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 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, 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, EPA can enforce NSR through litigation, which is an option the agency has pursued strategically at specific moments in its 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. 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, 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. EPA’s recent actions are listed below.

  1. Examination of Industry’s Emissions Projections (Dec. 2017): 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): EPA releases 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 formalizes the interpretation in this memorandum by issuing a proposed rule.
  3. Common Control Determination (April 2018): EPA narrows the determination of “common control” to focus on “the power or authority of one entity to dictate decisions of the other that could affect the applicability of, or compliance with, relevant air pollution regulatory requirements.” A narrowed interpretation could result in fewer sources being subject to NSR requirements, because the facilities’ emissions will be considered separately rather than jointly when determining NSR applicability.
  4. Hourly Emissions Test for Power Plants (Aug. 2018): As part of the proposed ACE Rule, EPA proposes 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 acknowledges that this test would be less stringent than using only the comparison of annual emissions that EPA currently performs. See EELP’s memo on this proposal here.
  5. Definition of Adjacent (Sep. 2018): EPA issues 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. EPA finalizes this guidance on Nov. 26, 2019.
  6. Project Aggregation at Step 1 (Sep. 2018): EPA returns 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 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. EPA finalizes this rule on Nov. 15, 2018.
  7. Exclusions to Ambient Air (Nov. 2018): EPA publishes draft guidance proposing to broaden exceptions to the definition of ambient air – the air that Clean Air Act permitting covers. For PSD permitting purposes, EPA is proposing to exclude air over land owned by a source if the company uses methods such as surveillance and monitoring to deter the public from entering (previously the land had to be enclosed by a fence or physical barrier to be excluded). This change would mean that air pollution levels over the land would not be measured for permitting purposes, even if the public could easily access the property. EPA finalizes this guidance on Dec. 3, 2019.

These changes reduce 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 EPA’s announcements.

Additional Analysis:

History

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. 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. 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 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 states 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. EPA’s new policy is in tension with a 6th Circuit case earlier in the year that upheld EPA’s authority to review industry’s calculations of projected emissions.

This change in 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. 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.

April 30, 2018 In a letter to the Pennsylvania Department of Environmental Protection, EPA establishes a new method for determining whether facilities are under “common control” for the purpose of NSR permitting. In the letter, EPA narrows the determination of “common control” to focus on “the power or authority of one entity to dictate decisions of the other that could affect the applicability of, or compliance with, relevant air pollution regulatory requirements.” The “common control” determination ensures that jointly-managed facilities are treated as one source under NSR and Title V permitting. A narrowed interpretation could result in fewer sources being subject to NSR requirements, because the facilities’ emissions will be considered separately rather than jointly when determining NSR applicability.

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 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. 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.

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

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

Nov. 9, 2018 EPA publishes draft guidance proposing to broaden exceptions to the definition of ambient air – the air that Clean Air Act permitting covers. When analyzing a stationary source’s emissions, EPA looks only to the impact on the ambient air, which is defined as “that portion of the atmosphere, external to buildings, to which the general public has access.” 40 CFR § 50.1(e). Previously, “ambient air” did not include air over land owned by the source if the public was excluded from the land by a fence or other physical barrier. EPA is now proposing to exclude air over privately-owned land that deters the public from entering through “other methods,” such as surveillance and monitoring. This change would mean that air pollution levels over the land would not be measured for permitting purposes, even if the public could easily access the property.

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 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.

Nov. 26, 2019 EPA publishes final guidance that “interprets the term ‘adjacent’ to entail physical proximity between property,” such as a common boundary or border. EPA recommends that the guidance apply prospectively and does not recommend retroactively applying this decision to completed permitting actions.

Dec. 3, 2019 EPA publishes final guidance expanding the exclusions to ambient air. The guidance re-defines ambient air as excluding ambient air “where the source employs measures, which may include physical barriers, that are effective in precluding access to the land by the general public.”