely to induce change in behavior that is undesirable. David A. Weisbach, An Economic Analysis of Anti-Tax-Avoidance Doctrines, 4 AM. L. & ECON. REV. 88, 96-99 (2002).
398. In particular, given a choice between two close substitutes, only one of which is subject to regulation, societal actors are likely to choose the option that is free of regulation. Id.;
399. see David A. Weisbach, An Efficiency Analysis of Line Drawing in the Tax Law, 29 J. LEG. STUD. 71, 74-79 (2000). In the context of environmental regulation, modifying an existing facility is (today) likely to be a close substitute for constructing a new facility. Thus, drawing a line between modification and new construction will encourage actors to avoid the regulated option-new construction-in favor of modification.
400. See, e.g., David R. Wooley, Environmental Comparability, 12 NAT. RESOURCES & ENVT 276, 276 (1998) ("The pollution problems of electricity in the United States arise from the emissions of a few hundred antiquated power plants.");
401. 2 emissions are dramatically higher from older, inefficient power stations. Older plants often have poor heat-to-electricity conversion efficiencies, resulting in much larger fuel consumption and pollution emitted per unit of power generated.").
402. See Jonathan Remy Nash & Richard L. Revesz, Markets and Geography: Designing Marketable Permit Schemes to Control Local and Regional Pollutants, 28 ECOLOGY L.Q. 569, 587 (2001).
403. See supra notes 201-14 and accompanying text.
404. See Shi-Ling Hsu, What's Old is New: The Problem with New Source Review, 29 REG. 36, 40 (2006) ("[P]lant owners will almost certainly find ingenious ways to gradually update their plants in increments costing less than [twenty] percent of the original plant cost.").
405. Empirical data supports the hypothesis that the structure of environmental regulation might affect the long term structuring of plant investment decisions. Cf. Becker & Henderson, supra note 188, at 415-16 ("Investment or growth patterns of plants appear to be affected by regulation, In particular, relative to attainment areas, new plants subject to strong regulation in nonattainment areas start off significantly larger (more up-front investment), but over time (within 10 years) their sizes converge to those of plants in attainment areas (with more phased-in investments).").
406. We further note that even if the aggregation standard is effectively enforced, the question arises as to whether the costs of enforcement-in terms of both monitoring and litigation costs-would outweigh the purported benefits of the rule, which include greater certainty for societal actors. The Bush Administration advances the notion that one cost that the current regulatory system imposes-and, accordingly, one cost that its safe harbor would eliminate-is the uncertainty inherent in the case-by-case approach. See supra notes 110-12 and accompanying text.
407. Indeed, the application of a case-by-case standard may, as a general matter, make it easier for societal actors to predict how the law will be applied in the future. See Louis Kaplow, Rules Versus Standards: An Economic Analysis, 42 DUKE L.J. 557, 575-76 (1992) (describing the paradigmatic situation-one among three possibilities-where individual actors become informed of the law under a rule but not a standard). This may provide a benefit in that actors who fear uncertainty may be more likely to take desirable actions under a rule than a standard.
408. But even assuming that the uncertainty imposes substantial costs, the Administration fails to take notice of the uncertainty that the new regulations would introduce. From the description in the new regulation, the question whether to aggregate multiple modifications would be governed by a standard, not a rule. As such, it seems likely to generate substantial enforcement, monitoring, and litigation costs, Compare the somewhat analogous step transaction doctrine under the tax law. See, e.g., Cliff Gross, An Overview of U.S. Federal Tax Considerations Regarding Taxable and Tax-Free Corporate Acquisition Structures, in 9 TAX STRATEGIES FOR CORPORATE ACQUISITIONS, DISPOSITIONS, SPIN-OFFS, JOINT VENTURES, FINANCINGS, REORGANIZATIONS & RESTRUCTURINGS 777, 794 (PLl Tax Law & Estate Planning Course Handbook Series No. 2995, 2004) (noting that application of the step transaction doctrine "is often difficult to predict reliably").
