EPA's Widening Embrace of the "Bubble" Concept: The Legality and Availability of Intra-Source Trade-Offs

During the past year, the Environmental Protection Agency (EPA) has come under increasing pressure to rectify what some segments of industry, the public, and the Carter Administration see as the excessive compliance costs and overly intrusive character of certain environmental standards and requirements. Partly in response to those concerns and partly as a result of its own burgeoning interest in the use of economic incentives as a pollution control device, the Agency has recently begun to place more emphasis on flexibility and economic efficiency in its regulatory programs.One such change has been the Agency's embrace of the "bubble" concept in a widening variety of regulatory contexts.

The basic idea behind the "bubble" is to treat the various buildings and facilities which make up an industrial plant as a single source for regulatory purposes. In essence, emissions from all stacks or discharges from all outfalls of the complex are considered only in the aggregate. Offsetting increases and decreases in emissions or discharges from various plant components entail no additional regulatory consequences so long as the net effect is not to increase the aggregate amount. The concept is generally similar to EPA's policy of allowing new sources to be constructed in non-attainment areas if their emissions would be more than offset by reductions at existing sources,¹ except that under the bubble, emission trade-offs occur only within a single plant.

In principle, application of the bubble seems unobjectionable from an environmental point of view. The concept has drawn fire from environmental advocates, however, who worry that in practice it will provide polluters with a means to further delay their cleanup efforts and confound enforcement agencies. These skeptics also fear that equal trade-offs of one pollutant will in some cases nonetheless seriously degrade environmental quality because of the peculiarities of the emissions points involved (e.g., tall stack vs. ground level, different streams or watersheds) or the undetected presence of accompanying pollutants.

One potential application of the bubble is in determining whether operational or design changes in a plant component trigger additional control requirements. The concept can also be used to allow an operator to reduce his total pollution abatement costs by altering the mix of controls within a plant so as to maximize emission reduction on the processes that are least expensive to control while applying less stringent limitations to those that cost the most to clean up.

The bubble concept has been applied both ways under the Clean Air Act. EPA's regulations² implementing the statutory provisions for the prevention of significant air quality deterioration (PSD) allow bubble-based exemptions for plant modifications in PSD areas. The agency also recently proposed³ that states use the bubble in allowing alternative control strategies for existing sources, provided a number of specific conditions are met. In addition, EPA is currently considering whether to propose that the bubble approach be adopted for water pollutant dischargers covered by the national pollutant discharge elimination system (NPDES) permit program, a step which would mark its first application under the Clean Water Act. The legality of adopting the bubble approach in any of these contexts remains in doubt, however, and there is still disagreement over the exact conditions that should be attached, particularly under the latter statute.

Clean Air Act Applications

New Source Performance Standards

The bubble concept made its debut under the Clean Air Act in 1975 in EPA's revised regulations⁴ providing that a change in an existing plant which would increase its emissions would not trigger the application of new source performance standards (NSPS) under § 111 of the Act⁵ if that increase were more than offset by reductions in emissions of the same pollutants from other plant components. The regulations specifically defined a stationary source for NSPS purposes to include "any one or a combination of … facilities,"⁶ and stated that no "modification" triggering the new source standards would be deemed to have occurred as long as the total emissions of any pollutant from these facilities did not increase.⁷

The Agency's adoption of the bubble in applying new source performance standards to physical or operational changes at existing sources was subsequently invalidated by the United States Court of Appeals for the District of Columbia Circuit in ASARCO, Inc. v. Environmental Protection Agency.⁸ Noting the obvious disparity between § 111(a)(3) of the Act,⁹ which defines a stationary source, "for purposes of" § 111, as "any building, structure, facility or installation" that emits or may emit an air pollutant, and the regulations' attempt to expand this definition to encompass "any one or a combination of … facilities," the court had little trouble holding this portion of the regulations to be contrary to the plain language of the statute.

