Port Hamilton Refining and Transportation LLLP v. EPA ( 2023 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_______________________
No. 23-1094
_______________________
PORT HAMILTON REFINING AND TRANSPORTATION,
LLLP,
Petitioner
v.
U.S. ENVIRONMENTAL PROTECTION AGENCY
_______________________
On Petition for Review from a Decision of the
Environmental Protection Agency
__________________________
Argued May 24, 2023
Before: RESTREPO, McKEE, and SMITH, Circuit Judges
(Filed: November 22, 2023)
Andrew C. Simpson [ARGUED]
Andrew C. Simpson Law Offices
2191 Church Street, Suite 5
Christiansted, VI 00820
Counsel for Petitioner Port Hamilton Refining and
Transportation LLLP
Todd S. Kim
Heather E. Gange [ARGUED]
United States Department of Justice
Environment & Natural Resources Division
P.O. Box 7611
Ben Franklin Station
Washington, DC 20044
Counsel for Respondent United States Environmental
Protection Agency
Michael R. Harris [ARGUED]
Rajeev Venkat
Vermont Law School
164 Chelsea Street
South Royalton, VT 05068
Counsel for Amici-respondent Sierra Club, St Croix
Environmental Association, Center for Biological
Diversity
__________________________
OPINION OF THE COURT
__________________________
2
SMITH, Circuit Judge.
Petitioner Port Hamilton Refining and Transportation,
LLLP (Port Hamilton or the company) purchased an existing
petroleum refinery located on St. Croix (Refinery) at a
bankruptcy auction in December 2021. Port Hamilton hoped to
resume operations at the Refinery, which had for decades
served as the backbone of St. Croix’s local economy until it
ceased operations in 2012. But in November 2022, the
Environmental Protection Agency (EPA or the agency)
notified Port Hamilton by letter that it would need a Prevention
of Significant Deterioration (PSD) permit before the Refinery
could resume operations.
The PSD permitting program is one tool among many
provided in the Clean Air Act (CAA) that seeks to curb
excessive air pollution. To obtain a PSD permit, a facility must
not contribute to the violation of applicable air quality
standards and must implement the “best available control
technology” to limit air pollution. 42 U.S.C. §§ 7475(a),
7479(3). As is evident from the permit’s title, the PSD is a
preventative measure. It applies to newly constructed
stationary sources of air pollution and sources that undergo
emissions-altering modifications. Id. §§ 7475(a), 7479(2)(C),
7411(a)(4).
Since the PSD program’s inception, EPA has developed
its own understanding of what constitutes a newly constructed
facility. Under EPA’s so-called “Reactivation Policy” (Policy),
an existing facility is “new” if EPA concludes that it had
previously been “shut down” and restarted. Matter of Monroe
3
Electric Generating Plant, Petition No. 6-99-2, at 7–8
(June 11, 1999). According to EPA, a shutdown facility must
obtain a PSD permit upon restart. Id. But if the EPA determines
that the facility had only been “idled,” then it need not obtain
a permit. Id.
As relevant here, EPA issued two determinations as to
the Refinery’s status under the Reactivation Policy. In 2018,
EPA notified the Refinery’s prior owner that it need not obtain
a PSD permit because the Refinery had been only “idled” since
it last operated in 2012. Then in 2022, EPA reversed course
and notified Port Hamilton that the agency considered the
Refinery to have been “shut down” and accordingly would
need to approve a PSD permit before operations could be
resumed.
Port Hamilton petitions this Court for review of
EPA’s 2022 decision. The company contends that the
Reactivation Policy as applied to the Refinery exceeds EPA’s
statutory authority and that even if the policy is valid, EPA
acted arbitrarily and capriciously. We agree that EPA has
exceeded its statutory authority under the CAA. Accordingly,
we will grant the petition and vacate EPA’s decision.
I. Statutory and Regulatory Background
A. Clean Air Act
Congress enacted the Clean Air Act of 1963 primarily
to provide federal funding for research on air pollution and to
encourage states to develop air pollution control programs.
