Starting January 2, 2011, the largest emitters of greenhouse gas emissions (“GHGs”) will be subject to Clean Air Act construction and operation permitting requirements. On November 11, 2010, less than two months before those permitting requirements become effective, the Environmental Protection Agency (“EPA”) issued a guidance document to instruct state air permitting authorities how to develop GHG permit requirements and to provide suggested methods for the regulated community to comply with those permits.

In May 2010, EPA finalized the Tailoring Rule, which outlined what EPA calls its “common sense approach” to regulating GHGs within the Clean Air Act framework. Pursuant to the Tailoring Rule, the largest GHG emitters will be required to obtain construction and operation permits for new or modified sources as early as January 2, 2011; smaller GHG emitters will be phased in to the permitting program through 2016.

In August 2010, EPA issued two proposed rules to ensure that facilities will be able to obtain necessary construction and operation permits that address GHGs. The proposed rules identified states presumed to have adequate State Implementation Plans (SIPs) to issue air permits for GHGs and outlined a Federal Implementation Plan (FIP) for states that “do not appear” to have adequate SIPs. Among others, Wisconsin was identified as having an adequate SIP, and should be prepared to issue permits for GHGs, starting January 2, 2011.

The EPA GHG guidance explains that new and modified affected facilities will be required to implement Best Available Control Technology (BACT) to control GHGs and comply with the Clean Air Act. Although the BACT analysis has been used by EPA and state permitting authorities for decades, the regulated community is left with considerable uncertainty as to the cost to comply, as BACT requires a case-by-case analysis and an agency determination as to what controls must be installed. A BACT determination is based on technological feasibility, environmental-effectiveness and cost-effectiveness of the control technology at the particular facility.

EPA has posted on its website proposed GHG control measures for electric generating units, large industrial/commercial/institutional boilers, pulp and paper, cement, iron and steel, refineries and nitric acid plants. The agency anticipates that, in most cases, installing energy efficiency measures will be the most cost-effective way to reduce GHGs, but with the final BACT determination subject to agency discretion, many facilities could be required to install costly pollutant control equipment.

Interestingly, although the Tailoring Rule requires all affected GHG emitters to obtain air permits – including biomass-burning facilities – the new EPA guidance notes that employing certain biomass-based technologies at affected facilities may satisfy BACT. This, coupled with EPA’s July 2010 Call for Information on how the agency should account for GHG emissions from bioenergy and biogenic sources, indicates a potential policy shift in favor of the biomass industry, which was taken aback when, despite claims that biomass-based energy generation can be carbon-neutral, the Tailoring Rule was finalized without any exemption for biomass-burning facilities. The EPA GHG guidance states the agency will issue further guidance in January 2011 to establish a framework for determining if a biomass-based technology can be installed to satisfy BACT.

EPA is taking public comments on the new guidance document and, if appropriate, the agency may issue a revised guidance document “well in advance of January 2, 2011.” To review and comment on the EPA guidance, see http://www.epa.gov/regulations/guidance/byoffice-oar.html.