February 1, 2015

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EPA Proposes Eliminating State Regulations as to Startup, Shutdown, and Malfunction Emissions

Operating conditions during periods of startup, shutdown, and malfunction (SSM) are not normal and often result in unrepresentative emissions that exceed permitted limitations.1 To account for this, the U.S. Environmental Protection Agency's (EPA's) policy concerning exceedances during SSM activities has historically provided that certain exceedances during SSM should not be subject to civil penalties, provided the exceedances are unavoidable and certain other conditions are met. For decades, the EPA has approved state implementation plans (SIPs) containing "civil penalty shields," also known as affirmative defenses, for unavoidable exceedances during SSM.

While operating circumstances at sources have not changed, this longstanding policy of shielding exceedances during SSM is unraveling. This is in part due to litigation, including a recent court case brought by the Natural Resources Defense Council, NRDC v. EPA (NRDC), which invalidated an EPA Clean Air Act (CAA) Section 112 regulation applicable to cement manufacturers, providing an affirmative defense to exceedances during SSM.2 In the wake of NRDC, the EPA now seeks to eliminate affirmative defenses for SSM exceedances.3 Many utility companies, industry groups and state agencies disagree with the NRDC court's conclusion and argue that the EPA's new position is not required by NRDC.

If the EPA continues down its current path, many types of sources would be impacted, especially major sources with emissions reporting requirements and continuous emission monitoring systems, such as natural gas- or coal-fired power plants. Emission exceedances under any circumstances during SSM activities would be subject to civil penalties, resulting in increased enforcement cases and civil penalties. States would be left to fill gaps in SIPs, and if they fail to do so in the allotted timeframe, the EPA would be required to fill the gaps with federal implementation plan (FIP) provisions. In the future, the EPA and state agencies may develop alternative methods of regulating emissions during SSM, such as alternative compliance scenarios or alternative emission limits, which would necessitate revisions to individual source permits and potentially EPA and state regulations.

This article reviews the EPA's historical policy of allowing civil penalty shields during SSM; representative court decisions addressing penalty shields, including NRDC; the EPA's proposed policy to eliminate affirmative defenses and public reactions thereto; and what all of this means for industry sources and their future operations.

EPA Policy for Decades was that SIPs Could Allow Affirmative-Defenses

The EPA believes that emission exceedances during SSM activities may aggravate air quality by preventing attainment or interfering with maintenance of the National Ambient Air Quality Standards (NAAQS) and the protection of Prevention of Significant Deterioration (PSD) increments.4 As such, emission exceedances during SSM events are deemed violations.5 However, though defined as violations, the EPA has acknowledged that states have discretion to adopt SIP provisions shielding exceedances during SSM from civil penalties in accordance with the EPA's policy described below.6  In addition, the EPA itself has adopted its own regulations addressing exceedances during SSM. The focus of the EPA's recent proposed policy change, and therefore the focus of this article, is on the EPA's policy as it pertains to affirmative defenses in SIPs.

In what is known as the SSM Policy, issued in 1999, (1999 SSM Policy) the EPA expressed its policy concerning civil penalty shields in SIPs.7 In the 1999 SSM Policy, the EPA recognized that the imposition of a penalty for excess emissions during SSM caused by circumstances beyond the control of the owner or operator may not be appropriate.

The EPA acknowledged that, to address this reality, an agency could exercise enforcement discretion to refrain from imposing penalties. While state agencies had previously exercised enforcement discretion and have continued to do so when deemed appropriate by the agency, the EPA's 1999 SSM Policy offered a regulatory tool giving more certainty to sources than enforcement discretion alone. The 1999 SSM Policy described to what extent a state may go beyond enforcement discretion and adopt SIP provisions to shield exceedances from civil penalties.

Under the 1999 SSM Policy, as to SSM activities, states may adopt affirmative defenses to civil penalties for unavoidable excess emissions arising during SSM. The 1999 SSM Policy clarified that an affirmative defense may apply only where certain enumerated criteria are met. For example, an affirmative-defense provision must require a source to demonstrate that the amount and duration of excess emissions were minimized to the maximum extent practicable and the excess emissions were not part of a recurring pattern.

The EPA's policy further specified that affirmative defenses could apply only to civil penalties and not to injunctive relief. This is because of the EPA's position that exceedances during SSM may interfere with the protection of national air quality standards; and thus injunctive relief must remain available.

In addition to affirmative defenses, the 1999 SSM Policy allowed states to adopt narrowly tailored, source-specific SIP provisions providing that certain emission limitations may not apply during startup or shutdown. However, these source-specific, exemption-like provisions were allowable only as to startup and shutdown activities—and not as to malfunctions. According to the 1999 SSM Policy, these source-specific provisions could apply only in narrow circumstances where the source could make required demonstrations, such as that the source's control strategy was infeasible during the startup or shutdown and that all possible steps were taken to minimize impacts on air quality.

