Air Pollution Control Equipment Services, Coal, Policy & Regulations

Under Attack

Issue 11 and Volume 118.

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How to Protect Your Power Generation Project Against Environmental Group Opposition

By Richard Alonso, Sandra Y. Snyder, and Tim Wilkins, Bracewell & Giuliani

Power plants, pipelines, refineries, and even golf courses – regardless of the type of project you plan to construct, there is always a risk that someone, somewhere will oppose your idea or how you plan to construct it. The most potent tool for blocking many industrial projects is a challenge to their preconstruction Clean Air Act permits. Project opposition is not reserved for controversial or headline news projects like the Keystone XL pipeline. In fact, such challenges can be a major threat to nearly any type of project – even if they are ultimately unsuccessful – as they can derail project financing and delay construction for many months or even years.

Project challenges today have moved past the simple “Not in My Back Yard” or NIMBY challenges, where neighboring residents voiced concerns about nuisances or how a proposed project could personally impact them, the value of their homes, or their local communities. Challenges are now commonly led by well-organized and well-funded environmental groups that have become much more sophisticated and now often oppose projects based on concerns about national and global impacts or in furtherance of major policy and regulatory objectives. Climate change has provided a new battleground for challenging large power projects that have significant greenhouse gas emissions. Over time, the arguments raised by these groups have evolved to become much more technically advanced and far more difficult to defend against.

The PSD Program

The tool that national environmental groups seem to favor in opposing major projects in the United States is the Prevention of Significant Deterioration (PSD) program under the Clean Air Act. The PSD program is a pre-construction permitting program, which means that a facility cannot start construction without first receiving a final permit, most often issued by state regulators under authority from the U.S. Environmental Protection Agency. Most PSD permits are subject to challenge in lengthy administrative proceedings and do not become final until after the conclusion of administrative and remand proceedings. These administrative appeals can last many months or even several years and they are often even subject to subsequent judicial review. Financing a project can be extremely difficult until a final, wholly non-appealable permit is in hand.

One leading example of such organized opposition arose in 2002, when the Sierra Club launched a campaign responding to a Bush administration initiative aiming to construct 150 new coal-fired power plants in the United States. Sierra Club’s campaign, known as the “Beyond Coal” campaign, utilized grass roots recruiting efforts to drum up interest at universities and with neighborhood activist groups across the country. The goal of this campaign was to preempt what the Sierra Club perceived to be a “coal rush,” or a boom in both supply and demand for coal. The mission of the campaign was to retire one-third of the nation’s coal plants by 2020 and replace them with “clean energy solutions.” The Beyond Coal campaign has claimed numerous victories across the country with 178 coal-fired power plants shuttering or halting construction. Sierra Club used the PSD permitting process to introduce uncertainty in the development process, thereby preventing many projects from being timely financed.

While not all of the decisions to forego construction of coal-fired power plants should be directly attributed to Sierra Club’s efforts, such efforts need to be considered seriously during discussions about whether or how to construct any new power project. Regardless of the type of project you intend to construct, it is important to take note of and learn from these campaigns because over time, the target often evolves. And that is exactly what Sierra Club did after “winning” the war against coal: Sierra Club launched a brand new campaign against natural gas in 2012. Sierra Club did this despite accepting over $25 million in donations from 2007 to 2010 from natural gas interests to help fund its anti-coal efforts. This new campaign seeks to halt projects that either consume large quantities of natural gas or that Sierra Club perceives as encouraging additional production of natural gas in the U.S. This new campaign, aptly named the “Beyond Natural Gas” campaign, was modeled after Sierra Club’s earlier success with its Beyond Coal campaign. The goal of this campaign is to end the use of fossil fuels for electric power in the United States by 2050. After coal, the largest source of industrial greenhouse gas emissions is natural gas electric and steam generation. The organization realizes that if new natural gas plants are built today, they will still be in their operational prime in 2050, which would likely frustrate one of Sierra Club’s fundamental policy missions.

The Beyond Natural Gas campaign has several goals. But its key objectives are reducing the use of natural gas in the United States and halting the practice of hydraulic fracturing which has made natural gas cheaper and more plentiful. By trying to reduce natural gas use in electric generation, Sierra hopes to reduce greenhouse gas emissions and also to keep gas prices low to better ensure that cheaper coal does not regain popularity. If natural gas prices rise substantially, environmental groups are concerned that coal may be revived as the favored fuel for electric generation because it is inexpensive and quite reliable. The environmental organizations hope to achieve the goal of reducing natural gas demand by opposing liquefied natural gas (LNG) exports, encouraging the development of more renewable energy alternatives such as solar and wind, and adopting tougher energy efficiency standards. As a result, many different types of projects – LNG export facilities, new natural gas-fired electric plants, gas processing and transportation, and chemical plants that use natural gas as feedstocks – are all potential targets for the Beyond Natural Gas campaign.

The tool that national environmental groups seem to favor in opposing major projects in the U.S. is the Prevention of Significant Deterioration (PSD) program under the Clean Air Act.
The tool that national environmental groups seem to favor in opposing major projects in the U.S. is the Prevention of Significant Deterioration (PSD) program under the Clean Air Act.

