Publication

April 18, 2007Client Alert

Supreme Court Clarifies New Source Review Provisions

Issued the same day as the U.S. Supreme Court’s global warming decision, on April 2, 2007, the U.S. Supreme Court also issued its decision in Environmental Defense v. Duke Energy Corp.,1 which invalidated the Fourth Circuit Court of Appeals’ recent New Source Review decision. Thus, environmental groups won two cases before the Supreme Court on the same day. Unlike the global warming win, however, the Duke decision will probably have only minor long-term ramifications.

Under the NSR provisions at issue in the Duke case, a power plant that significantly modifies a generation unit is forced to retrofit the plant with expensive pollution controls like selective catalytic reduction and flue gas desulfurization. These controls generally cost hundreds of millions of dollars. By and large, a source’s modification will trigger the control requirements if: (1) the modification will cause a "significant net emissions increase;" and (2) the modification is not routine maintenance, repair, or replacement.2 The primary issue in the Duke case related to how EPA determines this first requirement—a net emissions increase. Duke Energy argued that EPA regulations require an hourly emissions test, or stated another way, that NSR is triggered only if the plant’s hourly emissions would increase from the modification. Environmental groups argued that the regulations require an annual emissions test, or that NSR is triggered if the plant’s annual emissions increase from the modification. The Supreme Court sided with the environmental groups, upholding EPA’s annual emissions test.

Though important, the decision will probably have only minor effects on NSR enforcement and will not change the way NSR is interpreted in Wisconsin. Both the Seventh Circuit and the Wisconsin Department of Natural Resources have endorsed the annual emissions test, which is the test the Supreme Court upheld. Therefore, the Supreme Court’s decision does not change the law in Wisconsin.

As for the ongoing NSR enforcement cases, the Supreme Court’s decision was notably limited in scope. It did not address any of the routine maintenance issues pending in other circuits, or the "fair notice" defense, where industry has argued that it did not have fair notice of the rules because EPA has changed its interpretation over the years. For example, a significant issue that was not decided is whether the agency can look at what is routine in the industry when determining whether a project is routine maintenance, or whether the agency is limited to looking at what is routine at the unit. The district court in Duke Energy held that EPA could look to what is routine in the industry, yet the Supreme Court was silent on this issue.

Finally, and perhaps most importantly, the Supreme Court did not preclude EPA from going forward with its currently proposed NSR reforms. As proposed, EPA’s reforms would change the NSR annual emissions test to an hourly emissions test. The Supreme Court decision clearly gives EPA broad deference in interpreting the Clean Air Act’s modification language and would probably allow EPA to change the rules. Although EPA proposed the rule change in response to the Fourth Circuit’s decision, which is now overturned, EPA also gave various policy reasons for why the emissions test should be changed. Given this, many are currently speculating that EPA will continue with the proposed rulemaking and change the NSR rule to the hourly emissions test.

In all, the Duke decision clarified that the current emissions increase test is measured on an annual basis, but offered very little additional clarity regarding the many other outstanding NSR issues. Because of the decision’s limited scope, companies should expect NSR to continue to be a litigious and controversial issue over the upcoming years.

For further information, please contact Linda H. Bochert at lhbochert@michaelbest.com or 608.283.2271.



1
549 U.S. ____ (2007), available at http://www.supremecourtus.gov/opinions/06pdf/05-848.pdf.

2 See 42 U.S.C. §§ 7411(a)(4), 7479(C).

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