Clean Air Act of 1963, Pub. L. 88-206, 77 Stat. 393; United
4
States v. EME Homer City Generation, L.P., 727 F.3d 274, 278
(3d Cir. 2013). The CAA preceded creation of EPA and left to
the states much of the authority to regulate air pollution.
The Clean Air Act Amendments of 1970 marked the
beginning of a major shift in both the balance and breadth of
federal regulation over air quality. The CAA, as amended,
directed the newly created EPA to set “national ambient air
quality standards,” or “NAAQS.” 42 U.S.C. §§ 7408–7409;
Utility Air Reg. Grp. v. EPA, 573 U.S. 302, 308 (2014). The
NAAQS set the maximum allowable levels of certain
pollutants that, in EPA’s view, would protect public health.
See 42 U.S.C. § 7409. The states were then required to submit
“state implementation plans” that detailed how they planned to
implement and enforce the NAAQS for each pollutant. 42
U.S.C. § 7410; Utility Air, 573 U.S. at 308. The statute vests
authority in EPA to approve or disapprove each state’s
implementation plan. 42 U.S.C. § 7410; Train v. Nat. Res. Def.
Council, Inc., 421 U.S. 60, 64–65 (1975); Gen. Motors Corp.
v. United States, 496 U.S. 530, 532–33 (1990).
In 1977, Congress further amended the CAA to enact
the New Source Review (NSR) program. The NSR program
aimed to combat air pollution proactively by requiring new
stationary sources of air pollution to meet certain requirements
prior to the commencement of their construction. See 42 U.S.C.
§ 7475 (titled “Preconstruction requirements”); id.§ 7502(c)(5) (requiring permits for “the construction and
operation” of certain facilities). The program requires each
new stationary source of air pollution to obtain one of two
types of permits from the EPA depending on whether the
5
geographic area is in “attainment” of each NAAQS.1 Utility
Air, 572 U.S. at 308–09.
The first type of permit is what is at issue in this case—
the PSD permit—and applies to certain stationary sources of
air pollution to be built in designated “attainment” areas. Id. To
obtain a PSD permit, the proposed source must not cause or
contribute to the violation of applicable air quality standards
and must implement the “best available control technology”
for each NAAQS pollutant. 42 U.S.C. § 7475(a)(3)–(4); Utility
Air, 573 U.S. at 309. The stationary sources subject to PSD
permitting are major emitting facilities “constructed” after
August 7, 1977 (the date the New Source Review program
went into effect). 42 U.S.C. § 7475(a). The CAA defines
“construction” as “includ[ing] modification.” Id. § 7479(2)(C).
“Modification” is “any physical change in, or change in the
method of operation of, a stationary source which increases the
amount of any air pollutant emitted by such source or which
results in the emission of any air pollutant not previously
emitted.” Id. § 7411(a)(4). In sum, the CAA provides that a
major emitting facility must obtain a PSD permit if it is
constructed or “modified” in an attainment area after 1977.
The second permitting program, the Nonattainment
New Source Review (NNSR) program, applies to stationary
1
The CAA requires each state to designate “all areas . . . in the
State” as “nonattainment,” “attainment,” or “unclassifiable”
for each of the NAAQS. 42 U.S.C. § 7407(d). “Attainment”
means that the area has reached appropriate levels of the
regulated air pollutant.
6
sources built in areas with air quality that does not meet the
NAAQS, known as “nonattainment areas.” Gen. Motors, 496
U.S. at 534. To obtain a NNSR permit, the applicant must
ensure that the proposed source “compl[ies] with the lowest
achievable emission rate,” arrange for “offsetting emissions
reductions” such that the new source will not increase regional
emissions, and meet other stringent requirements. 42 U.S.C.
§ 7503; Chevron, U.S.A., Inc. v. Nat. Res. Def. Council,
Inc., 467 U.S. 837, 840 (1984); New York v. EPA, 413 F.3d 3,
13 (D.C. Cir. 2005).
B. EPA’s Reactivation Policy
Consistent with the CAA, EPA’s implementing
regulations provide that the PSD program applies to any “new
major stationary source or [] major modification.” 40 C.F.R.
