[00:00:00] Speaker 03:
Mr. Bias.

[00:00:03] Speaker 03:
Your honor, good morning.

[00:00:05] Speaker 03:
May it please the court, Joseph Bias for the petitioner, the Mojave Desert Air Quality Management District.

[00:00:11] Speaker 03:
Joining me at council's table today is Rick Rothman, a partner at our law firm, Morgan Lewis and Bacchus.

[00:00:17] Speaker 03:
I'd like to reserve four minutes for rebuttal, please.

[00:00:20] Speaker 03:
Thank you.

[00:00:21] Speaker 03:
The district here seeks review of just one part of the final rule, EPA's rejection of the use of voluntary emission reductions as offsets.

[00:00:30] Speaker 03:
For over 30 years, the district has given credit to operators who voluntarily reduce their annual actual emissions below the maximum permitted levels.

[00:00:40] Speaker 03:
When these good citizen operators seek approval for new projects, the district's rules allow them to use the surplus emission reductions to offset emission increases from the new projects.

[00:00:51] Speaker 03:
Now, an example here will help to illustrate how this works.

[00:00:54] Speaker 03:
Say we have a plant and the plant has a boiler.

[00:00:58] Speaker 03:
And the boiler's permit allows it to emit up to 100 tons per year, which are fully offset with reductions, real reductions of actual emissions.

[00:01:06] Speaker 03:
Now, this good citizen operator, however, is able to restrict the use of the boiler to ensure that it never emits more than 70 tons per year.

[00:01:16] Speaker 03:
Now, later the plant grows and it requires a new generator.

[00:01:19] Speaker 03:
So the district and the operator agreed to revise the permit for the boiler to reduce the allowable emissions by 10 tons per year.

[00:01:27] Speaker 03:
So it brings it down from 100 to 90.

[00:01:29] Speaker 03:
Now the district's rules allow the operator to use

[00:01:32] Speaker 03:
some of the surplus resulting emission reductions to offset emission increases from the new generator.

[00:01:40] Speaker 03:
Now, EPA approved of these offsets in 1996.

[00:01:42] Speaker 03:
25 years later, it rejects them without explanation.

[00:01:48] Speaker 03:
This court should vacate that rejection, first, because it is contrary.

[00:01:51] Speaker 04:
I just want to ask you, in the hypothetical you just gave, what is the amount of the offset?

[00:01:55] Speaker 04:
What are you subtracting?

[00:01:56] Speaker 04:
What quantity of offset are you talking about?

[00:02:00] Speaker 03:
Yes, sir.

[00:02:01] Speaker 03:
So the the offset would be the 10 ton emission reduction.

[00:02:05] Speaker 03:
Now that would have to be from up from 190 right from 100 to 90.

[00:02:09] Speaker 03:
Of course.

[00:02:09] Speaker 03:
Yes.

[00:02:09] Speaker 03:
And so in that case, that's the 10 tons of reduction.

[00:02:13] Speaker 03:
There would, of course, be a subject to an additional reduction to and your point is that should be credited.

[00:02:18] Speaker 03:
That should be credit.

[00:02:19] Speaker 03:
Yes, your honor.

[00:02:20] Speaker 03:
That is the point here.

[00:02:22] Speaker 03:
And it's required by the Clean Air Act, which mandates that these emission reductions shall be creditable as offsets.

[00:02:30] Speaker 03:
Moreover, at a minimum, this court should vacate EPA's rejection, because it is arbitrary and capricious.

[00:02:37] Speaker 02:
So you're about to get to that.

[00:02:39] Speaker 02:
So you said 25 years later, obviously, EPA seems like EPA's argument is, no, no, we made that change in, I think it's 2002.

[00:02:47] Speaker 02:
So why is that not correct?

[00:02:51] Speaker 02:
So they're saying, no, no, we made that change way back then.

[00:02:54] Speaker 02:
You didn't catch us too late.

[00:02:56] Speaker 03:
Yes, Your Honor.

[00:02:57] Speaker 03:
So the change that they're referring to was the addition of paragraph A32J to the implementing regulation.

[00:03:05] Speaker 03:
Now that paragraph addresses the calculation of emission increases from a modification.

[00:03:10] Speaker 03:
It does not address the question here, which is what emission reductions can be used to offset that emission increase.

[00:03:17] Speaker 03:
And the 2002 rule itself expressly states that it wasn't changing

[00:03:21] Speaker 03:
that issue.

[00:03:23] Speaker 03:
It wasn't addressing what could be used as an offset.

[00:03:27] Speaker 03:
So there's no basis there to say that any change through the 2002 rule would explain the reversal here.

[00:03:34] Speaker 02:
So your position, one way you could characterize your position is that their rejection of your, in this case, that's an issue in this case, is when they are actually sort of reinterpreting that provision in a way that is new.

[00:03:51] Speaker 03:
Well, what's interesting on it, actually, if you look at the final rule, they never did actually interpret it that way.

[00:03:55] Speaker 03:
They repeatedly stated that what it did is exactly what it says that it did, which was to actually codify how you calculate emission increases, which in this case is to use actual emissions as the baseline.

[00:04:08] Speaker 03:
They never actually said that this is what you use to determine what is a credible emission reduction.

[00:04:16] Speaker 03:
So as it stands today, in fact, actually, when you look at the briefs, they still don't say that.

[00:04:20] Speaker 03:
The EPA recognizes that this is, on its face and expressly what it states, is simply a calculation of the emission increase.

[00:04:29] Speaker 03:
I think it might help here to just back up for a quick second and look at the final rule.

[00:04:34] Speaker 03:
So what we're dealing with here is several deficiencies, as I'm sure your honors have noticed.

[00:04:38] Speaker 03:
but specifically there were three rejected uses of the emission reductions that are at issue here, which is District Rule 1304C2D.

[00:04:48] Speaker 03:
The first rejected use is in the calculation of whether or not the permit program applies.

[00:04:54] Speaker 03:
There's a specific netting calculation.

[00:04:56] Speaker 03:
The second rejected use was in this calculation of emission increases under paragraph A32J, and the third rejected use was as an offset.

[00:05:07] Speaker 03:
Now the first rejected use had to do with a specific paragraph of the regulation.

[00:05:11] Speaker 03:
It's not an issue here.

[00:05:14] Speaker 03:
In fact, the district is not even allowed to do netting.

[00:05:17] Speaker 03:
So it really doesn't apply because of California law is stricter in that regard.

[00:05:21] Speaker 03:
The second one is the netting calculation we've talked about.

[00:05:24] Speaker 03:
Now, the district said in its comments, it is not challenging either of those two rejections because it never intended for the C2D emission reductions to be used for that purpose.

[00:05:33] Speaker 03:
In fact, it asked EPA to help it revise the rules to clarify that that wasn't the intent.

[00:05:39] Speaker 03:
And while that didn't happen before the final rule, it did happen here.

[00:05:43] Speaker 03:
The rules have been revised to conform with what EPA wanted.

[00:05:47] Speaker 03:
And those revised rules are currently before EPA for approval.

[00:05:50] Speaker 03:
So what that leaves now is the third rejected use, which is as an offset.

[00:05:54] Speaker 03:
And the only basis for that that's provided in the final rule is the conclusory assertion that these offsets may be based on paper reductions.

[00:06:04] Speaker 03:
Now, EPA doesn't provide a further explanation of what it means or the basis for this determination.

[00:06:10] Speaker 03:
And that's particularly troubling here because in 1996, when it approved the offset rule,

[00:06:14] Speaker 03:
It did so on the express determination that the district's rules ensured that these were based on real reductions of actual emissions.

