12/11/2018 - Regulatory Rollback

New Source Review

by Hana Vizcarra, Laura Bloomer

The Environmental & Energy Law Program is tracking the environmental regulatory rollbacks of the Trump administration. Click here for the list of rules we are following. If you’re a reporter and would like to speak with an expert on this rule, please email us.

Why It Matters

The New Source Review (NSR) program is a long-established set of Clean Air Act rules that safeguards communities from increases in pollution when a new facility is built or an existing facility is modified. The program achieves this goal through a pre-construction permitting regime that requires facilities to install pollution control technology in certain instances. Because NSR covers a variety of facilities, from paper mills and plastics production to power plants and automobile manufacturing, any change to weaken the program can have widespread impacts across the country. When the EPA interprets the law more leniently, industry is allowed to undertake more construction projects that increase emissions without installing and operating emissions control technology. This causes an increase in harmful pollutants in the air around the facilities, meaning dirtier air in nearby communities, with negative effects on people’s health and the environment.

NSR is applied prior to construction in order to determine what type of permit a facility needs and whether pollution control measures are required. The NSR permitting regime includes three types of permits based on the size of the facility/modification and the quality of air where the facility is located: (1) Prevention of Significant Deterioration (PSD) permits for new major sources or major modifications to sources in areas that meet the National Ambient Air Quality Standards for the most common air pollutants, (2) Nonattainment NSR permits for new major sources or major modifications to sources in areas that do not meet those standards, and (3) Minor NSR permits for sources or modifications that do not rise to the level of “major.”

Applying NSR to a change at an existing source requires a preliminary assessment to determine whether the change – either a physical change to the facility or a change in the method of operation – is considered a modification for NSR permitting purposes.  If it is a modification, then two steps are utilized for determining whether the modification is considered “major”:

  • Step 1: Does the modification by itself result in a significant emissions increase?
  • Step 2: Will the modification result in a significant net emissions increase, given other contemporaneous increases and decreases at the facility?

If either question is answered in the negative, then the facility does not need a PSD or Nonattainment NSR permit for the modification. For construction of a new facility or structure, the same two steps are applied to determine if a major NSR permit is required. Accordingly, the EPA’s interpretations of how to implement these two steps are essential to the stringency of the NSR regime.

Generally, when industry lawfully adheres to the NSR requirements, the permits do all of the work: pollution releases are prevented, public health and the environment are protected, and industry expands. However, when needed, the EPA can enforce NSR through litigation, which is an option the agency has pursued strategically at specific moments in the agency’s history.

In 1999, the Department of Justice initiated lawsuits against multiple utility companies, alleging that the utilities unlawfully undertook construction projects without obtaining NSR pre-construction permits. As an example of the impact of these lawsuits, in 2007, American Electric Power agreed to a record settlement that included $4.6 billion to upgrade pollution controls at 16 power plants, $15 million in civil penalties, and $60 million to mitigate the environmental damage that resulted from the unlawful pollution. The EPA estimated that the benefits from operating the pollution control equipment – which should have been installed through NSR permitting – would include $32 billion in annual avoided health-related costs.

Current Status

Since December 2017, the EPA has implemented four significant changes to the agency’s administration of major NSR permits and has recently proposed an additional, sweeping change inside of the Affordable Clean Energy (ACE) rule. The EPA’s recent actions are listed below.