Though the 1999 SSM Policy allowed narrowly tailored, source-specific exemptions during startup or shutdown, the EPA emphasized that an automatic exemption from penalties was not approvable as to any type of activity, whether it be startup, shutdown, or malfunction. The rationale for prohibiting automatic exemptions was rooted in the EPA's position that exceedances are violations, though certain exceedances should not be subject to a civil penalty.

Additionally, supposedly to ensure that SIP penalty-shield provisions, and the EPA's approval thereof, were in compliance with the CAA, the policy instructed that neither an affirmative-defense provision nor a source-specific exemption could apply where a source has the potential to cause an exceedance of NAAQS or PSD increments, in that a SIP is not approvable where it may cause NAAQS or PSD violations.

For decades, the EPA has approved or disapproved SIP provisions generally consistent with the 1999 SSM Policy. On top of SIP provisions, the EPA itself has promulgated regulations addressing exceedances during SSM events. The EPA's rules contain affirmative-defense provisions, as well as source-specific exemptions from normal emission standards or compliance requirements. Both SIP provisions and EPA regulations have been the subject of litigation over the past several years, though the EPA's recent proposed policy change focuses on affirmative defenses in SIPs. In addition to litigation is a petition submitted by Sierra Club to the EPA on June 30, 2011, asking the EPA to issue SIP calls to eliminate affirmative defenses from Sierra Club Petition.8

The EPA's newfound disregard for long-standing practices expressed in the SSM Policy is purportedly in response to the various legal challenges and the Sierra Club Petition. The EPA's proposal to reject its longstanding policy is described further below, following a review of the seminal litigation supposedly underlying the EPA's proposed policy change.

Recent Litigation Leads Up to EPA's New Proposed Policy

In 2008, in Sierra Club v. EPA, the U.S. Court of Appeals for the DC Circuit vacated an EPA Section 112 regulation exempting major sources from normal emission standards during periods of SSM.9

In lieu of an emission limitation, the rule applied a "general duty" requiring a source to minimize emissions to the greatest extent possible during SSM events. This EPA rule was a general provision and not a source-specific provision, i.e., the EPA rule at issue was not particular to any source category listed in Section 112. The petitioner, Sierra Club, argued that the exemption from emission standards during SSM was inconsistent with Section 112's requirement that the EPA promulgate "emission standards" as Maximum Available Control Technology (MACT) standards as well as Section 302(k)'s definition of emission standards which refers to "continuous emission reduction."

Concurring in Sierra Club's view, the D.C. Circuit concluded that because of the exemption there was no emission standard effective during SSM periods, which the court found was contrary to Sections 112 and 302(k) requiring that a Section 112 standard apply continuously. Therefore, the EPA's exemption rule was invalidated. Sierra Club is now one of a few cases where courts have found that an emission limitation must apply at all times, even during SSM,10 and therefore calls into question the validity of exemptions under the CAA.

The exemption-type provision at issue in Sierra Club is distinguished from an affirmative defense. As earlier discussed, an exemption provides that certain emission limitations may not apply during startup or shutdown, if criteria are met; an affirmative defense provides that an emission exceedance during SSM would not be subject to civil penalties if criteria are met.

In a case addressing affirmative-defense provisions in SIPs, decided in 2013, Luminant Generation Co. v. EPA, the U.S. Court of Appeals for the Fifth Circuit upheld the EPA's partial approval and partial disapproval of the Texas SIP's affirmative-defense provisions.11 The EPA (1) approved an affirmative-defense SIP provision for unplanned SSM activities but (2) disapproved an affirmative-defense SIP provision for planned SSM activities. As to (1), environmental group-petitioners challenged the EPA's approval of the affirmative defense for unplanned SSM activities, arguing that under Sections 113 and 304(a) (pertaining to enforcement and citizen suits, respectively), the CAA reserves penalty assessments for courts and the affirmative defense interferes with this court authority. On this issue, the Fifth Circuit held that the EPA properly exercised discretion in approving the Texas SIP's affirmative defense for unplanned exceedances because the provision was narrowly tailored and required compliance with criteria similar to the penalty factors in Section 113. As to (2), raised by industry-petitioners, the Fifth Circuit upheld EPA's disapproval of the affirmative defense for planned SSM activities based in large part on the EPA's conclusion that planned SSM activities could not meet the criteria in Section 113, and thus an affirmative defense for planned SSM would be contrary to the CAA.

Finally, most recently in April 2014, in NRDC (discussed above), the D.C. Circuit vacated an affirmative-defense provision in EPA's Section 112 rule specifically applicable to cement manufacturers.12 The D.C. Circuit held that under the penalty provision of Section 304(a), only the courts may determine penalties in private citizen lawsuits and thus the EPA lacked authority to create an affirmative defense to violations stemming from Section 112 standards.

