D.C. Circuit Vacates Equipment Replacement Rule
 
May 4, 2006
 
Mark J. Steger- Chicago

On March 17, 2006, a three-judge panel of the D.C. Circuit Court of Appeals vacated the Environmental Protection Agency’s equipment replacement rule that had been adopted by EPA in 2003. The Court vacated the rule because it is contrary to the language of Section 111(a)(4) of the Clean Air Act.

The equipment replacement rule exempted from the Clean Air Act’s New Source Review regulation those physical changes involving the replacement of components that do not exceed 20 percent of the replacement value of the process units and does not change its basic design parameters. In other words, the rule will allow sources to avoid New Source Review when replacing equipment under the 20 percent cap regardless of the resulting increase in emissions.

The Court’s ruling is based on the two-part test of Chevron, namely, that if Congress has directly spoken to the issue, that ends the analysis and the court must give the effect to the unambiguously expressed Congressional intent. However, if the Clean Air Act is silent or ambiguous on the issue, the Court would differ to EPA’s interpretation inquiring whether it was based on a permissible construction. Using this analysis, the Court concluded that under Section 111(a)(4) of the Act, the term “modification” means “any physical change.” Basically, the Court said “any” means “any,” whereas EPA maintains that it is really the term “physical change” that is significant and susceptible to multiple meanings. EPA’s approach would focus on whether the activity is a “physical change” and then the word “any” would subject such changes to New Source Review. However, the Court rejected that argument stating that Congress used the word “any” to mean “any” and therefore EPA must apply New Source Review if a source conducts an emission-increasing activity that fits within one of the ordinary meanings of “physical change.”

The equipment replacement rule was the second of two rules recently issued by the EPA concerning revisions to the New Source Review program. See New York v. US EPA, 413 F.3d 3 (D.C. Cir. 2005). The government has 45 days from March 17 to seek review before the entire D.C. Circuit panel and 90 days to seek review by the U.S. Supreme Court. Some say that it is likely that the government will seek a review before the entire D.C. Circuit panel. The government’s decision to seek review remains to be seen, but it is clear that EPA’s efforts to modify the New Source Review provisions of the Clean Air Act received another setback.

For more information, e-mail Mark J. Steger at mark.steger@hklaw.com or call toll free, 1-888-688-8500.