EPA's Air Permitting Interpretation Increases Costs

By Brian H. Potts | August 03, 2007
Except for raising capital, obtaining an air permit is probably the most difficult and time-consuming obstacle to opening a new biodiesel production facility. Now, because of a new U.S. EPA regulatory interpretation, permitting and operating biodiesel plants just got a lot more difficult and costly.

Although air permitting differs from state to state, generally speaking, a company cannot break ground without one. This is why the air permit is often called the "critical path permit." Without it, companies cannot build their facility-much less attract investors.

The permit is important for other reasons as well. Once built, the air permit will control many facets of plant operation. For example, it can limit the amount and types of feedstock used, curtail the total annual production, or even mandate how employees are trained. The air permit will act as a guide to operating the plant throughout its life. In addition, the EPA, a state agency or private individuals can sue if the plant is not complying with the permit's terms or EPA's regulations. Therefore, correctly negotiating the permit language with the regulatory agency at the outset is enormously important.

Compared to other industrial plants, biodiesel production is clean. In fact, it's significantly cleaner even than producing ethanol. For biodiesel production, the principle air pollutants of concern are methanol and hexane, although the facility will also emit various other pollutants depending on the fuel burned in the boiler (natural gas, coal, wood pellets, etc.). The problem, of course, is that EPA's regulations were written before biodiesel production was even occurring in the United States. That's why permitting a biodiesel production facility is like putting a square peg in a round hole-the EPA's regulations just don't fit.

There are generally two types of air permits-construction permits and operating permits-although many states combine the two. Anyone wishing to construct a new plant, or modify an existing facility, must first apply for and receive an air construction permit. The construction permit will specify the terms under which the source is authorized to be built and initially operated. In most states, construction permits are issued for a period of 18 months, although that term can be extended to 24 or 36 months if the state agency is presented with information justifying a longer construction period. Some small biodiesel plants (e.g., less than 5 MMgy) have avoided obtaining a construction permit by claiming that their facility will have no air emissions or that their facility meets a de minimis exemption, but this is rare. For example, in Ohio, a permit is not required for small biodiesel plants with a closed-loop process if they can show that the plant will emit less than 10 pounds per day of air pollutants.

A separate operating permit is issued to authorize the plant's operation. The operating permit is typically issued for a five-year term. It will identify all the emission units at the plant-stacks, reactors, distillation units, boilers and tanks-and specify the amount of each pollutant that may be emitted from each separate unit. Operating permits also contain recordkeeping and reporting requirements, and compliance demonstration methods. For example, most permits require complicated air emission reports to be sent in to the agency at least semi-annually. They also require immediate notification to the state agency if there is an unexpected emissions release or a backup generator is used.

The key problem for biodiesel plants is the production of glycerin. If a plant produces glycerin as a byproduct, three long-standing EPA rules that regulate the synthetic organic chemical manufacturing industry (SOCMI) apply. The SOCMI rules require significantly more environmental control technology along with mounds of recordkeeping and reporting requirements. However, most of these requirements have very few environmental benefits because they were meant for other types of facilities. Glycerin production triggers the rules, and there is generally no de minimis exemption.

The past few years, states have had differing opinions as to whether the SOCMI rules applied to biodiesel plants, causing different operational requirements and costs between states. Many states, including Minnesota and Indiana, relied on the plain language of the regulations and included the SOCMI requirements in their biodiesel permits. Other states left the SOCMI requirements out.

Why the disparity? Many years ago, when the EPA adopted the SOCMI rules, the agency stated that they do not apply to "chemicals extracted from natural sources." Because biodiesel and glycerin production stems directly from soybean oil-a natural source-states thought the plants were exempt. In fact, the EPA stated years ago that ethanol plants are exempt from SOCMI for the same reason. During the recent permitting of a 45 MMgy plant in Wisconsin, the state Department of Natural Resources asked the EPA for a formal opinion on the issue. In a six-page letter, George Czerniak, chief of the EPA's Air Enforcement and Compliance Assurance Branch, responded and found that the onerous SOCMI regulations apply.

In its determination letter, the EPA states that "Although one of the raw materials which will be used in the process, soybean oil, is a natural product, methanol, the other raw material, is not." While this does differentiate ethanol production and biodiesel production, the EPA has wide discretion and could easily have exempted biodiesel production from the SOCMI requirements.

The EPA's position is surprising. Recently, the EPA significantly eased air permitting restrictions for ethanol plants, and years ago it exempted ethanol plants from the same SOCMI regulations that it now says apply to biodiesel facilities. Given President George W. Bush's administration's recent pro-biofuel stance, one would think that the EPA would want to help the biodiesel industry-not burden it with additional costly regulations.

Brian H. Potts is an attorney in Foley & Lardner LLP's Environmental Regulation and Energy practice groups. He has a juris doctor degree from Vermont Law School and a Master's degree in energy law from the University of California, Berkeley, School of Law-Boalt Hall. Reach Potts at bpotts@foley.com or (608) 258-4772.

The claims and statements made in this article belong exclusively to the author(s) and do not necessarily reflect the views of
Biodiesel Magazine or its advertisers. All questions pertaining to this article should be directed to the author(s).
 
 
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