FOR PUBLICATION

ATTORNEY FOR APPELLANT:         ATTORNEYS FOR APPELLEES:
                                Attorneys for Ind. Dept. of Environmental
                                Management
KIM E. FERRARO                  GREGORY F. ZOELLER
Hoosier Environmental Council   Attorney General of Indiana
Valparaiso, Indiana
                                                                 Apr 30 2013, 9:12 am
                                ANDREW R. FALK
                                Deputy Attorney General
                                Indianapolis, Indiana

                                Attorneys for Central Indiana Ethanol, Inc.
                                ANTHONY C. SULLIVAN
                                E. SEAN GRIGGS
                                MARK J. CRANDLEY
                                TIMOTHY A. HALEY
                                Barnes & Thornburg
                                Indianapolis, Indiana

                                Attorneys for Andersons Clymers Ethanol, LLC
                                JOHN E. HALLER
                                Shumaker, Loop & Kendrick, LLP
                                Columbus, Ohio

                                LOUIS E. TOSI
                                JOSEPH S. SIMPSON
                                Shumaker, Loop & Kendrick, LLP
                                Toledo, Ohio

                                Attorneys for Green Plans Bluffton, LLC
                                VICKI J. WRIGHT
                                BRYAN S. STRAWBRIDGE
                                Krieg DeVault LLP
                                Indianapolis, Indiana

                                Attorneys for Poet Biorefining-North
                                Manchester, LLC and Poet Biorefining-
                                Cloverdale
                                TERRI A. CZAJKA
                                Ice Miller LLP
                                Indianapolis, Indiana
                        IN THE
           COURT OF APPEALS OF INDIANA
______________________________________________________
NATURAL RESOURCES DEFENSE COUNCIL, )
                                    )
      Appellant-Respondent,         )
                                    )
             vs.                    )                    No. 49A02-1205-MI-423
                                    )
POET BIOREFINING-NORTH MANCHESTER, )
LLC, POET BIOREFINING-CLOVERDALE,   )
LLC, CENTRAL INDIANA ETHANOL, INC., )
and INDIANA DEPARTMENT OF           )
ENVIRONMENTAL MANAGEMENT,           )
                                    )
      Appellees-Petitioners,        )
                                    )
GREEN PLAINS BLUFFTON, LLC, and     )
ANDERSON CLYMERS ETHANOL, LLC,      )
                                    )
      Appellees-Intervenors.        )


                  APPEAL FROM THE MARION SUPERIOR COURT
                          The Honorable David J. Certo, Judge
                     The Honorable Valerie Horvath, Commissioner
       Cause Nos. 49F12-1102-MI-5363, 49F12-1102-MI-5373, 49F12-1102-MI-5298

                                      April 30, 2013

                            OPINION - FOR PUBLICATION

MAY, Judge


       In 2010 the Indiana Department of Environmental Management (IDEM) issued

permits to some fuel-grade ethanol production facilities. The permits did not categorize the

facilities as “chemical process plants”, as such facilities had been categorized in the past.


                                             2
Facilities identified as “chemical process plants” are permitted to emit only 100 tons of

certain air pollutants per year, while facilities not so identified may emit up to 250 tons of

certain air pollutants per year.

          The Natural Resources Defense Council (NRDC) challenged IDEM’s classification of

    the ethanol production facilities outside the category of “chemical process plants,” and

IDEM’s Office of Environmental Adjudication (OEA) determined the facilities should have

been categorized as “chemical process plants.” The facilities appealed to the Marion

Superior Court, which reversed the OEA’s determination such that the plants again were

excluded from the category of “chemical process plants.”

          The issue before us is whether the State could properly exclude fuel-grade ethanol

production plants from the category of “chemical process plants” without Environmental

Protection Agency (EPA) approval of a modification to the Indiana State Implementation