As in Luminant, the NRDC court's decision rested on the civil penalty provisions in Sections 113 and 304. However, unlike Luminant, NRDC did not address affirmative-defense provisions in SIPs or FIPs. NRDC dealt with an affirmative in a source-specific Section 112 regulation, pertaining only to certain cement manufacturers. Industry and states have considered NRDC to be a narrow holding, applicable only to source-specific provisions, which are different in nature from SIP provisions.

Regardless, in the EPA's new proposal described below, the EPA seeks to extend the NRDC court's reasoning to SIPs so as to preclude affirmative defenses in SIPs.

EPA's Proposed Policy to Eliminate State Involvement in Affirmative-Defense Provisions

Even before the NRDC decision was issued, the EPA was in the process of revising its SSM policy in response to the Sierra Club Petition seeking a SIP call to, among other things, clean up affirmative-defense provisions supposedly inconsistent with the 1999 SSM Policy. On February 22, 2013, the EPA proposed a SIP call to revise SIP provisions, in large part in accord with the Sierra Club Petition (2013 Proposal).13 The 2013 SIP call applies to 36 states.

However, on September 17, 2014, purportedly in reaction to NRDC, the EPA issued a Supplemental Notice of Proposed Rulemaking (SNPR).14 The SNPR supplemented the 2013 Proposal's SIP call by expanding the EPA's policy to provide that all affirmative defense provisions in SIPs, whether applicable to planned or unplanned SSM events or avoidable or unavoidable exceedances, were inconsistent with the CAA.  The EPA's SNPR focuses on affirmative defenses, and not exemption provisions.  The SNPR also entails a supplemental SIP call to all states with any affirmative defense provision.  This new 2014 SIP call applies to 17 states, 15 of which were already subject to the 2013 SIP call in some way.15

In its SNPR, the EPA indicates that its reason for changing its long-time policy of approving narrowly tailored affirmative defenses in SIPs is based on NRDC.  The EPA admits that the NRDC case was in the context of Section 112's specific standards for cement manufacturers.  However, the EPA's position is that the NRDC court's reasoning applies more broadly, including to affirmative defense provisions in SIPs.

In response to the SNPR, the EPA received about 20,000 comments.16 Many of these comments were by state regulatory agencies, industry groups, industrial sources, such as utility companies and oil and gas sources, as well as environmental groups and individuals. The state agency and industry commenters expressed opposition to the EPA's proposed policy change and SIP call.  States have urged the EPA to leave intact already federally approved SIP provisions.17 Industry and state commenters asserted the lack of policy support for the EPA's SNPR. According to several states, excess emissions subject to their affirmative defenses have not contributed to a NAAQS exceedance or caused actual harm to public health or the environment.18 States and industry commenters contend that the EPA's rule oversteps the authority entrusted to states to regulate source operations and emissions pursuant to the Section 110.19

Environmental groups support the SNPR, arguing that affirmative defenses hamper enforcement under the CAA.20  In addition, arguably without providing technical or scientific support, environmentalists suggest that excess emissions during SSM interfere with or cause exceedances of national air quality standards and adversely impact public health.21

What Comes Next

Next, as to affirmative-defense provisions in SIPs, the EPA is expected to issue a final rule following its SNPR, which may or may not be consistent with the SNPR or the 2013 Proposal. Assuming the EPA adopts a final rule consistent with its proposals, thereafter the 38 total states named in the SIP calls will be required to revise their SIPs to eliminate affirmative-defense provisions, and then submit the revised SIPs to the EPA for approval. Where states fail to do so, the EPA will be required to issue FIPs.

The result of the EPA's policy to eliminate affirmative defenses will be that emissions of any kind, even if unavoidable, will be subject to civil penalties. While states may exercise enforcement discretion, it is likely that agency enforcement cases for exceedances during SSM will increase and therefore civil penalties to sources will be issued. As a practical matter, penalties will still remain subject to the same mitigating and aggravating penalty factors in Section 113, which the courts and administrative agencies should continue to consider when determining penalties. There may also be increased citizen suits against individual sources.

The EPA is currently working to remove its own affirmative-defense provisions from its regulations.22 This "clean up" may, in part, have been prompted by Sierra Club, which filed yet another petition with the EPA on June 17, 2014, and a similar petition for review with the D.C. Circuit on June 17, 2014. In the petitions, Sierra Club claims that the EPA must remove certain enumerated affirmative-defense provisions from its regulations.23 Notably, remaining in place and not proposed for removal is the Title V emergency provision, allowing an affirmative defense to technology-based emission limits during emergencies where certain criteria are met.24 Presumably, the EPA will continue to study its regulations and propose revisions where it deems necessary to comply with court decisions and as it chooses based on future policy decisions.