  1. Examination of Industry’s Emissions Projections (Dec. 2017): The EPA will no longer re-examine – or second guess – industry’s projections of the emissions increases that will occur as a result of modifications at an existing plant. These projections are key to determining whether major NSR permitting is triggered by the modification, and consequently, whether emissions control technology must be installed. See a more in-depth EELP memo on this change here.
  2. Consideration of Emissions Decreases at Step 1 (March 2018): The EPA released a memo stating that, when determining at Step 1 whether NSR will apply to modifications, plant operators should consider emissions decreases that will occur rather than just emissions increases. Including decreases in this calculation, which previously were not considered until Step 2, could reduce the number of modifications that are subject to NSR. In August 2019, EPA formalized the interpretation in this memorandum by issuing a proposed rule formalizing this interpretation.
  3. Hourly Emissions Test for Power Plants (Aug. 2018): As part of the proposed ACE Rule, the EPA proposed inserting an additional, preliminary hourly emissions test before Step 1 when determining whether emissions from facility modifications will increase sufficiently to trigger major NSR permitting requirements. The agency acknowledged that this test would be less stringent than using only the comparison of annual emissions that the EPA currently performs. See EELP’s memo on this proposal here.
  4. Definition of Adjacent (Sept. 2018): The EPA issued a memo constraining the definition of “adjacent sources,” which are treated as one source under NSR. This could allow certain related structures or buildings to qualify as separate minor sources and avoid the more stringent regulations that would be applied if they were considered a major source.
  5. Project Aggregation at Step 1 (Sept. 2018): The EPA is returning to a 2009 interpretation of the law and will require facilities to combine emissions increases from independent but related construction projects only if the projects have a “substantial technical or economic relationship.” If the EPA determines that modifications are not substantially related, then the modifications will be considered separately under Step 1. This could result in fewer modifications being subject to major NSR permitting requirements.

These changes reduce the EPA’s oversight of industry actions and create a more lenient NSR regime, which could result in increased emissions of harmful pollutants from industrial facilities across the United States. Information is below on the history and timeline of the changes, including related actions and litigation following the EPA’s announcements.

Additional Analysis:


May 8, 2007 EPA publishes a Supplemental Notice of Proposed Rulemaking proposing multiple alternatives to modify NSR emissions accounting for power plants. The agency proposed either changing the test for NSR applicability at Step 1 from a comparison of annual emissions to a comparison of hourly emissions or adding a preliminary hourly emissions test prior to Step 1. Any of the alternatives would result in a less stringent NSR program, as industry could choose to operate for more hours each year and not be subject to the emissions control technology required by NSR permitting. The EPA did not finalize a rule.

Jan. 15, 2009 EPA publishes a final rule modifying its longstanding policy regarding the aggregation of emissions for the purposes of Step 1 from multiple proposed modifications at a facility. The rule stated that only projects that are “substantially related” must be aggregated, which was a constraint of the previous policy. The EPA further explained that timing was not a dispositive trait of relatedness and that the test was whether the projects have a “substantial technical or economic relationship.” The rule also established that projects occurring more than three years apart are presumed unrelated, unless otherwise demonstrated.

Jan. 30, 2009 The National Resources Defense Council files a petition with the EPA to reconsider and stay the final rule for project aggregation, arguing that the rule unlawfully modified its NSR policy.

Feb. 9, 2009 EPA extends the effective date of the January 15th final rule by 90 days in order to reconsider certain aspects of the rule.

March 18, 2009 EPA publishes a proposed rule to further delay the effective date of the aggregation rule. Following the notice and comment period, EPA later finalized this rule extending the effective date of the aggregation rule for an additional 12 months.

April 15, 2010 EPA publishes a proposed rule to revoke the January 2009 aggregation policy.

May 18, 2010 EPA stays the aggregation policy until it completes its reconsideration of the rule.

Trump Era

Dec. 7, 2017 EPA releases a policy memo stating that it would no longer re-examine — or second guess — industry’s projections of the emissions increases that will result from a modification at a facility. This essentially leaves it to industry to ensure the accuracy of its emissions projections. The memo also stated the EPA’s intent to not pursue legal enforcement options based on industry’s projections; instead, EPA will wait until multiple years of emissions data can be analyzed. The EPA’s new policy is in tension with a 6th Circuit case earlier in the year that upheld the EPA’s authority to review industry’s calculations of projected emissions.