[00:06:23] Speaker 03:
And those rules continue to exist today.

[00:06:25] Speaker 03:
A prime example would be District Rule 1304C1.

[00:06:29] Speaker 03:
That rule mandates that the C2D emission reductions at issue here must be real reductions of actual emissions and meet all the other requirements of Section 7503C of the Clean Air Act.

[00:06:42] Speaker 03:
And when they do,

[00:06:44] Speaker 03:
emission reductions that meet those standards under subsection C2 shall be credible as offsets.

[00:06:51] Speaker 03:
And so here what we have, you know, Congress.

[00:06:53] Speaker 04:
In your hypothetical where you're taking it from 100 to 90, is that a actual decrease or is that just a decrease of the allowables?

[00:07:01] Speaker 03:
No, Your Honor, so that's an actual decrease.

[00:07:03] Speaker 03:
And the way to look at is the allowable, the elimination of the allowable emission, that the emission reduction from, actually let me back up and start from the beginning.

[00:07:14] Speaker 03:
So the emission reduction that was instituted at the original

[00:07:18] Speaker 03:
permit proceeding to offset the 100 tons.

[00:07:21] Speaker 03:
Now, when we eliminate the fully offset allowable emission, when we reduce by 10, now the emission reduction that was offsetting those 10, well, it's no longer required to offset the allowable emission because the allowable emission is now eliminated.

[00:07:37] Speaker 04:
It depends on it being fully offset previously by actuals.

[00:07:41] Speaker 04:
Is that your position?

[00:07:42] Speaker 03:
Well, yes, sir.

[00:07:43] Speaker 03:
So by district rule, they have by district rule.

[00:07:44] Speaker 03:
And there is I'm aware there's no debate here between the parties that that original 100 tons would have been fully offset with real reductions of actual emissions.

[00:07:52] Speaker 03:
The rules require it.

[00:07:53] Speaker 03:
EPA recognized that in 1996.

[00:07:55] Speaker 03:
In fact, it was the basis for the approval in 1996.

[00:07:59] Speaker 03:
We're talking about the same rules here.

[00:08:01] Speaker 02:
To go back to Judge Bresla's question, he said, is that actual?

[00:08:07] Speaker 02:
You said it was actual, but it's deemed to be actual by the rules.

[00:08:12] Speaker 02:
If you're going from 100 to 90, but you were only emitting 70,

[00:08:18] Speaker 02:
And it sounds like you now want to increase, under your example, you want to increase it, but you know that you'll only be increasing it up to 90.

[00:08:24] Speaker 02:
Isn't the EPA's position?

[00:08:26] Speaker 02:
No, that's a paper offset.

[00:08:30] Speaker 03:
You're absolutely right.

[00:08:30] Speaker 03:
I apologize.

[00:08:31] Speaker 03:
I was midway through the answer, and I stopped to answer a second question.

[00:08:35] Speaker 03:
So the reason that they are real reductions of actual emissions is we start with these are real reductions.

[00:08:40] Speaker 03:
we eliminate the allowable emission that they were offsetting, those real reductions are permanent.

[00:08:45] Speaker 03:
So they continue to exist.

[00:08:46] Speaker 03:
Even after we've now eliminated the allowable emission, they're real, permanent, and enforceable.

[00:08:55] Speaker 03:
And so those emission reductions, they continue to exist.

[00:08:59] Speaker 03:
And when we eliminate the allowable emission, now that emission reduction is no longer offsetting an allowable emission.

[00:09:06] Speaker 03:
So the next question is, is it offsetting an actual emission?

[00:09:10] Speaker 03:
Well, because of our good citizen operator who's restricted the use to ensure it never goes over 70 tons per year, the answer is no, because there was no actual emission that went up into that, you know, town to 90 range.

[00:09:23] Speaker 03:
And so in that case, under subsection C2 of 42 USC 7503,

[00:09:31] Speaker 03:
that emission reduction is not otherwise required by the act.

[00:09:36] Speaker 03:
And in that scenario, Congress was very clear here and it mandated that it shall be credible as an offset.

[00:09:42] Speaker 03:
So the emission reduction remains as real as it was on the day it was put in place.

[00:09:46] Speaker 03:
The only difference is it's no longer required to offset an allowable or an actual emission.

[00:09:50] Speaker 02:
Sorry, go ahead.

[00:09:51] Speaker 02:
So if I'm understanding correctly, the way the rule has operated in the past, at least your position is, the way the rule has operated in the past, you have permission, you have an allowable permission to do 100, say.

[00:10:04] Speaker 02:
But you're saying a good citizen is only doing 70.

[00:10:08] Speaker 02:
And part of that is just because whatever you get permission for, you always expect it will be somewhat less than that.

[00:10:14] Speaker 02:
But now you're operating it, and you're always staying under 70.

[00:10:18] Speaker 02:
So there is a benefit of 30 less than emissions.

[00:10:25] Speaker 02:
And it seems to me, if we accept

[00:10:28] Speaker 02:
your position that this is a change from what the EPA has done previously, how the EPA has interpreted previously.

[00:10:35] Speaker 02:
What they're doing is they're basically saying you don't get any credit for that.

[00:10:39] Speaker 02:
You can't use that 30 somewhere else.

[00:10:42] Speaker 02:
Based on what your good citizen's operator's decision to emit less, they just lose it.

[00:10:53] Speaker 02:
They just lose it.

[00:10:54] Speaker 02:
And if they do that, then obviously their incentives are now very different.

[00:10:58] Speaker 02:
having incentive to do less and be able to use that somewhere else, they will presumably emit up to their, it creates a use it or lose it situation.

[00:11:08] Speaker 02:
Am I understanding that correctly?

[00:11:09] Speaker 03:
Stole the line directly from my mouth.

[00:11:12] Speaker 02:
I was about to say use it or lose it.

[00:11:15] Speaker 02:
But the key thing is, if there is this change, when did it happen?

[00:11:20] Speaker 02:
And it seems to me that the EPA's position is,

[00:11:24] Speaker 02:
And I understand your statement earlier that, well, they haven't even really been super clear about it.

[00:11:32] Speaker 02:
But if the EPA would say, yes, we made a change, because I think they can't say, this was the way we treated it in 1996.

[00:11:40] Speaker 02:
So then the question becomes, when did they make this change?

[00:11:44] Speaker 02:
And I think the EPA's position would be, we made that change in 2002.

[00:11:46] Speaker 02:
And I think your position is,

[00:11:50] Speaker 02:
No, you're making that change now.

[00:11:52] Speaker 03:
That is precisely the position with the only caveat, I would say, is the 2002 rule that they're relying on expressly stated repeatedly, we are only addressing NSR.

[00:12:03] Speaker 02:
That's what I was going to ask.

[00:12:04] Speaker 02:
What is your best argument or arguments that this change did not happen in 2002?

[00:12:12] Speaker 03:
The two arguments here that I'll present best and then brightest.

[00:12:16] Speaker 03:
Number one, the actual express language of A32J which is the provision that we're talking about that was added in 2002 expressly states it only applies to the calculation of net emission increases and there's been no dispute about that here.

[00:12:32] Speaker 03:
The second is that the 2002 rule when it promulgated that rule was actually just a sidebar to what it was doing which was addressing NSR applicability.

[00:12:40] Speaker 03:
But regardless, repeatedly throughout the rule, it said we are not addressing offsets.

[00:12:45] Speaker 03:
We're just not doing that here.