§ 52.21(a)(2)(iii) (emphasis added). In a series of individual
PSD permitting decisions, EPA formulated what it later called
its “Reactivation Policy.” See Matter of Monroe, Petition
No. 6-99-2. That policy purports to interpret the meaning of the
word “new” in its regulations and addresses whether an
existing but out-of-operation facility needs a PSD permit
before restarting. Under the Policy, an existing facility is
considered “new” (and thus in need of a PSD permit) if EPA
determines that it had been “permanently shutdown” when it
previously ceased operations. Id. at 8. But if the facility had
only been “idled,” then the existing facility is not “new.” Id. 7,
10. To determine whether a facility had been permanently shut
down, EPA looks to the following six factors:
(1) “the amount of time the facility has been out of
operation,”
7
(2) “the reason for the shutdown,”
(3) “statements by the owner or operator regarding
intent,”
(4) “cost and time required to reactivate the facility,”
(5) “status of permits,” and
(6) “ongoing maintenance and inspections that have
been conducted during shutdown.”
Id. at 8–9. This determination requires a fact-intensive inquiry.
EPA has explained that “[n]o single factor is likely to be
conclusive in the Agency’s assessment of these factors, and the
final determination will often involve a judgment as to whether
the owner’s or operator’s actions at the facility during
shutdown support or refute any express statements regarding
the owner’s or operator’s intentions.” Id. at 9. The scope of
EPA’s authority under this policy is at the heart of what Port
Hamilton challenges in the petition before this Court.
II. Factual Background
The Refinery’s first owner built it in the late 1960s
pursuant to an agreement with the Government of the Virgin
Islands (GVI) and the GVI’s Port Authority. That first owner,
HOVENSA, LLC (Hovensa), operated the Refinery
until 2012, when it announced plans to close the facility after
significant financial losses. The GVI, recognizing the
Refinery’s “economic importance to the Virgin Islands,”
intervened by urging Hovensa to find a buyer for the Refinery.
8
A 36 & n.30.2 Although the Refinery remained out of use since
Hovensa’s 2012 announcement, Hovensa worked with GVI in
attempts to sell the Refinery. Hovensa eventually entered
bankruptcy in 2015, and the Refinery passed to the bankruptcy
estate.
Limetree Bay Terminals, LLC (Limetree) purchased the
Refinery from the bankruptcy estate in 2016 and planned to
restart the Refinery’s operations. In 2018, Limetree sent EPA
a letter asking whether EPA would consider the Refinery a new
source under its Reactivation Policy if Limetree resumed
operations. EPA agreed with Limetree that the Refinery would
not be a new source. EPA explained that, based on the
Reactivation Policy’s six factors, the Refinery had only been
“idled”—as opposed to “shut down”—since Hovensa ceased
operations in 2012. A 71. That meant the Refinery did not
qualify as a “new” facility requiring a PSD permit.3 EPA
further noted that although it had applied its Reactivation
Policy to address Limetree’s questions, the agency “intend[ed]
2
Both parties filed appendices in this appeal. We refer to the
appendices filed by Port Hamilton and EPA as “A” and “SA,”
respectively.
3
EPA’s 2018 letter also noted that it was not providing a “final
determination” as to the applicability of the PSD program
because Limetree had not submitted “emissions information
and other specifics regarding [its] planned projects.” A 77. This
statement appears to refer to the second basis for a PSD permit:
if the facility is modified in a way that alters its emissions
levels. See 42 U.S.C. §§ 7475(a), 7479(2)(C), 7411(a)(4).
Neither party contends that the Refinery had been modified.
9
to reconsider the policy in the near future.” A 71 n.2. In
particular, EPA expressed concern that it had not grounded the
Reactivation Policy in “any specific regulatory provisions of
the NSR program to support its position of ‘reactivation.’” Id.Later that year, Limetree applied for a Plantwide
Applicability Limit (PAL) permit. The PAL permit is not at
issue in this appeal, but it is relevant insofar as it sheds light on
EPA’s own misgivings concerning the Reactivation Policy. In
response to public comments addressing Limetree’s PAL
application, the agency reiterated its earlier view that it
“intended to reconsider the Reactivation Policy.” SA 209. EPA
explained:
[T]he Agency has determined it is not
appropriate to continue applying the
Reactivation Policy because the policy was not
well-grounded in the NSR regulations, and it is
not supported by the current NSR regulations. In
addition, the Reactivation Policy is difficult to
follow and can produce inconsistent results
based on subjective judgments about how to
weigh the various factors against each other.
