EPA Releases Proposed GHG Emissions Standard for Power Plants

On March 27, 2012, the EPA released its proposed new source performance standard (NSPS) for carbon dioxide (which EPA is calling “carbon pollution” in its press releases) from electric utility generating units. The proposed emissions limitation is an output-based standard of 1,000 pounds of CO₂ per megawatt-hour (lb. CO₂/MWh).  Conventional coal-fired plants currently average about 1,800 lb. CO₂/MWh.  The proposed new standard is based on the performance of natural gas combined cycle (NGCC) technology.
   
In other words, any new stationary source will need to be a natural-gas fired plant, a renewable energy facility, or a coal plant built with some type of carbon-capture (CCS) technology.

EPA does not attempt to mask its intent with this new proposed standard: the elimination of new coal-fired power plants in the U.S. (although EPA does indicate in the proposal that coal-fired power plants may have a limited useful purpose in terms of "promoting energy diversity").   

EPA recognizes that coal-fired power plants will only be able to achieve the 1,000 lb. CO₂/MWh standard by incorporating expensive carbon capture and sequestration (CCS) technology, but speculates that this technology may become more affordable in the future and that sources may be able to secure funding from the federal government for CCS projects. The proposed regulation would allow coal (and pet coke) fired sources to be subject to an 1800 lb. CO₂/MWh standard for the next 10 years, but these sources would then be subject to a 600 lb. CO₂/MWh for the subsequent 20 years (resulting in a 1000 lb. CO₂/MWh average over the 30 year period).

The proposed NSPS would not apply to “transitional sources” – those that have acquired a complete PSD permit prior to March 27, 2012 and that commence construction within 12 months. It also would not apply to existing EGUs whose CO₂ emissions increase as a result of installation of pollution controls for conventional pollutants (such as SCR dampers).

At this point, EPA has only proposed the NSPS for new and modified sources under §111(b). Emissions guidelines for existing sources under §111(d)—which will be converted into performance standards by the states (in a process much like the SIP process)—are referenced in the proposal, but EPA said yesterday in a conference call that it currently has no plans to regulate existing power plants.

The comment period will run 60 days from the date the proposed rule is published in the Federal Register—which has not happened yet. EPA will also hold public hearings on the proposal, the dates, times and locations of which have not yet been announced.

You can read the full text of the proposed rule here.  More on this to come....

The Absolute Pollution Exclusion is STILL Ambiguous in Indiana

Thanks, Colin, for the shout-out on Flexdar.  The vast bulk of the credit for this goes to George Plews and Jeff Featherstun, both for the outcome of this case and the cases that preceded it.  George was the lead attorney for the policyholders in Am. States Ins. Co. v. Kiger, 662 N.E.2d 945 (Ind. 1997) and Seymour Mfg. Co. v. Commercial Union Ins. Co., 665 N.E.2d 891 (Ind. 1996), and Jeff appeared in Seymour (though in talking to him, I'm pretty sure he also had a hand in Kiger). 

Flexdar is yet another case asking whether the absolute pollution exclusion is ambiguous.  The Indiana Supreme Court, for the fourth time, answered yes.  As I mentioned in a previous post, the absolute pollution exclusion is one of the most heavily-litigated clauses in modern insurance policies.  It normally states that the policy excludes losses caused by "pollutants," and defines pollutants as:

Any solid, liquid, gaseous or thermal irritant or contaminant, including vapor, soot, fumes, acids, alkilis, chemicals and waste.

In Kiger, which is the ur-pollution exclusion case in Indiana, the Indiana Supreme Court said that this exclusion could not be used to preclude coverage for a gas station whose tanks leaked, necessitating an extensive environmental remediation.  The insurance company pointed to the policy's pollution exclusion and reasoned that gasoline contamination was pollution, as therein defined, and therefore no coverage existed.  The Supreme Court, in an opinion by Justice De Bruler, said not so fast.  "We begin by noting one oddity of American States' [the insurer] position.  That an insurance company would sell a "garage policy" to a gas station when that policy specifically excluded the major source of potential liability is, to say the least, strange."  The Court when on to hold that, since gasoline is not always a pollutant, and indeed is the main product that a gas station sells, the pollution exclusion was ambiguous.  It was therefore read against the insurer, who drafted it, and was unenforceable.  The cleanup was covered under the policy.

In Flexdar, State Auto tried to distinguish this case from Kiger seized on the fact that Kiger involved gasoline contamination caused by a gas station, whereas the contamination in Flexdar was caused by something that was only a minor part of the policyholder's business.  Flexdar was a company that manufactured rubber stamps and printing plants was believed by the Indiana Department of Environmental Management to have been responsible for contaminating the groundwater around its plant with TCE.  TCE is a chlorinated solvent, and Flexdar used that solvent to clean some of its equipment (though it is still not clear that Flexdar was, in fact, the source of the contamination).  But TCE was not a major part of Flexdar's business. 