As an additional ground for rejecting use of the bubble [9 ELR 10028] approach in this context, the court observed that the goal of § 111 is to assure that all new or modified sources employ the best demonstrated control technology. Allowing operators to use the bubble concept as a way to avoid meeting this technological standard subverts the central statutory purpose of enhancing air quality enunciated in § 101.¹⁰ The court also brushed aside EPA's assertion that application of the bubble approach was necessary to mitigate the high cost of bringing modified existing sources into compliance with the stringent new source performance standards. Cost considerations, the court pointed out, are to be taken into account only in the process of setting the NSPS and not in later determinations as to whether they apply to particular facilities.

Prevention of Significant Deterioration

Though conceding that ASARCO precluded any use of the bubble concept under § 111, EPA sought to distinguish the case for purposes of implementing other sections of the Act. Last summer the Agency thus adopted this approach in its final regulations¹¹ governing the prevention of significant deterioration (PSD) of air quality under §§ 160-169 of the statute.¹² The Act mandates detailed pre-construction review for construction of major stationary sources in designated PSD areas, including an analysis of air quality impact and case-by-case application of the best available control technology (BACT). Construction is specifically defined to include "a modification (as defined in § 111(a))."¹³ The regulations add a significant gloss to these provisions by defining a "source" as "any structure, building, facility, equipment, installation, or operation (Or combination thereof) which is located on one or more contiguous or adjacent properties…."¹⁴ (Emphasis added.) They then also provide that modification of a facility within a source will not trigger the full impact review and BACT requirements "if no net increase in emissions … would occur … taking into account all emission increases and decreases at the source which would accompany the modification, and no adverse air quality impact would occur."¹⁵

EPA justified its creation of this bubble exception to full PSD review by pointing to what it saw as implicit congressional adoption in the PSD context of the Agency's pre-ASARCO application of the bubble under § 111. The key to EPA's argument on this score is § 169(2)(C),¹⁶ which was enacted before the ASARCO decision and directs that the term "modification" is to retain its § 111(a) definition for PSD purposes. In the agency's view, this provision reflects a congressional intent to allow EPA to use the bubble in applying the new statutory PSD requirements.

The legality of EPA's position has been attacked in litigation currently pending before the D.C. Circuit which challenges the validity of the final PSD regulations.¹⁷ The environmental petitioners' basic objection is that the regulations essentially rewrite the statutory definition of "source" and create an unauthorized exemption from the strict PSD air quality review requirements and BACT standards. In their view, the ASARCO court's rationale for rejecting use of the bubble concept in applying the technology-based new source performance standards applies with equal force in the case of the PSD regulations.

The environmentalists note that EPA initially interpreted the 1977 amendments to the Act to prohibit use of the bubble approach in the PSD context.¹⁸ They also dispute EPA's assertion that Congress implicitly adopted the agency'searlier interpretation of § 111 in the PSD sections of the 1977 amendments.¹⁹ As a final deficiency, they allege that as with the provisions invalidated in ASARCO, those portions of the regulations that allow modified facilities in PSD areas to apply less than the required best available control technology subvert the statutory purpose of enhancing air quality.

Emissions Offset Policy for Non-Attainment Areas

One instance in which EPA decided not to apply the bubble was its recently issued revision of its emissions offset policy²⁰ for determining the permissibility of modifications of major stationary sources in nonattainment areas in light of the 1977 amendments to the Act.²¹ The EPA General Counsel had determined that there was legal support for applying the "bubble" approach in this context. In her view, congressional intent to this effect could be deduced in the same way it was discovered under the PSD provisions because § 171(4)²² specifies that the term "modifications" as used for emissions offset purposes is to derive its meaning from § 111(a)(4). The decision not to include the bubble option in the revised policy statement, however, was based on policy considerations rather than doubts about its legality. The EPA Administrator deemed such an exemption from otherwise applicable technology-based control requirements to be less appropriate in areas where ambient air quality standards are currently being violated than in PSD areas, where allocation of the available deterioration [9 ELR 10029] increment is the main concern.²³ A petition challenging the Agency's omission of the bubble concept from its emissions offset rules has already been filed in the D.C. Circuit.²⁴

