• Fast-Growing Ethanol Industry at Risk of Government Scrutiny for Possible "Sham" Permits
  • February 21, 2007 | Authors: Carolyn V. Wolski; Jonathan W. Gottlieb
  • Law Firms: Leonard, Street and Deinard, Professional Association - Minneapolis Office ; Leonard, Street and Deinard, Professional Association - Washington Office
  • As demand for renewable fuels continues to expand, ethanol producers are moving fast to build and, in some cases, expand production facilities. However, in certain situations, plant expansions put ethanol producers at risk of losing their air emissions permits and being out of business until they are re-permitted.

    Clean Air Act Requirements. Under the Clean Air Act, a "major" source of emissions is required to undergo rigorous pre-construction review and to install state-of-the-art technology to control emissions. These requirements emanate from one of two Clean Air Act programs, New Source Review (NSR) or Prevention of Significant Deterioration (PSD), depending on whether the source is in an area attaining the National Ambient Air Quality Standards. Currently, an ethanol plant that has a potential to emit more than 100 tons per year of a criteria pollutant is considered to be a major source. However, NSR and PSD are not triggered by construction of minor sources.

    Expansion Plans Can Violate Existing Permits. A potentially serious problem can arise for ethanol plants that expand shortly after they are built. The problem exists for facilities built as "minor" sources and those that agree to be "synthetic minors" through permit limitations. Subsequent expansion of these plants will generally cause a plant to become a major source, but unless the expansion itself increases emissions of a criteria pollutant by more than 100 tons per year, the result will be a major source that was not subject to major-source review.

    Sham Permitting Can Result in Loss of Air Permit. The U.S. Environmental Protection Agency and state regulators will respond by investigating whether there has been intentional circumvention of the regulations, or sham permitting. The investigation will typically focus on (a) how much time passed between initial permit application and application to expand, and (b) statements made by plant owners—such as to banks and stockholders—about the plant's expected level of operation. If the regulator can show that a plant always intended to operate at major-source levels, the minor-source permit will be voided as a sham permit.

    While any emitting source can be subject to investigation for sham permitting, today's booming ethanol market makes this industry particularly susceptible. Ethanol plant owners, developers and contractors should be aware of this risk and the scrutiny being given to this industry by state and federal regulators.