In a win for environmental groups, the US Court of Appeals for the District of Columbia vacated USEPA’s  “Deferral Rule,” which had temporarily exempted some biomass sources from Prevention of Significant Deterioration (PSD) and Title V permitting requirements.  See Center for Biological Diversity, et al. v. EPA, No. 11-1101 (July 12, 2013). The ruling comes a year before the three-year deferral was set to expire.  However, with the vacatur, sources of biogenic CO2 emissions (i.e., sources generating CO2 from the combustion or decomposition of biomass) will be subject to the same permitting requirements as non-biogenic sources.

USEPA justified its initial deferral on the basis that biomass may be a carbon-neutral fuel since it both absorbs and releases carbon throughout its life cycle.  However, this type of life-cycle analysis is a complex undertaking as the amount of CO2 that is actually absorbed and released is dependent on many factors.  USEPA determined that more study was necessary to fully evaluate the net impact of biogenic CO2 emissions on the atmosphere and thus temporarily allowed sources to exclude biogenic CO2 emissions from their emissions calculations when determining if the source triggered permitting thresholds.

The DC Circuit did not rule on whether the life-cycle analysis, if proven accurate, would allow USEPA to permanently exempt biogenic CO2 sources from permitting requirements in the future.  Instead, the Court found the agency provided an inadequate justification for the deferral in the record.  USEPA attempted to defend its regulation on three grounds:  the administrative necessity doctrine, the absurd results doctrine, and the “one-step-at-a-time” doctrine.  The DC Circuit rejected all three, finding that USEPA did not explain why permitting biomass plants would be administratively impossible, or why requiring biomass facilities – a known source of CO2 emissions – to obtain permits for their emissions would be an “absurd” result under the Clean Air Act.  Furthermore, it found that USEPA did not properly invoke the “one-step-at-a-time” doctrine because the agency never offered a statutory interpretation allowing it to treat biogenic sources of CO2 differently from other fuel sources.   However, the Court left open the possibility that USEPA could create a permanent exemption for some biomass sources when its life-cycle analysis is complete giving the agency a second opportunity to justify disparate treatment of such sources.

The DC Circuit’s decision will have minimal impact on the regulated community in the short term as the exemption was set to expire in 2014.  However, the real impact will come when USEPA decides whether to pursue a permanent exemption for biomass facilities or abandon the issue altogether.  If it chooses an option that maintains special treatment for biogenic CO2 emissions, the agency will have an uphill – but not impossible – battle to convince a skeptical DC Circuit that the Clean Air Act allows such considerations.  As the GHG regulatory landscape continues to unfold, USEPA’s approach in 2014 – and the Court’s ruling on the legality of that approach – could significantly shape the way the agency handles permitting and regulation of biogenic sources going forward.