The 5th Circuit Court of Appeals rejected the Texas Commission on Environmental Quality’s (TCEQ) defense of “demonstrated” as an element of imposing best available control technology (BACT) in prevention of significant deterioration (PSD) permitting.

CAA regulations

The federal Clean Air Act (CAA) authorizes the EPA to establish nationwide air pollution standards, including standards for emissions of carbon monoxide (CO) and nitrogen oxides (NOX). States are often authorized to enforce these standards upon adoption of EPA-approved state implementation plans (SIPs).

In Texas, the TCEQ is charged with enforcing the federal CAA and the Texas CAA. Under Texas’s SIP, the TCEQ is responsible for issuing PSD permits before any “major stationary source” of pollution can be constructed in an area that has attained EPA clean air standards. Major stationary sources are defined as facilities with the potential to emit more than 250 tons of a regulated pollutant per year.

To receive a PSD permit, an applicant must demonstrate the emissions sources at its facility will satisfy BACT. Generally, BACT requires new facilities to reduce pollution to the maximum degree possible, accounting for cost and other practical concerns.

For permit review, the Texas SIP provides for a three-tier method, subject to a short list of conditions, including that the TCEQ consider “[r]ecently issued/approved permits within the state of Texas.” In accordance with that condition, Tier I of the analysis requires the TCEQ to compare each application “to the emission reduction performance levels accepted as BACT in recent [New Source Review] permit reviews.”

Background

The case, Port Arthur Community Action Network v. TCEQ, arose when the community organization challenged the BACT levels the TCEQ set for Port Arthur LNG LLC’s PSD permit.

Port Arthur’s PSD permit application was submitted to the TCEQ for a proposed liquid natural gas (LNG) plant and export plant that identified emissions sources like turbines, engines, oxidizers, and flares, and it proposed emissions rates for each. For its refrigeration compression turbines, it proposed emissions rates of 9 parts per million by volume, dry (ppmvd) of NOX and 25 ppmvd of CO.

The proposed emissions rates included in the permit application were subjected to technical review and received the approval of the TCEQ’s executive director. Next, the PSD permit application was referred to the commission for consideration at a public meeting.

Petitioner Port Arthur Community Action Network (PACAN) requested a contested case hearing in response to the executive director’s final decision. Numerous aspects of the draft application were contested, including whether the proposed controls on various emissions sources would satisfy BACT.

As evidence in subsequent hearings, PACAN introduced, as an exhibit, a 2020 amendment to a permit for Rio Grande LNG, an LNG facility in Texas that has been approved but not yet constructed. Rio Grande LNG had proposed using the same refrigeration compression turbines as the Port Arthur facility. The amendment decreased the CO and NOX limits for Rio Grande LNG’s refrigeration compression turbines from 9 ppmvd of NOX and 25 ppmvd of CO—Port Arthur LNG’s proposed emissions rates—to 5 ppmvd of NOX and 15 ppmvd of CO. The amendment stated that the new, decreased limits were “consistent with the lowest levels of control for Refrigeration Compressor Turbines; therefore, BACT is satisfied.”

In the administrative hearings, the administrative law judges (ALJs) noted that Port Arthur hadn’t included Rio Grande LNG in its BACT analysis and that “neither the [executive director] nor Applicant offered additional evidence to demonstrate that there is a ‘compelling technical difference’ as to why Applicant’s CO BACT proposal is less than what has been accepted as BACT in recent permit reviews.”

As a result, the ALJs proposed that the commission approve the application subject to amendments that limited Port Arthur LNG’s refrigeration compression turbine emissions to 5 ppmvd of NOX and 15 ppmvd of CO—the same as Rio Grande LNG.

The TCEQ’s executive director objected to the ALJs’ proposal for decision. Citing the EPA’s NSR Manual and the TCEQ’s guidance document APDG 6110, he wrote that Rio Grande LNG’s emissions limits hadn’t been “demonstrated in practice,” as Rio Grande LNG was “not in operation.”

“On August 31, 2022, David Garcia, a permitting staff member in EPA’s regional office, submitted a letter disagreeing with the Executive Director,” according to the legal appeal filed in the 5th Circuit. “Garcia explained that, under EPA’s definition of BACT, a limit ‘is not always required to be operational or actually demonstrated in practice to be considered technically feasible and BACT.’ He also wrote that ‘[w]hile it is not mandatory to select a specific limit as BACT solely because another similar source has done so, the basis for selecting a less stringent limit should be documented in the permit record for evaluation.’

“Port Arthur LNG’s application and the ALJs’ proposal for decision then went to the Commission. Under Texas law, the Commission may amend a proposal for decision, ‘including any finding of fact,’ when it deems appropriate, but its amendments must be based on the record, and the Commission must explain the basis of the amendments.”

