Summary

Since 1977, the Clean Air Act (CAA) has included programs—known as New Source Review (NSR)—that regulate the construction and modification of large stationary sources of air pollution, such as factories and electricity-generating facilities. Under NSR programs, each new large stationary source of pollutants must apply for a permit before beginning construction. The permit-granting process is also required when a physical change to an existing large stationary source would result in a significant increase in pollutant emissions. NSR programs allow construction or modification of an emission source only if the operator first shows that emissions will be reduced as much as practicable. The operator must also show that the construction or modification will not result in significant deterioration of air quality in areas that meet the National Ambient Air Quality Standards (NAAQS)1,2 or interfere with

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The NAAQS specify the maximum allowable concentrations of criteria pollutants in ambient air that are protective of public health and welfare. The six criteria pollutants are carbon monoxide, lead, nitrogen dioxide, ozone, particulate matter, and sulfur dioxide. Pollutants for which there are NAAQS are known as criteria pollutants because the U.S. Environmental Protection Agency prepares “criteria documents” describing the sources and effects of these pollutants.

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An applicant for a permit in an area that meets the NAAQS must show that the new or modified facility will, for each regulated pollutant emitted in significant amounts, limit emissions to the level achievable through the use of best available control technology (BACT). The applicant also must show that the facility will not cause a violation of the NAAQS or of prevention of significant



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Interim Report of the Committee on Changes in New Source Review Programs for Stationary Sources of Air Pollutants Summary Since 1977, the Clean Air Act (CAA) has included programs—known as New Source Review (NSR)—that regulate the construction and modification of large stationary sources of air pollution, such as factories and electricity-generating facilities. Under NSR programs, each new large stationary source of pollutants must apply for a permit before beginning construction. The permit-granting process is also required when a physical change to an existing large stationary source would result in a significant increase in pollutant emissions. NSR programs allow construction or modification of an emission source only if the operator first shows that emissions will be reduced as much as practicable. The operator must also show that the construction or modification will not result in significant deterioration of air quality in areas that meet the National Ambient Air Quality Standards (NAAQS)1,2 or interfere with 1   The NAAQS specify the maximum allowable concentrations of criteria pollutants in ambient air that are protective of public health and welfare. The six criteria pollutants are carbon monoxide, lead, nitrogen dioxide, ozone, particulate matter, and sulfur dioxide. Pollutants for which there are NAAQS are known as criteria pollutants because the U.S. Environmental Protection Agency prepares “criteria documents” describing the sources and effects of these pollutants. 2   An applicant for a permit in an area that meets the NAAQS must show that the new or modified facility will, for each regulated pollutant emitted in significant amounts, limit emissions to the level achievable through the use of best available control technology (BACT). The applicant also must show that the facility will not cause a violation of the NAAQS or of prevention of significant

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Interim Report of the Committee on Changes in New Source Review Programs for Stationary Sources of Air Pollutants progress toward attainment of satisfactory air quality in areas where current air quality violates the NAAQS.3 This interim report focuses on changes made to the NSR programs over the past few years that affect modifications to existing stationary sources of pollutants. In December 2002, the U.S. Environmental Protection Agency (EPA) made a number of revisions to the NSR programs, including revisions to methods used to determine whether particular physical changes to a facility would result in significant emission increases that would be subject to NSR. Regulatory revisions were also made in October 2003 concerning the extent of equipment replacements or other modifications for which an NSR permit would not be required, even if pollutant emissions increased significantly, so long as the source did not exceed its maximum level of allowable emissions.4 EPA and other supporters of the revisions say the changes will provide greater flexibility in operating the facilities, increase energy efficiency, and help to modernize American industry, all without damaging the environment. Opponents say that the EPA revisions will slow progress in cleaning the nation’s air, thus damaging human health, and that the NSR changes are not necessary to provide operating flexibility to industry. CHARGE TO THE COMMITTEE Because of the controversy over EPA’s revisions, Congress requested that EPA arrange for an independent study by the National Research Council (NRC) to estimate the potential impacts of EPA’s final NSR rules of December 2002 and October 2003. Congress called for an assessment of changes in emissions of pollutants regulated under the NSR programs; impacts on human health; and changes in energy efficiency, pollution prevention, and pollution control activities at facilities     deterioration (PSD) increments that limit growth in concentrations of certain pollutants. 3   To ensure that the construction or modification will not disrupt progress toward attaining the NAAQS, the operator must obtain emission reductions (offsets) from other sources. Also, the operator must show that the new or modified source will emit at the lowest achievable emission rate (LAER). 4   Sources often emit at a rate less than their maximum level of allowable emissions. Therefore, it is often possible for a source to increase emissions without exceeding its maximum allowable emissions.

