By Jillian Marullo

House Bill 788, signed into law on June 14, 2013, authorizes the Texas Commission on Environmental Quality (“TCEQ”) to regulate emissions of carbon dioxide and five other greenhouse gases (“GHG”) “[t]o the extent that greenhouse gas emissions require authorization under federal law.” The legislation gives TCEQ the authority to issue permits authorizing GHG emissions and develop rules governing the permitting process as well as rules for transitioning the process away from the United States Environmental Protection Agency (the “EPA”) to TCEQ. In a nod to the State of Texas’ opposition to the federal GHG permitting requirements, the law requires TCEQ to repeal any rules promulgated pursuant to this grant of authority should federal law cease to require permits for GHG emissions. Under the bill, the GHG permitting process will be exempt from TCEQ’s contested case hearing requirements in an effort to make the process more efficient.

Currently, major sources of GHG emissions in Texas are required to obtain a permit from the EPA. The federal Clean Air Act allows the EPA to delegate permitting authority to states that adopt and follow an EPA-approved State Implementation Plan (“SIP”). However, Texas lacks the authority to implement a GHG permitting program because at the time the EPA began requiring SIPs to cover GHG emissions, Texas law did not authorize TCEQ to regulate GHGs or other new pollutants identified solely by the EPA. Instead, TCEQ is only authorized to regulate those pollutants specifically identified by the Texas legislature. Because the legislature only meets every two years, TCEQ could not obtain authorization until the 2013 legislative session. Thus, because TCEQ missed the EPA’s 2011 deadline, the EPA imposed a Federal Implementation Plan (“FIP”) under which GHG permits for Texas sources are issued directly by the EPA.

HB 788 was enacted to allow TCEQ to take over and streamline the permitting process. Once TCEQ rules are enacted and approved by the EPA, they should eliminate the lengthy delays encountered by Texas applicants seeking GHG permits from EPA Region 6, which have allegedly resulted in millions in lost revenue. The bill was authored by Rep. Wayne Smith, an strong industry supporter, and is backed by environmentalists as well as industry leaders anxious to avoid the bottlenecking experienced at Region 6.

The transition of permitting authority from the EPA to TCEQ will take place in three phases. First, TCEQ will, in conjunction with public commenting, propose and adopt a regulatory program that will allow it to become the permit authority for sources of GHG emissions in Texas. HB 788 directs TCEQ to adopt rules to implement the permitting process and procedures for shifting review of applications pending before the EPA to TCEQ. Several chapters in the Texas Administrative Code relating to air permitting and public notice will need to be amended, including chapters 39, 55, 101, 106, 116 and 122. Once these changes are made, the new rules must be approved by the EPA as part of a revision to the Texas SIP. Finally, before TCEQ can begin reviewing applications and issuing permits for GHG emissions, the EPA must withdraw the FIP currently in place. Until this process is complete, the EPA will remain the permitting authority for GHG emissions in Texas.

Draft rules are expected to be made public by October 4, 2013, with responses to public comments being made by the end of 2013. The rules will likely be adopted in early 2014 and will become effective immediately. EPA approval of the adopted rules and withdrawal of the current FIP is expected to occur, if all goes as planned, in May or June 2014.

The State of Texas brought a lawsuit against the EPA challenging its authority to impose a FIP to issue GHG permits. In July 2013, the D.C. Circuit ruled for the EPA, upholding the district court’s dismissal of the suit on the grounds that the state lacked standing. Texas v. EPA, No. 10-1425, 2013 U.S. App. LEXIS 15210 (D.C. Cir. July 26, 2013). However, the case is still pending before the D.C. Circuit as the court has extended the time to file a petition for rehearing.