On March 26, 2012, the Fifth Circuit Court of Appeals (“the Court”) vacated and remanded EPA’s disapproval of Texas’s request for approval of the minor source standard permit for pollution control projects (“PCP”) as part of its air quality state implementation plan (“SIP”). The Court’s reasoning may also affect other pending disputes between EPA and Texas regarding air quality permitting and other issues.

After chastising EPA for missing the statutory deadline for taking action on Texas’s SIP request by more than three years, the Court ruled that EPA’s disapproval was arbitrary and capricious because the agency did not identify any provision of the federal Clean Air Act (“CAA”) that supported the disapproval and did not explain its reasons for reaching its conclusion that disapproval was warranted. Instead, EPA improperly relied upon Texas law and EPA policy/guidance that it could not demonstrate was tied to any CAA provision.

The Court further ruled that, under CAA provisions for evaluating revisions to the SIP, it was impermissible for EPA to rely on policy/guidance that standard permits would have to be limited to narrowly defined categories of similar sources and would have to contain replicable procedures to govern the administration of discretionary provisions within the standard permit.

The Court, therefore, vacated EPA’s disapproval of the standard permit for pollution control projects and remanded the matter to EPA, with directions that EPA reconsider the standard permit in light of the Court’s opinion and approve or disapprove it “most expeditiously.” The Court noted, however, that “it is difficult to conceive, and EPA has not suggested, how [EPA] could disapprove the PCP Standard Permit under the appropriate statutory factors.”

The Court’s decision could have broad implications. EPA has relied upon its “similar sources” and “replicable procedures” guidance for a broad range of SIP decisions, including rules that allow a company to seek a site-specific exemption to an SIP requirement. EPA also has in part relied upon those concepts in questioning other provisions of the Texas minor new source review program, including permits by rule. The Court’s decision, if not overturned on appeal, could substantially alter EPA’s handling of SIP approval issues.

Please feel free to contact us if you have any questions regarding these matters.