CEI William Yeatman, Darin Bartram, Justin Schwab: Comments on Carbon Pollution Standard 5.9.2014

1899 L Street, N.W., 12th Floor

Washington, D.C. 20036

Comments of the Competitive Enterprise Institute on Clean Air Act §111(b) Carbon Pollution Standards

Docket No. EPA-HQ-OAR-2013-0495

May 9, 2014

Summary

Recognizing that the development of next-generation clean-coal technology is

essential to ensuring America’s energy future, the Energy Policy Act of 2005

provided financial assistance to companies who voluntarily took on the burden of

developing such technology. To avoid the possibility that its financial assistance

could lead to counterproductive regulations that would retard the development of

this clean-coal technology, Congress forbade the Environmental Protection Agency

(“EPA”) to set control technology standards under the Clean Air Act based on

facilities that received assistance under the Energy Policy Act. But EPA ignored

Congress’s restrictions on its authority when it proposed new standards for coal-

fired power plants that leveraged Congressionally subsidized technology into

stringent emission standards that threaten to effectively bar the construction of

new coal-fired plants in the United States. Rather than perpetuate this unlawful

and erroneous course of action, EPA should take a step back and use its

information-gathering powers under the Clean Air Act to determine definitively the

status of Energy Policy Act assistance for the facilities under consideration, rather

than rushing to promulgate an unlawful and arbitrary emission standard.

Background

The Energy Policy Act of 20051 promotes the development of cutting-edge

technologies to produce cleaner energy from traditional fossil fuels, particularly

from coal. The Act thereby “accelerates market penetration for clean coal

technologies.” H.R. Rep. No. 109-215, at 169 (2005). As President George W. Bush

observed while signing it into law, the Act “authorizes new funding for research into

cutting-edge technologies that will help us do more with less energy. . . . [T]his bill

will allow America to make cleaner and more productive use of our domestic energy

resources, including coal . . . . The challenge is to develop ways to take advantage of

our coal resources while keeping our air clean.” 1 Legislative History of P.L. 109-58

Energy Policy Act of 2005, Tab 2, at 1264-65 (Weekly Compilation of Presidential

Documents, Vol. 41, No. 32) (Presidential Remarks on Signing the Energy Policy

Act of 2005 in Albuquerque, New Mexico, Aug. 8, 2005).

Specifically, Congress provided two significant financial incentives for “clean

coal” technology. First, in the Act’s Clean Coal Power Initiative, Congress provided

grants for coal gasification and other clean-coal technology projects.2 Second, as

part of the Act’s Energy Policy Tax Incentives program, Congress created a

“qualifying advanced coal project” investment tax credit that applies to new or

retrofitted power plants that employ advanced coal-based technology. Because

these direct and tax subsidies allowed facilities to go well beyond what is currently

technologically and financially viable, Congress did not want to give with one hand 1 Pub. L. No. 109-58, 119 Stat. 594 (Aug. 8, 2005). 2 These grants are of considerable size, amounting in multiple instances to hundreds of millions of dollars for an

individual project. See, e.g., http://energy.gov/fe/clean-coal-power-initiative-round-iii (describing grants ranging

from $100 million to $350 million) (last visited May 1, 2014).

and take with the other. It therefore barred EPA from predicating more stringent

emission and technology standards under the Clean Air Act on facilities that were

subsidized by the Energy Policy Act.

EPA first proposed carbon dioxide new source performance standards for fossil-

fuel power plants in April 2012 (the “Original Proposal”). EPA did not consider the

Energy Policy Act in this Proposal. EPA did, however, receive comments explaining

that Congress had restricted EPA’s ability to rely on technologies subsidized under

the Energy Policy Act when setting standards under the Clean Air Act. EPA thus

had eighteen months’ notice of this problem, but inexplicably ignored it when

revising and re-issuing its proposal. Due to other serious technical and legal

problems related to EPA’s proposal to treat coal-fired power plants as being

identical to natural gas-fired power plants for standard-setting purposes, EPA

threw out the proposal and started from scratch the next year.

In September 2013, EPA released a new version of its carbon dioxide

performance standards for fossil-fuel power plants. The agency proposed a

performance standard for fossil fuel-fired electric utility steam-generating units

based on the emission performance that EPA estimated would be achieved through

the application of integrated gasification combined cycle technology, coupled with

the partial capture of carbon dioxide emissions, which EPA then estimated would be

used for enhanced oil recovery purposes.

