A newly proposed rule would significantly alter how facilities calculate their emissions when assessing permitting requirements under the Clean Air Act’s New Source Review (NSR) program by allowing the inclusion of both emission increases and decreases. Although EPA historically has generally interpreted its regulations to permit consideration of emissions increases only, EPA guidance issued last year also allows the inclusion of decreases. By formalizing that policy in its regulations, EPA will resolve an inconsistency in NSR permitting that has created headaches for many years.

NSR Permitting Background

The Clean Air Act’s NSR program requires facilities to obtain a permit in advance of constructing a new major stationary source or undertaking a “major modification” to an existing source. EPA’s corresponding NSR regulations govern when a physical or operational change requires a permit under the NSR program. Since the early 2000s, EPA’s regulations have set out a two-step test to determine if a facility must obtain a New Source Review permit for a physical or operational change (also referred to as a project). A project is a “major modification” if it would result in a significant emissions increase of an NSR pollutant (Step 1) and a significant net emissions increase of the NSR pollutant (Step 2).

What EPA Proposes to Change

On August 1, 2019, EPA Administrator Wheeler signed a pre-publication version of a proposed rule to revise EPA’s regulations implementing the Clean Air Act’s New Source Review (NSR) program. The Proposal would amend NSR regulations to clarify that the term “sum of the difference” in EPA’s regulations “shall include both increases and decreases in emissions calculated in accordance” with those regulations. The Proposal also would modify a provision regarding the so-called hybrid test (for projects that involve both new and existing units) to ensure consistency for all types of projects.

If finalized, the Proposal would allow facilities to take into account both emissions increases and decreases when determining whether a proposed project will cause a “significant emissions increase” (also referred to as Step 1).

Origins of the Proposal & EPA’s Prior Guidance

Since the 2002 NSR Reform Rule, there has been uncertainty and controversy as to whether decreases from the project could be included in Step 1. Regardless of the specific applicability test used (the “actual-to-projected-actual” test for existing emissions units or the “actual-to-potential” test for new emissions units), a project is deemed to cause a significant emissions increase if the “sum of the difference” between the baseline actual emissions and the post-project emissions (the “projected actual” emissions for existing units or “potential to emit” for new units) equals or exceeds the relevant threshold. For much of the 2000s, EPA took the position that its regulations did not allow for emission reductions to be included in Step 1; instead, emission reductions could only be considered in the source-wide netting analysis in Step 2.

In March 2018, EPA issued a guidance memorandum reversing this position and declaring that its regulations “provid[e] that any emission decreases that may result from a given proposed project are to be considered when calculating at Step 1 whether the proposed project will result in a significant emissions increase.” EPA explained it changed its interpretation because the phrase “sum of the difference” could be either a positive or negative number; therefore, the summation of any “difference” can be taken into consideration for Step 1 purposes. As a result, sources undertaking projects having a net emissions decrease can seek to rely on that decrease for purposes of NSR permitting.

If finalized, the Proposal would transform EPA’s March 2018 guidance on this topic into an enforceable regulation.

What’s Next?

If finalized, the Proposal would ensure that facilities evaluate all emission impacts of a project, not just the emission increases. Once published in the Federal Register, the proposed rule will be open for public comment for 60 days. EPA will hold a public hearing if requested, which we expect is likely.

Any final rule is almost certain to be challenged in the D.C. Circuit; Natural Resources Defense Council’s clean air director John Walke already announced NRDC’s intent to file suit once a final rule is issued.