Nw. Nat. Gas Co. v. Envtl. Quality Comm'r

542 P.3d 71

329 Or.App. 648

NORTHWEST NATURAL GAS COMPANY, Avista Corporation, and Cascade Natural Gas Corporation, Petitioners,

v.ENVIRONMENTAL QUALITY COMMISSION, Respondent,andNatural Resources Defense Council, Intervenor-Respondent,

and

Beyond Toxics, Climate Solutions, Environmental Defense Fund, Oregon Business Alliance for Climate-dba Oregon Business For Climate, and Oregon Environmental Council, Intervenors-Respondents.

Oregon Farm Bureau Federation; Oregon Business & Industry Association; Oregon Manufacturers and Commerce; Alliance of Western Energy Consumers; Associated Oregon Loggers, Inc.; Northwest Pulp and Paper Association; Oregon Association of Nurseries; Oregon Forest And Industries Council; Oregon Trucking Associations, Inc.; Western Wood Preservers Institute; Otley Land and Cattle, LLC; and Space Age Fuel, Inc., Petitioners,

National Federation of Independent Business, Intervenor-Petitioner,

v.Environmental Quality Commission, Respondent.

Western States Petroleum Association, Petitioner,

v.Environmental Quality Commission, Respondent.

Environmental Quality Commission

A178216 (Control)

A178217

A178218

Court of Appeals of Oregon.

Argued and Submitted September 29, 2023

December 20, 2023

Megan H. Berge, California, argued the cause for petitioners Northwest Natural Gas Company, Avista Corporation, and Cascade Natural Gas Corporation. Also on the briefs were Clifford S. Davidson, Drew L. Eyman, and Snell & Wilmer LLP; and Sterling Marchand, Scott Novak, and Baker Botts L.L.P., California.

Rachel C. Lee, Portland, argued the cause for petitioners Oregon Farm Bureau Federation, Oregon Business & Industry Association, Oregon Manufacturers and Commerce, Alliance of Western Energy Consumers, Associated Oregon Loggers, Inc., Northwest Pulp and Paper Association, Oregon Association of Nurseries, Oregon Forest and Industries Council, Oregon Trucking Associations, Inc., Western Wood Preservers Institute, Otley Land and Cattle, LLC, and Space Age Fuel, Inc. Also on the briefs were Thomas R. Wood, Geoffrey B. Tichenor, and Stoel Rives LLP.

Steven G. Liday, Portland, argued the cause for petitioner Western States Petroleum Association. Also on the briefs were Joshua M. Sasaki, Ivan Resendiz Gutierrez, Katelyn J. Fulton, and Miller Nash LLP.

Carson L. Whitehead, Assistant Attorney General, argued the cause for respondent Environmental Quality Commission. Also on the brief were Ellen F. Rosenblum, Attorney General, and Benjamin Gutman, Solicitor General.

Daniel C. Snyder, Portland, and Public Justice, Washington, D. C., and Pete Huffman and Natural Resources Defense Council, Washington, D. C., filed the brief for intervenor-respondent Natural Resources Defense Council.

Rachel C. Lee, Portland, argued the cause for intervenor-petitioner National Federation of Independent Business. Also on the briefs were Thomas R. Wood, Geoffrey B. Tichenor, and Stoel Rives LLP.

Maura C. Fahey, Portland, argued the cause for intervenor-respondents Beyond Toxics, Climate Solutions, Environmental Defense Fund, Oregon Business for Climate, and Oregon Environmental Council. Also on the brief were Erin Hogan-Freemole and Crag Law Center.

C. Robert Steringer, Erica Tatoian, Portland, and Harrang Long Gary Rudnick P.C. filed the brief amicus curiae for Office & Professional Employees International Union, Local 11.

Sadie Normoyle and Western Environmental Law Center filed the brief amicus curiae for Affiliated Tribes of Northwest Indians.

Jonah Sanford and Northwest Environmental Defense Center filed the brief amicus curiae for Northwest Environmental Defense Center, Pineros Y Campesinos Unidos del Noroeste, Oregon Public Health Association, Leslie Hammer, Ph.D., Our Climate, NAACP Eugene-Springfield Branch #1119, and Community Energy Project.

Molly Tack-Hooper and Earthjustice (Washington) filed the brief amicus curiae for Rogue Climate, Verde, and Columbia River-keeper.

Jesse A. Buss, Bridgett Chevallier, and Willamette Law Group, PC, filed the brief amicus curiae for New Seasons Market LLC, SERA Architects, Inc., Indow, Neil Kelly Company, and Friends of Family Farmers.

Before Egan, Presiding Judge, and Kamins, Judge, and Kistler, Senior Judge.

KAMINS, J.

Petitioners challenge the validity of the administrative rules that establish the Climate Protection Program, OAR 340-271-0010 to 340-271-9000 (the CPP rules).¹ Those rules impose "cap and reduce" regulations on the distribution of fossil fuels in the State of Oregon and require certain large stationary sources to limit their emissions from industrial processes.