409. We are grateful to Professor Ross Baldick for suggesting this idea.
410. See generally Samuel J. Rascoff & Richard L. Revesz, The Biases of Risk Tradeoff Analysis: Towards Parity in Environmental and Health-and-Safety Regulation, 69 U. CHI. L. REV. 1763, 1769-80 (2002) (discussing various forms of risk tradeoff analysis).
411. See also id. at 1790-95 (describing the familiar, but flawed, pattern of the government considering ancillary costs but not ancillary benefits of additional regulation);
412. see also Nash, supra note 195, at 511-15.
413. See supra notes 208-10.
414. See generally Clean Air Act, 42 U.S.C. §7409(b) (2000).
415. The Clean Air Act vests the states with authority to develop state implementation plans (SIPs) that are designed to achieve the NAAQS. See id. § 7410(a). While the Act grants states the discretion to decide how the NAAQS are to be achieved,
416. see, e.g., Union Elec. Co. v. EPA, 427 U.S. 246, 256-57 (1976) ("The Amendments place the primary responsibility for formulating pollution control strategies on the States."), at some point compliance with NAAQS for a pollutant must involve some limit on the total amount of the pollutant that can be released over some period of time. In other words, there is some amount of the pollutant such that, if that much of the pollutant is released over a period of time, the NAAQS cannot be met.
417. See 42 U.S.C. § 7407(b)(1).
418. See id. §§ 7501-09(a).
419. See id. §§ 7502(c)(5), 7503(a)(1).
420. It is conceivable that a state might, on its own, choose to regulate existing sources quite stringently under an SIP. But it would seem likely that greater lobbying access and power would be wielded by existing sources, with the likely result being that existing sources would enjoy the grandfathering the federal Act affords and in fact be regulated less stringently. See Keohane et al., supra note 183, at 315.
421. That is not to say that there is a zero-sum game. Pollution concentration will depend upon the characteristics and locations of pollutions emissions; in particular, the location and extent of harm ultimately caused by pollution emissions will depend, inter alia, upon location, wind patterns, topography, smokestack height, emissions velocity, and emissions temperature. See Nash & Revesz, supra note 220, at 577-78. Nonetheless, it remains the case generally to expect the increased pollutant concentrations that will result from a less stringent standard being imposed on some sources to be offset by decreased pollution concentrations resulting from a more stringent standard imposed on other sources, if overall pollutant concentrations are not to worsen.
422. We say "existence" and not "presence of grandfathered plants in the area" because emissions from a grandfathered plant in a location geographically far from the nonattainment area may travel to the area and contribute to the area's nonattainment status. See id. at 576 (discussing "regional pollutants").
423. Id. at 576 (discussing the reach of regional pollutants);
424. id. at 587 (discussing the regional impact of sulfur dioxide emissions in the United States).
425. The Act, by its terms, requires upwind states to include in their SIPs proscriptions against emitting pollutants in amounts that will either "contribute significantly to nonattainment in, or interfere with maintenance by, any other State with respect to any such national primary or secondary ambient air quality standard, or. . . interfere with measures required to be included in the applicable implementation plan for any other State . . . to prevent significant deterioration of air quality or to protect visibility . . . ." 42 U.S.C. § 7410(a)(2)(D)(i). It also authorizes downwind states to petition the EPA for relief when emissions from a source, or group of sources, in an upwind state arc causing such results. Id. § 7426(b). However, even if such relief is ultimately forthcoming, it can take considerable time to arrive,
426. See, e.g., Appalachian Power Co. v. EPA, 249 F.3d 1032 (D.C. Cir. 2001) (responding to a petition filed in 1997);
427. Michigan v. EPA, 213 F.3d 663, 669-70 (D.C. Cir. 2000) (upholding SIP call issued in 1998). Thus, in practice, the upwind pollution may have a constraining effect on downwind sources over an extended time horizon,
428. The Act leaves it to states to develop and implement SIPs that will achieve NAAQS compliance. See supra note 229.
429. Indeed, this conflict of interest over new source review between upwind and downwind states is evidenced by the fact that fifteen states, mostly from the northeastern United States, filed suit against the EPA, challenging the new rule, while fourteen midwestern and western states intervened on the EPA's behalf. See New York v. EPA, 443 F.3d 880, 881-82 (D.C. Cir. 2006).
