In a victory against regulatory overreach, the U.S. Supreme Court on June 23, 2014 ruled in favor of NAHB and its coalition partners. The High Court held in Utility Air Regulatory Group et al., v. EPA that the Environmental Protection Agency (EPA) does not have the authority to require multifamily and commercial builders to obtain costly pre-construction permits for greenhouse gasses emitted from the buildings they construct.
When it developed regulations for greenhouse gas emissions from motor vehicles, EPA interpreted the Clean Air Act to compel anyone building a “stationary source” - essentially anything without wheels - to obtain a pre-construction permit known as the “Prevention of Significant Deterioration” or “PSD” permit for the greenhouse gases emitted from the source.
If EPA applied the Clean Air Act as written, more than one-third of all new natural-gas heated multifamily buildings built each year would be required to obtain this very costly and time consuming permit. Because EPA could not handle the permitting burden of bringing thousands of new sources into the PSD program, it issued a regulation it called the “Tailoring Rule.” This rule temporarily applied the PSD program only to the largest sources of greenhouse gas emissions. This relief, however, is by no means permanent, and EPA has said it will work to apply the PSD program to smaller emitters, such as multifamily buildings, in the future.
Based largely on EPA’s own estimates, the cost of a PSD permit alone could be about $60,000 per multifamily property, with costs due to delays averaging about $40,000 across all building sizes. For a property with 50 or more apartments, costs due to delays could reach up to $200,000. The permit cost is fixed, while the delay costs vary depending on the building size, measured by number of units. All told, the impacts of this permit program on multifamily members alone would result in $730 million investment losses annually and would price 1.8 million American households out of new apartment residences each year.
Justice Scalia wrote for a majority of the Court in holding that EPA incorrectly interpreted the Clean Air Act’s PSD provisions. The Court held first that EPA applied an overly expansive definition of the term “air pollutant” when it determined that the Act compelled the inclusion of greenhouse gases in the PSD permitting program. Second, the Court held that EPA far overstepped its bounds when it rewrote the statutory provisions that trigger PSD requirements. The Court refused to go along with EPA, stating: “EPA asserts newfound authority to regulate millions of small sources - including retail stores, offices, apartment buildings, shopping centers, schools, and churches…[w]e are not willing to stand on the dock and wave goodbye as EPA embarks on this multiyear voyage of discovery.” Slip op. at 23.
Thus, the Court concluded that EPA cannot require a PSD permit for greenhouse gas emissions alone. However, for those large sources that already have PSD permits - which do not include any residential or commercial buildings - the Court ruled the Act allows EPA to include greenhouse gas emission controls in those permits. The Court’s rejection of EPA’s attempts to dramatically expand its regulatory footprint under the Clean Air Act will serve NAHB well in other contexts, including EPA’s proposed regulatory regime concerning the definition of “Waters of the United States” under the Clean Water Act.
Today’s decision stops EPA in its tracks, before NAHB members were impacted. This is a significant win not only for multifamily builders, but for all builders that deal with excessive and unlawful EPA rules.
More information on this case, including NAHB's briefs, can be found here.