[00:12:46] Speaker 03:
So there is no way to interpret either, if you've approached it from a KESOR perspective, the text, the structure, the history, the purpose, all point to exactly what it is.

[00:12:57] Speaker 03:
And that's not even disputed here.

[00:13:00] Speaker 03:
That rule is limited only to the calculation of emission increases.

[00:13:04] Speaker 03:
And we're still left with the reality that the determination of what emission reductions

[00:13:10] Speaker 03:
may be used as offsets is directly governed by the statute.

[00:13:15] Speaker 03:
Congress has spoken directly here.

[00:13:17] Speaker 03:
It didn't give EPA discretion to make decisions.

[00:13:22] Speaker 03:
If an emission reduction meets the requirements of Section 7503C, which is to say it is a real reduction of an actual emission, ineffective and enforceable, not otherwise required by the Act,

[00:13:34] Speaker 03:
then under subsection C2 it shall be credible as an offset.

[00:13:39] Speaker 03:
Now Congress's use of the verb shall there is mandatory and it leaves EPA with no discretion to disapprove

[00:13:45] Speaker 03:
of a qualifying emission reduction as an offset, which in order to interpret the 2002 rule contrary to its own language, contrary to this life's right, you would have to have it somehow trumping the statute, which it cannot do here.

[00:14:00] Speaker 03:
Because as I explained earlier in our example, it's not an issue of how EPA views it.

[00:14:05] Speaker 03:
The reality is this is an emission reduction that ceases to be required by the act when you eliminate the surplus fully offset allowable emission.

[00:14:13] Speaker 03:
In that case, C2 is clear.

[00:14:16] Speaker 03:
So with that, I will turn to the second argument, which is the arbitrary and capricious nature.

[00:14:23] Speaker 03:
And I think we've largely covered it.

[00:14:25] Speaker 03:
So I'll just quickly state that there's no dispute here that in 1996, when EPA approved of the offset rule, it did so based on the express determination that the district's rules ensure that they were based on real reductions in actual emissions.

[00:14:42] Speaker 03:
Nor is there any dispute that EPA takes the opposite position here.

[00:14:46] Speaker 03:
EPA cannot reverse itself without providing good reasons and assessing both the existence and the strength of the reliance interest.

[00:14:52] Speaker 03:
And EPA had failed to do either of these things.

[00:14:54] Speaker 03:
The only reason it provides is the conclusory assertion that these are based on paper reductions.

[00:14:59] Speaker 03:
If you look at the final rule, there's a lot of talk about other things and other uses, but that's all we have here.

[00:15:05] Speaker 03:
on the issue of offsets, is that conclusory assertion?

[00:15:08] Speaker 03:
And given that there's no further explanation of the meaning or the basis for that determination, that's not good reasons.

[00:15:15] Speaker 03:
Finally, EPA admits that it failed to consider the significant.

[00:15:19] Speaker 02:
Can I get you to do something helpful with this?

[00:15:21] Speaker 02:
When the EPA gets up and gives us their argument as to why they're right on, you have two parts, you have the arbitrary comprehension, okay.

[00:15:27] Speaker 02:
So when they get up and they give us their argument on, because this is complicated, it's hard to wrap our head around this.

[00:15:32] Speaker 02:
When they give us their argument on the first part,

[00:15:35] Speaker 02:
that I need you to get back up and tell me what parts of that argument were not included in their rule to you.

[00:15:40] Speaker 02:
Because it's obviously, they can't make arguments before us that they did not make, that they did not provide as a rationale when they rejected your rule.

[00:15:48] Speaker 02:
This goes to your arbitrary comparison.

[00:15:50] Speaker 02:
Correct.

[00:15:50] Speaker 02:
But it's very difficult to track for somebody like me which part.

[00:15:54] Speaker 02:
So I need you to get back up and say, this, this, this.

[00:15:57] Speaker 02:
So I'm going to hold the EPA's feet to the fire.

[00:15:58] Speaker 02:
These are these rationales that they're giving as to why they're

[00:16:01] Speaker 02:
rule is allowed by the statutory structure are not responses they gave to us.

[00:16:09] Speaker 02:
And so then they're not allowed to make them to us.

[00:16:11] Speaker 02:
I need to know where those lines are, and I need you to tell me where those are.

[00:16:15] Speaker 02:
So you've got four minutes you want to reserve for us.

[00:16:18] Speaker 04:
We'll give you some more time, but on a related note, though, I mean, they can't say things now they didn't say before, but you can't raise things now that you didn't raise before either in front of the agency.

[00:16:27] Speaker 04:
And that is another issue they've raised, is did you actually put them sort of on notice of all of these?

[00:16:33] Speaker 04:
One does have the distinct impression reading the briefing that there's a whole lot more ink being spilled on these issues than was spilled before the agency and there has to be a reason for that.

[00:16:41] Speaker 03:
Yes your honor so when we look at the comments we first need to start when we assess them with the notice of proposed rulemaking and what did EPA say it was going to do and it proposed to reject the offset rule again as I said based purely on the conclusory assertion with no further explanation.

[00:16:56] Speaker 03:
So the district started with

[00:16:59] Speaker 03:
far less information than it would need to move forward, frankly.

[00:17:03] Speaker 03:
But nevertheless, its comments clearly articulated the challenges that it's asserting here.

[00:17:07] Speaker 03:
Number one, the district reminded EPA that it had approved of the offset rule in 1996 based on the express determination that it complied with the Clean Air Act.

[00:17:21] Speaker 03:
The district then asserted that the Clean Air Act had not changed since 1996, and therefore,

[00:17:26] Speaker 03:
If it complied then, it should comply now.

[00:17:29] Speaker 03:
And therefore, it should be approved.

[00:17:31] Speaker 03:
Third, the district reminded EPA that its concerns about paper reductions were unfounded, particularly given that the district's rules expressly prohibit paper reductions, rules like 1304C.

[00:17:46] Speaker 03:
And finally, the district's comments challenged EPA's failure to explain its reversal of the approval.

[00:17:52] Speaker 03:
Now, these are the bases of the challenges that are asserted here today.

[00:17:55] Speaker 03:
and they satisfy the obligation to provide EPA with notice of the challenge, which is all is required as recently clarified in the recent Ohio versus EPA case.

[00:18:06] Speaker 03:
And so in that sense, these challenges are properly before the court.

[00:18:11] Speaker 03:
The obligation does not extend further to drive into detail on the legal arguments.

[00:18:16] Speaker 04:
Okay, why don't we hear from your opposing counsel and we'll put five minutes on the clock for rebuttal.

[00:18:20] Speaker 04:
Thank you.

[00:18:21] Speaker 04:
Thank you.

[00:18:35] Speaker 00:
May it please the court.

[00:18:36] Speaker 00:
I'm Andrew Doyle with the Department of Justice's Environment and Natural Resources Division for the EPA respondents.

[00:18:43] Speaker 00:
With me today at council table are Monica Gibson and Jacob Finkel with the EPA.

[00:18:49] Speaker 00:
The EPA's limited disapproval of the district's Rule 1304C2D

[00:18:56] Speaker 00:
and the corresponding rules that cross-reference it is valid because it does not meet federal Clean Air Act minimum requirements.

[00:19:07] Speaker 00:
The essence of what EPA did here in this case was to apply the plain, clear terms of a federal regulation, I'm going to call it subsection J for short, to the district's rule.

[00:19:21] Speaker 00:
Subsection J provides that in areas that do not meet national health-based air quality standards, a state implementation plan shall calculate offsetting emission reductions in a particular way.