430. See, e.g., Daniel H. Cole & Peter Z. Grossman, When is Command-and-Control Efficient? Institutions, Technology, and the Comparative Efficiency of Alternative Regulatory Regimes for Environmental Protection, 1999 WIS. L. REV. 887, 916-17 (noting that the academic prediction and the empirical evidence tend to confirm that marginal pollution control costs rise steeply as the levels of control rise).
431. In addition to the inefficiencies with existing law discussed in the text, much of the benefit that the Administration attributes to the new regulations is already available under the EPA's bubble policy. Moreover, to the extent the new regulations extend relief beyond the bubble policy, they do so in an undesirable way. The bubble policy interprets the term "stationary source" in the statutory definition of "modification," 42 U.S.C. § 7411(a)(4), and allows plant owners to treat multiple point sources of pollution as a single source. See EPA Emissions Trading Policy Statement, 51 Fed. Reg. 43,814 (Dec 4, 1986). For discussion of the history of the bubble program,
432. see Michael C. Naughton, Note, Establishing Interstate Markets for Emissions Trading of Ozone Precursors: The Case of the Northeast Ozone Transport Commission and the Northeast States for Coordinated Air Use Management Emissions Trading Proposals, 3 N.Y.U. ENVTL. L.J, 195, 210-13 (1994).
433. The bubble policy effectively allows a plant owner to renovate a facility and increase the amount of pollution emitted without triggering new source review, provided that the group of sources that lie "under the bubble" do not exhibit an overall net increase in emissions. In other words, an increase in emissions at a renovated source can be offset by a reduction at another source under the bubble, such that the renovation will not trigger new source review. The bubble policy is especially valuable for owners of sources located in nonattainment areas and areas subject to the PSD program. (The PSD program seeks to avoid decreases in air quality in areas in which existing air quality is already, or should be, pristine, i.e., in excess of the NAAQS, See 42 U.S.C. §§ 7471-79.)
434. Both programs impose strict requirements on new sources located in the areas they govern. The nonattainment program requires, for example, offsetting emissions reductions and that the new source comply with the lowest achievable emissions rate. See id. §§ 7502(c)(5), 7503(a)(l)-(2). The PSD program requires that new sources receive a permit and employ the best available control technology for pollution reduction.
435. See id. §7475 (a)(1), (4).
436. These programs adopt the same definition of modification for purposes of their new source review provisions, See id. § 7501(4) ("For the purpose of th[e] [nonattainment program]. . . [t]he terms 'modifications' and 'modified' mean the same as the term 'modification' as used in section [7411(a)(4)] of this title.");
437. id § 7479(2)(C) ("For the purpose of th[e] [PSD program] . . . [t]he term 'construction' when used in connection with any source or facility, includes the modification (as defined in section [7411(a)] of this title) of any source or facility."). Because they do so, the benefit of the bubble policy to owners of plants located in nonattainment and PSD areas is even greater.
438. See, e.g., Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837 (1984) (upholding the use of the bubble policy to avoid nonattainment new source review);
439. Ala. Power Co. v. Costle, 636 F.2d 323 (D.C. Cir, 1979) (upholding the use of the bubble policy to avoid PSD new source review). In light of the bubble policy, a modification that results in an increase in emissions does not trigger new source review if it is bubbled with another source that undergoes an offsetting decrease in emissions. Thus, the only additional benefit that the new regulations seem to provide is for renovations that would result in increased pollution output and that are not offset by pollution reductions at other sources. While the quantity of this benefit is unclear, it is in any event substantially less than it would be in the absence of the bubble policy.