EPA’s new proposal (the “Revised Proposal”) ignored the comments that the

agency had previously received regarding the Energy Policy Act’s restrictions on the

use of subsidized projects in Clean Air Act standard-setting proceedings. The

Proposal also failed to identify, among the facilities it relied on in determining that

its proposed standard had been demonstrated in the field and was not unduly

costly, those facilities that received financial assistance because they were deemed

by the Secretary of Energy to represent cutting-edge, undemonstrated technology or

that received tax credits under the Energy Policy Act.3 This error is significant

because EPA’s proposal relies heavily on facilities that received one or both types of

assistance—for example, the Kemper, Texas Clean Energy, and Hydrogen Energy

California projects—as the backbone of its proposal.4

But Congress noticed EPA’s mistake. House Energy and Commerce Committee

Chair Fred Upton promptly explained the Energy Policy Act’s restrictions to

Administrator McCarthy, noting that EPA had ignored those restrictions, and

requesting that EPA withdraw the Revised Proposal to “ensure that the agency does

not propose standards beyond its legal authority” and “that stakeholders and the

public will not have to incur additional costs to respond to a proposal that

contravenes applicable law.”5

3 EPA did generally refer to “DOE grants” received by the Kemper, Texas Clean Energy, and Hydrogen Energy

California projects in both the September 20, 2013 draft version and the Revised Proposal, see 79 Fed. Reg. at

1,478. But in direct contravention of the Energy Policy Act, EPA suggested that this factor made the projects a

more appropriate basis for standard-setting because of the possibility that future projects could also receive

government assistance. See id. at 1,478-79. 4 See, e.g., 79 Fed. Reg. at 1,434; see also Technical Support Document Appendix (identifying these and other

facilities considered in the Revised Proposal as having received assistance under the Energy Policy Act). 5 Rep. Upton’s letter is available at

http://energycommerce.house.gov/sites/republicans.energycommerce.house.gov/files/letters/20131115EPA.pdf

(last visited May 1, 2014).

The rulemaking docket shows that EPA was aware of Congress’s letter within

days.6 Nonetheless, EPA published the Revised Proposal without material change,

see 79 Fed. Reg. 1,430, then waited another month to issue a Notice of Data

Availability and accompanying Technical Support Document acknowledging for the

first time the Energy Policy Act’s implications for the agency’s rulemaking

authority. In that Document, EPA provided an incomplete list of the projects

considered in the Revised Proposal that received financial assistance or tax credits

under the Energy Policy Act, suggested how it would attempt to obtain additional

information regarding which facilities considered in the Revised Proposal received

such help, and assumed that a facility which does not provide this information has

not received any assistance or tax credits under the Act.

6 See Email correspondence between Nathan Frey, OMB, and Robert Wayland, U.S. EPA, re: NSPS, Nov. 19,

2014. EPA-HQ-OAR-2013-0495-0054.

I. EPA’s Proposed Interpretation of the Energy Policy Act

Contradicts Congress’s Unambiguously Expressed Intent

In the Energy Policy Act, Congress restricted significantly EPA’s ability to rely

on information from facilities that received financial assistance under the Act in

setting Clean Air Act performance standards. Congress intended this limitation on

EPA’s authority to ensure that the development of cutting-edge clean-coal

technology is not thwarted by EPA regulation. But EPA’s proposed interpretation

of the Energy Policy Act provisions turns that statute on its head by doing just that:

setting national standards based nearly entirely on facilities that received

assistance under the Energy Policy Act. Furthermore, EPA’s interpretations are

not entitled to deference.

Congress’s motive in limiting EPA authority through the Energy Policy Act is

plain on the face of the statute. The Energy Policy Act provides direct financial

assistance and tax credits for projects that advance clean-coal technology well

beyond what is currently technically and financially feasible. But because, while

clean-coal technology is important for the nation’s energy future, such nascent,

next-generation technology is not an appropriate basis on which to develop

generally applicable standards, Congress prevented EPA seizing on that

development to promulgate new source performance standards applicable to all new

facilities, including those that will not receive Energy Policy Act help. Moreover, by

erecting a barrier between assistance under the Energy Policy Act and new source

performance standard rulemaking under the Clean Air Act, Congress reassured

stakeholders that they could accept such assistance and develop critical technology

without the creation of counterproductive new regulations that would directly

impact the facilities Congress had just helped pay for.7

Congress restricted EPA’s ability to rely on data from facilities that receive such

help when setting standards in two separate parts of the Energy Policy Act.

Specifically, in the Clean Coal Power Initiative portion of the Act, Congress

restricted EPA’s authority to leverage the technical or financial assistance provided

under that Act when the agency sets generally applicable environmental standards

under the Clean Air Act:

No technology, or level of emission reduction, solely by reason of the

use of the technology, or the achievement of the emission reduction, by

1 or more facilities receiving assistance under this Act, shall be

considered to be—

(1) adequately demonstrated for purposes of section 7411 of this title;

(2) achievable for purposes of section 7479 of this title; or

(3) achievable in practice for purposes of section 7501 of this title.

Energy Policy Act § 402(i), 42 U.S.C. § 15962(i). This provision ensures that the

Administrator does not erroneously make a finding for purposes of the Clean Air

Act that a particular technology “has been adequately demonstrated” when “taking

into account the cost of achieving such reduction” based solely on this

Congressionally subsidized technology, 42 U.S.C. § 7411(a)(1) (emphasis added)

(defining “standard of performance”).