[00:19:39] Speaker 00:
Now, the district follows subsection J, that actual emissions-based calculation method, for some qualifying sources, but it departs substantially

[00:19:51] Speaker 00:
from that required method as to other qualifying sources.

[00:19:56] Speaker 00:
Specifically, certain major modifications to existing major stationary sources that, under a prior permit, were required to obtain offsetting emission reductions.

[00:20:10] Speaker 00:
The upshot of the district's Rule 1304C2D is that there will be fewer offsetting emission reductions when, as is typically the case, as your honors recognized, there's a difference between what the source could emit under its pre-existing permit

[00:20:30] Speaker 00:
versus what the source actually admits before the proposed major modification at issue in the second permit decision.

[00:20:38] Speaker 04:
Do you agree that the district was allowed to do this for some time and then the EPA decided

[00:20:46] Speaker 00:
That that should no longer be allowed they're allowed to do it today And that's because this is a limited disapproval action which allows a substantial time for the district to correct its rules Okay, let's let's put that aside.

[00:20:59] Speaker 04:
It sounds like there's a grace period where they could come into compliance But prior to this there was a determination by the EPA that the district could do what it wants to do and now we're being told that

[00:21:10] Speaker 04:
It cannot.

[00:21:11] Speaker 04:
Is that fair?

[00:21:11] Speaker 00:
That's fair.

[00:21:12] Speaker 00:
In fact, Judge Van Dyke noted that in 1996, there was no subsection J. It was approved.

[00:21:20] Speaker 00:
Subsection J came along in 2002, and now there is an explicit codified regulation that sets forth .

[00:21:28] Speaker 02:
.

[00:21:28] Speaker 02:
.

[00:21:28] Speaker 02:
Can I ask about this?

[00:21:29] Speaker 02:
It seems like in some .

[00:21:30] Speaker 02:
.

[00:21:30] Speaker 02:
.

[00:21:30] Speaker 02:
This is a super complicated issue for me, at least, with all the variabilities.

[00:21:37] Speaker 02:
I'm trying to narrow it down to what

[00:21:39] Speaker 02:
the part of your dispute between these parties that I think this case might turn on.

[00:21:46] Speaker 02:
So I think your argument is that Jay, which was enacted in, which was promulgated in 2002, changed, was the change.

[00:21:54] Speaker 02:
So do I understand correctly that, I just want to make sure I understand, your argument is that in 2002, before that, they were allowed to do what they want to do, but after 2002, they were not.

[00:22:05] Speaker 02:
So the change was not

[00:22:07] Speaker 02:
more recently when you rejected it, but that the change actually happened in 2002.

[00:22:12] Speaker 02:
Am I understanding that correctly?

[00:22:13] Speaker 00:
That's fair, Your Honor.

[00:22:15] Speaker 00:
In 2002, the basic rules for the NNSR program, the Non-Attainment New Source Review program, there was a big change in the Federal Register.

[00:22:27] Speaker 02:
Okay.

[00:22:27] Speaker 02:
Obviously, you've read the briefing.

[00:22:30] Speaker 02:
The district says, no, no, Jay did not change things in 2002, which you're reinterpreting Jay to be a

[00:22:36] Speaker 02:
to be a change that it did not actually enact in 2002.

[00:22:41] Speaker 02:
And what is your response to that?

[00:22:44] Speaker 02:
And they point to, I think, a technical document that went along with it and saying that we are not changing anything about offsets.

[00:22:51] Speaker 02:
So what is your response to that?

[00:22:53] Speaker 00:
Our response to that is J was a codification into the regulations that made the methodology that's required clear.

[00:23:04] Speaker 02:
That doesn't help me that much.

[00:23:05] Speaker 02:
I mean, in layman's terms, what is your response to the fact that I assume you, do you think that J made the change in 2002 or did it make the, or is it, or are you interpreting J in a way that

[00:23:22] Speaker 02:
uh, makes a change now.

[00:23:24] Speaker 00:
Ever since Jay came along, EPA said the same interpretation of Jay and has applied it consistently, which a point we've made in our brief.

[00:23:31] Speaker 00:
But before Jay,

[00:23:33] Speaker 00:
you have the acts requirement and there's that's at seventy five oh three c two forty two u s c seventy five oh three c two and that is uh... has language about what is required in terms of offsets the e p a had a position about what that statute mint

[00:23:53] Speaker 00:
And generally, it was an actual emissions-based calculation, as it is now clearly under J. But still, there was not a regulation tying the agency's hand in each and every review of state implementation plans.

[00:24:10] Speaker 02:
So now I'm a little more confused, because I thought you had conceded, in response to Judge Breslin, my question, that there was a change, that there was a time when they were allowed to do what you're not allowing them to do now.

[00:24:22] Speaker 02:
And all I'm trying to figure out is when that and now it sounds like you're saying no we always even before Jay the statute required that but are you saying that the statute required that but we.

[00:24:32] Speaker 02:
we were enforcing the statute properly, and that's what Jay did.

[00:24:34] Speaker 02:
Is it made us enforce the statute properly?

[00:24:37] Speaker 00:
No, and I'm sorry if I'm being unclear about this.

[00:24:42] Speaker 00:
My point is that Jay was, and for the first time there's a regulation explicitly sets out the formula.

[00:24:50] Speaker 00:
Before Jay, it was the agency generally viewing the statute to require an actual emissions-based calculation, but importantly, there is the provision that existed before

[00:25:02] Speaker 00:
J came along, and this is 51165A3I.

[00:25:09] Speaker 00:
You can find it in our addendum at page 32, and that provision states that

[00:25:15] Speaker 00:
If the state is using, whatever the state is using as its currency for reasonable further progress air quality planning, you've got to follow the same currency for your offset purposes.

[00:25:29] Speaker 02:
It's all very complicated.

[00:25:30] Speaker 02:
Let me see if we can come at this at a different angle, because what I'm trying to figure out is, trying to figure out

[00:25:35] Speaker 02:
when, if there was a change made, that the change was made, and then obviously the next part of it is, did you explain, if there was a change made at some point, did you explain the change?

[00:25:44] Speaker 02:
Because, you know, under the law, you have to explain if you're making a significant change.

[00:25:49] Speaker 02:
And their argument, as I understand it, is you didn't make a change until now.

[00:25:55] Speaker 02:
And when you, even though you passed Jay in 2002, you didn't make a change until now.

[00:26:00] Speaker 02:
And then when we asked you, why are you making this change, then you said, Jay,

[00:26:05] Speaker 02:
and their responses, but Jay didn't, but yeah, you passed Jay in 2002, but you didn't, but it didn't mean what apparently you think it means now, then.

[00:26:13] Speaker 02:
And what I'm trying to figure out, I'm trying to get your answer to that.

[00:26:20] Speaker 02:
So to come at it at a slightly different angle, you would agree that your, what do you think is your answer to their request as to why are you making this change now in the agency process?

[00:26:29] Speaker 02:
Jay was part of it, right?

[00:26:30] Speaker 02:
You cited the Jay.

[00:26:31] Speaker 00:
We're following the clear terms of the regulation, and so their rule compared to that regulation falls short.

[00:26:38] Speaker 02:
And the regulation is J?

[00:26:39] Speaker 02:
Correct.

[00:26:40] Speaker 02:
Okay, so you're saying J is the reason.

[00:26:46] Speaker 02:
And that's pretty much all you provided in your response was you pointed to J. And so what I'm trying to try to- If I should just interrupt you for one second.

[00:26:53] Speaker 00:
Yeah, yeah, yeah.

[00:26:54] Speaker 00:
There's the secondary point that you will not find another district in this country that follows anything other than a J formula.