440. See Louis Kaplow, An Economic Analysis of Legal Transitions, 99 HARV. L. REV. 509, 584-87 (1986) [hereinafter Kaplow, Legal Transitions] (discussing grandfather provisions as an example of legal transition relief).
441. For a detailed examination of different types of partial transition relief, see id. at 582-92;
442. Louis Kaplow, Transition Policy: A Conceptual Framework, 13 J. CONTEMP. LEGAL ISSUES 161, 186-87 (2003) [hereinafter Kaplow, Transition Policy].
443. See supra notes 118-25 and accompanying text.
444. See supra notes 146-51 and accompanying text.
445. To see this, note first that the set of renovations that will not trigger new source review under the new regulations cannot be smaller than the set that would not trigger such review absent these regulations. In terms of set theory, let A equal the set of renovations that can be undertaken without triggering new source review under the existing regulatory scheme, and let B equal the set of renovations that can be undertaken without triggering new source review under the safe harbor. Because the Administration would have its safe harbor function in addition to the existing regulations, the complete set of renovations that could be undertaken without triggering new source review, under the regulatory scheme after the addition of the new regulations, would be represented by A ∪ B. And necessarily, A ⊆ A ∪ B. There is reason, moreover, to expect the latter set to be larger. First, the twenty percent limit in the regulation seems, at first blush at least, rather high. Further, the addition of a safe harbor-even a safe harbor with a comparatively low percentage limit-would be expected to augment, if marginally, the set of renovations that will not trigger new source review. Adhering to set theory, the only way it can be that A = A ∪ B is if B ⊆ A, i.e., if every renovation that is shielded from new source review under the safe harbor was already shielded from new source review under the existing regulatory structure. Indeed, it would be surprising if the safe harbor proposal did not allow for more renovations to be undertaken insofar as that was one of the Administration's justifications for proposing the rule in the first place. See supra notes 147-53 and accompanying text.
446. Private relief in the form of insurance may be available.
447. See Kaplow, Legal Transitions, supra note 242, at 522-36 (showing that "government-created risk . . . is little different from market-created risk, when viewed from an economic perspective").
448. See id. at 520-21 (arguing that "transitional relief disturbs rather than corrects a properly functioning market").
449. See generally Kaplow, Transition Policy, supra note 243 (developing a more balanced framework for assessing transition gains and losses). In reaching this conclusion, Kaplow relies upon two basic assumptions: that "the transition policy to be employed in a given context is well-known in advance and will be followed consistently in the future,"
450. Kaplow, Legal Transitions, supra note 242, at 520, and that the legal reforms in question are "desirable at the time they are made,"
451. id. at 521.
452. See Saul Levmore, Changes, Anticipations, and Reparations, 99 COLUM. L. REV. 1657, 1662-63 (1999) (arguing that "it will pay for firms to anticipate government regulation in order to avoid liability or wasted investments").
453. To the extent that the justification not to grant transition relief is to create an incentive for societal actors to anticipate changes in the law, one must assume that those actors in fact reasonably can anticipate such changes. In effect, the rule against transition relief assumes that actors will have the capacity to anticipate, and act rationally in the face of, changes in legal regimes. See generally Kyle D. Logue, Legal Transitions, Rational Expectations, and Legal Process, 13 J. CONTEMP. LEGAL ISSUES 211, 214 (2003) (arguing that this assumption is most valid in transitions that "involve[] (or ha[ve] the characteristics of) incremental changes in the common law"). While this assumption is not universally valid, it seems most likely to be true for sophisticated actors, especially corporations.