Congress’s intent to establish a meaningful restriction on what data EPA could

consider under Clean Air Act Section 111 is confirmed by examining the entirety of

Energy Policy Act Section 402(i). The restriction in Section 402(i) applies not only

7 The House Energy and Commerce Committee’s report on the Act noted that “uncertainty over future

environmental requirements” is among the obstacles facing the development of new coal-fired generation in the

United States. H.R. Rep. No. 109-215, at 171 (2005).

to new source performance standards rulemakings under Section 111, but also to

best available control technology determinations under the prevention of significant

deterioration program, Clean Air Act § 169, 42 U.S.C. § 7479, and lowest achievable

emission rate determinations under the nonattainment new source review program,

42 U.S.C. § 7501. These standards use applicable new source performance

standards as a “floor,” and are designed to go beyond that floor and ensure

deployment of more stringent and technologically sophisticated controls. See 42

U.S.C. §§ 7479(3), 7501(3). If EPA is restricted from using the data at issue in

making even those other determinations, it follows that EPA must not use the data

in setting new source performance standards, which are intended to be less

stringent and less “technology-forcing” than best available control technologies and

lowest achievable emission rates.8

In this regard, the plain language of Section 402(i) demonstrates that Congress

intended to limit EPA’s consideration of “facilities receiving assistance” to a

corroborative role. If the data from facilities that did not receive assistance is

insufficient to demonstrate the availability and effectiveness of a technology, with

the availability and effectiveness of that technology being demonstrated by

reference to data from facilities that did receive such assistance, then EPA may not

set a new source performance standard at the level of emissions commensurate with

application of the technology. Only once a technology is determined to be

adequately demonstrated on the basis of data from facilities that did not receive

8 This same point applies to Energy Policy Act § 1307(b), 26 U.S.C. § 48A(g), which likewise imposes its

limitation on new source performance standard, best available control technology, and lowest achievable

emission rate determinations.

assistance may EPA look to facilities that did receive assistance to corroborate its

determination. Otherwise, EPA would violate Congress’s clear textual command

and thwart Congress’s purpose in enacting it: data from assisted facilities would be

permitted to distort EPA’s new source performance standard rulemaking, the

precise threat Congress wished to prevent.9

Congress also sought to incentivize the development of cutting-edge clean-coal

technology by offering tax credits to power plants employing advanced coal-based

technology. Congress’s bar on the use of this technology in Clean Air Act standard-

setting is even more absolute than the bar in Section 402(i): “No use of technology

. . . by or at one or more facilities with respect to which a credit is allowed under

this section, shall be considered to indicate that the technology is . . . adequately

demonstrated.” Energy Policy Act § 1307(b), 26 U.S.C. § 48A(g). If a tax credit is

allowed with respect to one or more facilities, use of a technology by or at that

facility or facilities shall not be considered in a new source performance standard

rulemaking. EPA simply may not consider data from those facilities, whether

initially or to confirm an independently grounded determination.10

The reason that Congress imposed an absolute restriction on EPA’s

consideration in the new source performance standard-setting process of data from

9 The Revised Proposal shows signs of just such distortion. See 79 Fed. Reg. at 1,479 (“In some instances, the

costs of CCS can be defrayed by grants or other benefits provided by the DOE . . . .”); see also 77 Fed. Reg. at

22,399 (Original Proposal) (“The prospect of declining CCS costs, in conjunction with the possibility of continued

availability of additional funding mechanisms (e.g. demonstration funding such as Department of Energy (DOE)

grants [and] tax credits[)] . . . indicates that CCS may well be sufficiently accessible in the near term . . . .”).

Because it did not know about, or chose to ignore, the Energy Policy Act’s restrictions, EPA in its new source

performance standard proposal did exactly what Congress sought to prevent: it considered Department of

Energy grants and tax credits as evidence that carbon capture and storage is financially achievable. 10 For this reason, it is all the more crucial that EPA obtain complete and accurate information regarding which

facilities received tax credits under the Energy Policy Act, as discussed below, to ensure that those facilities are

not considered in the new source performance standard-setting process in any manner.

facilities receiving tax credits, in contrast with its permitting EPA to corroborate a

determination that a technology is adequately demonstrated by reference to data

from facilities receiving (only) financial assistance,11 is due to differences in the

eligibility criteria and selection process under the respective programs.

Under the Clean Coal Power Initiative,12 “project[s] [that] advance” efficiency,

environmental, and economic goals are eligible for financial assistance. Energy

Policy Act, § 402(a). Financial assistance is thus available to a broader universe of

projects than those eligible for the Act’s tax credits. The tax credits are available

only to “qualifying advanced coal projects,” which are defined more narrowly to

include only new or retrofitted, large-scale, electricity-generating coal-fired plants

located in the United States, see § 1307(b). In other words, the facilities that are

eligible for tax credits are essentially the same facilities that would be subject to an

eventual new source performance standard for coal-fired power plants. Congress

therefore took care to forbid EPA from considering facilities receiving tax credits

when the agency sets new source performance standards, while allowing a limited,

corroborative role for the broader range of “projects” eligible for financial assistance.