[00:27:02] Speaker 00:
EPA has consistently applied J in the few aberrations over time that have come up.

[00:27:07] Speaker 02:
The struggle I'm having with that, I remember you saying that in your brief, and the struggle I'm having with that is Mojave is saying,

[00:27:15] Speaker 02:
When you say applies J, is it the, if Mojave's right that there's a different way you're interpreting J, now versus before, then which J are the other districts applying?

[00:27:28] Speaker 02:
This is part of the struggle that I was kind of alluding to with your counsel on the other side, is there's all this discussion, there's all this discussion before us and in the briefs, but all I see is just pointing to J as a very terse, short,

[00:27:44] Speaker 02:
answer in response.

[00:27:45] Speaker 02:
And I'm trying to figure out if that's a sufficient answer under the APA.

[00:27:49] Speaker 02:
That's what I'm trying to figure out.

[00:27:50] Speaker 00:
Well, it is a sufficient answer because agencies are allowed to change the outcome of a review of a state implementation plan based on change of circumstances.

[00:28:00] Speaker 00:
And J is that change of circumstances.

[00:28:02] Speaker 00:
It's now a codified methodology.

[00:28:05] Speaker 00:
EPA has not changed its interpretation of J. What has changed here is the outcome for the district.

[00:28:12] Speaker 00:
The district in 1996 had

[00:28:14] Speaker 00:
a very similar rule that was approved.

[00:28:16] Speaker 00:
And now, fast forward in time, when they had to resubmit a set of rules, EPA has denied that, or has disapproved that rule.

[00:28:25] Speaker 00:
EP has always maintained its same view about J. Before J came along, as this is what I was talking about earlier, there was a regulation at A3I that said, whatever currency

[00:28:42] Speaker 00:
you're relying on you the state for your air quality plan and you have to use the same currency for your uh... for your offset so there may have been more leeway prior to Jay came along so that if the state is relying on allowables to show that it's making progress towards making the standards it can then rely on allowables to some extent for their offset emissions.

[00:29:04] Speaker 04:
Okay so now this is starting to get to a key issue which is

[00:29:07] Speaker 04:
What does J actually mean?

[00:29:09] Speaker 04:
Because your friends on the other side say, well, you know, J is about calculating the amount of emission increases and not about calculating the creditable emission reductions.

[00:29:20] Speaker 04:
And I hear you basically saying, no, those are sort of the same.

[00:29:23] Speaker 04:
You have to follow the same methodology for that.

[00:29:25] Speaker 04:
So how do you work through this particular dispute between the parties?

[00:29:29] Speaker 00:
You're right, Your Honor, in the sense that the currency has to match on both sides of the equation.

[00:29:33] Speaker 04:
Okay, so just where are you getting that from?

[00:29:36] Speaker 04:
Are you getting that from J or are you getting that from some other aspect of the regulations or the scheme?

[00:29:41] Speaker 00:
We're getting it from, well, J provides the calculation for the offsetting emission reductions.

[00:29:46] Speaker 00:
The A3I provision that I was talking about with Judge Van Dyke talks about you must do the crediting

[00:29:53] Speaker 00:
under the same currency that you do your air quality planning.

[00:29:57] Speaker 00:
So again, the district is clear at SCR 50 and also the statute requires the actual emissions based inventory at 42 USC 7502 C3.

[00:30:13] Speaker 00:
So the crediting has to be on actuals as well.

[00:30:18] Speaker 00:
So both sides of the ledger are matching here.

[00:30:20] Speaker 04:
So when the other side says,

[00:30:22] Speaker 04:
The problem with J is that it doesn't deal with creditable offsets.

[00:30:26] Speaker 04:
Your answer is, yeah, we understand that, except that J is setting a baseline for emission reductions.

[00:30:31] Speaker 04:
And then other parts of the scheme tell us that when you're talking about creditable offsets, you have to be using the same currency.

[00:30:37] Speaker 00:
That's true as to what federal law requires.

[00:30:40] Speaker 00:
However, it's important to know that in this litigation, it's the first time the district has pitched this as really a issue about credits, not an offset calculation method.

[00:30:52] Speaker 00:
In 2ER 25, 108, 112, 276, the district is constantly describing its rule 1304C2D as a calculation method.

[00:31:09] Speaker 00:
It's talking about reducing the amount of offsets required to certain triggering major modifications.

[00:31:17] Speaker 00:
It's talking about a reduction of the offset burden.

[00:31:20] Speaker 00:
That's a direct quote from 276.

[00:31:22] Speaker 00:
So this is the first time they're trying to pitch it as a credit, and we think that's because they're trying to avoid the clear terms of J, which really leaves them no room here.

[00:31:32] Speaker 04:
No, but you have hit on a dynamic that seems to be at play here, which is I cannot tell from the briefing whether both sides are talking past each other in terms of what the district's rule is actually doing.

[00:31:45] Speaker 00:
Well, we don't think we are talking past each other.

[00:31:47] Speaker 00:
First of all, we have the issue, of course, of forfeiture, which Your Honor has raised.

[00:31:50] Speaker 00:
They're not saying enough in their comments to make sure we are on the same page.

[00:31:54] Speaker 00:
But putting that aside for the moment, again, the district is pitching this rule to EPA as an alternative calculation method for a specific subset of sources, and in their world it matters that the source in the original permit action

[00:32:11] Speaker 00:
fulfilled its offset obligations.

[00:32:13] Speaker 00:
They believe that matters.

[00:32:15] Speaker 00:
We say, no, J is for each and every proposed modification that comes along, you must capture those increased actual emissions and make sure there's a corresponding offset so the air doesn't get any worse at a minimum.

[00:32:30] Speaker 00:
After all, the goal is to get these areas for health-based reasons into attainment.

[00:32:35] Speaker 00:
And you won't be able to do that if we're not assessing what's actually being improved in the air if more sources are coming along.

[00:32:43] Speaker 00:
At the same time, of course, the act

[00:32:46] Speaker 00:
recognizes there must be growth, so you must, you don't want the offset to be any more than necessary.

[00:32:53] Speaker 00:
And that actually gives the sources in the original permit action, in the hypothetical that came up today, that 100 tons per year cap, it gives the sources the encouragement to set that cap

[00:33:06] Speaker 00:
very realistically so that they don't have to purchase more offsets than are required.

[00:33:14] Speaker 00:
They may not need a 30 ton per year leeway.

[00:33:17] Speaker 00:
You want to have some leeway.

[00:33:18] Speaker 00:
As Judge Van Dyke noted, you don't want to go right up to your cap for many reasons.

[00:33:21] Speaker 00:
You don't want to risk violating the permit.

[00:33:24] Speaker 00:
But at the same time, you want to make sure that all of the actual emissions increases that are being put into the air by the project are going to be captured.

[00:33:35] Speaker 00:
And so there's the issue of what does the subsection J require as a matter of law and we believe that EPA followed federal law correctly here and that the district rule does not.

[00:33:46] Speaker 00:
There's the issue of what kind of

[00:33:49] Speaker 00:
obligation is due in terms of an explanation when, given that in 1996, the EPA approved a similar rule here.

[00:33:58] Speaker 00:
And the law is clear as that when the circumstances change, which EPA concisely but reasonably explained that J is a change, it's a change in terms of, yes.

[00:34:11] Speaker 02:
That's about what I was going to ask.

[00:34:13] Speaker 02:
What is your position on whether J was a change from the methodology that the EPA was using before that?

[00:34:21] Speaker 00:
It was not a change for many air districts in way they calculated it.