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Interim Report of the Committee on Changes in New Source Review Programs for Stationary Sources of Air Pollutants subject to the revised NSR programs. In response to the request, the NRC established the Committee on Changes in New Source Review Programs for Stationary Sources of Air Pollutants. For its interim report, the committee was charged to present all conclusions and recommendations the committee determined to be feasible and appropriate by January 2005. A final report will be provided at the end of 2005. Congress did not ask the committee to determine the desirability of the NSR revisions or to recommend whether they be revised or repealed. Such conclusions involve considerations that go beyond science and involve value judgments (for example, how to weigh environmental protection against other societal goals). Congress also did not ask the committee to appraise whether EPA acted within the scope of its authority and, if so, whether EPA’s decision was reasonable. In addition, Congress did not ask the committee to investigate any effects of the NSR changes other than on human health (such as changes in atmospheric visibility, climate, or ecological consequences of pollutant deposition). Because Congress requested an evaluation of changes in emissions of pollutants regulated under the NSR programs, the committee did not include emissions of greenhouse gases, such as carbon dioxide and methane, in its assessment. EPA does not consider those gases to be regulated under the CAA. COMMITTEE’S APPROACH FOR ITS INTERIM REPORT This interim report provides a synthesis of background information on relevant health effects, air quality indicators, emissions, and industry activities in a regulatory context that will serve as a basis for the committee’s final report. The interim report also describes the committee’s approach to assessing the impacts it has been asked to address. This approach will be refined as the study progresses. As it carries out its charge, the committee is considering a number of relevant scientific and technical documents prepared by EPA, other federal agencies, states, industry, and environmental and other nongovernmental organizations. Although the committee does not present evaluations of those documents in this report, they have been used to inform the committee’s deliberations. The committee expects to provide its perspectives on several of those documents in the final report. The committee also will gather information on how the revised NSR regulations may affect emissions, air quality, public health, and industry ac-

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Interim Report of the Committee on Changes in New Source Review Programs for Stationary Sources of Air Pollutants tions concerning pollution control, pollution prevention, and energy efficiency. Because it has not completed the process of information gathering and analyses, the committee has not reached its final conclusions or recommendations in response to its charge from Congress. Those will be presented in the committee’s final report. OVERVIEW OF RELEVANT BACKGROUND INFORMATION Health Effects of Air Pollution EPA has set NAAQS for six “criteria” pollutants. Much of the CAA consists of mechanisms, including NSR, to control emissions of the criteria pollutants and their precursors (such as volatile organic compounds). A large and growing body of published epidemiologic and toxicologic research establishes associations between exposure to the criteria pollutants and various health effects, including increased occurrence of cardiopulmonary disease, cardiopulmonary and cancer mortality, poor birth outcomes (low birth weight and small for gestation age), and impaired growth of lung function in children. The associations between exposure to air pollutants and health hazards are most consistent for children, particularly those with asthma, and for older people, particularly those with underlying cardiovascular disease and diabetes. Given that, according to EPA, more than half the U.S. population lives in counties that exceed the NAAQS for ozone and/or particulate matter, air pollution is an important potential health hazard. Unlike the clarity of overall associations, the extent to which various health effects can be attributed to a given pollutant or combinations of pollutants, and at what concentrations, is less apparent. These limitations must be considered when examining the quantitative estimates of health effects attributed to pollutants. In the case of particulate matter, the problem is compounded by the complex physical-chemical mixture of particulate matter whose components probably interact with other criteria pollutants (such as ozone) in a number of ways that can affect health outcomes. Characterizing overall pollutant mixtures with respect to health implications is a major challenge for air-pollution-related health-effects research. In addition to the criteria pollutants, emissions addressed by the NSR programs include volatile organic compounds, which comprise a diverse group of air contaminants. Although these compounds are addressed by NSR because of their contributions to the formation of ozone,

