On August 13, 2012, the United States Court of Appeals for the Fifth Circuit vacated the Environmental Protection Agency’s (“EPA”) disapproval of revisions to the Texas State Implementation Plan (“SIP”) dealing with the state’s Flexible Permits program. State of Texas v. U.S. Environmental Protection Agency, No. 10-60614 (5th Cir. Aug. 13, 2012). Under the Clean Air Act (“CAA”), EPA sets National Ambient Air Quality Standards (“NAAQS”) but states determine the specific control strategies that the individual state will use to achieve NAAQS. 42 U.S.C. § 7410(a)(1). The states do this by formulating and administering a SIP. 42 U.S.C. § 7410(a)(2). EPA has the authority to approve or disapprove SIP language proposed by the states. 42 U.S.C. § 7410(k). Petitioners challenged the EPA’s disapproval of the Texas SIP revisions relating to the Flexible Permits program under the CAA and the Administrative Procedure Act (“APA”).
In 1994, Texas revised its SIP to include a Flexible Permits Program and submitted the revisions to EPA for approval. The Flexible Permit Program allowed facilities that were minor sources for criteria pollutants to obtain a minor NSR permit setting an emissions cap for the whole facility. To determine the amount of the emissions cap, the state agency (Texas Natural Resource Conservation Commission, which later became the Texas Commission on Environmental Quality (“TCEQ”)) would first determine the corresponding emissions from each emissions unit under the cap if it had pollution controls at the BACT level. The cap amount was then set at the sum of the BACT emission values for the emission units within the facility. Facilities with flexible permits could make some modifications without the need for further agency review, as long as the resulting emissions total was still less than the emissions cap.
The EPA failed to take any formal action on the Flexible Permit Program for over a decade. In 2008, industry petitioners filed suit to force EPA to perform its nondiscretionary duty to act on the SIP revisions. The following year, EPA proposed disapproving the Program (final disapproval was issued on July 15, 2010). In the meantime, a number of facilities in Texas had obtained permit coverage under the Flexible Permit Program. In disapproving the SIP revisions, EPA argued that: (1) the Flexible Permit Program could allow major sources to evade NSR requirements applicable to major sources (Major NSR), (2) the monitoring, reporting and recordkeeping (“MRR”) provisions were inadequate, and (3) the methodology for calculating the emissions caps was not replicable.
The court examined EPA’s decision to disapprove the Flexible Permit Program under the usual APA standards for judicial review of agency action. In a 2-1 decision, the court found that in order for EPA to disapprove a SIP revision, it must demonstrate that the revision would “interfere with any applicable requirement concerning attainment of NAAQS or any other applicable requirement of the CAA.” See State of Texas v. U.S. Environmental Protection Agency, No. 10-60614, slip op. at 8 (5th Cir. Aug. 13, 2012) (quoting in part from 42 U.S.C. § 7410(l)). The court concluded that provisions in the Flexible Permit regulations requiring compliance with Prevention of Significant Deterioration (“PSD”) and Nonattainment review were sufficient to prevent major sources from using flexible permits to evade Major NSR, and that EPA’s insistence on an express negative statement to that effect had no basis in the CAA or applicable regulations. As to the MRR provisions, the court concluded that EPA’s concerns were solely based on misgivings about the level of discretion given to the state agency’s director when setting specific MRR permit requirements, and also had no basis in the CAA or applicable regulations. Finally, the court concluded that the CAA provisions and regulations for minor NSR do not require that the methodology for calculating emissions be identical from permit to permit.
The court vacated EPA’s disapproval of the SIP revisions and remanded it back to the agency for further consideration. Texas will probably submit new revisions to the SIP in an effort to address EPA’s concerns. In fact, TCEQ has already issued rules clarifying the scope of the Flex Permit Program, and has pledged to do rulemaking to address any MRR issues. However, many flex permit facilities have already switched to “non-flex” permits or are in the process of doing so. Regardless, this court opinion may prove to be a milestone for how future courts will review EPA’s decisions about SIP approval.