Existing Sources Covered by State Implementation Plans

Application of the bubble approach in the NSPS, PSD, and emissions offset contexts goes to the single question of whether an emissions-increasing change in plant design or operation can, as a result of equal emission reductions from other plant components, be exempted from statutory requirements that would otherwise apply. In a move with wider applicability, EPA recently issued a policy proposal²⁵ encouragingthe states to adopt the bubble approach in controlling existing sources under their implementation plans. More specifically, the agency asked the state air pollution control bodies to consider proposals from existing plants for alternative mixes of emission controls as long as total emissions of specific pollutants from the plant complex to not increase. If such a proposal were approved, a plant with multiple stacks or vents, each of which may be subject to specific emissions limitations under an approved state implementation plan (SIP), could thus meet its total emission control requirements for a given pollutant through a different mix of controls than that mandated by existing regulations.

The basic goal of the proposal is to allow the operator of an existing plant to choose a more cost-effective combination of emission reductions while not exceeding the allowable total. Adoption of the bubble in this context, according to EPA, would thus leave the operator free to lessen existing controls where marginal compliance costs are high in exchange for an equal increase in control where abatement is less expensive. In the Agency's estimation, this should serve to promote both greater economic efficiency and increased technological innovation in control strategies.

Applying the bubble option in setting emission limits for existing sources under state implementation plans in some respects seems less questionable than applying that concept in the NSPS and PSD contexts. Use of the bubble by existing sources to develop alternative control strategy mixes under the relevant SIP simply allows the source to choose a different path by which to achieve the § 110 goal of attainment and maintenance of ambient air quality standards. Use of the bubble in determining whether the NSPS or PSD requirements apply at all in a particular case, on the other hand, provides a convenient exit from the technology-based control standards imposed by those sections of the Act. But even in the SIP context, adoption of the bubble approach goes against the § 101 goal of enhancing air quality.

EPA's acceptance of the bubble²⁶ approach in setting SIP emissions limitations may prove a will o' the wisp for affected plant operators, however. The proposed policy contains a number of restrictions and conditions which, if adopted in the form proposed, will significantly limit the practical availability of the bubble option for existing sources subject to SIP requirements. It is the source operator's responsibility to come forward with a suggested alternative control strategy. The operator bears the burden of demonstrating to the state control agency's satisfaction that the proposed alternative is equivalent to the existing individual process standards in terms of emission reduction, enforceability, and environmental impact. As a further safeguard, all proposals must be approved by EPA.

To assure that use of alternative emission reduction strategies will not result in air quality degradation, weakened enforcement, or delayed compliance, the Agency has proposed a number of conditions which must be met before it will approve an alternative emissions strategy. First, use of the bubble will not be allowed where SIPs are not expected to achieve thestatutory deadlines for the attainment of air quality standards for the pollutant in question. The plant operator would thus be required to demonstrate that adoption of alternative emission reduction approaches will result in attainment and maintenance of these standards. Use of the bubble approach by existing sources in non-attainment areas would thus apparently be allowed as long as reasonable progress is being made toward attainment of the standards by the statutory deadline.²⁷

Second, all emissions subject to a proposed alternative strategy would have to be quantifiable, and trades among them would be required to be equivalent. The operator would thus have to demonstrate that the emissions at each source can be quantified, that the trade being made does in fact involve at least equal quantities, and that overall ambient air quality will not worsen as a result. This requirement for quantification may make emissions trade-offs all but impossible where existing emissions are not subject to measurement through detailed monitoring data.

