Mirant Potomac River, LLC v. Commonwealth, Record No. 2067-08-2 (Va. App. 6/23/2009)

Decision Date23 June 2009
Docket NumberRecord No. 2067-08-2.
CourtVirginia Court of Appeals

Timothy G. Hayes (Kevin J. Finto; Andrea W. Wortzel; Miranda R. Balister; Hunton & Williams, LLP, on briefs), for appellant.

Carl Josephson, Senior Assistant Attorney General (Robert F. McDonnell, Attorney General; Roger L. Chaffe, Senior Assistant Attorney General, on brief), for appellee.

Present: Judges McClanahan, Petty and Powell.



Pursuant to Code § 2.2-4026, Mirant Potomac River, LLC ("Mirant") challenged the validity of the State Air Pollution Control Board's (the "Board") regulation, published at 9 VAC § 5-140-1061. On July 30, 2008 the Circuit Court for the City of Richmond dismissed Mirant's petition. On appeal, Mirant argues that the trial court erred in finding (1) that 9 VAC § 5-140-1061 complied with the statutory authority granted to the Board, (2) that there was substantial evidence to support the Board's decision to adopt the regulation, and (3) that the regulation was not an unlawful taking of Mirant's property. For the reasons that follow, we conclude that the Board exceeded its statutory authority by adopting the regulation at issue. Therefore, we reverse the trial court's ruling and remand to the circuit court with instructions to vacate the regulation and remand to the Board to conduct further proceedings consistent with the statute. See Harrison v. Ocean View Fishing Pier, LLC, 50 Va. App. 556, 576, 651 S.E.2d 421, 431 (2007) (reversing and remanding to the circuit court to remand the case to the Alcoholic Beverage Control Board with instructions to conduct further proceedings in accordance with the law). Because we reverse the trial court's ruling and remand with instructions to vacate the regulation, we do not address Mirant's last two questions presented.

A. National Legislation and Regulations

Since 1955, our federal government has formally recognized the danger of pollution and its negative effects on our atmosphere.1 Pub. L. 84-159, ch. 360, 69 Stat. 322. Subsequently, Congress has taken on the task of reducing airborne contaminants that cause pollution by regulating the amount of emissions each state is permitted to release into the atmosphere.2 However, in doing so, Congress left the "primary responsibility for assuring air quality within the entire geographic area comprising such state" up to the affected states. 42 U.S.C. §§ 7407(a) & 7401(a)(3) (stating in its Congressional findings that "air pollution prevention . . . and air pollution control at its source is the primary responsibility of States and local governments"); see also 1000 Friends of Maryland v. Browner, 265 F.3d 216, 220 (4th Cir. 2001) (stating that "[e]ach state bears responsibility for ensuring that its ambient air meets the appropriate [standards]").

Nonetheless, Congress found that "[f]ederal . . . leadership is essential for the development of cooperative Federal, State, regional, and local programs to prevent and control air pollution." 42 U.S.C. § 7401(a)(4). In furtherance of those findings, Title I of the Clean Air Act (the "Act") requires the Environmental Protection Agency ("EPA") to list air pollutants that contribute to air pollution, 42 U.S.C. § 7408, and set National Primary and Secondary Ambient Air Quality Standards ("standards") that the states are required to attain, 42 U.S.C. § 7409. Further, the EPA must divide the country into "air quality control regions" and designate those regions as "nonattainment," "attainment," or "unclassifiable" depending on whether each specific pollutant satisfies those standards. 42 U.S.C. § 7407.

A "nonattainment area" is described as "any area that does not meet (or that contributes to ambient air quality in a nearby area that does not meet) the national primary or secondary ambient air quality standard for the pollutant." 42 U.S.C. § 7407(d)(1)(A)(i). By contrast, an "attainment area" is described as "any area . . . that meets the national primary or secondary ambient air quality standard for the pollutant." 42 U.S.C. § 7407(d)(1)(A)(ii).

For areas designated as nonattainment areas, Congress requires states to reduce the emissions that do not comply with the relevant standards. In providing for the overall reduction in emissions in the most cost-efficient manner, Congress authorized the EPA to establish a cap and trade system.3 42 U.S.C. § 7651. Under this system, each affected electric generating unit ("unit") is allocated a maximum allowance of emissions that it is permitted to release into the atmosphere. 70 Fed. Reg. 25349-25350. The system further allows an owner or operator of an affected unit to transfer any allowances that it does not use because of reduced emissions to another owner or operator of an affected source that might exceed the amount of allowable emissions. 42 U.S.C. § 7671f. In following that statutory directive, the EPA developed the Clean Air Interstate Rule ("CAIR") in 2005.4 70 Fed. Reg. 25162.