Reducing Impact of Project opposition

In order to best defend against potential attacks from environmental groups, project proponents need to be mindful of the risk of project opposition beginning at the very initial stages of the project. Efforts to avoid project delay should not start when litigation or a permit challenge is filed. Rather, this process should start the moment you begin to develop a PSD permit application. In many jurisdictions, once a permit is challenged it is difficult or legally impermissible to introduce new information into the permit record. The reviewing body usually limits its evaluation of the permit’s adequacy to the information in the administrative record supporting the permit. In other words, in many circumstances, neither the approving agency nor the project proponent will be given an opportunity to provide further evidence or testimony to support the agency’s decision. Therefore, establishing a robust and legally defensible administrative record is fundamental in any PSD permitting process and this effort should start from day one of the permitting process. It is not sufficient to simply obtain a permit from the State environmental regulatory staff; to withstand likely challenges, the permit that is issued must be legally defensible. Project proponents and their consultants, in coordination with experienced legal counsel, should try to make sure the administrative record contains all of the information that will be necessary to support the agency’s final decision even in the face of sophisticated legal and technical arguments.

Project proponents cannot – and should not – assume that the agency issuing the permit or granting the approval will create an adequately robust record that will support the agency’s decision. Although the agency issuing the permit or approval has an interest in seeing its decision be upheld, the risk to the agency from a successful permit challenge is far less than that faced by the permittee. The project proponent may lose its financing, default on contracts for services or equipment that have been purchased, incur significant penalties for construction delays, or even find itself having to lay off employees.

Thus, the project proponent should pursue its permits with a defensive mindset even before the project officially comes under attack. Project proponents can begin by playing “devil’s advocate,” hypothesizing potential arguments, comments, or criticisms that might be filed by the public or environmental groups regarding any of the permits or approvals that must be obtained for the project. Identifying these arguments before a draft permit is opened for public comment can help identify potential weaknesses that might otherwise exist in the administrative record. Weaknesses identified during this process represent opportunities for the project proponent to bolster the record with additional legal and technical information that will be responsive to these anticipated concerns.

For example, if a company wishes to build a new natural gas-fired power plant, there is a high likelihood that local or even national environmental groups will be closely watching the project. Some issues that the project developer might want to consider are whether to build a simple cycle plant or a combined cycle plant. If a simple cycle plant is chosen, the administrative record should clarify why the company made this decision and did not elect to construct a combined cycle plant that is generally considered to be more efficient with respect to its greenhouse gas emissions. Similarly, if the project requires PSD authorization for significant greenhouse gas emissions, the permittee will need to be sure to provide a robust and defensible Best Available Control Technology (BACT) analysis fully justifying the technologies employed to control greenhouse gas emissions (e.g., efficiency improvements to turbines). Among other things, a robust BACT analysis should include a thorough discussion of all available control options and should be careful not to disregard those options too early in the BACT analysis process. This includes a full analysis, including a detailed cost analysis, of carbon capture and sequestration technology, even though such technology is currently infeasible on natural gas electric generating plants from both a technological and economical perspective. One needs to accept that many aspects of PSD permitting are unnecessarily burdensome and often do not make sense, but one must still take great care to meet all applicable PSD requirements to ensure the issuance of a defensible permit. Thinking defensively, the project proponent might want to consider expanding the list of design options considered to include a discussion of any alternatives that might possibly be raised in the public comment period. As part of the cost-effectiveness portion of the BACT analysis, the project developer would be well-served to thoroughly explain and document the basis for all of its assumptions to avoid criticisms during the public notice and comment period. Simply by thinking defensively, a project proponent may find that an initial cost analysis was too “back-of-the-envelope,” that it overlooked certain costs or tax benefits, or that certain assumptions may not be fully defensible for the particular project.

The La Paloma Success Story

One success story in this regard is the PSD greenhouse gas permit issued to the La Paloma Energy Center. La Paloma is a merchant power provider with plans to construct a new combined cycle natural gas-fired power plant in Texas. Sierra Club filed a petition with EPA’s Environmental Appeals Board (EAB) in December 2013 challenging EPA’s decision to issue a PSD permit to La Paloma for its greenhouse gas emissions. On March 14, 2014, the EAB issued an order denying review of this petition, which was the first petition seeking EAB review of a Texas greenhouse gas PSD permit.

Although this case raised issues of first impression, the EAB issued a decision upholding the permit a mere 98 days after Sierra Club filed its petition for review. This is the shortest timeframe in which the EAB has acted on a substantive challenge to a PSD permit in recent history. The La Paloma case reflects that a permit’s validity will ultimately be determined on the strength of the administrative record. As this case demonstrates, to have such success, project developers should work closely at an early stage with counsel and consultants that understand PSD legal challenges to better ensure that their permit records are fully developed to help minimize the risks associated with a permit appeal.

Summary

By anticipating challenges and taking a proactive strategy to a permit’s administrative record, project proponents can take affirmative steps to make their permits as defensible as possible. Doing so can be beneficial for a number of reasons: (i) a strong record may dissuade the environmental groups from challenging your project in the first instance and (ii) a strong record will help uphold your permit or the agency’s approval in the event of a legal challenge. While such a strategy may involve more up-front work and expense, in the long run, it can make the difference between starting construction of your project on time instead of suffering years of vastly costly litigation and potentially years of project delays.

“The most potent tool for blocking many industrial projects is a challenge to their preconstruction Clean Air Act permits.”

Authors:

Richard Alonso is a partner at Bracewell & Giuliani where he advises manufacturers and energy companies on environmental, permitting, compliance, and enforcement issues. Sandra Y. Snyder is an attorney at Bracewell & Giuliani, representing energy companies, industry trade associations, and manufacturers in environmental litigation. Tim Wilkins is the head of Bracewell & Giuliani’s firm-wide Environmental and Natural Resources practice group.

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