[00:34:27] Speaker 00:
Many air districts followed EPA's general actual emissions-based reading of the statute.

[00:34:33] Speaker 00:
But it's one thing to have a practice, it's another thing to have a requirement in federal law and a regulation, a duly promulgated notice and comment regulation.

[00:34:41] Speaker 00:
Agencies must follow the terms of their own regulations.

[00:34:46] Speaker 02:
So maybe I should more specifically ask, do you think it was a change with regard to how the EPA would treat

[00:34:51] Speaker 02:
Mojave circumstances they're talking about.

[00:34:54] Speaker 00:
Definitely on that, Your Honor.

[00:34:56] Speaker 02:
So do you think J was a change with regard to that?

[00:35:00] Speaker 02:
Did you say when you promulgated J whether it was a change or not?

[00:35:04] Speaker 00:
We said it was new, and we said it was important to follow a different methodology for when you determine whether the source is triggered in the first place.

[00:35:16] Speaker 00:
for non-attainment new source review versus how many offsets are required.

[00:35:20] Speaker 02:
So do you think, I mean, obviously Mojave is saying now that this was, you understand Mojave's argument is this was presented as not being a change, as merely codifying the EPH pre-existing practice.

[00:35:33] Speaker 02:
That's their position now.

[00:35:35] Speaker 02:
And so they're saying that, so to the extent that it does represent a change,

[00:35:38] Speaker 02:
But that change did not happen in 2002.

[00:35:40] Speaker 02:
It's happening now.

[00:35:41] Speaker 02:
And so what your position, I guess, is no, it happened in 2002 and it and it just slipped by you that it happened in 2002.

[00:35:49] Speaker 02:
And it just didn't really have it didn't really come into play for Mojave until now.

[00:35:53] Speaker 02:
Is that I'm just trying to understand.

[00:35:55] Speaker 02:
I'm trying to.

[00:35:56] Speaker 02:
I have the same feeling as Sully and Judge Preston.

[00:35:59] Speaker 02:
It does feel like the two parties are talking past each other, and I'm trying to figure out what the disagreement is, because that's what we have to decide.

[00:36:07] Speaker 02:
So is that a correct summary?

[00:36:10] Speaker 02:
I think I just heard you say that there was a change in – the J was a change, at least with regard to – maybe not generally, but at least with regard to the issue in this case.

[00:36:20] Speaker 02:
And you think Jay happened, and that change you think happened in 2002.

[00:36:27] Speaker 02:
But as I understand it, Mojave is saying, we had no notice that that had happened in 2002.

[00:36:31] Speaker 02:
In fact, my understanding is that they read your comments as saying, this is not a change.

[00:36:37] Speaker 02:
Sort of like what you just kind of told us before I pinned you down on Mojave, that it's not a change.

[00:36:42] Speaker 02:
And so I'm trying to figure out whether they have adequate notice.

[00:36:46] Speaker 00:
Well, they've had adequate notice.

[00:36:47] Speaker 00:
The EPA and the district have had meetings on this going back into 2018.

[00:36:52] Speaker 00:
They've had letters even before the rulemaking began here.

[00:36:56] Speaker 00:
beginning in 2019.

[00:36:57] Speaker 00:
Those letters are in the excerpts of record.

[00:37:00] Speaker 00:
The court can read the back and forth, leading up even to the rule where the EPA is formally offering an opportunity for notice and comment, not only to the district, but to any affected sources, any interested person.

[00:37:14] Speaker 00:
No one is commenting other than the district

[00:37:18] Speaker 00:
Back to 2002, many parties challenged the suite of regulatory reforms that year, including other air districts from California.

[00:37:27] Speaker 00:
I don't believe Mojave did.

[00:37:29] Speaker 00:
They were arguing that, hey, EPA, you're taking away some discretion from the states to rely more on allowables rather than actual emissions.

[00:37:39] Speaker 00:
And the DC Circuit, on review of that, actually said,

[00:37:42] Speaker 00:
We agree that actuals is important, so the EPA is not taking away the state's discretion.

[00:37:50] Speaker 00:
They never properly had the discretion to begin with.

[00:37:54] Speaker 00:
Our main point about J is that EPA followed a general practice before J, but it's one thing to have a general practice, and it's another thing to have a codification of how offsets are to be calculated.

[00:38:12] Speaker 00:
That has now made its way into federal law.

[00:38:15] Speaker 00:
The writing's been on the wall since 2002.

[00:38:17] Speaker 00:
The district has had ample time to continue operating under its 1996 rules.

[00:38:24] Speaker 00:
They provided ample notice that because they were resubmitting their SIP, EPA now was duty bound to follow J. And that notice in comment proceeding led us to this court.

[00:38:36] Speaker 00:
And so this is not a surprise to the district in any way, shape, or form.

[00:38:40] Speaker 04:
Can I ask you, we're talking about the change as though it was somewhat recent.

[00:38:44] Speaker 04:
But in fact, it was 22 years ago.

[00:38:46] Speaker 04:
What accounts for the time lag here?

[00:38:49] Speaker 04:
Because you might imagine that if a regulation is put out in 2002 with a certain purpose, that this might have been litigated long before now.

[00:38:58] Speaker 00:
That's true.

[00:38:59] Speaker 00:
The district had full and fair opportunity as an interested party of the 2002 regulatory reform to challenge that.

[00:39:06] Speaker 00:
It didn't.

[00:39:07] Speaker 00:
Fast forward in time, EPA had the discretion to go to the district and say, you should update your SIP in light of this 2002 change.

[00:39:18] Speaker 00:
EPA did not do that.

[00:39:20] Speaker 00:
And there's no requirement that it do that.

[00:39:23] Speaker 00:
But what EPA is required to do is assess the district's state implementation plan submittal that came along after a 2018 rulemaking that's not at issue here.

[00:39:36] Speaker 00:
And so EPA now is duty-bound to follow the clear terms of federal law in reviewing the adequacy, the legal adequacy of the district's proposed rules.

[00:39:47] Speaker 04:
Does the record reflect why, until EPA was forced to pass on a new submission, why it didn't go to the district, or did it go to the district, and say, listen, you now have this 2002 regulation.

[00:40:00] Speaker 04:
You better be aware of this.

[00:40:02] Speaker 04:
prior to 2018 or 2019, when all of this starts to now come before the agency?

[00:40:07] Speaker 00:
I'm not aware of that history before 2018 and 19.

[00:40:09] Speaker 00:
Those are those meetings, the kickoff meetings, if you were, as to this implementation rule for the, I believe it's the 2015 ozone standards.

[00:40:18] Speaker 00:
That's what led to these discussions.

[00:40:20] Speaker 00:
And EPA is flagging for the district, this offset calculation method is going to be an issue.

[00:40:26] Speaker 00:
Let's talk about that.

[00:40:27] Speaker 00:
Let's try to get that rectified.

[00:40:29] Speaker 00:
Ultimately, they couldn't, we're not able to work out that dispute.

[00:40:32] Speaker 00:
The district flagged in its comments, they're very bare bones.

[00:40:35] Speaker 00:
We do have that forfeiture issue and we'll get into the details, but the district is flagging, hey, this is an issue that just may have to be litigated.

[00:40:43] Speaker 00:
Now, all of these arguments you heard today, it's very clear.

[00:40:46] Speaker 00:
You won't find them in what the district is preventing to the EPA.

[00:40:50] Speaker 00:
That's part of our background for this forfeiture argument we have here.

[00:40:55] Speaker 00:
They knew this was coming.

[00:40:56] Speaker 00:
They knew it well before even the notice and comment period began.