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Interim Report of the Committee on Changes in New Source Review Programs for Stationary Sources of Air Pollutants many of them are also of concern because of their toxicity. Effects of concern involve mutagenicity, cancer, irritation (inflammation), neurotoxicity, or modulation of immune responses. Pollutant Emissions Large stationary sources of emissions are not evenly distributed across the United States. Such sources are typically located on the periphery of urban areas and near convenient transport facilities or near sources of raw materials. Large stationary sources contribute substantial emissions of nitrogen oxides, sulfur dioxide, particulate matter, and volatile organic compounds nationwide, including areas with concentrations of criteria pollutants associated with an increased risk of adverse health impacts. Therefore, it is important to assess a variety of types and locations of stationary sources that are affected by the NSR changes under review by this committee. The age of the facilities may be an important consideration, because older facilities are more likely to undergo maintenance, repair, and replacement of key components than are newer ones. Data on the age of facilities are more readily available and linkable to the emission data for the electricity-generating sector than for the other industrial facilities. Older coal-fired facilities tend to have higher emissions per megawatt-hour of total electricity generation than new facilities and tend to contribute proportionately more to total emissions than they contribute to total electricity generation. Because of the long-range transport of some pollutants, important emission sources may be far from the locations where measured pollutant levels exceed the NAAQS. Thus, for areas experiencing higher ambient concentrations of fine particulate matter5 and ozone, controlling those emissions is typically a regional, often multistate, problem, not a local one. Existing Emission Sources Covered by NSR Programs On the basis of preliminary data collected by the committee, permits for modifications of industrial facilities comprise 25-48% of the 5   Fine particulate matter (PM2.5) is operationally defined as those particles having an aerodynamic diameter of 2.5 micrometers or less.

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Interim Report of the Committee on Changes in New Source Review Programs for Stationary Sources of Air Pollutants reported total amount of permitted emissions among all NSR permits, depending on the pollutant. NSR permits for modifications have been issued for a wide variety of emission-source categories. Whether measured by number of permits or by amounts of permitted emissions, the primary industrial categories are electric utilities; stone, clay, and resulting products; paper and allied products; chemicals and allied products; and food and kindred products.6 Although the mix of industries appears to be diverse, the emission processes are often similar across industries. For example, many industries use common unit operations, such as industrial furnaces to generate steam for process use, or other combustion sources, such as tunnel or rotary kilns. A review of common repair and replacement practices for selected types of process facilities showed that such practices can vary considerably in frequency and cost.7 Likewise, a wide range of pollution prevention and control options can vary in effectiveness and cost for a given emission source, such as a utility boiler. Typically, “pollution control” refers to “end-of-pipe” techniques for removing pollutants from an exhaust gas after the pollutants have been formed in an upstream process. For example, in a coal-fired power plant, pollutants such as nitrogen oxides (NOx), sulfur dioxide (SO2), and PM are formed during combustion. Postcombustion control technologies such as selective catalytic reduction, fuel gas desulfurization, and electrostatic precipitation, respectively, can be used to reduce or capture these pollutants. In contrast, pollution prevention approaches are aimed at reducing or eliminating sources of pollution, typically through feedstock substitutions or process alterations. For example, in the case of a coal-fired power plant, methods that more carefully control and stage mixing of fuel and air can prevent the formation of a portion of NOx that otherwise would have been created. As another example, evaporative volatile organic compound (VOC) emissions can be prevented by substituting water-based solvents for VOC-based solvents used at a manufacturing facility. Emission sources, pollution prevention techniques, and pollution control technology are expected to change over time, and regu- 6   The committee will not necessarily focus on these industrial categories in its final report. 7   The committee takes no position on whether these repair and replacement activities are “routine” within the meaning of EPA’s old or new regulations.

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Interim Report of the Committee on Changes in New Source Review Programs for Stationary Sources of Air Pollutants lations such as the ones considered here can be part of the motivating factors for such change. However, the effects of regulations can vary greatly, depending on the specifics of the programs. ANALYTIC METHODS FOR ASSESSING EFFECTS OF NSR CHANGES A number of methods can be used to assess the effects of NSR changes made by EPA in 2002 and 2003. Methods are available that focus on the responses to NSR changes by individual firms or facilities, entire industry sectors, multiple sectors, or the entire economy. Assessing all the factors of interest requires an evaluation of how the firms, industry sectors, or economy will alter investments and operations (including pollution control and pollution prevention) in response to changes in the NSR rules and the resulting changes in efficiency and pollutant emissions. The assessment also involves an evaluation of how the emission changes might affect human exposures and health. The approaches discussed in this report will be relevant to the committee’s final report. No assessment results are provided in this interim report. Possible Indicators for Assessing Outcomes Table S-1 provides a list of possible indicators that could be used to assess magnitudes and trends in pollution control and prevention, energy efficiency, emissions, air quality, and health effects. Many of the indicators vary over time and space or from one facility to another, and some degree of averaging must be done before the data can be analyzed. In many cases, the data are not available from a single comprehensive source (or even distributed among many sources), and incomplete data must be used for drawing inferences. Furthermore, the list in Table S-1 includes factors that are quantitative and directly indicative of the targeted outcome—such as emissions for individual facilities, industries, and states—and other factors that are more qualitative and difficult to measure, such as the rate of innovation for pollution prevention and control technology. Because many outcomes and indicators are affected by a number of factors outside the NSR rules (or even pollution control laws in gen-