As the final condition related to air quality considerations, the Agency specified that emissions trade-offs under an alternative proposal must be between "comparable" pollutants. Trades thus obviously cannot occur across pollution categories as, for example, sulfur dioxide against hydrocarbons. In addition, however pollutants which fall within the same category but have different health or ambient air impacts cannot be traded against each other. The latter restriction will preclude, for example, trades between hazardous substances such as benzene and other hydrocarbon emissions, or between ordinary particulate matter such as dust from roads or storage piles and stack emissions of ultra-fine, respirable particulates.

To prevent the bubble concept from serving as an impediment to timely compliance or effective enforcement, EPA proposed that specific and enforceable emission limits and monitoring procedures be imposed on each [9 ELR 10030] emission exit point involved in the alternative control strategy. The agency also specified that all alternative emission reduction provisions must be submitted as alternatives or additions to the existing SIP rather than as replacements for it. This is to ensure that the original plan will remain in effect if the new provisions are not approved or are held up by litigation.

A third enforcement-related condition is that EPA approval of alternative control strategies will be restricted to facilities which are either currently in compliance, meeting an EPA-approved compliance schedule, or subject to a court decree that includes compliance schedules which EPA finds satisfactory. Noncomplying sources thus would not be able to use the bubble option.

This provision may prove to be a particularly significant limitation. Plants for which the bubble approach would be economically attractive because their operators have still not invested in costly control technology at this late date are likely to find themselves ineligible. Moreover, most plants which are in compliance or on schedule have already made the necessary capital investments to meet the current SIP requirements. Only those with relatively high operating costs for their control equipment would find it economically beneficial to pay the large transaction cost involved in making the required demonstrations to win approval of an alternative control strategy.

As a final condition designed to prevent use of the bubble concept to extend existing compliance deadlines or to delay existing enforcement actions, EPA specified that every alternative emission reduction requirement must have the same compliance deadline as the strategy it replaces.

Application Under the Clean Water Act

Although application of the bubble concept has thus far been restricted to the Clean Air Act, EPA is currently in the midst of an internal debate over the advisability of adopting the bubble approach in regulating water pollutants through the NPDES permit program²⁸ under § 402 of the Federal Water Pollution Control Act. This controversy concerns both the legality of the bubble in this context and the conditions that should be attached if it is ultimately adopted.

The key question is whether any form of the bubble approach is consonant with the terms of the water act. The statute requires that technology-based effluent limitations be established for every "point source,"²⁹ which is defined as "any discernible, confined and discrete conveyance, including but not limited to any pipe, ditch, channel, tunnel, conduit, well, discrete fissure, container … from which pollutants are or may be discharged."³⁰ The EPA General Counsel has taken the position³¹ that although these provisions seem to require that limitations be set for each discharge pipe from a plant, they can be construed to apply to an entire facility. Under this view, Congress' use of the term "point source" synonymously with "industries" and "plants" in other sections of the Act and in the legislative history shows that it meant to authorize application of effluent limitations to entire plants rather than individual outfalls. It would thus follow that the Agency has a sufficient legal basis to rewrite the definition of "point source" in its NPDES regulations³² so as to implement the bubble concept. The General Counsel did admit, however, that while ASARCO could "arguably" be distinguished, adoption of the bubble in the NPDES program would present a significant risk of judicial reversal, particularly in the D.C. Circuit.

A separate analysis³³ prepared within the Agency reached a conclusion contrary to the General Counsel's. The EPA Water Enforcement Division rejected the General Counsel's justification for adoption of the bubble and instead concluded that the statutory definition of "point source" means precisely what it says. Therefore, it would be illegal to redefine the term as used in the NPDES regulations so as to apply to entire plants. The analysis deduced support for this position from the legislative history and noted that this application of the bubble threatens the underlying statutory goal of eliminating pollutant discharges where the technology is available. These sentiments were recently echoed in a memo³⁴ from the staff of the Environmental Pollution Subcommittee of the Senate Committee on Environment and Public Works to Senator Muskie (D-Me.), and more importantly by Senator Muskie himself in a publicly issued statement³⁵ warning EPA Administrator Costle not to adopt the bubble approach under the Clean Water Act.