The commission rejected the ALJs’ proposed amendments and granted Port Arthur’s permit application. It explained that while Rio Grande LNG had stricter refrigeration compression emissions limits, no “operational data” showed that those limits are achievable.

PACAN moved for rehearing. The commission didn’t act within 55 days, so the motion was overruled by operation of law. Next, PACAN petitioned the 5th Circuit for review.

5th Circuit decision

The court summarized the issue before it as hinging on “whether Rio Grande LNG’s emissions limits were BACT under Texas law. If so, then TCEQ should have either applied those limits to Port Arthur LNG’s PSD permit or explained why the limits were not technically feasible.”

The court’s conclusion was “contrary to the Commission’s analysis, both state and federal guidelines direct the agency to adhere to previously imposed emissions limits in evaluating BACT.” Its reasoning for the conclusion included the following factors:

• The TCEQ’s guidance document, APDG 6110, states that a proposal “must have an overall emission reduction performance that is at least equivalent to those previously accepted as BACT.”
• The NSR Manual, the EPA’s guidance document, states that “a permit requiring application of a certain technology or emission limit to be achieved for such technology is sufficient justification to assume the technical feasibility of that technology or emission limit.”
• Although the commission concluded that “the TCEQ’s and EPA’s BACT guidance documents are non-regulatory and do not establish binding legal requirements,” the court disagreed. Citing Oncor Elec. Delivery Co. LLC v. Pub. Util. Comm’n of Tex., it stated “whether the guidelines are strictly binding does not render them irrelevant. An agency must explain its reasoning ‘when it appears to have departed from its earlier administrative policy or to be inconsistent in its determinations.’”
• “TCEQ’s own guidance manual states that a new facility must reduce emissions to a degree ‘at least equivalent’ to prior facilities that were ‘previously accepted’ as BACT.”
• The TCEQ argued that APDG 6110 also “generally” requires an “emission reduction option” to have been “successfully demonstrated” before it can be imposed on a facility. But even assuming that the “emissions reduction options” at Rio Grande LNG weren’t “successfully demonstrated” when Rio Grande LNG’s limits were accepted as BACT, APDG 6110 still requires consideration of those options subject to several factors, some of which are set forth in APDG 6110 but none of which the commission discussed.
• The TCEQ admitted, at oral argument, that it has defined the term “operational” inconsistently. Its counsel explained that, as used in the TCEQ’s BACT definition, the term means “capable of operating.” Nevertheless, counsel explained that when the commission evaluated Port Arthur LNG’s permit application, it construed the term to mean “currently operating,” thereby disqualifying Rio Grande LNG’s limits from consideration.

These facts demonstrate that the commission’s order, including its “operational data” requirement, departed from its policy of adhering to earlier permit limits. In departing from earlier permit limits, the commission was required to “adequately explain” why it did what it did.

“But the Commission set forth no ‘statutory, rule-based, or precedential support or analysis’ to justify why it disregarded its own policy, nor did it even acknowledge that it had done so. That was an error of law,” the court wrote.

The 5th Circuit remanded the matter to the TCEQ for proceedings consistent with its opinion.

Implications

This decision strengthens the argument that any prior determination that’s lower creates the BACT for similar units.

Legally, the 5th Circuit’s decision proves challenging to align with the CAA and federal and state guidelines, states Hiser Joy’s NSR Law Blog.

The CAA and those regulations define BACT as “an emission limitation based on the maximum degree of reduction of each pollutant subject to regulation under this chapter emitted from or which results from any major emitting facility, which the permitting authority, on a case-by-case basis, taking into account energy, environmental, and economic impacts and other costs, determines is achievable for such facility through application of production processes and available methods, systems, and techniques, including fuel cleaning, clean fuels, or treatment or innovative fuel combustion techniques for control of each such pollutant.” (Emphasis added.)

“Quoting guidance it admits is non-binding, the Fifth Circuit decision appears to allow agencies to ‘assume’ or ‘presume’ achievability without undertaking the case-by-case determination for the specific facility that Congress required,” Hiser Joy’s blog post adds. “The narrow reading of EPA’s October 2022 guidance … is more likely the correct one: once a limit is established for a substantially similar facility, the agency must ‘consider’ that limit and failure to ‘consider’ that limit would be error but ‘considering’ a limit does not and cannot require the subsequent determination always ‘adopt’ the prior limit because that interpretation reads out the case-by-case determination at the heart of BACT. The narrow reading also prevents a party from submitting an unrealistically low BACT proposal for a piece of equipment it doesn't plan to construct merely to prevent others from using the same or similar equipment. And that may have been one of the reasons Congress' required BACT be ‘achievable’ in the first place.”

The 5th Circuit recently rejected the TCEQ’s petition for rehearing and certified the case to the Texas Supreme Court to determine the question of whether the phrase “has proven to be operational” requires an air pollution control method to be currently operational under a TCEQ permit or whether it refers to methods the TCEQ deems capable of operating in the future.