EPA’s proposed interpretations of these provisions of the Energy Policy Act

directly contradict Congress’s intent. First, seizing on Section 402(i)’s use of the

word “solely,” the agency proposes to interpret the Act to mean that the agency may

set new source performance standards relying on projects that received assistance

under the Energy Policy Act “if there is additional evidence supporting such a

11 A facility that received both direct financial assistance and a tax credit would be subject to the absolute

prohibition of Section 1307(b). 12 Title IV, Subtitle A of the Energy Policy Act.

determination.”13 Technical Support Document at 6. Under this reading, EPA

could determine that a technology is adequately demonstrated by considering data

from 19 facilities which received assistance under the Energy Policy Act, so long as

it also considers data from 1 facility which did not. This would eviscerate

Congress’s intent: EPA could thereby find a technology to be adequately

demonstrated almost entirely on the basis of facilities that received grants, so long

as it mentions at least one other facility among those considered in the Revised

Proposal—some of which date back 40 years and operate on a much smaller scale

than those facilities which are known to have been funded under the Energy Policy

Act, see Technical Support Document Appendix at 32. But if these older, smaller

facilities could support a technology as adequately demonstrated, Congress would

not have needed to incentivize the development of new technologies under the

Energy Policy Act. Using information from facilities assisted under that Act when

setting new source performance standards in EPA’s preferred manner—as the

primary informational ingredient, leavened by a pinch of consideration of decades-

old demonstration projects—would render Section 402(i)’s prohibition nugatory.

Second, EPA seeks to water down the Energy Policy Act by interpreting its

prohibition as “relat[ing] only to the technology or emissions reduction for which the

assistance was given.” Technical Support Document at 6. But this restriction

violates the plain text of Section 402(i), which applies to information regarding a

13 It is not clear what “additional evidence” EPA proposes to consider, although the agency later mentions “a

wide range of information” including literature reviews, pre-Energy Policy Act facilities, and foreign facilities.

What is undisputed is that many of the facilities considered in the Revised Proposal—including all but one of

what EPA identifies as the “key projects” it considered that employ pre-combustion carbon capture—received

assistance under the Act. See Technical Support Document Appendix. This directly contradicts the Act’s

restrictions.

“technology, or level of emission reduction” from a facility, regardless of whether the

assistance was targeted at developing that specific technology. Congress’s broad

restriction here is the only way to effect its intent because money is fungible. A

facility that receives a grant to develop technology A can invest more funds to

further the development of technologies B and C. A grant with respect to one

technology thus pushes the development of all three technologies beyond what is

otherwise commercially viable. This renders data from the entire facility

inappropriate for use in setting new source performance standards.14

Third, EPA proposes to interpret Sections 402(i) and 1307(b) identically,

allowing the agency to disregard Section 1307(b)’s absolute bar in favor of the

approach it uses for Section 402(i). Technical Support Document at 13. But EPA’s

justification of its interpretation of Section 1307(b) as “parallel[ing] the meaning of

the related provision[]” in Section 402(i) is contrary to the provisions’ different texts

and cannot be squared with Section 1307(b)’s absolute bar on using technology at

facilities that received a tax credit in its proposal. Contrary to EPA’s reading, these

provisions’ different wording reflects their different intent.15 It is well settled that

where Congress “‘uses certain language in one part of the statute and different

language in another . . . different meanings were intended.’” Sosa v. Alvarez-

Machain, 542 U.S. 692, 711 n.9 (2004) (quoting 2A N. Singer, Statutes and

14 This same point applies to EPA’s attempt to limit the reach of Section 1307(b)’s restriction, Technical Support

Document at 13-14. 15 EPA further proposes to interpret this provision to mean that the agency can consider facilities that receive

tax credits, so long as it considers them before the taxable property is “placed in service,” see Technical Support

Document at 14-15. Again, this interpretation contradicts both Section 1307(b)’s plain language (which makes

no reference to time, but flatly prohibits EPA from considering “facilities with respect to which a [tax] credit is

allowed under this section”) and Congress’s unambiguous intent. At every turn, EPA seeks to tear down the

barriers Congress placed on its consideration of facilities assisted under the Energy Policy Act.

Statutory Construction § 46:06, p. 194 (6th rev. ed. 2000)); see also Recording Indus.

Ass’n of Am., Inc. v. Verizon Internet Servs., Inc., 351 F.3d 1229, 1235 (D.C. Cir.

2003) (“[W]here different terms are used in a single piece of legislation . . . Congress

intended the terms have different meanings.”) (alteration in original) (internal

quotation marks omitted); Transbrasil S.A. Linhas Aereas v. Dep’t of Transp., 791

F.2d 202, 205 (D.C. Cir. 1986) (same). Put simply, Section 402(i) and

Section 1307(b) use different language and have different meanings, and EPA

cannot ignore the statutory language to arrive at its desired conclusion.

