                                                            [DO NOT PUBLISH]


              IN THE UNITED STATES COURT OF APPEALS

                      FOR THE ELEVENTH CIRCUIT
                       ________________________                      FILED
                                                           U.S. COURT OF APPEALS
                                                             ELEVENTH CIRCUIT
                               No. 07-10693                       June 13, 2008
                         ________________________             THOMAS K. KAHN
                                                                    CLERK



LOUISIANA-PACIFIC CORPORATION,

                                                  Petitioner,


                                     versus


U.S. ENVIRONMENTAL PROTECTION AGENCY,

                                                  Respondent.

                         ________________________

                   Petition for Review of a Decision of the
                United States Environmental Protection Agency
                        _________________________

                                (June 13, 2008)

Before ANDERSON, BLACK and HILL, Circuit Judges.

PER CURIAM:

     Petitioner Louisiana-Pacific appeals from a determination by the U.S.
Environmental Protection Agency (“EPA”) that a proposed system at a Louisiana-

Pacific plant in Alabama is subject to the New Source Performance Standards

(“NSPS”) promulgated by the EPA under section 111 of the Clean Air Act. The

EPA determined that petitioner’s proposed system for a new oriented strand board

(“OSB”) mill is a steam generating unit subject to NSPS Subpart Db, and does not

qualify for the process heater exception from the steam generating unit definition.

Petitioner argues on appeal that the EPA’s determination is arbitrary and

capricious.

                                     I.   FACTS

      Petitioner’s proposed system is for the manufacture of OSB, a building

material with applications similar to plywood. OSB is created by mixing wood

flakes with resin and wax, and then using pressure and heat to compress the

mixture into sheets. At issue in this case is the system used to dry the wet wood

flakes before they are combined with the resin and wax.

      The drying system has two bark burner units, each with a heat input of 187

million BTU/hour. The burners consume wood waste from debarking and flake

screening. The exhaust from each of the bark burners is routed to a secondary air

chamber, from which a significant portion (approximately 85%) of the exhaust gas

is sent to rotary dryers. The rotary dryers are large rotating steel tubes that dry the

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wood flakes by circulating the hot exhaust gas around them. The exhaust gas

passes through pollution reduction technologies before being released into the

atmosphere. The balance (15%) of the exhaust gas from the bark burners is sent to

a thermal oil heater. The oil is heated by the exhaust gas and then routed to the

forming press for the OSB. The exhaust gas from the thermal oil heater is

recombined with the bark burner exhaust to heat the rotary dryers.

      In December 2005, petitioner requested an applicability determination from

the EPA, to ascertain if NSPS Subparts Db or Dc would apply to the proposed OSB

system. If the EPA determined that the NSPS did apply to the system, petitioner

would have to meet more stringent pollution standards. The parties exchanged

follow-up correspondence throughout 2006, and in December 2006, the EPA

issued its determination that NSPS Subpart Db does apply to the proposed system.

Petitioner now appeals this determination.

                                II.   DISCUSSION

      The Clean Air Act provides for the direct appeal of applicability

determinations to the United States Court of Appeals for the appropriate circuit. 42

U.S.C. § 7607(b)(1) (2006); Harrison v. PPG Indus., Inc., 446 U.S. 578, 586-89,

100 S. Ct. 1889, 1894-96 (1980). The system at issue in this case is located at a

Louisiana-Pacific plant in Alabama, giving this Court jurisdiction over this direct

                                          3
appeal from the EPA.

      We review EPA determinations pursuant to the Clean Air Act under an

arbitrary and capricious standard of review. 42 U.S.C. § 7607(d)(9)(A) (2006).

Agency actions are arbitrary and capricious when the agency “has relied on factors

which Congress has not intended it to consider, entirely failed to consider an

important aspect of the problem, offered an explanation for its decision that runs

counter to the evidence before the agency, or is so implausible that it could not be

ascribed to a difference in view or the product of agency expertise.” Motor

Vehicles Mfrs.’ Ass’n v. State Farm Auto. Ins. Co., 463 U.S. 29, 43, 103 S. Ct.