The Supreme Court, in an opinion by Justice Rucker, wasn't buying it.  The Court held that the absolute pollution exclusion is ambiguous because "practically every substance would qualify as a 'pollutant' under this definition, rendering the exclusion meaningless."  Slip Op. at 7.  The Court went on to reject State Auto's suggestion that Indiana follow other states, such as California, that recognize the pollution exclusion as ambiguous, but nonetheless enforce it when "traditional" environmental pollution is involved.  Justice Rucker wrote that that approach is "problematic because the concept of what is a 'traditional' environmental contaminant may vary over time and has no inherent defining characteristics."  Slip Op. at 8.

As it stands, essentially three approaches to the pollution exclusion now exist.  There's the California "traditional environmental pollution" approach, the "literalist" approach followed in, among other states, Alabama, and the Indiana approach, which says that the absolute pollution exclusion is a dead letter.  If you want to exclude pollutants, name them.  Otherwise, the courts will not go back and try to fix the problems that the insurers' own poor drafting created.

I could go on and on about the absolute pollution exclusion, but I'll leave it at this for now, except to say that the infamous (in my opinion, anyway) "curry powder" case I blogged about a month ago also got a mention in Justice Rucker's opinion as an example of the "literalist" approach to the pollution exclusion. 

Indiana Supreme Court Finds Pollution Exclusion is Still Ambiguous!

Congratulations to Sean Hirschten for a win before the Indiana Supreme Court in State Automobile Mutual Insurance Company v. Flexdar, Inc.  Sean worked with George Plews and Jeff Featherstun on this case, which has a significant impact on the practice of environemntal law in Indiana.  The Indiana Supreme Court held that the absolute pollution exclusion in insurance policies is still ambiguous and does not bar insurance coverage for environmental cleanups.  

Stay tuned for a lengthier discussion of the impact of this decision, but I wanted to get an initial shout out to Sean!

Supreme Court Rules for Landowner in Wetlands Dispute

The U.S. Supreme Court yesterday issued its most anticipated decision in the environmental arena this term in Sackett v. U.S. Environmental Protection Agency - a case that has been dubbed a sort of David vs. Goliath battle by property rights advocates - finding in favor of the landowner and against EPA.   

The basic facts of Sackett are relatively straight-forward: the Sacketts owned a residential lot near Priest Lake, Idaho and were preparing to build a home there.  After they performed grading and fill work at the site, EPA officials served the couple with an administrative compliance order advising them that their parcel constituted wetlands subject to federal permit jurisdiction under section 404 of the Clean Water Act.  The order directed the Sacketts to restore the lot to its original condition without delay; and threatened the Sacketts with substantial daily fines (quantified by the Solicitor General at oral argument as up to $75,000/day) for non-compliance with the CWA and administrative order.

The landowners then sought a hearing to make their case that the property was not actually a wetland.  This request was denied and the Sacketts filed suit in federal district court to challenge EPA’s wetlands classification of their lot.  The district court dismissed their lawsuit, holding that EPA administrative compliance orders issued under the CWA do not constitute final agency actions subject to judicial review.  The Ninth Circuit affirmed, joining numerous other federal circuits that had previously come to the same conclusion.

The Supreme Court disagreed, holding that a compliance order issued under the CWA is final agency action under the APA and subject to judicial review.  The Supreme Court did not reach the issue of whether EPA violated the Sacketts' due process rights by depriving them of the opportunity for judicial review.  Had the Court reached this issue, it would likely have had impacts on administrative law far beyond the wetlands context.  Instead, the Court restricted its opinion to the question of whether the administrative compliance order was a final agency action, and found that it was.

This decision will likely make life more difficult for EPA regulators, requiring the agency often to engage in costly litigation before actual compliance with its administrative orders is required.  But a system in which EPA can use the threat of significant daily fines in order to force compliance without the landowners having any opportunity for judicial review is inequitable and was in need of fixing.  Judicial review should also reduce waste in many cases because it will allow courts to decide disputed issues before the landowner is required to pay significant compliance costs.  This is particularly important when the issue, as in Sackett, is whether EPA has jurisdiction over the site at all.  Presumably the availability of judicial review will also make EPA think twice before denying a request for a hearing from a landowner.  

The full opinion of Sackett v. EPA can be found at http://pub.bna.com/lw/101062.pdf.  

March Madness!

We haven't posted on the Monitoring Well in a few weeks.  This has to be because of the dreaded time suck of the NCAA tournament.  Every year new studies come out showing that office productivity and server speed drops during the first week of the tournament as everyone is checking their brackets and their favorite teams' scores.  In an interesting article, Michael Crom of the Dale Carnegie Institute suggests that companies embrace the inevitable and use March Madness to boost employee engagement in the office, through events like viewing parties and encouraging bracket pools.  As a die hard sports fan I'm all for this approach.


OK, enough blogging for me for a bit.  I need to get back to daydreaming about IU knocking off Kentucky again.  Go Hoosiers!