Fourth, EPA’s attempt to justify its interpretation by reference to an

unreasonable interpretation of the Energy Policy Act’s purpose is meritless. EPA

claims that “the apparent purpose of [26 U.S.C.] § 48A—as well as the other types of

assistance in [the Energy Policy Act]—[] is to encourage the development of

technology so that it can be used on a widespread commercial basis . . . . [Clean Air

Act] § 111 is an important vehicle for promoting widespread commercial use of

technology.” Technical Support Document at 13. But if EPA’s theory were correct,

Congress would not have imposed any informational barriers between Energy

Policy Act assistance and Clean Air Act determinations, because such barriers

inevitably impede Clean Air Act Section 111’s promotion of technology use. EPA

cannot wish these barriers away, yet its proposed interpretations would effectively

read them out of existence.

Fifth, EPA’s proposed interpretation of Section 402(i) conflicts with the Energy

Policy Act’s criterion for determining which projects are eligible to receive

assistance under the Clean Coal Power Initiative:

To be eligible to receive assistance under this subtitle [i.e., the

Initiative], a project shall advance efficiency, environmental

performance, and cost competitiveness well beyond the level of

technologies that are in commercial service or have been demonstrated

on a scale that the Secretary determines is sufficient to demonstrate

that commercial service is viable as of [the Energy Policy Act’s effective

date].

Energy Policy Act, § 402(a).

In other words, the Secretary of Energy must determine what already existing

technologies have been sufficiently demonstrated as commercially viable; only

projects which will advance technology “well beyond” those existing technologies are

eligible to receive assistance under Section 402. This is precisely why Congress

imposed the limit in Section 402(i), 42 U.S.C. § 15962(i), on EPA’s considering

facilities that receive this assistance when the agency sets new source performance

standards. The whole predicate of a grant of assistance under Section 402(a) is that

the project goes “well beyond” current technology. Congress erected an

informational barrier under Subsection (i) to prevent a feedback loop whereby

projects getting grants under Subsection (a) would be considered by EPA to

“adequately demonstrate” a technology for new source performance standard-

setting purposes. Likewise, under Section 402(a) the Secretary determines what

facilities are eligible for financial assistance; Section 402(i) prevents information

from those facilities from distorting EPA’s view of what is financially achievable

when the agency sets new source performance standards.

The Secretary of Energy makes eligibility determinations under Section 402(a)

through an independent exercise of discretion, not in consultation with EPA.

Compare § 402(a) (“a scale that the Secretary determines is sufficient”) with, e.g.,

§ 402(b)(3) (directing the Secretary to consult with the EPA Administrator prior to

setting technical milestones for projects receiving funding). EPA’s proposed

interpretation of Section 402(i) would undermine the Secretary’s discretionary

determinations: EPA, in determining that a technology is financially achievable,

would be able to rely heavily on facilities which the Secretary has already

determined go well beyond commercial viability.

Finally, EPA’s interpretations of provisions of the Energy Policy Act are not

entitled to deference. EPA asserts that its interpretations of Energy Policy Act

provisions “would be accorded deference” because the provisions in question

“involve[] the meaning of the Clean Air Act,” Technical Support Document at 6 &

n.8; see also id. at 13 n.21, but this is incorrect. Under Chevron, U.S.A., Inc. v.

Natural Resources Defense Council, Inc., 467 U.S. 837, 844 (1984), an agency may

be entitled to deference regarding its “construction of a statutory scheme it is

entrusted to administer,” and for this reason it is well established that EPA is

entitled to deference in its interpretation of the Clean Air Act. E.g., Sierra Club v.

EPA, 294 F.3d 155, 160 (D.C. Cir. 2002). But an agency is not entitled to deference

in its interpretation of a statute which is it not “entrusted to administer.” E.g., City

of Olmsted Falls v. FAA, 292 F.3d 261, 270 (D.C. Cir. 2002) (“[W]hen we are faced

with an agency’s interpretation of a statute not committed to its administration, we

give no deference.”) (citing Ass’n of Civilian Technicians v. Fed. Labor Relations

Auth., 269 F.3d 1112, 1115-16 (D.C. Cir. 2001)); Dep’t of Treasury v. Fed. Labor

Relations Auth., 837 F.2d 1163, 1167 (D.C. Cir. 1988) (“[W]hen an agency interprets

a statute other than that which it has been entrusted to administer, its

interpretation is not entitled to deference.”).

EPA is not the agency “entrusted to administer” the Energy Policy Act. Instead,

that Act generally, and Section 402 in particular, are administered by the Secretary

of Energy. See Energy Policy Act § 2(4) (“‘Secretary’ means the Secretary of Energy”

except as provided otherwise); § 401(a) (authorizing appropriations “to the

Secretary to carry out the activities authorized by this subtitle,” i.e., Title IV

(“Coal”), Subtitle A (“Clean Coal Power Initiative”)). Similarly, the tax credit

regime at issue here is administered not by EPA, but rather by the Secretary of

Energy and the Secretary of the Treasury acting jointly. See Technical Support

Document at 7 (citing 26 U.S.C. § 48A(d)(1)).16 Neither the financial-grant

provisions of Title IV of the Energy Policy Act nor the tax-credit provisions in Title

XIII delegate any rulemaking authority to EPA, a sine qua non for the invocation of

deference.17 See United States v. Mead Corp., 533 U.S. 218, 226-27 (2001) (holding

16 Note that when certain environmental organizations (unsuccessfully) sought to enjoin the tax-credit program,

they properly sued the Treasury and Energy Departments—not EPA. Appalachian Voices v. Bodman, 587 F.