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Interim Report of the Committee on Changes in New Source Review Programs for Stationary Sources of Air Pollutants TABLE S-1 Possible Indicators for Assessing Outcomes of Interest Outcome Possible Indicators to Assess Outcome Pollution control • Innovation in new technologies   —Expenditures for research and development   —Inventions and patents • Implementation of new technologies   —Adoption by industry and utilities • Improvements in use (“learning by doing”)   —Performance histories for selected technologies Pollution prevention (source reduction) • Innovation, implementation, and improvements in industrial processes to be less polluting   —Expenditures for research and development   —Adoption by industry and utilities   —Performance histories of selected technologies   —Trends in emissions generated per unit of product produced • Life-cycle material-use impacts, considering economy-wide impacts through the supply chain and product delivery use, reuse, and disposal   —Number of products introduced into commerce with reduced hazardous properties • Substitution of materials with less polluting substances Energy efficiency • Innovation, implementation, and improvement in use of new technologies that enable energy efficiency in electricity generation and industrial processes • Energy efficiency of operating units and plants • Industry sector-wide energy use • Life-cycle energy-use impacts, considering economy-wide impacts through the supply chain and product delivery, use, reuse, and disposal Emissions • Trends in emissions for individual units, plants, industries, states, regions, and the nation as a whole • Relationships between emissions and unit and plant operating costs and use • Life-cycle emission impacts Air quality • Ambient concentrations of relevant emitted primary pollutants and pollutants formed in the atmosphere over various spatial and temporal scales Health effects • Human exposure and dose • Mortality and disease   —Population incidence   —Incidence for particular subpopulations (regional or socioeconomic)   —Risks to highly exposed individuals

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Interim Report of the Committee on Changes in New Source Review Programs for Stationary Sources of Air Pollutants eral)—such as economic conditions, government investment in research and development, fuel supplies and prices, and meteorological conditions—other factors and data must also be considered in analyses that attempt to assess the impact of NSR rule changes on the outcomes of interest. Thus, any assessment (explicitly or implicitly) involves a comparison of two outcome estimates: (1) an estimate of what would happen without the rule changes, and (2) an estimate of what would happen with the rule changes. Both outcomes are subject to substantial uncertainty, and a range of possible scenarios must be considered for the economic and environmental assumptions that are applied to compare expected “new-rule” and “no-new-rule” outcomes. Use of Models Assessments of an individual firm’s behavior in response to regulation can be based on anecdotal reports, directed case studies, surveys of multiple firms, and conceptual economic models. Economic models estimate how a firm behaves in response to different incentives on the basis of rational choice and profit maximization. Process engineering models that estimate the performance (for example, efficiency), emissions, and cost, given alternative capital investments and operating decisions at individual facilities, can be included as a part of, or a precursor to, economic models. The possible response of an entire sector of U.S. industry to government policies, technological change, and economic conditions can be estimated with generalizations of the results from tools used for individual firms within that sector, including anecdotal reports and representative case studies or surveys. In addition, economic models are available to estimate the behavior of a group of facilities that may or may not interact in some way in response to common constraints and incentives. Some computer models of the electricity-generating sector appear to be sufficiently detailed and sensitive to allow a first assessment of how changes in NSR rules might affect technology adoption and emission trends. For industry sectors outside the electricity-generating sector, the models in use do not appear to have the capacity to represent alternative technologies in a long-term simulation, and the time and resources available to the committee are not sufficient to support the reformulation or construction of sector models for this purpose. For these sectors, therefore, any generalization from the estimates of facility-level responses to