Both sides in the EPA debate have given though to the further issue of what conditions and limitations should be imposed if the bubble is adopted for use in the NPDES permit program. Intra-agency disagreement in this regard has focused on three questions: (1) whether trade-offs should be prohibited where any discharge involved would fail to meet a water quality standard or where such standards have not yet been established for the pollutants to be discharged; (2) whether the currently applicable requirement for best practicable control technology should remain a minimum standard for each discharge pipe; and (3) whether use of the bubble approach should be precluded where no effluent guidelines are currently in effect, either because of a successful legal challenge or agency tardiness in their promulgation. The Assistant Administrators for Enforcement and for Water and Waste Management argue that the answer should be affirmative in all three cases.³⁶ They see such [9 ELR 10031] requirements as necessary to prevent harmful discharges of exotic toxic pollutants, avoid undercutting cleanup progress already achieved, and keep from placing too heavy a burden on state permit writers. The Assistant Administrator for Planning and Management joins the General Counsel in taking the opposite point of view on all three points.³⁷ In their estimation, imposition of these conditions is unnecessary to protect environmental quality and would severely restrict use of the bobble approach.

Conclusion

In response to continuing pressure from the White House to do its part in the fight against inflation by lessening the costs of regulation, the Environmental Protection Agency has adopted or is considering the adoption of the bubble concept of intra-source emission trade-offs in several regulatory contexts. The bubble holds the promise of reducing compliance costs for plant operators by according them greater engineering flexibility to design control strategies in accordance with marginal abatement costs for plant components. The extent to which it will provide polluters with an economic incentive to develop innovative control technologies is less certain.

Unfortunately, however, the bubble's legality is subject to varying degrees of doubt in every regulatory context in which it has appeared. In addition, allowing the use of alterntive control strategies, if not subjected to substantial restrictions, presents significant opportunities for delayed compliance and thwarted enforcement and may entail serious environmental harm. The attachment of conditions to guard against these possibilities, on the other hand, may severely restrict the practical availability of alternative control strategies once the bubble approach has been adopted.

EPA has thus far been deliberate in analyzing the bubble's applicability in particular regulatory contexts. Political pressure upon the Agency to make a more visible contribution to the reduction of "inflationary" regulatory costs is likely to increase rather than diminish, however. EPA's pace in considering and adopting this and other regulatory reforms may soon quicken as a result, even where, as in the case of incorporating the bubble approach into the NPDES permit program, the legality of such regulatory modifications is seriously suspect.

1. 40 C.F.R. pt. 51, app. S, 44 Fed. Reg. 3274 (Jan. 16, 1979).

2. 40 C.F.R. § 52.21, 43 Fed. Reg. 26388 (June 19, 1978), ELR STAT. & REG. 46611

3. 44 Fed. Reg. 3740 (Jan. 18, 1979).

4. 40 Fed. Reg. 58416 (Dec. 16, 1975).

5. 42 U.S.C. § 7411, ELR STAT. & REG. 42216.

6. 40 C.F.R. § 60.2(d) (1977), 40 Fed. Reg. at 58418.

7. 40 C.F.R. § 60.14(d) (1977), 40 Fed. Reg. at 58419.

8. 578 F.2d 319, 8 ELR 20164 (D.C. Cir. 1978). See Comment, D. C. Circuit Rejects EPA's Use of the "Bubble Concept" in Applying New Source Performance Standards, 8 ELR 10052 (1978).

9. 42 U.S.C. § 7411(a)(3), ELR STAT. & REG. 42216.

10. 42 U.S.C. § 7401(b)(1), ELR STAT. & REG. 42205.

11. 40 C.F.R. § 52.21, 43 Fed. Reg. 26388 (June 19, 1978), ELR STAT. & REG. 46611.