454. Id. at 229-30. For better or for worse, environmental regulation tends to focus on industrial polluters.
455. Cf. Nash, supra note 195, at 476 n.31 (arguing that it is often debatable who the actual "polluter" is);
456. Dale B. Thompson, Political Obstacles to the Implementation of Emissions Markets: Lessons from RECLAIM, 40 NAT. RESOURCES J. 645, 686-87 (2000) (discussing the practical difficulties of subjecting individuals to environmental regulation);
457. Ann E. Carlson, Recycling Norms, 89 CAL. L. REV. 1231, 1295-1300 (2001) (to similar effect).
458. But see Michael P. Vandenbergh, Order Without Social Norms: How Personal Norm Activation Can Protect the Environment, 99 NW. U. L. REV. 1101, 1116-29 (2005) (arguing that "release reporting can be directed at individual behavior in a way that will effectively . . . provide the types of information necessary to activate norms," which will "begin the process of changing direct and civic individual behavior"). And as a general matter, industrial polluters tend to be corporations, often sizable corporations, and often of considerable sophistication-in other words, precisely the type of societal actors one would expect to be best able to anticipate changes in the legal regime.
459. The general analytic framework that frowns upon transition relief assumes that, once the legal standard (whether the new rule or the rule that offers transition relief) is set, societal actors comply with the standard once and then a fortiori remain in compliance until the standard is changed. In other words, the framework assumes that compliance with the standard is not a constantly moving target but is instead aptly characterized as subject to punctuated equilibrium. But this need not be the case and, in fact, is often not the case in environmental regulation. The dominant form of environmental regulation is command-and-control regulation that requires compliance with particular technological standards in order to satisfy the statutory and regulatory commands. Thus, the Clean Water Act requires that sources employ the "best available technology economically achievable" for toxic pollutants. Clean Water Act, 33 U.S.C. § 1311(b)(2)(A) (2000), But while federal environmental laws often set a technological standard that remains constant over an extended period of time, the level of technology that constitutes the best available technology varies much more frequently because technology evolves. For example, the Clean Air Act's mandate that the "best available technology" be used may be clear and may remain unchanged over an extended time horizon, but the level of technology that satisfies that legal standard is likely to, and indeed does, vary.
460. One also might argue that it is unfair to require actors who have just completed complying with the then-current standard to once again undertake costly compliance with a new standard. We elucidate this point in the next Section. See infra Part IV.C.
461. See 33 U.S.C. § 1316(d);
462. 40 C.F.R. § 122.29(d)(1) (2006).
463. See Steven Shavell, On Optimal Legal Change, Past Behavior, and Grandfathering 3, 26-27 (Harvard Law & Econ. Discussion Paper No. 570, 2006), available at http://ssrn.com/abstract=956819.
464. See supra Part I.D;
465. Hsu, supra note 182, at 10,100 ("An enormous fraction of common repair and replacement activities can be accomplished for less than 20% of the original plant construction cost, and for those that typically cost more, plant owners will almost certainly find ingenious ways to gradually upgrade their plants in increments costing less than 20% of the original plant cost. . . . [Thus, the 20% safe harbor rule would] virtually guarantee[] that [New Source Review] will be never be triggered." (footnote omitted)).
466. See generally Gordon Tullock, The Welfare Costs of Tariffs, Monopolies, and Theft, 5 W. ECON. J. 224 (1967).
467. See id. at 226.
468. See Keohane et al., supra note 183, at 348-51;
469. see also Hsu, supra note 222, at 42 (characterizing grandfathering in the context of new source review as an "invitation to rent-seeking").
470. See Keohane et al., supra note 183, at 349-50 ("[F]irms regulated by a rentgenerating instrument, such as command-and-control standards, will benefit if that instrument is linked to a mechanism that imposes barriers to entry. In theory, such a mechanism might prohibit new entry outright; a more politically feasible approach would impose higher costs on new entrants.");
471. Robert D. Tollison, Public Choice and Legislation, 74 VA. L. REV. 339, 367 (1988) ("[O]ne of the more interesting examples of the interest-group theory in the literature pits high-cost firms against low-cost firms in an industry. The latter firms seek cost-increasing regulations that drive some of the former firms out of the industry, raise industry price, and increase the quasi-rents accruing to the low-cost firms.").