Plan (SIP). As it could not, the ethanol plants remain “chemical process plants,” and we

must reverse the trial court.1




1
  The appellees also argued before the trial court that it should have stayed this action pending a decision by
the Circuit Court of the District of Columbia on a challenge to a 2007 EPA rule that excluded fuel-grade
ethanol production plants from the “chemical process plant” category. As Indiana’s failure to modify its own
SIP to exclude fuel ethanol plants from the more strict pollution limits is determinative of the result herein, we
need not stay this action.
  One Appellee, Green Plains Bluffton, argues NRDC does not have standing to bring this action. The OEA
found NRDC had “associational standing” to sue on behalf of its members. (App. at 18.) Green Plains does
not challenge that OEA determination, and the trial court did not address standing. Green Plains now argues
NRDC is alleging the permits do not comply with the SIP, and it asserts “the sole remedy is under 42 U.S.C. §
7509” and only the EPA may make such a challenge. (Br. of Appellee Green Plains Bluffton, LLC at 14.) 42
U.S.C. § 7509 addresses sanctions the EPA may impose on states that have not submitted or implemented
plans to address areas designated as “nonattainment.” As the case before us does not involve “sanctions” or
“nonattainment areas,” we decline to hold NRDC lacks standing.
                                                        3
                            FACTS AND PROCEDURAL HISTORY

        The Clean Air Act creates a comprehensive scheme for controlling air quality through

federal and state regulation. Congress and the EPA set national minimum air-quality

standards, but the states have primary responsibility for assuring air quality. The states

accomplish this task by promulgating regulations in the form of the SIP. Each state’s SIP

must set air-quality standards that are at least as stringent as those established by the Clean

Air Act and its implementing regulations. The SIP becomes federal law once the EPA

approves it,2 and it cannot be changed unless and until the EPA approves any change. Safe

Air for Everyone v. U.S. E.P.A., 488 F.3d 1088, 1097 (9th Cir. 2007). Consequently, a state’s

interpretation of the regulations incorporated into the SIP, even if binding as a matter of state

law, is not directly dispositive of the meaning of the SIP under federal law. Federal law does

not prevent a state from having a broader or more stringent regulatory program than is

required by federal law.3 See Ind. Dept. of Envtl. Mgmt. v. Twin Eagle LLC, 798 N.E.2d 839,

842 (Ind. 2003) (addressing Clean Water Act).

        One part of the Clean Air Act that works through the SIPs is the prevention-of-

significant-deterioration (PSD) program, which seeks to prevent significant deterioration of


2
  The trial court found, among other things: “The Indiana legislature made its intent clear” when it amended
the Indiana Code to exclude fuel ethanol plants. (App. at 11.) As the Indiana SIP became federal law when
the EPA approved it, the significance of any expression of “intent” by the Indiana legislature is not apparent.
3
  The trial court’s decision appears to be premised in part on its determination that because the EPA decided in
2007 to exclude ethanol plants from the more stringent pollution limitations applicable to chemical process
plants, the “legislative intent regarding the definition of ‘chemical process plant’ was made clear when the
EPA issued its Final Rule.” (App. at 11.) As Federal law does not prevent a state from having a broader or
more stringent regulatory program, we decline to find a change in the EPA rule, without more, indicates a
“legislative intent” that Indiana’s regulation become less stringent.
                                                       4
air quality in certain areas. 42 U.S.C. § 7470-79. The ethanol plants at issue in the case

before us are located in such areas. The PSD program applies to “major emitting facilities,”

and the definition of “major emitting facility” for PSD purposes includes “chemical process

plants.” 42 U.S.C. § 7479. A “major emitting facility” is a stationary source of air pollutants

that emits, or has the potential to emit, one hundred tons per year or more of any air pollutant

from certain types of stationary sources, including chemical process plants. Id. Such

facilities have two emission thresholds. If a facility falls within one of twenty-eight listed

“industrial categories,” it is subject to the 100 ton-per year emissions limit. One of those

categories is “chemical process plant.” Id. If it is outside one of those listed industrial

categories, it may emit pollutants at a 250 ton-per-year limit. Id.

           The Indiana SIP provides that federal PSD regulations and Indiana Air Pollution

Control Board rules are incorporated by reference. The SIP has been in effect in its current

form4 since 2001, and the 2001 version of the Indiana SIP was the last one to be approved by

the EPA.

          A SIP is to provide for revision “as may be necessary to take account of revisions of

such national primary or secondary ambient air quality standard or the availability of

improved or more expeditious methods of attaining such standard.” 42 U.S.C. § 7410. But

modifications or revisions are not effective unless approved by the EPA. Sierra Club v.

Indiana-Kentucky Elec. Corp., 716 F.2d 1145, 1152 (7th Cir. 1983).