Id.Over the next three years, Limetree made substantial
financial investments in the Refinery so that it was up and
running by February 2021. But the Refinery quickly ran into
trouble. On February 4, 2021, a mixture of oil and water
10
emitted from a flare at the Refinery.4 Limetree promptly
received calls from local residents who complained that oil
droplets had rained upon their homes, cars, and vegetable
gardens, and in some cases had compromised water cisterns.
Then, for five consecutive days in April 2021, the
Refinery emitted hydrogen sulfide and sulfur dioxide at levels
that exceeded emissions standards. Those emissions resulted in
the shutdown of in-person learning at three St. Croix schools.
In May, the Refinery again emitted excessive sulfur dioxide,
prompting the closure of the same three schools. One week
later, the Refinery experienced another flaring incident in
which droplets of oil rained on a nearby neighborhood.
Soon thereafter, Limetree advised EPA that it would
cease oil production for an unspecified period of time. Two
days later, the agency issued an emergency order under
Section 303 of the CAA, 42 U.S.C. § 7603, requiring Limetree
to immediately cease all operations at the Refinery.
In July 2021, just two months later, Limetree filed for
bankruptcy and the Refinery was put up for sale a second time.
In September 2021, EPA signaled that despite its earlier
comments, it planned to continue applying the Reactivation
Policy. It published a notice in the bankruptcy reading room
advising that “[a] prospective purchaser may also be required
to obtain a Prevention of Significant Deterioration (‘PSD’)
permit under the Clean Air Act to restart the refinery.” SA 199.
The notice explained that “EPA has required PSD permits for
4
A flare is a structure used to burn off excess refinery-
generated gases.
11
restarting long-dormant facilities that qualify as major
stationary sources because this action can qualify as either the
construction of a new source or a major modification of an
existing one.” Id.In December 2021, Port Hamilton submitted questions
to the U.S. Department of Justice and EPA about the permits it
would need to operate the Refinery. Later that month, and
before it received a response from DOJ and EPA, Port
Hamilton purchased the Refinery from Limetree’s bankruptcy
estate. The agency responded to Port Hamilton’s inquiry,
advising in March of 2022, that based on the information it
had, there were “strong indicators” that Port Hamilton would
need a PSD permit to start up the Refinery. SA 248.
EPA issued its final determination as to PSD permitting
for the Refinery in November 2022 (Final Determination
Letter). Although EPA’s application of the Reactivation Policy
in 2018 led it to conclude that the Refinery had been “idled”
since 2012, its 2022 Determination Letter informed Port
Hamilton that it considered the Refinery to actually have been
“shut down” since Hovensa ceased operations in 2012. A 23.
The agency noted that it arrived at its 2022 decision after
considering a more developed record than it had reviewed
in 2018.
Port Hamilton timely petitioned this Court for review of
the Final Determination Letter. Port Hamilton contends that
EPA’s application of the Reactivation Policy exceeds its
statutory authority because the CAA applies the PSD program
only to newly constructed facilities and modifications. Because
the Refinery meets neither of those criteria, Port Hamilton
12
argues, the agency exceeded its statutory authority by requiring
the company to obtain a PSD permit for the Refinery.
Alternatively, Port Hamilton argues that even if the
Reactivation Policy is valid, EPA acted arbitrarily and
capriciously by reaching two opposing conclusions in 2018
and 2022.
III. Analysis5
Port Hamilton contends that EPA has exceeded its
authority under the Clean Air Act. We agree. The Clean Air
Act unambiguously limits the PSD program’s application to
newly constructed or modified facilities. The Refinery is not
new and has not undergone a “modification” as the Act defines
that term. The EPA therefore exceeded its authority by
requiring Port Hamilton to obtain a PSD permit for the
Refinery.
