process, which made it easier for a facility to renovate without triggering NSR. Changing the stringency of NSR requirements could have offsetting effects on overall pollution. If a firm chooses to go through NSR permitting despite having to face the stringent rules, stricter NSR requirements would generate greater emission reductions at the facility. Some firms trying to avoid NSR requirements would also reduce emissions by undertaking other pollution-control projects to avoid an increase in overall emissions or by accepting enforceable limits on facility emissions in the form of a “synthetic minor”1 designation. If a firm facing less strict regulations decides to invest in new equipment that results in a lower emission rate than does its existing equipment (although not as low as NSR might require), the less strict NSR rules could actually decrease emissions. NSR could thus affect both the decision of whether to adopt a new investment project and the final characteristics of the project, and it might cause alterations in other areas of a facility either to meet NSR requirements or to avoid NSR entirely. As outlined below, the recent and ongoing nature of the NSR rule changes, combined with the multiyear lags in the availability of outcome measures, make it impossible at this point to analyze the impact of the NSR rule changes on investment projects and overall emissions—the data are simply not yet available.

IDENTIFYING VARIATIONS IN POLICY

Variations in Policy Timing

To do any econometric analysis, we must be able to measure when and where the NSR rule changes became effective so that we can properly define the X variable in Equation 4-1 for any given facility-year observation. Under the U.S. federal system of environmental regulation, much of the regulatory activity is conducted by state agencies and is subject to federal oversight. In the case of air-pollution regulation, states develop state implementation plans (SIPs) designed to meet federal air-quality standards and conform to various federal requirements. Existing SIPs have been approved by EPA, and changes in a SIP must also be approved by EPA. Thus, if a state’s SIP includes an NSR program that applies to a particular facility, the state has to propose a revision to the NSR program, and EPA has to approve the revision before the NSR rule changes become effective for that facility. EPA gave such states until January 2006 to submit revised SIPs that incorporate the new

1

As discussed in Chapter 2, a source may reduce its potential to emit by agreeing to a legally binding limit on its emissions. If the source agrees to a limit that reduces its potential to emit below the coverage thresholds, it is no longer a major emitting facility and is exempt from the program.



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