2856, 2867 (1983). Courts will defer to an agency’s interpretation of its own

regulations if the interpretation is not clearly erroneous or inconsistent with the

regulation’s plain language. Auer v. Robbins, 519 U.S. 452, 461, 117 S. Ct. 905,

911 (1997).

      The 1970 Clean Air Act Amendments authorized the EPA to regulate

emissions from stationary sources. 42 U.S.C. §§ 7411, 7412 (2006). The

emissions standards apply to new or modified sources. 42 U.S.C. §§ 7411(a)(2),

7412(a)(4) (2006). Under the 1970 Amendments, the EPA must issue national

emissions standards for hazardous air pollutants and new source performance

standards (“NSPS”). Id. §§ 7411(f), 7412(d). At issue in this case is the NSPS for

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industrial-commercial-institutional steam generating units, NSPS Subpart Db.

      Under NSPS Subpart Db, new steam generating units with a heat input

capacity of 100 million BTU/hour or more are subject to the NSPS. 40 C.F.R. §

60.40b(a) (2007). The regulations define “steam generating unit” as:

      a device that combusts any fuel or byproduct/waste to produce steam or to
      heat water or any other heat transfer medium. This term includes any
      municipal-type solid waste incinerator with a heat recovery steam generating
      unit or any steam generating unit that combusts fuel and is part of a
      cogeneration system or a combined cycle system. This term does not include
      process heaters as they are defined in this subpart.

Id. § 60.41b (2007). Process heater is defined as: “a device that is primarily used to

heat a material to initiate or promote a chemical reaction in which the material

participates as a reactant or catalyst.” Id. Thus, steam generating units that can be

classified as process heaters are exempted from the NSPS requirements.

      In this case, the EPA determined that petitioner’s proposed OSB system was

a steam generating unit under the regulations and did not meet the definition of

process heater, so as to qualify for the exception. Therefore, the EPA determined

that the system was subject to NSPS Subpart Db. Petitioner contends that the EPA

erred both in deciding that the OSB system was a steam generating unit and in

finding that the system did not meet the definition of process heater. We consider

each of these contentions below.



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      A.     Steam Generating Unit

      The EPA determined that petitioner’s proposed system fit the definition of

steam generating unit because the bark burners combust fuel which is used to heat

the oil in the thermal oil heater, making it a “device that combusts . . . fuel . . . to

heat water or any other heat transfer medium.” Petitioner conceded that if the

thermal oil heater had an independent combustion source, it would meet the steam

generating unit definition. On the other hand, the EPA acknowledged that the

process dryers (i.e., the bark burners and rotary dryers) would not meet the steam

generating unit definition if they existed in isolation from the thermal oil heater.

Petitioner contends that the EPA was arbitrary and capricious in deciding that the

process dryers and thermal oil heater together constitute a steam generating unit.

      Essentially, the EPA has determined that because part of the system is a

steam generating unit subject to the NSPS, the entire system is subject to the NSPS.

Petitioner has not demonstrated that this determination is contrary to any statute,

regulation, or other binding authority. We cannot conclude that it is arbitrary and

capricious for the EPA to treat the entire system as subject to stricter standards

when at least a substantial part of the system meets the steam generating unit




                                             6
definition.1 Therefore, we uphold the EPA determination on this point.

       B.      Process Heater

       EPA regulations define an exempt process heater as “a device that is

primarily used to heat a material to initiate or promote a chemical reaction in which

the material participates as a reactant or catalyst.” 40 C.F.R. § 60.41b (2007). The

EPA concluded that the Louisiana-Pacific system did not qualify for the process

heater exemption because the agency did not “believe that the wood flakes are

heated to initiate or promote a chemical reaction in which the flakes are

participating as a reactant or catalyst.” Petitioner argues that the EPA failed to

consider two arguments in reaching this conclusion. First, petitioner contends that

it argued to the EPA that chemical reactions occur in the wood flakes when they

are heated in the dryers. Second, petitioner asserts that it argued to the EPA that

the wood flakes were dried to facilitate the later, “downstream” chemical process of

bonding with resin to form OSB panels. Thus, petitioner argues that the EPA

decision is arbitrary and capricious because it entirely failed to consider these two