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Interim Report of the Committee on Changes in New Source Review Programs for Stationary Sources of Air Pollutants estimates of industry-sector responses will have to be undertaken more informally without reliance on an established model. When firms modify their production levels or product designs in response to regulation or other incentives, the effects of these decisions ripple through the economy and affect other industries. Tracing such effects throughout the entire economy is the focus of multisector models. For the most part, the multisector models are even less sensitive than the sector models to the types of changes that the committee is assessing. Modifying the available models so that they reflect the NSR rule changes is substantially beyond the committee’s capacity or resources. Therefore, any intersector impacts will also have to be assessed informally, and any estimates of their direction or magnitude are likely to be highly uncertain. It remains to be determined which modeling approaches considered by the committee will have sufficient sensitivity to the NSR rule changes under investigation to be able to estimate their effects accurately. Nonetheless, insights into a firm’s behavior will help in assessing how individual facilities might respond to the incentives created by the NSR rule changes. That assessment, in turn, might allow an assessment of the direction of change (positive or negative) in the impacts of concern (for example, whether emissions are likely to increase or decrease) and possibly an estimate of the magnitude of the impact for typical facilities in different industry sectors. The most appropriate way to estimate the impacts on health and other outcomes of any emission changes expected on the basis of the above assessments will depend substantially on the amount and quality of information resulting from these assessments. The human health impacts, for instance, are likely to depend on which facilities modify their emissions in response to the rule changes, who is exposed to the emissions from those facilities, and the ambient air quality in the vicinity of those facilities before the modifications occur. In most cases, the committee will probably not be able to make assessments with such specificity. When we cannot do so, sophisticated modeling of human health impacts will have little validity. In such cases, we will be able to do little more than indicate the likely direction and the rough magnitude of these impacts, if any. USING SCENARIOS TO ASSESS IMPACTS OF NSR CHANGES In the next phase of its study, the committee will assess the impacts of NSR changes on emissions, air quality, public health, energy effi-

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Interim Report of the Committee on Changes in New Source Review Programs for Stationary Sources of Air Pollutants ciency, pollution control, and pollution prevention. Because NSR is not the only CAA program that affects air emissions from industrial facilities, the incremental effects of NSR changes on decisions at a particular facility or industry sector will also depend on developments concerning other relevant regulations. This dependence must be taken into account in the committee’s framework. Because of the many substantial uncertainties involved and the expected lack of substantial empirical data, the committee plans to assess NSR-related impacts by using alternative scenarios that include development of other regulations. The scenarios will also involve several interpretations of the NSR rules (for example, stringent versus less stringent interpretations). Because the potential impacts of the revised NSR programs can depend strongly on the scenario analyzed, the impacts of interest must be assessed under a variety of scenarios. Furthermore, because the effect of other regulations varies across types of sources, the committee assessments will be done separately for different industries. For some industries, proposed non-NSR regulatory changes might not affect their emissions. For other industries, especially the electric-power industry, the strictness and scope of emission caps might be the relevant non-NSR regulation to consider. Other regulations also might be relevant to consider. The committee will consider the potential for synergy and antagonism across its matrix of regulatory landscapes, because the rule changes represent a package that firms or industries must consider when making emission-control decisions. Because many of the rule changes provide some incentives that theoretically could increase actual emissions and others that could decrease them, the committee will systematically determine which incentives will likely dominate under various policy scenarios. The committee will then evaluate pathways by which the NSR changes could affect industry decisions and determine the plausibility of the pathways and the likely direction and magnitude of the emissions changes. On the basis of this assessment, the committee will focus on the NSR program changes, industries, and pathways that appear likely to contribute substantially to changes in emissions of specific pollutants, pollution prevention, pollution control, and energy efficiency. The committee will conduct this analysis on a pollutant-by-pollutant basis, evaluating factors such as geographic location, stack height, and proximity to population centers that might, for example, cause an industry sector with lower emissions to have more significant public health impacts. Evaluating dominant pollutants and source characteristics will help determine the most significant contributors to population exposure and human

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Interim Report of the Committee on Changes in New Source Review Programs for Stationary Sources of Air Pollutants health impacts and also will help the committee focus on data sources that may support additional quantitative analyses. Implementing this analytical framework and approach will be complex. Data are sparse, the number of possible scenarios is large, and uncertainties are numerous. However, the committee concludes that this enumerative approach will help to uncover aspects of the NSR changes and the pathways that may influence the effects that the committee has been asked to study.