This change in the EPA’s procedures means that the agency will not actively ensure the accuracy of industry’s projections of increased emissions, even though these emissions projections determine the level of pollution control technology that a facility must operate under NSR. For more information on the significance of this change, see EELP’s New Source Review Enforcement Memorandum.

March 13, 2018 EPA releases a memo outlining changes to its method for calculating emissions projections at Step 1 of the NSR process. The EPA takes the position that any emissions decrease that may result from the proposed project should be considered at Step 1, whereas the agency previously only considered emissions increases at units that are a part of the project.

March 29, 2018 A coalition of environmental groups files a petition for review of the March 2018 memo in the D.C. Court of Appeals, Environmental Defense Fund v. EPA, No. 18-1149.

May 2018 EPA releases its 2018 spring regulatory agenda and indicated its intent to publish a proposed rule regarding the new NSR accounting procedure.

June 26 and 27, 2018 Seventeen industry groups move to intervene on behalf of EPA in Environmental Defense Fund v. EPA, No. 18-1149.

July 13, 2018 Following an unopposed motion by the environmental groups, Environmental Defense Fund v. EPA is held in abeyance while the EPA develops the proposed rule for NSR accounting.

Aug. 21, 2018 EPA proposes the Affordable Clean Energy Rule (ACE) for power plants. The proposed rule includes an amendment to change the method for calculating whether NSR applies to modifications at power plants. It proposes adding an hourly emissions test to determine whether emissions will increase sufficiently to trigger NSR before the existing annual emissions test. The EPA acknowledges that this creates a more lenient NSR regime than the current annual emissions test. If finalized, this rule would mean that facilities could significantly increase their annual emissions of harmful pollutants without being subject to NSR simply by operating for more hours each year but ensuring that hourly emissions are not significantly increased. For more information on the proposed rule’s changes to NSR, see EELP’s Memorandum on EPA’s Proposed Changes to New Source Review in ACE.

Sept. 5, 2018 EPA issues draft guidance for the definition of “adjacent” when determining what constitutes operations at a single stationary source for the purpose of NSR pre-construction permitting. Generally, the regulations define sources to mean buildings, structures, facilities, or installations that have three characteristics: (1) located on contiguous or adjacent properties; (2) are a part of the same industrial grouping; and (3) are under common control. Historically, the EPA interpreted adjacent in the first requirement to mean more than just physical adjacency and to include operations that were interrelated enough to be functionally proximate. For industries other than oil and gas, the EPA will now exclusively consider physical proximity when determining adjacency. This could allow nearby structures that are connected but not physically adjacent to avoid the stringent NSR permit requirements by counting as two minor sources, rather than one major source. This action will also apply to Clean Air Act Title V operating permits.

The guidance was available for public comment through October 5, 2018. However, because this is only guidance and not a formal rulemaking procedure, the EPA and other agencies are able to use the revised definition without any further process.

Oct. 11, 2018 EPA filed its first status report in Environmental Defense Fund v. EPA, No. 18-1149. The agency confirmed that it is developing the proposed rule for project emissions accounting.

Nov. 15, 2018 EPA publishes a final rule removing the stay on the 2009 emissions aggregation rule and retaining the 2009 policy. The action was effective upon publication, meaning that the EPA and facilities will now return to the “substantially related” test when determining whether emissions from multiple modifications must be combined for NSR Step 1 emissions accounting.

Aug. 9, 2019 EPA publishes a draft rule intended to relax the two step review process. Under the proposal, EPA would allow regulated entities to consider “both emissions increases and emissions decreases that result from a given proposed project” at Step 1. This would fundamentally change the NSR accounting process, which previously studied whether a modification by itself would result in significant emissions increases at Step 1, with no consideration of other decreases. This rule formalizes the March 13, 2018 guidance that is still on hold. The comment period for these proposed rules closes Oct. 8, 2019.

Thank you to Harvard student Laura Bloomer, JD/MPP 2019, for her assistance with this rule.