The Environmental Protection Agency (EPA) draft plan to limit greenhouse gas (GHG) emissions may affect an estimated 13,000 large industrial sources, but the impact to small businesses should be limited, energy analysts said last week.

Under the Clean Air Act, EPA is required to regulate sources that produce more than a specific threshold of certain pollutants, which include nitrogen oxide, ozone, carbon monoxide, particulates and lead. The U.S. Supreme Court in 2007 unanimously ruled that the EPA erred when it rejected a request to initiate a rulemaking to regulate GHG emissions (see NGI, April 9, 2007).

In response EPA this year published a proposed endangerment finding declaring six gases -- carbon dioxide (CO2), methane, nitrous oxide, hydroflurocarbons, perflurocarbons and sulfur hexafluoride -- as GHG contributors (see NGI, April 20).

EPA Administrator Lisa Jackson told reporters last week a formal endangerment finding likely will "happen in the next months." The action would obligate EPA to regulate the GHG emissions at a certain threshold. However, Jackson said the agency had no plans to "regulate Dunkin' Donuts."

Despite accusations by some GOP lawmakers that EPA suppressed staff-prepared comments arguing against CO2 regulation (see NGI, June 29), the agency's draft "Greenhouse Gas Mandatory Reporting Rule" was sent last month to the White House Office of Management and Budget (OMB) for review. Last week the EPA sent its draft "Prevention of Significant Deterioration/Title V Greenhouse Gas Tailoring Rule" to OMB, which details permitting procedures for stationary sources.

The EPA's proposed GHG reporting rules come after the agency and the Department of Transportation late last month submitted draft rules to the White House to increase car and light truck efficiency standards and implement the first-ever federal GHG tailpipe standards.

Final decisions on the rules are expected in March 2010, and many think the new permitting rules, if enacted, would have the biggest financial effect on large industrial sources.

In their review, Washington Research Group (WRG) analysts predicted last week the rules would "propose a threshold of 25,000 tons per year of CO2 equivalent emissions for strict permitting requirements -- thus sheltering hundreds of thousands of small emitters from a burdensome permitting process." Initially the measure called for regulation above a threshold of 250 tons per year. The EPA's timeline may be more accelerated than the market expects, and the impact on large emitters "may be broader," creating "headline risk" for "roughly 13,000 facilities" across the country that would fall under the threshold for new air permits, they said.

Ultimately, said WRG's K. Whitney Stanco, the EPA's GHG proposals "may be challenged in the courts -- exposing the industry to uncertainty until legal issues are resolved or Congress enacts climate change legislation."

Environmental law professor Victor B. Flatt said it was no coincidence that EPA was moving on CO2 as the cap-and-trade (CAT) bill was languishing in Congress (see related story).

"If the energy industry is concerned about the costs of a comprehensive carbon trading bill a la Waxman-Markey, they should be more concerned about regulation from the EPA," Flatt wrote. "The original endangerment finding is not just for CO2 but for all greenhouse gases...Regulation under the Clean Air Act means that the EPA will propose the best available technology for limiting these emissions, and that states will have to further limit the total emitted to some health-based standard."

Along with the additional fuel efficiency standards and resulting reduced petroleum demand, the proposed EPA regulations "will end up affecting demand for refined petroleum as much or more" than the costs of the CAT bill, Flatt said. "While the EPA is ultimately thinking of some kind of trading system for regulation, there will be no offset provisions to reduce the costs...You can also be sure that there will not be sufficient votes to bar the EPA from GHG regulation unless we have a comprehensive bill...Those opposing the Waxman-Markey bill need to think long and hard about which they prefer."

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