By Andrew N. Sawula

On April 30, the U.S. Supreme Court denied the federal government's petition for certiorari to review the D.C. Circuit's decision in New York v. EPA, 443 F.3d 880 (D.C. Cir. 2006). Given recent Supreme Court cases, other appellate court holdings, and EPA rule-making actions, the importance of this 2006 case must be re-visited.

This case relates back to 2003, when EPA promulgated the Equipment Replacement Provision ("ERP") rule, which amended the Routine Maintenance, Repair, and Replacement ("RMRR") exclusion from New Source Review ("NSR"). By way of background, NSR is triggered by a two part test: (1) a physical or operational change; (2) that causes a regulated emission increase. The RMRR exclusion is an exclusion from the first part of the test. Traditionally, EPA applied the RMRR exclusion on a case-by-case basis, and had issued some guidance regarding categories of activities that qualify for the exclusion. Through the ERP rule, EPA sought to abandon its case-by-case approach in favor of a bright-line test. Under the ERP rule, work on a process unit would not constitute a physical or operational change — and therefore would be exempt from NSR — if it involved a replacement of components with identical or functionally equivalent components that do not exceed 20% of the replacement value of the unit and do not change its basic design parameters. This rule proved too advantageous for industry to avoid attack.

Several states and environmental advocacy groups challenged the rule, and the D.C. Circuit vacated it. The court reasoned that the ERP violated the Clean Air Act in two ways. First, EPA ignored that Congress defined a modification as "any" physical change — "any" is a statutory directive and truly means "any." Second, whereas Congress defined modification in terms of emission increases, the ERP would allow equipment replacements that result in non-de minimis emission increases to avoid NSR. While the court ruled that the statute requires all physical changes that cause emission increase to be subjected to NSR, it acknowledged that EPA has the discretion not to regulate those changes that present "trivial regulatory concern." Put another way, EPA may ignore physical changes if regulating them would be "absurd or futile."

What types of changes present a trivial regulatory concern will be a matter of ongoing debate. Just those that cause a de minimis emission increase? What is a de minimis increase? Can EPA exclude categories of projects because they are performed too frequently to always undergo permitting review, or because they would disrupt commerce (e.g., applying for an NSR permit every time a tube leak needs repair at a power plant)? Déjà vu all over again . . .

Please contact us if you would like to discuss the D.C. Circuit's holding and its implications for your business.

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