By Jane E. Montgomery

The Supreme Court released its decision on April 2 in the Duke New Source Review (NSR) enforcement case, Environmental Defense v. Duke Energy Corp., Docket No. 05-848, http://www.supremecourtus.gov/opinions/06slipopinion.html. The case hinged on inconsistent regulatory interpretations of the term "modification," which was defined in the same way in two different portions of the Clean Air Act as "a physical or operational change that results in an emission increase." EPA has interpreted the New Source Performance Standard ("NSPS") test of emissions increases to require an "hourly" increase in emissions rate, while the Prevention of Significant Deterioriation ("PSD") test required an increase in total annual emissions. The latter test arguably requires many more construction projects to be reviewed for installation of additional pollution controls.

Unfortunately, the Supreme Court rejected the Fourth Circuit's holding that the NSPS and PSD emission tests must be the same. This result is disappointing. Because the NSPS test looks at changes in maximum hourly emission rates, the Fourth Circuit's decision meant that PSD also requires an applicability test that assesses changes in maximum hourly emission rates. The test is more difficult, but also, at least to us, seems to comport with the intent of NSR because it targets increases in the permitted capacity of the emission's unit.

In support of its decision, the Supreme Court found that rules of statutory interpretation do not require the term "modification" to have the same meaning in the PSD and NSPS programs, and that the Fourth Circuit's interpretation of the 1980 PSD regulations was an implicit invalidation of those regulations contrary to the constraints on judicial review in 42 USC 7607(b). The court did find, however, that on remand Duke may pursue its assertion that EPA's NSR positions have been inconsistent over time and that EPA is retroactively targeting decades of projects that were acceptable at the time they were undertaken. According to the Supreme Court, these issues were not addressed by the Fourth Circuit.

In prior pronouncements, EPA concedes that the NSPS hourly rate emission test is a more difficult test for EPA to satisfy in the NSR enforcement cases. Accordingly, this Supreme Court decision removes a potential proof problem for the EPA. The EPA, as you may recall, earlier proposed an NSR applicability test for certain units that would adopt the NSPS hourly rate emission test. EPA indicated on April 3 that it intends to continue to pursue that proposal now in spite of the Court's decision.

Whether EPA will revisit this NSR enforcement policies in light of this decision is unclear. For the last couple months, including last week, EPA has indicated that it intended to file additional NSR enforcement actions in the utility, cement, chemical, and steel industries.

For more information about this or any other issue, please contact a member of the Schiff Hardin Environmental Group.

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