Fifth Circuit Rejects “Demonstrated” as Element of BACT

In Port Arthur Community Action Network v. TCEQ, the Fifth Circuit sided with a community organization challenging the Port Arthur LNG plant and export terminal against the Texas Commission on Environmental Quality (TCEQ) on whether TCEQ must impose BACT limits of 5 ppm NOx and 15 ppm CO based solely on a prior permit issued to Rio Grande LNG for identical compressors. TCEQ had refused to apply these limits on the basis that the Rio Grande LNG plant was not built and the limits not demonstrated. The Fifth Circuit held that TCEQ had not justified its action, had erred as a matter of Texas law, and remanded.

BACKGROUND

Port Arthur LNG, L.L.C. sought a PSD permit for its proposed LNG plant and export terminal. It submitted a PSD application to TCEQ proposing BACT for turbines driving its refrigeration operations at 9 ppm NOx and 25 ppm CO. TCEQ reviewed the proposal, issued a preliminary determination adopting the 9 ppm NOx and 25 ppm CO limits, and issued a final determination incorporating those limit. Port Arthur Community Action Network (PACAN) challenged this decision, arguing that the turbines should have been limited to 5 ppm NOx and 15 ppm CO based on BACT in a PSD permit issued to Rio Grande LNG for substantially identical turbines.

PACAN’s hearing was heard before two state administrative law judges in the state’s Office of Administrative Hearings. The ALJs, citing Texas’ APDG 6010 guidance, held that while prior BACT was not determinative, a Tier I decision must achieve at least equivalent reductions or, to proceed to Tier II, must show “compelling technical differences between processes” to justify a different decision. Because the units were essentially the same, the ALJ’s recommended that TCEQ Commission amend the permit to set the limits at 5 ppm NOx and 15 PPM CO.

The TCEQ Executive Director objected before the TCEQ Commission, citing both EPA’s NSR Manual and APDG 6010 that a limit must be “demonstrated in practice” and it was not because Rio Grande LNG was “not in operation.” EPA Region VI then wrote a letter to the TCEQ Commission 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” and 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.” This memorandum was previously discussed in NSR Law Blog.

The TCEQ Commission rejected the ALJ’s proposed amendment, holding that the proposed 5 ppm NOx and 15 ppm CO limits were not supported by operational data and the ALJ’s citation to EPA’s NSR Manual and APDG 6010 omitted significant parts of the BACT determination and were not legally binding.

PACAN appealed to the Fifth Circuit.

ANALYSIS OF FIFTH CIRCUIT OPINION

First, the Fifth Circuit determined that its review was decided by administrative review standard of the Texas Administrative Procedure Act, which is the familiar arbitrary and capricious standard. The Fifth Circuit relief heavily on Phillips Petroleum Corp. v. TCEQ, 121 S.W.3d 502 (Tex. App. 2003) for the proposition that it could review whether TCEQ followed its own rules de novo.

Second, the Fifth Circuit stated “we may judge the sufficiency of the Commission’s order solely on the basis given by the agency itself for its decision.” The Fifth Circuit then characterized the issue as follows: “The issue, then, is whether the Commission committed legal error by disregarding the Rio Grande LNG emissions limits because Rio Grande LNG is ‘not in operation.’” The Fifth Circuit concluded that “contrary to the Commission’s analysis, both state and federal guidelines direct the agency to adhere to previously imposed emissions limits in evaluating BACT.” The Fifth Circuit reached this conclusion for the following reasons:

• It cited with approval the ALJ’s invocation of APDG 6010 that any limit must be at least as stringent as a prior BACT limit unless “compelling technical differences” and EPA’s gloss on the NSR Workshop Manual that one “may assume” technical feasibility if a permit limit exists and “presume” the limit is applicable if in a permit limit.

• It rejected the TCEQ’s distinction that APDG 6010 and the NSR Workshop Manual are not binding, stating “but 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,’” citing Oncor.

• “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. Here, the record is clear—the limits imposed on Port Arthur LNG are not “at least equivalent” to those imposed on Rio Grande LNG. Therefore, the Commission’s own policy directed it to consider Rio Grande LNG’s limits, even if Rio Grande LNG was not currently in operation.”

• APDG 6110 still requires consideration of those options subject to a number of factors—some of which are set forth in APDG 6110, but none of which the Commission discussed.

• TCEQ admitted at oral argument that it has defined the term “operational” inconsistently, using it in the “capable of” sense in the regulatory definition by the actual operating sense in determining whether a BACT limit is demonstrated.

Based on these considerations, the Fifth Circuit held that the TCEQ Commission violated its own rules, stating:

Those facts demonstrate that the Commission’s order, including its “operational data” requirement, departed from the Commission’s policy of adhering to earlier permit limits. Oncor, 406 S.W.3d at 267. That departure triggered the Commission’s burden to “adequately explain” why it did what it did. Id. at 269. 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.

Nonetheless, the Fifth Circuit admitted that TCEQ is not bound forever to the 5 ppm and 15 ppm limits, noting “indeed, BACT determinations are intrinsically case-by-case determinations. See 40 C.F.R. § 52.21(b)(12). But in making those individualized determinations, the Commission must demonstrate that it is treating permit applications consistently. See Oncor, 406 S.W.3d at 267.” Accordingly, the Fifth Circuit remanded the matter to the TCEQ for further action in accordance with its opinion.

COMMENTARY

As a practical matter, the Fifth Circuit’s decision in PACAN v. TCEQ strengthens EPA’s and environmental groups’ hand in arguing that any prior lower determination on a roughly comparable unit constitutes BACT unless a compelling difference between the units is shown.

As a legal matter, the Fifth Circuit’s decision is difficult to square with the Clean Air Act, federal and Texas regulations, all of which define BACT substantially as follows:

(3) The term ‘‘best available control technology’’ means 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.

42 U.S.C. § 7479(3) (emphasis added); see also 40 C.F.R. 52.21(b)(12) (substantively identical). This definition is quite clear that the BACT determination is “case-by-case,” that the limit must be “achievable,” and that the BACT limit must be achievable at “such facility,” which means the facility seeking the permit. 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.

The narrow reading of EPA’s October 2022 guidance advocated in NSR Law Blog 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.