Earlier this year, we wrote about the consequences of Houston’s failure to meet a thirty year old one-hour ozone pollution standard. The federal Clean Air Act imposes a penalty fee on major sources of ozone-producing pollutants in areas, like Houston, that have failed to attain this standard. In 2009, the Texas Commission on Environmental Quality (TCEQ) proposed a rule to begin collecting these fees, which are called section 185 fees after the section in the Clean Air Act that imposes them. It was estimated that Texas would collect between $73 and $125 million in section 185 fees per year for the Houston-Galveston-Brazoria (HGB) area.
For reasons related to shifting Environmental Protection Agency (EPA) policy and Texas’ status under another, more recent ozone standard, TCEQ’s 2009 rule was never finalized. In our last writing on the issue, we expressed our hope that the fees would eventually be collected and the money used to improve air quality in the Houston area.
Now, three years after TCEQ proposed its original section 185 fee rule, the Commission has proposed a new rule. Unfortunately, the new rule makes it apparent that TCEQ has no intention of ever collecting any fees. It is possible, though unlikely, that EPA could review Texas’ rule and conclude that it doesn’t satisfy the requirements of federal law. If this happened, EPA would be required to collect the money itself. Although this is a remote possibility, it highlights the fact that Texas should have a robust section 185 rule that ensures that this money stays in the Houston area where it belongs.
A section 185 fee program that complied with the unambiguous requirements of the Clean Air Act would collect a fee per ton of emissions of certain ozone precursors – volatile organic compounds (VOCs) and nitrogen oxides (NOx) – emitted in excess of 80% of an established baseline amount. The fee, adjusted for inflation, amounts to $8,630 per ton in 2008, the first year it should have been collected in Houston. The fees, which could approach $100 million each year, would be collected from major sources of emissions in Houston and, ideally, be used to reduce air pollution in the Houston area. They would also serve as a powerful economic incentive for industry to cut emissions.
TCEQ’s proposed section 185 fee rule does not follow this model. It seems to have been designed to ensure that polluters won’t ever pay a dime. To begin with, the TCEQ proposes to let industry offset its fee obligation against money that is already being collected from Houston area residents for other pollution reduction programs: the Texas Emissions Reduction Plan (TERP) and the Vehicle Inspection and Maintenance (VIM) program. TERP and VIM collect money from drivers upon inspection and registration renewal and then are supposed to use those funds for various air quality improvement programs. But, as Texas’ budget woes have increased in recent years, the state has begun holding on to this money as a way of artificially balancing the state budget. In the last biennial budget, Texas sat on $130 million in TERP money. This money should have been used to replace or upgrade heavy-duty diesel-powered trucks, machinery, train engines and construction vehicles.
Under the newly proposed section 185 fee rule, Texas would offset the penalty fees owed by major sources in the Houston area using unspent TERP and VIM money. If Texas doesn’t spend that money during the next year, it could credit it against its fee obligation again. In other words, Texas now has another incentive not to spend money it collects from Houston area drivers for pollution reduction programs: using money that you and I have paid to excuse big polluters from paying fees they owe under federal law.
TCEQ doesn’t even hide the fact that it intends to forgive polluters the entire amount they owe. After some back-of-the-envelope calculations in the rule package proposing the section 185 fee rule, TCEQ declares that “this [TERP and VIM] revenue could be used to fully offset the area's fee obligation and no fee would be assessed on major stationary sources for a particular calendar year.”
What’s more, this is only one way that Texas is thumbing its nose at federal law. The Clean Air Act requires that section 185 fee collection apply retroactively. Polluters owe fees back to 2008 – the year after the HGB area failed to attain the ozone standard. Texas gives another huge break to polluters by ignoring this federal mandate and declaring that it won’t collect fees until the year preceding the adoption date of its section 185 fee rules. That’s 2012 at the earliest, which means Texas is forgiving nearly half a billion dollars in fees that could be used for pollution reduction programs in our area while also holding on to over $100 million plus dollars that we have already paid and should also be used for programs that make our air cleaner.
And let’s not forget that if EPA rejects the Texas program, the federal government is then required to collect any fees that Texas fails to collect. With interest.
That’s money that could leave Texas forever and enrich the federal government – a prospect that should frighten even the most hardened federalists.
The proposed rule abounds with such bizarre and unnecessary measures. Federal law requires that section 185 fees are collected until the EPA finds that the HGB area has attained the one-hour ozone standard. TCEQ’s rule puts the fee program on hold as soon as it has air quality data that suggests that the area will attain. TCEQ has also defined baseline emissions in a way that is contrary to Clean Air Act requirements and allows sources to inflate their baselines by using outdated historical allowable emissions and including unauthorized maintenance/startup/shutdown emissions. This means that it is unlikely that very many sources will exceed 80% of their baselines and face significant fee obligations anyway.
Remember the TERP and VIM money that Texas is going to use to forgive section 185 fees? Money that Texas should already be spending on pollution reduction programs, but isn’t? TCEQ has decided that even though it won’t collect section 185 fees retroactively, it will go ahead and reach back to 2008 to credit TERP and VIM money against the 185 fee obligation.
Got that? Texas explicitly contradicts federal law to forgive polluters several years of retroactive penalty fees, but it uses the concept of retroactivity from that same law to conjure up a huge pile of money that it pretends already satisfies the penalty fee obligation.
Never mind that TERP and VIM money has already been collected for years. Or that the only reason we have so much of it on-hand is that we refuse to spend it on the very projects it was designed to fund. Or that there is nothing in federal law that allows us to credit anything against our section 185 fee obligation. TCEQ has created from whole cloth a bizarre method to forgive penalties that should be assessed against the major polluters who carry equal responsibility for the poor air quality that led to the imposition of those penalties in the first place by not spending money that residents of our region have been paying in order to clean up our air. We should all, in short, be completely outraged by this slight of hand.
If there were any doubt that TCEQ doesn’t intend to collect any fees under the section 185 program, we need only look at one final provision of the proposed rule. The rule says that polluters must pay fees within 30 days of receiving an invoice. What it doesn’t say, is when—or if—the invoices will be sent.
That’s right: there is nothing in TCEQ’s proposed rule that requires the Commission to send section 185 fee invoices.
You can learn more about TCEQ’s proposed section 185 fee rule here.
Thank you to Gabriel Clark-Leach of Environmental Integrity Project for contributing research to this report.