CAIR regulates the nitrogen oxide and sulfur dioxide emissions in order to reduce the degree of particulate matter and ozone pollution in the atmosphere. Id. at 25167. Each state is allocated an annual budget that limits overall emissions permitted within the geographical boundaries of that state. Id. at 25165, see also Code § 10.1-1328(A) (stating the collective budget for all sources located within the Commonwealth of Virginia). Then, each state divides the budget and allocates a certain number of emissions allowances to each unit that produces the prescribed pollutants. Id.

The allocation to each unit occurs through the permit program established by the state and approved by the EPA, 42 U.S.C. § 7661a, which requires each source to submit a permit application accompanied by a compliance plan, 42 U.S.C. § 7661b.5 The permit specifies enforceable emission limitations and standards and a schedule of compliance specific to a particular source. 42 U.S.C. § 7661c; 9 VAC § 5-80-110.

B. Virginia's Legislation and Regulations

After Congress enacted the Air Pollution Control Act of 1955 and the Clean Air Act of 1963, our General Assembly created the Virginia Air Pollution Control Board in 1966 to formulate regulations directed at achieving and maintaining air quality standards. 1966 Acts, c. 497, Code §§ 10-17.11, 10-17.16, and 10-17.18.

In 1994, our General Assembly implemented a cap and trade system permitted by Congress. See Code § 10.1-1322.3. Code § 10.1-1322.3 is the statute that provided a mechanism for the Virginia Air Pollution Control Board to adopt a program that permits the trading of allowances:

In accordance with § 10.1-1308, the Board may promulgate regulations to provide for emissions trading programs to achieve and maintain the National Ambient Air Quality Standards established by the United States Environmental Protection Agency, under the federal Clean Air Act.

* * * * * * *

No regulations shall prohibit the direct trading of air emissions credits or allowances between private industries, provided such trades do not adversely impact air quality in Virginia.

Code § 10.1-1322.3 (emphasis added).

Generally, under the Board's regulations, a source6 located within an attainment area is permitted to participate fully in the cap and trade program. 9 VAC § 5-140-1060.7 The source may combine its original allowances with additional allowances obtained from other sources to demonstrate compliance with the applicable standards.8 Id. Thus, if the source is located in an attainment area, the source's actual nitrogen oxide emissions are not limited to the amount of allowances it is initially allocated, but may also include the allowances it acquires from another source.

In 2006 our General Assembly enacted Code § 10.1-1328 which requires the Virginia Air Pollution Control Board to promulgate regulations permitting the allocation of allowances to electric generating units for nitrogen oxide and sulfur dioxide. The statute begins by setting the general emissions allowances allocated to the state for the control period in question. Code § 10.1-1328(A)(1) through (4). Then, subsection (A)(5) requires that the regulations

provide for participation in the EPA-administered cap and trade system for [nitrogen oxide] and [sulfur dioxide] to the fullest extent permitted by federal law except that the Board may prohibit electric generating facilities located within a nonattainment area in the Commonwealth from meeting their [nitrogen oxide] and [sulfur dioxide] compliance obligations through the purchase of allowances from in-state or out-of-state facilities.

Code § 10.1-1328(A)(5) (emphasis added).

Subsequently, the Board drafted regulations attempting to implement this code section. Those regulations were open to public notice and comment. On October 10, 2007, the Board adopted Regulation 9 VAC § 5-140-1061.9 The relevant portion of the regulation reads, in pertinent part, as follows:

No owner, operator or other person shall cause or permit to be discharged into the atmosphere from any . . . unit any [nitrogen oxide] emissions in excess of the [nitrogen oxide] annual emissions cap. For each control period, the [nitrogen oxide] annual emissions cap shall be equal to the number of [nitrogen oxide] allowances (expressed in tons) allocated for the CAIR [nitrogen oxide] unit for the control period in accordance with 9 [VAC §] 5-140-1420.

9 VAC § 5-140-1061(A)(1).

Thus, to determine compliance of a facility located in a nonattainment area, the Board deducts the unit's actual nitrogen oxide emissions in tons from the nitrogen oxide annual emissions cap—that is, the number of allowances initially allocated to the unit by the permitting authority. The regulation does not specifically state...

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