The EPA is proposing to amend its New Source Review (NSR) regulations (40 CFR 51.166 and 51.165) to allow the emissions decreases from a single project to be included in Step 1 of the NSR applicability test. The EPA has interpreted existing regulations to indicate that only emissions increases may be considered in Step 1, and emissions decreases associated with the project are considered only in Step 2. Step 2 is a “contemporaneous netting” exercise that is far more complex than Step 1. Given the difficulty of the Step 2 effort, industry has informed the Agency that they have decided against undertaking some projects that would improve efficiency and result in overall emissions reductions rather that slog through Step 2.

“By simplifying the permitting process and implementing a common-sense interpretation of our NSR rules, we will remove a major obstacle to the construction of cleaner and more efficient facilities,” said EPA Administrator Andrew Wheeler when the proposal was released.

Steps 1 and 2

The Clean Air Act’s major NSR regulations are a combination of air quality planning and air pollution control technology provisions that require a stationary source of air pollution to obtain a preconstruction permit before beginning the construction of a new major stationary source or a major modification of an existing major stationary source. The NSR regulations define a “major modification” as any physical change in or change to the method of operation of an existing major stationary source that would result in a significant emissions increase of a regulated NSR pollutant from the project alone (known as Step 1) and a significant net emissions increase of that pollutant from the project and any other emissions changes at the major stationary source that are contemporaneous to the project within a 5-year period (known as Step 2). If there is a significant net emissions increase after the Step 2 contemporaneous netting analysis, then the project is a major modification, and a preconstruction permit must be obtained.

Sum of emissions increases

Restricting emissions decreases to Step 2 results from the existing regulatory language. The term “sum of the emissions increases for each emissions unit” at 40 CFR 52.21(a)(2)(iv)(f) has been interpreted to prohibit a source from including reductions from units that are part of the project until Step 2 of the calculation. In its proposal, the EPA notes one consequence of this interpretation:

“One commenter stated that they had ‘recently supported a client in obtaining a [Prevention of Significant Deterioration] PSD permit in which Step 1 of the PSD applicability analysis exceeded the PSD [Significant Emission Rate] (SER) for several pollutants due to the fact that emissions reductions at certain emissions units could not be counted in Step 1.’ This commenter represented that ‘if project netting had been allowed in Step 1, then PSD review would not have been triggered’ and the client would had saved ‘four additional months and an additional $80,000 in obtaining a PSD permit.’” 

2018 memo

The proposal follows a March 2018 memo in which ex-EPA Administrator Scott Pruitt stated that the Agency was interpreting the NSR regulations to mean that emissions decreases, as well as increases, are to be considered at Step 1 of the NSR, provided the increases and decreases are part of the same project.

“Although the existing language in the NSR regulations supports this interpretation, this rulemaking proposal is intended to eliminate uncertainty regarding this issue,” the EPA now says in its proposal.

Specifically, the EPA is proposing to revise the text “sum of the emissions increase” in 40 CFR 52.21(a)(2)(iv)(f) to “sum of the difference” to make clear that accounting of emissions increases and decreases under Step 1 of the major modification applicability test is allowed for projects that involve multiple types of emissions units.

“These proposed changes will make clear that projects that involve multiple types of emissions units should treat the calculation of the change in emissions from the project in the same way that projects that only involve new units or only involve existing units,” states the Agency. “As explained in the March 2018 Memorandum, the history of this provision in the regulations indicates that the EPA originally intended that project emissions accounting be allowed at Step 1 for projects involving different types of units.”

“EPA expects that allowing emissions accounting at Step 1 will reduce regulatory burden—saving time and money without sacrificing environmental protection,” the Agency adds.

Generally, if Step 1 does not indicate that the project will result in a significant emissions increase, the project can proceed with a state-issued minor-source permit.