472. Cf. Keohane et al., supra note 183, at 350 ("Although the theoretical arguments are strong, there are no conclusive empirical validations of these demand-side propositions. Direct empirical tests of firm demand for regulatory instruments (such as analyses of resources devoted to lobbying for such instruments as a function of firms' stakes in an issue) arc virtually nonexistent. Instead, most empirical work in this area simply seeks to measure the benefits an industry receives under regulation. Thus, the work examines not instrument demand itself, but rather the presumed product of such demand.").
473. Kaplow, Legal Transitions, supra note 242, at 571-72.
474. Levmore, supra note 250, at 1665-66.
475. Id.
476. Cf. Kaplow, Legal Transitions, supra note 242, at 576-81 (surveying fairness-based justifications for transition relief and questioning whether those justifications are truly distinct from economic justifications).
477. See supra notes 252-53 and accompanying text.
478. See Shi-Ling Hsu, Fairness Versus Efficiency in Environmental Law, 31 ECOLOGY L.Q. 303, 358-59 (2004) (identifying fairness concerns as one rationale underlying grandfathering rules such as new source review under the Clean Air Act).
479. See generally PATRICK ROHAN, ZONING AND LAND USE CONTROLS § 41.04 (2003).
480. For early treatments, see generally C. McKim Norton, Elimination of Incompatible Uses and Structures, 20 LAW & CONTEMP. PROBS. 305 (1955)
481. and Note, Elimination of Nonconforming Uses, 35 VA. L. REV. 348 (1949).
482. See also Allan T. Fell, Amortization of Non-Conforming Uses, 24 MD. L. REV. 323, 324-25 (1964) ('"Non-conforming uses are usually continued with the expectation that they will eventually disappear' through abandonment, destruction and other normal changes. Non-conforming uses, however, still abound, with the result that one of the primary zoning problems today is the elimination of nonconforming uses." (quoting Schiff v. Bd. of Zoning Appeals, 114 A.2d 644, 645 (Md. 1955))).
483. See, e.g., Village of Valatie v. Smith, 632 N.E.2d 1264 (N.Y. 1994);
484. City of Corpus Christi v. Allen, 254 S.W.2d 759 (Tex. 1953).
485. See CAL. BUS. & PROF. CODE § 5410 (2003) (providing for a five-year amortization period for signs that do not conform to zoning restrictions);
486. KAN. STAT. § 12-771 (2006) ("Nothing in this act is intended to prevent cities or counties from enforcing local laws, enacted under other legal authority, for the gradual elimination of nonconforming uses.");
487. Livingston Rock & Gravel Co. v. Los Angeles County, 272 P.2d 4, 8-9 (Cal. 1954) ("[Z]oning legislation looks to the future in regulating district development and the eventual liquidation of nonconforming uses within a prescribed period commensurate with the investment involved.");
488. City of Los Angeles v. Gage, 274 P.2d 34, 44 (Cal. App. 1954) (upholding a five-year amortization for non-residential uses in residential area, and explaining that "[u]se of a reasonable amortization scheme provides an equitable means of reconciliation of the conflicting interests in satisfaction of due process requirements");
489. Bd. of Zoning Appeals v. Leisz, 702 N.E.2d 1026, 1032 (Ind. 1998) (overruling prior precedent that amortization statutes were per se unconstitutional and noting that "[m]ost states allow local zoning authorities to phase out nonconforming uses with amortization provisions that require the owner to discontinue the nonconforming use after a certain period of time");
490. Spurgeon v. Bd. of Comm'rs of Shawnee County, 317 P.2d 798 (Kan. 1957) (upholding as reasonable the elimination of nonconforming uses without compensation within two years);
491. cf. IND. CODE ANN. § 36-7-4-616 (2006) (protecting agricultural nonconforming uses in perpetuity).
492. See Robertson, supra note 1, at 173-76 (discussing the possibility of using amortization and other land-use devices in the environmental context);
493. Varadarajan, supra note 18, 2576-87.
494. See 33 U.S.C. § 1316(d) (2000);
495. 40 C.F.R. § 122.29(d)(1) (2006).
496. See supra notes 18-20 and accompanying text.