          Pollutant-emitting activities are classified by “industrial groupings.” Activities are


4
    There have been minor revisions not relevant to this case.
                                                       5
“considered as part of the same industrial grouping if they belong to the same major group,

for example, that have the same first two (2) digit code, as described in the Standard

Industrial Classification Manual, 1972, as amended by the 1977 Supplement (U.S.

Government Printing Office).” 326 Ind. Admin. Code 2-2-1(j). Fuel ethanol plants are, for

purposes of the Indiana SIP, “chemical process plants” because they are within that industrial

grouping. Specifically, at the time the Indiana SIP was approved, fuel ethanol plants were

included in Major Group 28 as “Industrial Organic Chemicals, Not Elsewhere Classified.”

(App. at 54-55.) Included in that subcategory was “Ethanol, industrial.” (Id. at 55.)

       In 2007, the EPA promulgated a final rule that excluded fuel ethanol plants from the

definition of “chemical process plant.” 72 Fed. Reg. 24059. In its 2006 proposal to amend

the rule that resulted in the 2007 final rule, the EPA noted:

       [O]ne of the source categories in the list of 28 source categories included in the
       “major emitting facility” definition (and in the NSR and title V regulations) is
       chemical process plants. The major group SIC [Standard Industrial
       Classification] code (2-digit SIC code) in which chemical process plants falls
       is major group 28 -- “Chemicals and Allied Products.” The 4-digit SIC code
       which is directly applicable to the production of ethanol for fuel is SIC code
       2869—“Industrial Organic Chemicals, Not Elsewhere Classified.” “Ethanol,
       industrial” and “Ethyl alcohol, industrial (nonbeverage)” are both listed in the
       SIC Manual as a specific product within this 4-digit category.

71 Fed. Reg. 12240-01 (footnote omitted). The EPA went on to note that “[g]iven that

ethanol fuel production is specifically listed under the 2-digit ‘Major Group’ SIC code of 28

in the SIC manual . . . [the] EPA has historically required production facilities or units which

produce ethanol fuel to be classified as chemical process plants . . . subject to the 100 tons

per year threshold under PSD.” Id. at 12244.

                                               6
       The trial court found that, before 2007, the EPA and IDEM “consistently licensed fuel

ethanol plants as ‘chemical process plants’ subject to [the 100 tons-per-year emissions

limit].” (App. at 9.) In 2007, the EPA issued a final rule that provided facilities that produce

ethanol fuel would be excluded from the definition of “chemical process plants” so such

plants could emit pollutants at the higher level. 72 Fed. Reg. 24060-01 (May 1, 2007). In

2011, IDEM issued a “nonrule policy document” that noted the 2007 EPA rule change and

stated its position that ethanol plants were not “chemical process plants.”

http://www.in.gov/idem/files/nrpd-air_035.pdf (last visited March 13, 2013).

       The Indiana legislature passed a law providing ethanol plants were not “chemical

process plants”:

       For purposes of rules adopted by the board, a reference to “chemical process
       plants” does not include an ethanol production operation that:
       (1) produces ethanol by natural fermentation after July 2, 2007; and
       (2) is included in the North American Industry Classification System (NAICS)
       code:
                (A) 325193 (Ethyl Alcohol Manufacturing); or
                (B) 312140 (Distilleries);
       as described in 72 FR 24059 et seq. (May 1, 2007).

Ind. Code § 13-17-3-4(e). IDEM promulgated a rule to the same effect.

       (ff) “Major stationary source” means the following:
              (1) Any of the following stationary sources of air pollutants that are
              located or proposed to be located in an attainment or unclassifiable area
              as designated in 326 IAC 1-4 and that emit or have the potential to emit
              one hundred (100) tons per year or more of any regulated NSR
              pollutant:
                                           *****
                     (U) Chemical process plants, excluding ethanol production
                     facilities that produce ethanol by natural fermentation included
                     in North American Industry Classification System (NAICS)

                                               7
                     codes 325193 for Ethyl Alcohol Manufacturing or 312140 for
                     Distilleries, as revised in 2007.

326 Ind. Admin. Code 2-2-1(ff)(1)(U). But the Indiana SIP, through which the state

implements the federal Clean Air Act, was never modified, such that the modified version

could be approved by the EPA.

       The EPA apparently contemplated that states would want to follow suit and change

their SIPs accordingly: “we encourage such State, local and tribal authorities in such areas to

make such SIP or title V program changes in the future to enhance the clarity of the existing

rules.” 72 Fed. Reg. 24074-75. However, it also noted “it may not be necessary for a State .

