Petitions for Review of Orders of the Environmental Protection Agency. Nos. V-2005-1, V-2005-3, V-2006-2.
The opinion of the court was delivered by: Evans, Circuit Judge
Before FLAUM, MANION, and EVANS, Circuit Judges.
In this consolidated appeal of three related administrative review proceedings, the petitioners, several environmental protection groups and the attorney general of the State of Illinois, challenge the failure of the federal Environmental Protection Agency (EPA) to object to certain operating permits proposed by the Illinois Environmental Protection Agency (IEPA) pursuant to the Clean Air Act (CAA). The petitioners contend that the Administrator was obligated to object because they clearly "demonstrated" that the permits were not in compliance with the CAA. See 42 U.S.C. § 7661d(b)(2). The EPA, on the other hand, maintains that the Administrator reasonably exercised his discretion in determining that the petitioners did not "demonstrate" a violation because their petitions called for further investigation and analysis, a task the Administrator found to be more appropriately carried out through the CAA's enforcement process. The petitioners argue that the CAA grants the Administrator no such discretion.
Title V of the CAA requires major stationary sources of air pollution to obtain operating permits incorporating the CAA's requirements and establishes a procedure for federal authorization of state-run Title V permitting programs. See id. §§ 7661-7661f. Title V does not impose additional requirements on sources but rather consolidates all applicable requirements in a single document to facilitate compliance. See id. § 7661a(a). In Illinois, a polluting source must apply to the IEPA for an operating permit. After negotiations between the IEPA and the source and an opportunity for public comment, the IEPA submits a draft permit to the EPA for review. See id. § 7661d. The EPA has 45 days to object. If the EPA does not object, within 60 days of the expiration of the 45-day review period any person may petition the EPA to object to the permit. The EPA then has 60 days to grant or deny the petition. The EPA must object to the permit "if the petitioner demonstrates to the Administrator that the permit is not in compliance with the requirements" of the CAA. Id. § 7661d(b)(2). The denial of a petition is then subject to judicial review. Id. §§ 7607(b)(1), 7661d(b)(2).
Permit applications must include a compliance plan "describing how the source will comply with all applicable requirements" of the CAA. Id. § 7661b(b)(1). If a source is in compliance, it must provide a statement that it will continue to comply with the requirements of the CAA and will timely meet any additional applicable requirements that become effective during the permit term. 40 C.F.R. § 70.5(c)(8)(ii)(A), (B). If a source is not in compliance, it must develop a "schedule of compliance," outlining how it plans to come into compliance with "all applicable requirements" of the CAA. Id. § 70.5(c)(8)(iii)(C). The schedule of compliance must be included in the permit itself. 42 U.S.C. § 7661c(a). And the permittee must promptly report any deviations from the permit's requirements. Id. § 7661b(b)(2).
In addition to permitting authority, the CAA provides the EPA with enforcement powers. If the Administrator finds that a source "has violated or is in violation of any requirement or prohibition of an applicable implementation plan or permit," he must notify the source and the state by issuing a notice of violation (NOV). Id. § 7413(a)(1). The Administrator then has several options: (1) issue an order requiring compliance, (2) render an administrative penalty, or (3) bring a civil action. Id. Under the latter enforcement option, the United States, on behalf of the EPA, may sue for a permanent or temporary injunction, to assess and recover a civil penalty, or both. Id. § 7413(b). In addition, a citizen's suit provision generally authorizes "any person [to] commence a civil action . . . against any person . . . who is alleged to have violated . . . an emission standard or limitation" of the CAA. Id. § 7604(a)(1).
Midwest Generation is an operator of multiple, large, coal-fired power plants in Illinois. Our case involves six of those plants: the Fisk, Crawford, Will County, Powerton, Joliet, and Waukegan stations.*fn1 Midwest's predecessor, Commonwealth Edison, originally submitted applications to the IEPA for Title V operating permits back in 1995. The IEPA then proposed permits, which prompted petitions requesting that the Administrator object. After reviewing the proposed permits, the EPA concluded that the IEPA had failed to respond to significant public comments and directed it to respond to concerns about the need for compliance schedules for alleged opacity*fn2 and new source review (NSR)*fn3 violations. The IEPA responded and proposed revised permits, none of which contained a compliance schedule.
The EPA did not object to the IEPA's revised permits within the 45-day period. The Illinois attorney general and the environmental groups then filed petitions requesting that the Administrator object to the permits. The petitions raised two grounds for objection: (1) Midwest's power plants regularly exceeded opacity limits, yet the IEPA's proposed operating permits did not include a schedule of compliance; and (2) Midwest had "modified" its power plants, thereby making NSR provisions "applicable requirements," but the IEPA's proposed operating permits failed to require compliance with NSR rules.
The Administrator denied the petitions in three orders, the content of which is almost identical.*fn4 Regarding opacity requirements, the Administrator found that the petitioners failed to demonstrate an ongoing violation requiring a schedule of compliance. His finding was based on two facts: (1) the IEPA reviewed each source's opacity data and did not find a sufficient basis to include a compliance schedule in the permits; and (2) each source submitted a compliance certification. The Administrator concluded that "the Title V petition process is not the appropriate venue to drive discretionary enforcement decisions of the permitting authority, particularly when the petitioner fails to demonstrate that a violation of the Act has occurred."
Regarding NSR requirements, the Administrator found that the petitioners failed to demonstrate that the permits violated the CAA. His finding was based on the fact that Midwest had not applied for any NSR permits; therefore, there was no determination that NSR requirements applied to the plants at issue. In addition, no court had issued an order finding that Midwest violated the CAA by failing to apply for NSR permits. As a result, the Administrator found that "the allegations made by the Petitioners do not contain sufficient specific information to demonstrate that the . . . permits are deficient." He concluded that the issue called for further investigation, which the EPA prefers to do through its enforcement arm. Relatedly, the Administrator noted that the IEPA added a condition to the permits to ensure that they would not be "shielded" from an enforcement action.
A short time after the Administrator denied the petitions to object, the EPA issued an NOV to Midwest and its predecessor, finding opacity and NSR violations at the six plants at issue here. The Illinois attorney general subsequently appealed the decisions denying her petitions to object (Nos. 07-3198 and 07-3199), seeking review of both the opacity and NSR issues. The environmental groups also appealed the decision denying their petition to object (No. 07-3197) but only sought review of the opacity issue.
Because the CAA does not provide a standard of review, we review the EPA's decision under the Administrative Procedure Act (APA), which contemplates setting aside agency actions only if they are "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law[.]" 5 U.S.C. § 706(2)(A). Chevron deference also guides our analysis. It first instructs us to determine whether Congress has spoken directly to the issue-that is, whether the statute in question is unambiguous. Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842-43 (1984). If Congress's intent is clear from the statutory language, we must give effect to it. However, if the statute is silent or ambiguous, we proceed to the second step and defer to an agency's interpretation unless it fails the APA's "arbitrary and capricious" test. Id. at 844.
The petitioners contend that because the CAA is unambiguous, we need not reach the second step of the Chevron analysis. Even if we proceed to step two, however, they argue that we cannot uphold the Administrator's decision because his rationale does not purport to interpret the CAA but rather to implement an agency policy absent from and inconsistent with the CAA. The EPA, on the other hand, cautions that we should be especially mindful of the high level of deference an agency is owed when it interprets its own regulations. See Barnhart v. Walton, 535 U.S. 212, 217 (2002). It directs us to the relevant statutory language in the permit-objection process: "The Administrator shall issue an objection within such period if the petitioner demonstrates to the Administrator that the permit is not in compliance with ...