Fifth Circuit Rejects EPA's Disapproval of Texas's Flexible Permit Program

In the latest case centering on the review of an EPA disapproval of a Texas State Implementation Plan (SIP) revision, on August 13, 2012, the Fifth Circuit Court of Appeals overturned EPA's disapproval of certain revisions that Texas made to its SIP in the 1990s.  The Court's 2-1 decision in State of Texas, et al. v. EPA vacated EPA's final rule disapproving Texas's Flexible Permit Program (the Program) and remanded the Program back to EPA for further consideration. 

Those most interested in EPA's actions in response to this Court decision will be Texas facilities that operated under a flexible permit and that were threatened with EPA enforcement action for doing so, especially the relatively few remaining facilities that still hold flexible permits, the majority of which are engaged in a process to convert their flexible permits into SIP-approved permits, a process commonly referred to as "de-flexing."

By this decision, the Fifth Circuit sent a clear signal to EPA that the agency's administrative record lacked sufficient grounds on which to disapprove the Program, but the Court's decision only vacated the disapproval and remanded consideration of the Program back to the EPA. As a result, even though the Fifth Circuit may have foreclosed EPA's ability to disapprove the Program on remand, the Court's decision alone does not render the Program an approved part of the Texas SIP.  Moreover, before acting on remand, EPA may ask the full bench of Fifth Circuit justices to review the three-justice panel's decision, or may seek review of the decision by the United States Supreme Court. 

The Fifth Circuit held that the grounds relied upon by EPA in disapproving the Program were without basis in the Clean Air Act or its implementing regulations. EPA asserted numerous arguments in support of its challenged disapproval, all of which were rejected by the Fifth Circuit.  In particular, EPA set forth three primary grounds to support its disapproval of the Flexible Permit Program: 

  1. EPA expressed concern that the lack of an explicit statement in the Program's regulations limiting its use to minor New Source Review might allow sources to evade major New Source Review requirements.  The Court rejected this out of hand because the Program affirmatively requires compliance with nonattainment New Source Review and Prevention of Significant Deterioration review requirements and, therefore, does not allow sources to evade major New Source Review. 
  2. EPA took the position that the regulations implementing the Program contained inadequate monitoring, recordkeeping, and reporting (MRR) provisions and violated EPA policy because the regulations gave case-by-case discretion to the Executive Director of the Texas Commission on Environmental Quality .  The Court held that "EPA's task in reviewing a SIP revision is to determine whether the revision would interfere with attaining NAAQS or another applicable requirement of the CAA," and the degree of discretion conferred on the Executive Director "cannot sustain the EPA's rejection of the MRR requirements," especially in light of the fact that the EPA had previously approved nearly identical requirements in Texas and other state minor New Source Review provisions.  And in response to EPA's contention that it has a policy to disfavor case-by-case director discretion provisions, the Fifth Circuit noted that EPA's recent approval of a Georgia SIP provision that permitted the director to exempt minor sources from MRR requirements entirely "give[s] the appearance that the EPA invented this policy for the sole purpose of disapproving Texas's proposal."
  3. EPA took the position that the methodology for calculating emissions caps is not sufficiently clear and replicable, making it difficult to hold permit holders accountable for complying with a flexible permit's emissions caps.  Finding that "[t]he CAA does not make the replicability the EPA desires a standard for disapproving a SIP revision," the Court held that EPA exceeded the scope of the CAA.

For a more thorough analysis of the Court's decision, including a discussion of the future of flexible permitting in Texas and a history of the Flexible Permit Program, click here.