. . to revise its SIP or Title V programs to begin to implement these changes.” Id. at 24074.

Some authorities, the EPA said, “may be able to adopt these changes through a change in the

interpretation of the term “chemical process plant” without the need to revise the SIP.” Id. at

24074. The EPA did not specify which authorities could adopt the changes through

“interpretation.”

       NRDC challenged certain permits IDEM issued that did not subject the ethanol plants

to the 100 ton per year limit. The OEA determined IDEM had improperly categorized the

facilities. As the facilities were chemical process plants, the OEA held, the fuel ethanol

plants should have been subject to the lower pollution limits.

       IDEM and certain ethanol plant operators appealed and the Marion Superior Court

reversed the OEA. The court found the EPA approved a 2003 amendment to the Indiana SIP

that incorporated the Indiana PSD program, but IDEM had not submitted a formal request to


                                              8
EPA to amend the PSD program. It noted the term “chemical process plant” had been a part

of the Indiana PSD rules since 1980. The term had been subject to multiple interpretations

by federal and state agencies that administered the program, but before 2007, both the EPA

and IDEM had “consistently licensed fuel ethanol plants as ‘chemical process plants’ subject

to” the 100 ton-per-year limit. (App. at 9.) The court noted the 2007 EPA rule that excluded

fuel ethanol plants from the category of chemical process plants, but found no amendment to

the Indiana SIP was submitted to or approved by the EPA. Nonetheless, the trial court found

“the Indiana legislature made its intent clear when it amended Indiana statute to specifically

exclude ethanol production plants from the definition of ‘chemical process plant’ in Ind.

Code § 13-14-3-4(3),”5 (Id. at 11), and IDEM amended the Indiana Administrative Code to

the same effect. The trial court characterized the EPA rule and the Indiana actions as

“clarifications,” (Id. at 11), of the definition6 of “chemical process plant,” and reversed the

OEA based on what it characterized as those expressions of “legislative intent.” (Id.)




5
  We find no “definition” of “chemical process plant” in the Indiana Code, nor do we find any such section in
the Code. The trial court may have been referring to Ind. Code § 13-17-3-4(e), which provided:

        For purposes of rules adopted by the board, a reference to “chemical process plants” does not
        include an ethanol production operation that:
        (1) produces ethanol by natural fermentation after July 2, 2007; and
        (2) is included in the North American Industry Classification System (NAICS) code:
        (A) 325193 (Ethyl Alcohol Manufacturing); or
        (B) 312140 (Distilleries)[.]

6
  While the trial court found the legislative and administrative actions clarified that “definition,” it also noted
“[t]there is not a universally accepted definition of chemical process.” (App. at 8 n.3.)

                                                        9
                             DISCUSSION AND DECISION

       The Administrative Orders and Procedures Act (AOPA) limits judicial review of

agency action. Agency action subject to AOPA will be reversed only if a person seeking

judicial relief has been prejudiced by an agency action that is: (1) arbitrary, capricious, an

abuse of discretion, or otherwise not in accordance with law; (2) contrary to constitutional

right, power, privilege, or immunity; (3) in excess of statutory jurisdiction, authority, or

limitations, or short of statutory right; (4) without observance of procedure required by law;

or (5) unsupported by substantial evidence. Huffman v. Office of Envtl. Adjudication,811

N.E.2d 806, 809 (Ind. 2004) (citing Ind. Code § 4-21.5-5-14). We give deference to an

administrative agency’s findings of fact, if supported by substantial evidence, but review

questions of law de novo. Id.

       The trial court acknowledged IDEM submitted no request to amend its SIP, and the

EPA has approved no such change. But the court characterized the EPA’s action changing

the categorization of ethanol plants as a “clarification made by subsequent changes to EPA

rule,” (App. at 11), and it found the “Indiana legislature made its intent clear” when it

amended the Indiana Code to the same effect. As the EPA rule change was more than a mere

“clarification,” Indiana was obliged to seek approval of an amendment to its SIP. Because it

did not, the OEA was correct that the facilities were chemical process plants pursuant to the

Indiana SIP and permits allowing pollutant emissions at the 250 ton-per-year level should not

have been issued absent an EPA-approved change in the Indiana SIP.

