Texas Companies Navigate Environmental Agencies' Differences

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The politics and rhetoric of the Environmental Protection Agency's multi-front battle with Texas make for a grand spectacle. The EPA insists that Texas' environmental-permitting systems for air quality are too lax and must change — prompting state officials, from the governor on down, to denounce heavy-handed federal interference. Federal courts are considering a dozen lawsuits brought by Texas against the EPA.

Behind the scenes, however, there are signs that industry is trying to move past the stalemate. Big plants, unable to tolerate permitting limbo at the risk of some of their operations getting shut down, have been talking urgently with federal regulators about their permitting standards — and preparing to revamp their own systems in accordance with the EPA's demands. The EPA and the Texas Commission on Environmental Quality have also held meetings, out of the spotlight, to discuss a way forward, although the TCEQ says that the differences remain stark.

Texas' air quality permit disputes with the EPA center on two main issues. The first, and longest-running, involves Texas' unusual system of permitting some plants for emissions of conventional air pollutants like benzene and nitrous oxides. Since the mid-1990s Texas has issued "flexible permits," which place an overall cap on a facility's pollution; the flex-permit holders include some of the state's biggest plants. The EPA has challenged the "flexible permits" as contrary to the federal Clean Air Act. The proper method, the agency says, would be to measure and cap emissions from multiple points within the plant, such as different smokestacks. This would protect neighborhoods on different sides of a large plant from suffering too much pollution. Environmental advocates also say that the "flexible permit" system allows companies to pollute more than they would under an EPA-sanctioned regime (charges the TCEQ rejects).

The second dispute involves greenhouse gas emissions. On Jan. 2, the EPA began regulating emissions of the heat-trapping gases for the first time. Big new plants around the country — or those planning a major expansion — must now seek permits for their greenhouse gas emissions and pledge to use the best technologies available to keep those emissions in check. Many states have objected to this federal policy, but Texas is the only state to have gone a step further and refuse to implement it.

Both disputes are being litigated. Texas' lawsuit over flexible permitting is in the federal 5th Circuit court in New Orleans, and more briefs will be filed soon (one is due from the EPA by Feb. 22, and another from Texas in early March). On greenhouse gases, the EPA announced last month that it would take over the permitting process in Texas for affected plants — just 13 under current rules, according to the TCEQ's estimates, though more plants would be affected as the rules broaden over time. Texas went to court to prevent the federal agency from taking this step in addition to more general legal challenges to the EPA's authority to regulate greenhouse gases; its attempts to halt the EPA's takeover have been rejected so far, with the latest denial-of-stay order issued by a federal court on Tuesday. On Friday, the EPA will hold a public hearing in Dallas about its greenhouse gas plans for Texas.

Dozens of large industrial plants are caught in the crossfire of the air-permitting battles. Luke Bellsnyder, executive director of the Texas Association of Manufacturers, said the permitting tug-of-war could harm companies' capital investment. For example, if a company's permit is found to be noncompliant with federal law, expansion projects could — in theory —  be halted.

Still, it is difficult to find specific examples of companies that say the standoff has foiled their operations or expansion plans. At least in part, that may be because companies are hastening to get their permit structure into accordance with federal law. Flint Hills Resources, which operates refineries and other facilities in the state, told the EPA last fall that it would get permits for four big Texas plants in line, after the agency said that the company would no longer have authorization to operate a major Corpus Christi refinery if it did not comply. Changing the permitting structure will take about a year for each facility, the company says.

The EPA says that 76 companies in total — in other words, all the flex-permit holders in Texas except for one — have contacted the agency in writing to say they plan to bring their permits into compliance with the EPA's standards. "All the companies except for one are deflexing," said Joe Hubbard, a regional spokesman for the agency. The TCEQ, Hubbard said, would administer the new permits.

"Right now, unfortunately, with the way EPA has taken over the process — you don't have much choice, let's put it that way," said state Rep. Jim Keffer, R-Eastland, who is president of a family-owned iron foundry business that has a flex permit. "It's still to me a horrible federal overreach."

The cost of complying

Another common complaint of companies, besides potential threats to operations, is the high cost of adding extra federal controls. Pinning down the associated costs, however, is a challenge. "I know for one company that is deflexing, the cost of analysis and consultants alone was in the millions of dollars," said Bellsnyder, of the Texas Association of Manufacturers. For Valero, a refinery company currently in discussions with the EPA over changes to its seven flex permits, the legal and administrative costs have "already started adding up," said Bill Day, a Valero spokesman. Additional regulatory costs are as yet unknown, he said, because talks are ongoing.

The TCEQ says that if it implemented the new greenhouse gas regulations — which it doesn't plan to — it could collect $134,840 from a single large plant. In addition to paying that fee, companies might need to install new equipment or change other processes that would be expensive. Major Texas companies already do monitor their greenhouse gas emissions, per another recent federal rule that Texas did not challenge; monitors can cost about $100,000, the EPA says. Valero is already tallying its greenhouse gas emissions, Day said, but its Texas plants are not getting hit with the current EPA rules because it is not planning major new construction that has not already been permitted. Future EPA rules, however, could well affect Valero, though it's "too early to say" how, Day said.

Meanwhile, the behind-the-scenes conversations between federal and state agency officials have continued. Correspondence, much of it less heated and more technical than the political rhetoric, has occurred between the agencies' staffs. Bryan Shaw, TCEQ's chairman, said that over much of last year, agency staff or commissioners met about weekly with the EPA to discuss flex permits. Since early November, however, the meetings have tapered off, he said, and the TCEQ has been frustrated by the EPA's my-way-or-the-highway approach. The agencies have not met about greenhouse gas permitting, according to the TCEQ.

For now, the EPA seems to have the upper hand, at least on the flex permits. True, the courts have yet to rule. But even if Texas wins its battles in court, companies may have already irrevocably changed their ways. Bellsnyder, of the Texas Association of Manufacturers, noted that it seems unlikely that companies that "de-flex" their permits will "re-flex" them anytime soon.

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