Supp. 2d 79, 83 (D.D.C. 2008) (“The defendants, the Department of Treasury (‘DOT’) and the Department of

Energy (‘DOE’), are responsible for administering programs established by the [Energy Policy Act] that provide

tax credits to companies that use clean coal technology.”) (emphasis added). 17 In a pending challenge to the Revised Proposal brought by the State of Nebraska, EPA has expressly conceded

that “[n]o provision of the [Energy] Policy Act provides” it with rulemaking authority. Reply Memorandum in

Support of EPA’s Motion to Dismiss at 3 n.1, Nebraska v. EPA, No. 14-3006 (D. Neb. Apr. 21, 2014).

that an agency is entitled to Chevron deference only when “Congress delegated

authority to the agency generally to make rules carrying the force of law, and [] the

agency interpretation claiming deference was promulgated in the exercise of that

authority”); City of Olmsted Falls, 292 F.3d at 270 (“It is because of this delegation,

express or implied, that we give deference to an agency’s statutory interpretation.”).

Simply put, EPA in its construction of the Energy Policy Act is not offering an

interpretation of the words of a statute it has been entrusted to administer.

Accordingly, that construction is not entitled to deference.

* * *

“The EPA’s self-serving misinterpretation of Congress’s mandate is too clever

by half and an obvious effort to protect its regulatory process at the expense of

Congress’s clear intention. Put simply, that dog won’t hunt.” Avenal Power Ctr.,

LLC v. U.S. EPA, 787 F. Supp. 2d 1, 4 n.2 (D.D.C. 2011). Congress unambiguously

restricted EPA’s consideration of data from facilities receiving financial assistance

under the Energy Policy Act to only a corroborative role in the new source

performance standard rulemaking process, and entirely prohibited EPA from

considering data from facilities receiving tax credits. EPA deliberately ignored

these restrictions when it drafted the Revised Proposal, even in the face of a clear

warning from Congress in the form of Rep. Upton’s letter. Its proposed

interpretation of the Energy Policy Act provisions is an obvious attempt to protect

its regulatory process by rendering those provisions nugatory. That dog won’t hunt.

II. EPA’s Attempt To Address the Energy Policy Act’s

Restrictions Is Deficient and Prejudices the Public’s Ability

To Comment

In order to abide by the restrictions imposed on its rulemaking process by the

Energy Policy Act, EPA must determine whether a facility under consideration has

received financial assistance or tax credits under that Act. In order to meaningfully

comment whether the Revised Proposal was proper, stakeholders also must be

presented with this information. But EPA’s proposed method of obtaining this

information is inadequate, preventing the agency from ensuring that it abides by

the Energy Policy Act and prejudicing the public’s ability to comment.

In the Technical Support Document, EPA proposes to presume that a facility did

not receive financial assistance or tax credits under the Energy Policy Act unless

the agency receives information to the contrary. Technical Support Document at 7,

15-16. In other words, EPA will undertake no investigation whatsoever to

determine if a facility has received financial assistance or tax credits under the Act,

and if a facility does not affirmatively declare that it received such assistance and

EPA does not receive information from any other source—which seems likely, given

that EPA proposes no method of collecting the information other than its non-

compulsory request for information directed to the facilities—EPA will treat that

facility’s silence as affirming that it did not receive assistance under the Act.

This method of attempting to obtain the information is destined to fail.

Significantly, EPA’s request for the information does not carry any legal

compulsion. Facilities which have already received financial assistance or tax

credits might reasonably decide not to respond to EPA’s non-compulsory request,

because they will enjoy a significant advantage if their performance is used to set a

generally applicable standard which their unsubsidized competitors must also meet.

Second, the facilities’ owners and operators may not be monitoring the rulemaking

docket and the Federal Register, and may be entirely unaware of EPA’s informal

“request”—especially those facilities which may not even be subject to the new

source performance standard if and when it is finalized.18

Additionally, EPA requests that this information be provided “during the

comment period,” Technical Support Document at 7. This suggests that the agency

will not, prior to finalization, provide the public with further opportunity to

comment on the Revised Proposal in light of whatever information EPA receives.

EPA thus proposes to set a rule knowing full well that critical information will not

be available to the public. Such a process would deny “affected parties an

opportunity to develop evidence in the record to support their objections.” Small

Ref. Lead Phase-Down Task Force v. EPA, 705 F.2d 506, 547 (D.C. Cir. 1983).