12. 42 U.S.C. §§ 7470-7479, ELR STAT. & REG. 42233-36.

13. § 169(2)(C), 42 U.S.C. § 7479(2)(C), ELR STAT. & REG. 42236.

14. 40 C.F.R. § 52.21(b)(4), 43 Fed. Reg. at 26404, ELR STAT. & REG. 46627.

15. 40 C.F.R. § 52.21(j)(4), 43 Fed. Reg. at 26407, ELR STAT. & REG. 46630.

16. 42 U.S.C. § 7479(2)(C), ELR STAT. & REG. 42236.

17. Alabama Power Co. v. Costle, No. 78-1591 (D.C. Cir., filed June 27, 1978).

18. 42 Fed. Reg. 57479, 57480 (Nov. 3, 1977).

19. The petitioners argue that congressional failure to repudiate expressly EPA's construction of § 111 cannot be viewed as congressional acquiescence in that interpretation because the Agency made no showing that Congress was fully aware of the implications of the § 111 regulations when it acted upon the 1977 amendments to the statute. They also point to the expansiveness of the statutory PSD program, subject only to a few limited exceptions. This broad scope, they argue, is incompatible with a legislative intent to create a significant loophole by implicitly approving application of the bubble concept.

20. 40 C.F.R. pt. 51, app. S., 44 Fed. Reg. 3274, 3276-77; 3282 (Jan. 16, 1979).

21. Sections 171-178 were added to the Act in 1977 to address the problem of areas in which air pollutant concentrations exceeded the national ambient air quality standards. 42 U.S.C. §§ 7501-7508, ELR STAT. & REG. 42238-39.

22. 42 U.S.C. § 7501(4), ELR STAT. & REG. 42238.

23. 44 Fed. Reg. at 3277.

24. Manufacturing Chemists Ass'n v. EPA, No. 79-1112 (D.C. Cir., filed Jan. 19, 1979).

25. 44 Fed. Reg. 3470 (Jan. 18, 1979).

26. The agency is attempting to get away from the term "bubble" and refers to the concept as the "alternative emission reduction approach" in its SIP policy proposal.

27. The § 172(b)(3) requirement for further reductions in emissions from existing sources in non-attainment areas beginning on July 1, 1979 through application, at a minimum, of "reasonably available control technology" presents a possible barrier to application of the bubble in this context, however. See 42 U.S.C. § 7502(b)(3), ELR STAT. & REG. 42238.

28. 33 U.S.C. § 1342, ELR STAT. & REG. 42141.

29. Section 301(e), 33 U.S.C. § 1311(e), ELR STAT. & REG. 42123.

30. Section 502(14), 33 U.S.C. § 1362(14), ELR STAT. & REG. 42146.

31. Memorandum from Joan Z. Bernstein, General Counsel, to Thomas C. Jorling, Ass't Administrator for Water and Hazardous Materials (Oct. 30, 1978).

32. 40 C.F.R. § 125.1(x), ELR STAT. & REG. 46425; see also 40 C.F.R. § 122(y) (proposed), 43 Fed. Reg. 37090 (Aug. 21, 1978).

33. Memorandum from Legal Branch, Water Enforcement Division to Ass't Administrator for Enforcement (Dec. 5, 1978).

34. Memorandum from Staff of Subcommittee on Environmental Pollution of the Senate Committee on Environment and Public Works to Senator Edmund S. Muskie (Jan. 24, 1979).

35. See 9 ENVT'L REP. CURR. DEV. 1815 (FEB. 2, 1979).

36. Memorandum from Thomas C. Jorling, Ass't Administrator for Water and Waste Management, to the Administrator (Dec. 11, 1978); Memorandum from the Ass't Administrator for Enforcement to the Administrator (Dec. 13, 1978).

37. Memorandum from William Drayton, Jr., Ass't Administrator for Planning and Management, and Joan Z. Bernstein, General Counsel, to the Administrator (Dec. 15, 1978).