Eventually, following the initial responses to the EPA's policy change, the EPA and states may work to develop alternative methods to address excess emissions during SSM.  For example, an alternative compliance standard for SSM periods may be developed. In its SNPR, the EPA itself suggested that states revise major source permits to include alternate emission limits applicable during SSM only, however, the source-specific technical work required to create such alternate limits would be time-consuming, and therefore is not a realistic near-term resolution.

Given the level of controversy and likelihood for legal challenges, regardless of the outcome of the SNPR, much is yet to transpire on this decades-old saga of civil penalty shields. Those interested should actively participate, such as by having conversations with their state agency or EPA, submitting comments in any subsequent rulemakings, and by participating in legal challenges that may ensue.

1By way of example, emissions during SSM are not considered by the EPA in determining equipment performance and control efficiencies. See 40 C.F.R. § 60.8(c) (providing that operations during SSM are not representative conditions for performance testing, unless otherwise provided in a source-specific regulation).
2NRDC v. EPA, 749 F.3d 1055 (D.C. Cir. 2014).
3EPA Supplemental Notice of Proposed Rulemaking, SIPs: Response to Petition for Rulemaking; Findings of Substantial Inadequacy; and SIP Calls To Amend Provisions Applying to Excess Emissions During Periods of SSM, 79 Fed. Reg. 55920 (Sept. 17, 2014).
4EPA. (1982, Sept. 28).  Memorandum, policy on excess emissions startup, shutdown, maintenance, and malfunctions.
7EPA. (1999, Sept. 20). Memorandum, SIPs: Policy regarding excess emissions during malfunctions, startup and shutdown.
8Sierra Club, Petition to Find Inadequate and Correct Several SIPs under Section 110 of the CAA Due to Startup, Shutdown, Malfunction and/or Maintenance Provisions (June 30, 2011).
9Sierra Club v. EPA, 551 F.3d 1019 (D.C. Cir. 2008).
10See, e.g., Montana Sulphur & Chemical Co, v. EPA, 666 F.3d 1174 (9th Cir. 2012) (Upholding a FIP for Montana with both numeric emission limits and an affirmative defense for unavoidable exceedances in connection with flaring during SSM periods, the Ninth Circuit, citing Sierra Club, held that numeric limits were required and an exemption to emission limits would be contrary to the CAA's requirement for "continuous compliance.").
11714 F.3d 841 (5th Cir. 2013).
12See Note 2.
13EPA Proposed Rule, SIPs: Response to Petition for Rulemaking; Findings of Substantial Inadequacy; and SIP Calls To Amend Provisions Applying to Excess Emissions During Periods of SSM, 78 Fed. Reg. 12460 (Feb. 22, 2013).
14EPA Supplemental Notice of Proposed Rulemaking, SIPs: Response to Petition for Rulemaking; Findings of Substantial Inadequacy; and SIP Calls To Amend Provisions Applying to Excess Emissions During Periods of SSM, 79 Fed. Reg. 55920 (Sept. 17, 2014).
15Texas and California's SIPs were not listed in the 2013 SIP call, but were added to the 2014 SIP call.
16Overall, the EPA received more than 70,000 comments, cumulatively, in response to the 2014 SNPR and the 2013 Proposal, according to Docket ID: EPA-HQ-OAR-2012-0322, available at
17See, e.g., Comments of Alaska Dep't of Environmental Conservation, Docket ID: EPA-HQ-OAR-2012-0322-1128 (Nov. 6, 2014).
18See, e.g., Comments of Arizona Dep't of Environmental Quality, Docket ID: EPA-HQ-OAR-2012-0322-0934 (Nov. 4, 2014).
19See, e.g., Comments of National Environmental Dep't Assoc.'s Clean Air Project, Docket ID: EPA-HQ-OAR-2012-0322-1130 (Nov. 6, 2014).
20See, e.g., Comments of Sierra Club, Docket ID: EPA-HQ-OAR-2012-0322-0961 (Nov. 6, 2014); Comments of the Environmental Integrity Project and the University of Texas School of Law's Environmental Clinic, Docket ID: EPA-HQ-OAR-2012-0322-1057 (Nov. 6, 2014).
22E.g., on November 19, 2014, the EPA proposed to remove the affirmative defense in the Section 112 cement manufacturer NESHAP, 40 C.F.R. § 63.1340. EPA Proposed Rule, National Emission Standards for Hazardous Air Pollutants for the Portland Cement Manufacturing Industry and Standards of Performance for Portland Cement Plants, 79 Fed. Reg. 68821-01 (Nov. 19, 2014).
23See, for example, 40 C.F.R. § 63.672, the affirmative defense for exceedances caused during malfunctions at oil and natural gas production plants.
2440 C.F.R. § 70.6(g).