       In its 2007 Final Rule excluding ethanol plants from the category of chemical process

                                             10
plants, the EPA was explicit that its action followed from its proposal “to change the

definition of ‘chemical process plants’” to exclude fuel ethanol facilities. 71 Fed. Reg. at

24062. The EPA could not have so “changed the definition” to that effect had fuel ethanol

plants not previously been considered “chemical process plants.” As the Indiana SIP was not

amended to similarly change the definition of chemical process plants, fuel ethanol plants in

Indiana remain in that category.

        Further, as stated above, the EPA explicitly contemplated its 2007 definitional change

would implicate state SIPs. In its final rule, the EPA said “we encourage such State, local

and tribal authorities in such areas to make such SIP or title V program changes in the future

to enhance the clarity of the existing rules.”7 Id. at 24075. As Indiana never submitted and

the EPA never approved an amendment to the Indiana SIP that would change the definition

of “chemical process plants” to remove fuel ethanol plants from the 100 ton-per-year

pollution limit, the OEA correctly determined the permits at issue should not have been

granted.

        Even if the failure to amend Indiana SIP could be disregarded, as the appellees

suggest, IDEM’s past consistent treatment of fuel ethanol plants as chemical process plants

would dictate the result we reach. Once an agency gives its regulation an interpretation, as

has IDEM by consistently treating fuel ethanol facilities as chemical process plants in its



7
  We acknowledge EPA’s statement some state authorities “may be able to adopt these changes through a
change in the interpretation of the term “chemical process plant” without the need to revise the SIP.” 71 Fed
Reg. at 24074. EPA did not specify which authorities could adopt the changes through “interpretation,” and
we are directed to nothing in the record that indicates Indiana would have such authority.

                                                    11
permitting decisions prior to 2007, it can change that interpretation only “as it would formally

modify the regulation itself: through the process of notice and comment rulemaking.”8

Paralyzed Veterans of Am. v. D.C. Arena L.P., 117 F.3d 579, 586 (D.C. Cir. 1997), cert.

denied sub nom. Pollin v. Paralyzed Veterans of America, 523 U.S. 1003 (1998). That court

noted:

         Under the [Administrative Procedures Act (APA)], agencies are obliged to
         engage in notice and comment before formulating regulations, which applies
         as well to “repeals” or “amendments.” See 5 U.S.C. § 551(5). To allow an
         agency to make a fundamental change in its interpretation of a substantive
         regulation without notice and comment obviously would undermine those APA
         requirements. That is surely why the Supreme Court has noted (in dicta) that
         APA rulemaking is required where an interpretation “adopt[s] a new position
         inconsistent with . . . existing regulations.

Id. And see Alaska Prof’l Hunters Ass’n, Inc. v. F.A.A., 177 F.3d 1030, 1031 (D.C. Cir.

1999).

         In Alaska Professional Hunters Association, beginning in 1963, the Federal Aviation

Administration, through its Alaskan Region, consistently advised guide pilots that they were

not governed by regulations dealing with commercial pilots. “FAA personnel in Alaska

consistently followed the interpretation in official advice to guides and guide services.” Id.

At some point the FAA published a “Notice to Operators” in the Federal Register stating

Alaskan guides who transport customers by aircraft to and from sites where they provide

guiding services, with transportation included in the package price of the trip, henceforth

must comply with those regulations for commercial pilots. Id. at 1033.


8
  We acknowledge IDEM did promulgate a new rule excluding fuel ethanol plants. But as explained above,
that was not enough – EPA approval of an amended SIP was required.
                                                 12
         The Alaska Professional Hunters Association argued the Notice to Operators altered

the FAA’s well-established interpretation of its regulations and should have been

promulgated pursuant to notice and comment rule making. The FAA argued the Notice to

Operators was “merely an interpretative rule,” exempt from the notice and comment

requirements of the APA. Id. The court rejected that argument, stating “when an agency has

given its regulation a definitive interpretation, and later significantly revises that

interpretation, the agency has in effect amended its rule, something it may not accomplish

without notice and comment.” Id. at 1034.

         Because IDEM had, in its prior permitting decisions, given the term “chemical process

plant” a “definitive interpretation, and later significantly revise[d] that interpretation,” it was

obliged to seek EPA approval for an amended SIP. See id. We accordingly reverse the trial

court.

         Reversed.

ROBB, C.J., and PYLE, J., concur.




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