Pursuant to ORS 183.400,² petitioners raise numerous assignments of error, con- tending that the CPP rules are invalid. In this opinion, we address only one of those assignments, because it is dispositive regarding the validity of the CPP rules. Specifically, we agree that the Environmental Quality Commission (EQC), in adopting the CPP rules, did not comply with the heightened disclosure requirements applicable to it when it adopts rules that apply to entities required to obtain Title V permits under the federal Clean Air Act (Title V sources). ORS 468A.327(1).³

Because EQC, when adopting the CPP rules, did not comply—or even substantially comply—with the heightened disclosure requirements applicable to it when adopting rules that apply to Title V sources, we conclude that the CPP rules are invalid.

I. BACKGROUND

The Legislative Assembly has recognized that global warming "poses a serious threat to the economic well-being, public health, natural resources and environment of Oregon."⁴ ORS 468A.200(3). Greenhouse gases (GHG) are gasses which "contribute[ ] to anthropogenic. global warming." ORS 468A.210(2).

In 2020, recognizing the danger posed to Oregonians by GHG, then Governor Brown issued Executive Order 20-04, in which she directed EQC and the Department of Environmental Quality (DEQ) to develop rules establishing a sector specific GHG "cap and reduce program." Specifically, Governor Brown directed EQC and DEQ to "take actions necessary" to "cap and reduce" GHG emissions from large stationary sources, from transportation fuels, and from all other liquid and gaseous fuels.

In accordance with that directive, EQC and DEQ engaged in an extensive and public process to develop the CPP rules. As adopted, the rules aim to, among other things, "reduce greenhouse gas emissions from sources in Oregon." OAR 340-271-0010(3).

The CPP rules aim to reduce greenhouse gas emissions in two ways. First, they create a cap-and-reduce system under which DEQ distributes compliance instruments to covered fuel suppliers, with each compliance instrument authorizing the equivalent of one metric ton of carbon dioxide emissions. Second, they impose a technology and operations-based standard on certain large stationary sources that requires those sources to determine the best available emissions reductions and then take steps to achieve those reductions.

On review, in additional to various substantive challenges to the rules, one group of petitioners argues that the rules are invalid because they were not adopted in compliance with disclosure requirements for rulemaking in ORS 468A.327(1), which, as noted above, imposes heightened disclosure requirements for rulemaking when those rules apply to Title V sources. In response, EQC does not dispute that it did not comply with the requirements of ORS 468A.327(1). It contends, however, that we should not invalidate the CPP rules, because EQC "substantially complied" with those requirements.

As explained further below, we conclude that in a rule challenge pursuant to ORS 183.400(4)(c), the standard under which we review EQC’s compliance with ORS 468A.327(1) is, simply, whether EQC complied with ORS 468A.327(1), not whether EQC "substantially complied," as EQC contends. Further, we conclude that, even if EQC is correct that it needed to only "substantially comply" with ORS 468A.327(1), it failed to do so. As a result, we conclude that the CPP rules are invalid.

II. ANALYSIS

We first explain why, in this rule challenge under ORS 183.400(4)(c), we review for EQC’s compliance with the rulemaking procedures set forth in ORS 468A.327(1), not substantial compliance. We then explain that EQC failed to comply with ORS 468A.327(1) and that, even if substantial compliance was the standard, EQC failed to substantially comply with ORS 468A.327(1). Finally, we explain why our conclusions regarding compliance render the CPP rules invalid.

A. EQC Was Required to Comply with ORS 468A.327.

As noted, petitioners bring this rule challenge pursuant to ORS 183.400. "Under ORS 183.400(1), ‘any person’ may petition this court to determine the validity of a rule." Ciecko v. DLCD, 290 Or App 655, 661, 415 P.3d 1122 (2018) (some internal quotation marks omitted).

[1, 2] Our review of an administrative rule under ORS 183.400 "is limited to an examination of the rule under review, the statutory provisions authorizing the rule, and the documents necessary to demonstrate compliance with the applicable rulemaking procedures." Id. (citing ORS 183.400(3)). "After the limited examination, a court invalidates an administrative rule only if it finds that the rule violates constitutional provisions, exceeds the statutory authority of the agency that adopted the rule, or was adopted without compliance with the applicable rulemaking procedures." Id. (citing ORS 183.400(4)).⁵

As a threshold issue, the parties dispute what standard this court applies when deciding whether to invalidate rules based on petitioners’ procedural objections under ORS 183.400(4)(c). EQC, citing ORS 183.335(11)(a), contends that this court reviews the adequacy of EQC’s notice of proposed rulemaking for "substantial compliance" with ORS 468A.327(1). As described more fully below, ORS 183.335 requires administrative agencies to publish a notice of proposed rulemaking prior to rulemaking, sets forth certain requirements for the contents of that notice, and provides that "a rule is not...