We begin and end our analysis with the unambiguous
text of the CAA.6 Section 7475(a) provides that “[n]o major
5
We have jurisdiction to review EPA’s Final Determination
Letter because it is a “final action” within the meaning of 42
U.S.C. § 7607(b)(1).
6
Because the statute is clear, we need not consider whether
Chevron or Auer deference is appropriate. Johnson v. Guzman
Chavez, 141 S. Ct. 2271, 2291 n.9 (2021) (“Chevron deference
does not apply where the statute is clear.”); EME Homer City
Generation, 727 F.3d at 291 n.17 (concluding that the Court
need not “defer to the EPA’s interpretation of the PSD
regulations . . . because such an interpretation would contradict
the unambiguous text of § 7475(a)”).
13
emitting facility on which construction is commenced after
August 7, 1977, may be constructed” in an attainment area
without a PSD permit. 42 U.S.C. § 7475. The statute defines
“construction” as including “modification.” Id. § 7479(2)(C).
The plain text here is straightforward. Reading these two
sections together, major emitting facilities constructed or
modified in attainment areas after 1977 are required to obtain
a PSD permit.
Yet EPA contends that § 7475 is ambiguous because it
fails to address exactly what sort of construction triggers the
need for a PSD permit. The agency argues that the phrase
“construction is commenced” could refer to construction
commenced at a shutdown facility in preparation for a restart.
But EPA overlooks the second half of § 7475(a). That portion
provides that no major emitting facility “may be constructed”
in an attainment area if that construction is commenced
after 1977. Id. (emphasis added). That text directly speaks to
the question that EPA has posed. The type of construction that
requires a PSD permit is construction commenced after 1977
that brings a major emitting facility into existence.
EPA next contends that the statute’s definition of
“construction” is ambiguous. The CAA defines “construction”
as follows: “The term ‘construction’ when used in connection
with any source or facility, includes the modification (as
defined in section 7411(a) of this title) of any source or
facility.” Id. § 7479(2)(C). EPA seizes on the word “includes.”
Because the definition only “includes” modification, EPA
argues, the statute leaves open the possibility that there are
other types of construction also covered by the statute.
14
But we have already held that § 7475 and § 7479 set out
an exclusive definition of “construction.” In United States v.
EME Homer City Generation, L.P., we explained that the
CAA’s PSD permitting provisions unambiguously extended
the PSD program to construction and modification alone, and
not “operation” as EPA had argued. 727 F.3d at 284; see also
id. at 290 (“In short, § 7475(a) unambiguously prohibits only
constructing or modifying a facility without meeting PSD
requirements.”). We also noted that the statute’s definition of
construction “include[s]” modification, but “does not include
‘operation.’” Id. The same goes for EPA’s position here. The
CAA’s definition of construction includes “modification” but
does not include “restart after a shutdown” or language to that
effect. As we held in EME Homer, the CAA limits the PSD
program’s reach to only two circumstances: construction and
modification. Id. at 284–85.
EPA’s Reactivation Policy extends the PSD program
beyond those limited circumstances. Under that policy,
because EPA in 2022 determined that the Refinery had been
“shut down,” Port Hamilton would need to obtain a PSD permit
before it could resume its operations. This application of the
PSD program strays from the unambiguous text of the CAA.
The parties do not dispute that Hovensa built the Refinery
before 1977, nor does the agency contend that Port Hamilton
had “modified” the Refinery within the meaning of the statute.
EPA therefore exceeded its statutory authority by requiring
Port Hamilton to obtain a PSD permit for the Refinery. We
15
conclude that EPA’s Final Determination Letter must be
vacated.7
IV. Conclusion
We will grant Port Hamilton’s petition for review and
vacate EPA’s Final Determination Letter.
7
Because we hold that EPA’s Reactivation Policy exceeds its
statutory authority, we need not decide whether EPA applied
the Reactivation Policy arbitrarily and capriciously as to Port
Hamilton.
16