[00:41:00] Speaker 00:
And so it's incumbent upon them to lay out their cards.

[00:41:03] Speaker 00:
Like, where are they coming from on why they believe federal law requires, as you heard here today, they believe federal law requires.

[00:41:12] Speaker 00:
this alternative approach that they've adopted.

[00:41:14] Speaker 00:
And we just disagree with that, but that was never pitched in the fashion that appears in their briefs.

[00:41:23] Speaker 00:
So the EPA's explanation here, we think, is fully adequate, but it also is not as soup to nuts as it might have been if EPA received something not perfectly approaching, but something approaching the level of detail that's in the district's brief and the arguments presented here today.

[00:41:43] Speaker 04:
You earlier in the discussion, you mentioned something the effect that the district has a grace period under the current rule.

[00:41:52] Speaker 04:
What are the details of that?

[00:41:53] Speaker 00:
Yes, so this is the SIP, I keep saying SIP, State Implementation Plan, a review process, a review and approval process by the EPA.

[00:42:05] Speaker 00:
There is provision K3, I call it Clean Air Act section 110.

[00:42:11] Speaker 00:
It translates to a USC code that I don't have at my fingertips, but it is in our addendum.

[00:42:17] Speaker 00:
And that is what's called the limited approval, limited disapproval process,

[00:42:23] Speaker 00:
The agency puts the district on notice in a rulemaking that we're disapproving.

[00:42:30] Speaker 00:
We're approving many of your rules, but we're doing a limited disapproval of this rule and you have substantial time to revise it to comply with federal law.

[00:42:40] Speaker 00:
But in the meantime,

[00:42:43] Speaker 00:
You can it continues to operate as federal law that you can rely on it for federal law until such time as it's required to be either replaced by a federal implementation plan.

[00:42:53] Speaker 00:
If the district declines to change its rules or

[00:43:00] Speaker 00:
Beyond that deadline, if sanctions go against the state, and we have a citation of that in our background.

[00:43:08] Speaker 04:
It sounds like they're allowed to operate under their existing scheme, subject to you, the EPA, saying you may not do that.

[00:43:16] Speaker 00:
We've already said you may not do that, and the time that the federal implementation plan will come along is late November of this year.

[00:43:24] Speaker 01:
And Councilor, is there any other district similarly situated to Mojave that this

[00:43:32] Speaker 01:
J affected in the same way that it did Mojave?

[00:43:37] Speaker 00:
Yes.

[00:43:38] Speaker 00:
The Bay Area Air Quality District tried to do an alternative to J, and it's laid out in our brief and in EPA's decision here, they said, no, no, you can't do that.

[00:43:50] Speaker 00:
J requires that you

[00:43:53] Speaker 00:
have an actual emissions-based offset program, so that was disapproved.

[00:43:58] Speaker 00:
At the time of the federal, the final decision from the EPA here, the EPA had proposed to take a similar action against another air district, and that has been, first there was a petition for review, but that's now been administratively closed at the direction of the parties in the circuit mediator.

[00:44:19] Speaker 00:
But you will not you will not find another air district in the country.

[00:44:23] Speaker 00:
We're not aware of one at least where they're following something different than J under an approved program.

[00:44:30] Speaker 00:
I'm not even aware of an older program pre subsection J that's still out there.

[00:44:36] Speaker 00:
I could be wrong about that but we looked and we couldn't find one.

[00:44:40] Speaker 00:
But if that program then comes to the EPA and tries to have an offset calculation method, the difference from EPA as it was here will be duty bound to apply the clear terms of that offset calculation method in ruling on that implementation plan submission.

[00:45:05] Speaker 04:
Let me see if my colleagues have any more questions for you.

[00:45:08] Speaker 04:
Okay, Mr. Doyle, I want to thank you for your presentation.

[00:45:11] Speaker 00:
Thank you.

[00:45:11] Speaker 00:
We request that the petition be denied.

[00:45:22] Speaker 03:
Thank you, Your Honor.

[00:45:23] Speaker 03:
Just a few short points on reply.

[00:45:25] Speaker 03:
The first, I would say, is conceptually you're correct.

[00:45:30] Speaker 03:
The parties are talking past each other.

[00:45:32] Speaker 03:
And we have made this as clear as we can.

[00:45:36] Speaker 03:
There are, so I'll back up and hopefully this will help understand what's happening here.

[00:45:40] Speaker 03:
There are three steps involved in the permit program.

[00:45:43] Speaker 03:
First is whether we need a permit.

[00:45:45] Speaker 03:
That's a separate calculation of whether or not there's enough emission increases from this modification that's going to require a permit.

[00:45:52] Speaker 03:
The second calculation is, okay, we do need a permit.

[00:45:56] Speaker 03:
How many emissions are being caused by this modification?

[00:45:59] Speaker 03:
That's the calculation of emission increases.

[00:46:01] Speaker 03:
And then the third step is, OK, what emission reductions can we use to offset those emission increases?

[00:46:07] Speaker 03:
Now, those are the three steps.

[00:46:09] Speaker 03:
And that's important to keep in mind here.

[00:46:11] Speaker 03:
The step at issue in J that is being addressed here is the second step.

[00:46:16] Speaker 03:
And I've got it right here in front of me.

[00:46:17] Speaker 03:
The total tonnage of increased emissions in tons per year resulting from a modification that must be offset in accordance, yada, yada, yada, shall be determined by summing the difference between the allowable emissions and yada, yada, yada.

[00:46:31] Speaker 03:
So the point is here, it's entirely addressed to how you calculate the emissions.

[00:46:35] Speaker 03:
And we've surrendered on that issue.

[00:46:38] Speaker 03:
We have now, while there was a problem, there was an issue in the 1304 C2D emission reductions, according to EPA, getting into that calculation, the district has agreed to revise its rules to ensure that they comply with exactly what EPA wants on both the first step and the second step.

[00:46:57] Speaker 03:
So all we're left with now is the third step.

[00:46:59] Speaker 03:
And so the continued discussions of subsection J is pointless here.

[00:47:05] Speaker 03:
In fact, in the comments, as my friend noted,

[00:47:09] Speaker 03:
The district explained that they never intended for the C2D emission reductions to be used in either of those two calculations, and that they only intended them to be a reduction of the amount of offsets required, which is another way of saying offsetting the emission increases, which is all that we're talking about here is offsettings of emission reductions.

[00:47:29] Speaker 04:
But I understand EPA to be saying some of the effect of what Jay is telling us is how to do step two, and step three therefore needs to follow the same methodology.

[00:47:39] Speaker 03:
Yes, sir.

[00:47:39] Speaker 03:
So what their argument in that respect was is that the baseline for the calculation needs to be actual emissions.

[00:47:47] Speaker 03:
And so we've revised the rules to have actual emissions be the pure baseline on a calculation of the tonnage of increased emissions.

[00:47:54] Speaker 03:
The calculation of the baseline, the baseline for the emission reductions at issue here is actual emissions.

[00:48:01] Speaker 03:
And you can see that in the boiler example.

[00:48:04] Speaker 03:
So there, when we had the emission reductions that are being used to offset, are those that were offsetting the original allowable emissions for the permit, the 100 tons.

[00:48:15] Speaker 03:
Now, those are calculated using actual emissions as the baseline.

[00:48:18] Speaker 03:
That's the rule in the district.

[00:48:20] Speaker 03:
The only difference is that when we eliminate the allowable, surplus allowable emissions, now those emission reductions that are real and that were calculated using actual emissions as a baseline are now not otherwise required.