Indeed, in this case it appears that EPA’s process is specifically designed to deny

affected parties that opportunity. This will compel the public to move for

reconsideration on the issue of Energy Policy Act compliance; meanwhile, the rule

will go into effect. This odious method of rulemaking “undermin[es] the aims of

meaningful participation and informed decisionmaking.” Horsehead Resource

Development Co., Inc. v. Browner, 16 F.3d 1246, 1268 (D.C. Cir. 1994).19

18 E.g., a “pilot-scale CCS demonstration at [American Electric Power’s] Mountaineer Plant in New Haven, WV,”

79 Fed. Reg. at 1,435; see Technical Support Document Appendix (listing this project as having received

funding, but not a tax credit, under the Energy Policy Act). 19 Failure to fully collect the necessary information and enter it into the administrative record will also prevent

a court reviewing future challenges to the rulemaking from determining whether EPA observed the limitations

The arbitrary nature of EPA’s proposed method of obtaining the relevant

information is made even more obvious by considering the statutory information-

gathering tool which EPA conspicuously declines to invoke here. Under Section 114

of the Clean Air Act, 42 U.S.C. § 7414(a)(1)(G), EPA is expressly empowered to

require owners and operators of emission sources “who the Administrator believes

may have information necessary for the purposes set forth in this subsection”

(which includes setting new source performance standards under Section 111) to

provide “such information as the Administrator may reasonably require.”

EPA’s powers under Section 114 are broad. See generally Dow Chem. Co. v.

United States, 476 U.S. 227, 233-34 (1986) (“Regulatory or enforcement authority

generally carries with it all the modes of inquiry and investigation traditionally

employed or useful to execute the authority granted,” and Section 114 specifically

“appears to expand, not restrict, EPA’s general powers to investigate”); Ced’s Inc. v.

EPA, 745 F.2d 1092, 1099-1100 (7th Cir. 1984) (Section 114 authorizes EPA to copy

any records of any person subject to any requirement of the Clean Air Act,

regardless of whether EPA has previously required those records to be maintained).

But EPA not only does not propose to use these powers to obtain the needed

information—it does not mention Section 114 in the Technical Support Document.

EPA must determine whether the facilities considered in the Revised Proposal

received assistance or tax credits under the Energy Policy Act. To do so, it is

obliged to use all means available to it, including Section 114. At the very least, if

imposed by the Energy Policy Act. This will frustrate the court’s consideration of whether the rulemaking was

proper under 42 U.S.C. § 7607(d)(9) (standard of review for challenges to Clean Air Act Section 111

rulemaking).

EPA does not use Section 114, it must justify why it declines to do so and offer an

opportunity for the public to comment on its justification.20

Regarding the receipt of financial assistance under the Energy Policy Act, there

is simply no reason why EPA could not use Section 114 to ascertain whether or not

the sources on which it has proposed to base its new source performance standards

have received financial assistance under the Energy Policy Act. Contrary to EPA’s

intimations, receipt of grant money under the Energy Policy Act is not even

arguably subject to privacy concerns. Where EPA gives no explanation for its

failure to use an available statutory power that would ensure the collection of

necessary information, and proposes to treat a failure to report as a statement that

there is nothing to report, it is fair to infer that the agency is acting arbitrarily in

not attempting to obtain the information.

Regarding the receipt of tax credits, although EPA still does not mention Section

114, the agency’s general position is that, “[b]ecause of [taxpayer privacy] rights,

there is a limited amount of information about the facilities affected by [26 U.S.C.]

§ 48A that is available to EPA.” Technical Support Document at 15. But EPA does

not identify the source of the taxpayer privacy rights it mentions, which frustrates

20 Natural Resources Defense Council v. EPA, 529 F.3d 1077 (D.C. Cir. 2008), is not to the contrary. In that

case, the D.C. Circuit held that it was “not unreasonable for [EPA] to decline to invoke its section 114 authority

when more efficient data-collection methods were available,” id. at 1085. But there, the data in question were

sought to inform EPA’s “analysis of the residual health risks from facilities that use or produce synthetic

organic chemicals,” id. at 1084. Such an analysis does not require a 100% response rate. Rather, it requires

merely a high enough response rate to ensure reliability of a risk assessment, see id. at 1085, and is not

necessarily fatally undermined by “some gaps in the data,” id. The question here, by contrast, is whether the

individual facilities considered by EPA in the Revised Proposal did or did not receive assistance under the

Energy Policy Act. This is not a question of “efficien[cy]” or representativeness. It requires that EPA be

informed whether each facility received assistance or tax credits; a “gap” in that data makes it impossible to tell

whether EPA has obeyed the Energy Policy Act’s restrictions. Only by invoking Section 114 can EPA ensure

that it will obtain the necessary information. Therefore, in this case it is “unreasonable for the agency to decline

to invoke its section 114 authority,” since no other adequate “data-collection method[] [is] available,” id.

the public’s ability to comment on the substance of the agency’s privacy concerns

and the adequacy of its proposed method of data collection in light of those concerns,

see id. (“solicit[ing] comment on a set of issues that arise due to taxpayer privacy

rights”).