       1
         Petitioner also argued, in regard to both the steam generating unit and process heater
definitions, that the EPA’s determination in this case was inconsistent with prior applicability
determinations. We recognize that these determinations are not binding on the EPA in
subsequent cases. See 40 C.F.R. § 60.6(c) (2007). Having nevertheless examined the
applicability determinations presented by petitioner, we find them to be sufficiently
distinguishable from the present case that the EPA did not act arbitrarily and capriciously by not
following them here.

                                                 7
important aspects of the issue.

      Initially, we note that the EPA decision in this case devoted only two

sentences to addressing petitioner’s arguments that its system fell within the

process heater exception from the definition of a steam generating unit. Those two

sentences provided as follows:

      The Agency disagrees with the LP argument that the bark
      burner/rotary dryer/thermal oil heater system is not a “steam
      generating unit” because the rotary dryer is a “process heater.” The
      Agency does not believe that the wood flakes are heated to initiate or
      promote a chemical reaction in which the flakes are participating as a
      reactant or catalyst.

The problem we have with the EPA decision is that it fails to explain why the

Agency does not believe that the wood flakes are heated to initiate or promote a

chemical reaction in which the flakes are either a reactant or catalyst. In its brief to

this court, the EPA responded as follows. With respect to petitioner’s first

argument – that the EPA failed to address its argument that chemical reactions

occurred in the wood flakes during the dryer process – the EPA acknowledges that

the argument was preserved below, but notes that the definition of a “process

heater” requires not merely that the wood flakes act as a reactant or catalyst in a

chemical reaction, but requires that the primary purpose of the system be to heat the

wood flakes to initiate or promote a chemical reaction in which the wood flakes act



                                           8
either as a reactant or a catalyst. The EPA argues that petitioner has admitted that

the system’s primary purpose is merely to dry the wood flakes, and therefore the

primary purpose cannot be to initiate or promote a chemical reaction. After a

careful review of the administrative record and of petitioner’s initial brief on

appeal, we cannot conclude that petitioner has conceded that the primary purpose

of the system is merely to dry the wood chips. Our review of the record persuades

us that petitioner did fairly present to the EPA the argument that the definition of

“process heater” was satisfied, and that the initiation or promotion of the requisite

chemical reaction during the drying process was its primary purpose. Our problem

is we do not know whether the EPA addressed this argument at all; and if it did, we

do not know why the EPA rejected the argument.

      With respect to petitioner’s second argument – that the purpose of the system

was to heat the wood flakes to initiate or promote a downstream chemical reaction

in which the wood flakes would participate as a reactant or catalyst in bonding with

the resin and other elements in the press to form the OSB panels – the EPA’s brief

to this Court argues that the issue was waived because petitioner failed to present it

below. However, our review of the record reveals that it was presented below.

See, for example, Documents 2 and 10. Again, we do not know if the EPA

addressed this argument; and if it did we do not know why the argument was

                                           9
rejected.

      For the foregoing reasons, we conclude that the EPA decision is arbitrary

and capricious, in that it entirely failed to consider these two important aspects of

the matter. Accordingly, we vacate the EPA decision with respect to its rejection

of petitioner’s arguments that its system falls within the definition of a “process

heater,” and therefore is excepted from the definition of a “steam generating unit.”

                                  III.   Conclusion

      In summary, we cannot conclude that the EPA was arbitrary and capricious

in rejecting the petitioner’s argument that it should be excepted from the definition

of a steam generating unit because a large part of its system would not fall within

that definition if it existed in isolation from the thermal oil heater. To that extent,

we affirm the decision of the EPA. However, for the reasons stated above, we

vacate the decision rejecting petitioner’s arguments that it falls within the process

heater exception, and we remand for the EPA to address petitioner’s two arguments

in that regard.

      AFFIRMED IN PART, VACATED IN PART, and REMANDED.




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