[00:48:33] Speaker 03:
It's a totally separate question, which means that they are now available for use to offset other emission increases under subsection C2.

[00:48:42] Speaker 03:
So in that regard, there is no distinction here between the parties.

[00:48:47] Speaker 03:
There's no dispute, I should say, on this issue of common currency, regardless of whether or not we all agree as to whether or not there's a basis for asserting there needs to be a common currency.

[00:48:56] Speaker 03:
Again, we're not in a disputed position.

[00:48:59] Speaker 03:
We all agree that these emission reductions would meet that requirement.

[00:49:04] Speaker 03:
And that brings me back to the other point here of my friend brought up paragraph A3I.

[00:49:10] Speaker 03:
And when you look at the final rule, the EPA expressly states that this is, A3I addresses the definition of net emission increase, which is when you calculate whether or not you need a permit, the rules allow you to net out some emission reductions.

[00:49:25] Speaker 03:
But that entire calculation is for whether or not the permit program applies.

[00:49:30] Speaker 03:
In fact, it goes to a concept that is not even allowed in the district.

[00:49:33] Speaker 03:
The California law does not allow netting for the determination of whether or not a permit applies.

[00:49:38] Speaker 03:
So it's completely irrelevant here.

[00:49:40] Speaker 03:
And we've made that clear.

[00:49:42] Speaker 03:
And to the extent there was any concerns about that in the rules, the district has revised those rules with EPA's assistance.

[00:49:49] Speaker 03:
And those revised rules now sit before EPA for approval.

[00:49:53] Speaker 04:
The EPA says your clients are the only district doing this.

[00:49:57] Speaker 03:
Is that true?

[00:49:58] Speaker 03:
Whether or not other districts are, I don't know.

[00:50:00] Speaker 03:
There's obviously a lot of them.

[00:50:01] Speaker 04:
Is there something unique about your district that's causing it to ask to have a different set of programs or rules?

[00:50:08] Speaker 03:
No, Your Honor.

[00:50:09] Speaker 03:
In fact, it's so common that when you read the 2002 rule, you'll find that EPA actually talks about it being a common way to actually that the reduction in surplus allowable emissions

[00:50:21] Speaker 03:
essentially freeze up emission reductions that then can be used to offset other emission increases.

[00:50:27] Speaker 03:
And we cited that in our brief.

[00:50:30] Speaker 03:
And so the surprise, if there would be, was actually that EPA is now taking the complete opposite position.

[00:50:37] Speaker 03:
In 2002, it recognized that this is a

[00:50:39] Speaker 03:
that these are valid emission reductions, and actually says that that can be used throughout the programs.

[00:50:47] Speaker 03:
Now, I guess the last point I'll just quickly look at here is when we're talking about the incentivized behavior, the goal that he was talking about was whether or not we would incentivize lower allowable emissions.

[00:50:59] Speaker 03:
But the reality is, and I think Judge Van Dyke recognized this, when we give greater flexibility in the use of the allowable emissions, what we're doing

[00:51:08] Speaker 03:
is encouraging voluntary emission reductions.

[00:51:11] Speaker 03:
And EPA recognized that in 2002 when it was addressing the plant-wide applicability limit program, and it recognized the opposite, that a use it or lose it approach to allowable emissions encourages only operators to maximize emissions, which leads to poorer air quality and the retention of aging dirtier equipment.

[00:51:36] Speaker 03:
So with that, I would just ask one thing here, and if I could, I know we're getting close to the time here, is if the district, I'm sorry, if the court would take swift action here, given that the rejection of the offset rule is arbitrary and capricious and not in accordance with the law,

[00:51:56] Speaker 03:
And it poses a serious problem for the district because there's going to be an imminent imposition of a federal implementation plan that will usurp the state's authority here in what amounts to a federal takeover.

[00:52:08] Speaker 03:
The comment period on that FIP ends in three days.

[00:52:11] Speaker 03:
So we would ask this court to either vacate or stay that unlawful rejection of the offset rule before that occurs and substantial harm results.

[00:52:22] Speaker 04:
Would you just to be clear what is happening in three days?

[00:52:26] Speaker 04:
It's kind of would cause imminent harm.

[00:52:27] Speaker 03:
Sorry, I tried to speed read that one.

[00:52:30] Speaker 03:
So the federal implementation plan is where the federal government steps in and takes over.

[00:52:36] Speaker 03:
It replaces the state implementation plan that has been proposed.

[00:52:40] Speaker 03:
It's already been published in a proposed notice of rulemaking.

[00:52:43] Speaker 03:
The comment period on that proposed notice of rulemaking ends in three days.

[00:52:46] Speaker 03:
after which EPA will be in a position where it could implement that FIP at any time.

[00:52:51] Speaker 02:
I thought you said something about November in your... Yeah, I'm confused.

[00:52:54] Speaker 02:
I did.

[00:52:55] Speaker 04:
I did not.

[00:52:56] Speaker 04:
What's required of you in three days that's... You asked for a stay, and I thought that that had a November date.

[00:53:03] Speaker 03:
So what the November date refers to, Your Honor, is a consent decree that they must do it by.

[00:53:08] Speaker 03:
So they have to have this done according to a consent decree with a district court by November, I think it's 24th from the top of my head here.

[00:53:17] Speaker 03:
But nothing would stop them from doing it earlier once they've completed the obligation to provide the notice of proposed rulemaking, which they've done.

[00:53:25] Speaker 03:
They provide the notice of proposed rulemaking.

[00:53:27] Speaker 03:
And that comment period on the proposed FIP expires in three days, at which point they would obviously have to respond to those comments in the final rule.

[00:53:37] Speaker 03:
But that final rule can come out at any time after these three days.

[00:53:43] Speaker 03:
And so while they have a November deadline, we're facing the imminent imposition of a FIP here.

[00:53:49] Speaker 04:
Okay, I think we've let you go over your time.

[00:53:51] Speaker 04:
I believe you have another question.

[00:53:54] Speaker 02:
The question would be for the government.

[00:53:56] Speaker 02:
Now that we know about this, I wonder.

[00:53:58] Speaker 04:
Let's ask Mr. Doyle to come up for a bonus round here.

[00:54:01] Speaker 04:
Why don't you just, we'll just take the clock off, why don't you just respond specifically to this timing issue?

[00:54:08] Speaker 00:
Sure, the timing issue.

[00:54:10] Speaker 00:
My friend on the other side is correct.

[00:54:12] Speaker 00:
There's a notice and comment process going on right now about that federal implementation plan that EPA hopes it doesn't need to do it, but if it has to do it, it was imprudent to start that process.

[00:54:23] Speaker 00:
And I don't have the comment period in front of me, but I take counsel at his word that it's got a few more days left on the comment period.

[00:54:32] Speaker 00:
And EPA will take substantial time to go through the comments, write up a final rule, and issue that.

[00:54:40] Speaker 00:
EPA is not known for meeting deadlines before.

[00:54:43] Speaker 00:
It has to do them.

[00:54:46] Speaker 00:
It may not wait till exactly the deadline in the consent decree, but I'm not aware of any plans to expedite it either.

[00:54:53] Speaker 00:
And of course, our global position on the motion to stay is that it doesn't meet the stay factors and should be denied as well.

[00:55:02] Speaker 04:
Okay.

[00:55:03] Speaker 00:
Okay.

[00:55:03] Speaker 04:
Thank you very much.

[00:55:04] Speaker 04:
We thank all council in this complicated matter.

[00:55:07] Speaker 04:
This matter is submitted.

[00:55:08] Speaker 04:
We'll stand in recess until tomorrow morning.