Presuming that EPA intended to refer to 26 U.S.C. § 6103(a), a federal statute

concerning certain tax privacy issues, it seems clear that this statute does not

preclude EPA from using Section 114 to obtain the information necessary to

ascertain the fact of a facility’s receipt of a tax credit. Section 6103(a) provides that

tax returns and return information “shall be confidential” and that governmental

officers and employees, and others accessing returns or return information as

authorized under the statute, shall not disclose any information so accessed. But

Congress’s mandate in Energy Policy Act Section 1307(b) clearly requires EPA to

determine whether a facility has received tax credits under that section before

relying on data from that facility when setting new source performance standards:

“No use of technology . . . by or at one or more facilities with respect to which a

credit is allowed under this section, shall be considered . . . .”

Congress would not have forbidden EPA to consider information from facilities

that received tax credits without envisioning that EPA would be able to use its

statutory powers to determine whether a given facility had in fact done so. To the

extent two statutes arguably conflict, they must be harmonized, and effect must be

given to both to the extent possible. EPA must know whether facilities have

received tax credits, and it is therefore “reasonabl[e],” 42 U.S.C. § 7414(a)(1)(G), for

the Administrator to require at least a yes-or-no answer to that question. And the

“overriding purpose of the confidentiality provisions of § 6103” is to protect abuse of

tax returns and tax information by government, particularly “for partisan political

purposes,” McSurely v. McAdams, 502 F. Supp. 52, 56 (D.D.C. 1980). In invoking

Section 114 to determine the mere fact of receipt of tax credits, EPA would not be

engaging in partisan abuse, but rather would be honoring Congress’s intent in

enacting the restrictive provisions of the Energy Policy Act.

Further, “return information” is defined by the statute by reference to

information intended for the Treasury Secretary:

The term ‘return information’ means . . . . a taxpayer’s identity, the

nature, source, or amount of his . . . credits . . . or any other data,

received by, recorded by, prepared by, furnished to, or collected by the

Secretary with respect to a return or with respect to . . . liability (or

thereof) of any person under this title . . . .

26 U.S.C. § 6103(b)(2)(A) (emphasis added). EPA’s inquiry under Section 114 would

be posed directly to the facilities’ owners and operators, whose response need not

take the form of copies of returns or other “return information” as prepared in the

normal course for transmission to the IRS. The information that EPA would

require under Section 114 therefore is likely not covered by Section 6103 at all.21

EPA at the very least owes the commenting public an explanation of why it has

declined to use means much more likely to elicit a full and timely provision of the

necessary information. (Again, these privacy concerns do not apply at all to

21 Cf. Lomont v. O’Neill, 285 F.3d 9, 15 (D.C. Cir. 2002) (“An element of ‘return information’ is that it be

‘received by, recorded by, prepared by, furnished to, or collected by the Secretary.’ 26 U.S.C. § 6103(b)(2). Yet

here state and local officers obtain the information from the person seeking to make a firearm before the ‘return’

is filed with the Secretary. Thus, no employee of the federal government is disclosing a ‘return’ or ‘return

information’ ‘received by, recorded by, prepared by, furnished to, or collected by the Secretary’ in violation of

§ 6103(b)(2).”).

information regarding receipt of financial assistance under Energy Policy Act

Section 402.)

Finally, EPA solicits comment on whether it may treat a facility’s failure to

respond as an indication that the facility did not receive assistance or tax credits

under the Energy Policy Act. Technical Support Document at 7, 15-16. It may not.

The Energy Policy Act restricts EPA’s consideration of data from “facilities receiving

assistance under this Act,” § 402(i), and forbids it from considering data from

“facilities with respect to which a [tax] credit is allowed,” § 1307(b)—not data from

“facilities responding in the affirmative to EPA’s request for information.” To treat

failure to respond as a response in the negative, especially when the request for

information does not invoke EPA’s statutory authority to request information, is

contrary to the plain language of the Energy Policy Act and is arbitrary and

capricious.

Conclusion

Congress restricted EPA’s ability to set Clean Air Act standards based on the

clean-coal technology employed at facilities that received assistance under the

Energy Policy Act. It did so because it feared that, without these restrictions,

information from those facilities would distort EPA’s view of what is technologically

and financially achievable. EPA ignored these restrictions, and its recent new

source performance standards proposal relies heavily on precisely those facilities

which Congress intended to limit or eliminate its ability to consider. This proposal

violates the plain text and unambiguous intent of the Energy Policy Act’s

restrictions. EPA now attempts to conceal its violation by proposing erroneous

interpretations of a statute that it does not administer, along with an arbitrary,

inadequate means of collecting necessary information. EPA’s proposals in the

Technical Support Document do not honor Congress’s intent, nor do they respect the

public’s right to offer informed comment on the Revised Proposal.

Respectfully submitted,

William Yeatman, Senior Fellow, Competitive Enterprise Institute, Washington

D.C.

Darin R. Bartram, Partner, BakerHostetler, Washington, D.C.

Justin J. Schwab, Associate, BakerHostetle, Washington, D.C.