1
Introduction

The Clean Air Act (CAA) includes New Source Review (NSR) permit programs that apply to major stationary sources of air pollution, such as factories and electric generating facilities. Under NSR, each new major stationary source must have a permit before construction begins, and an existing major stationary source must have a permit before a physical or operational change is made that 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.1 In addition, construction or modification cannot result in significant deterioration of air quality in areas that meet the National Ambient Air Quality Standards (NAAQS)2 or interfere with progress toward attainment in areas where air quality violates NAAQS.

On December 31, 2002 (67 Fed. Reg. 80186 [2002]), and October 27, 2003 (68 Fed. Reg. 61248 [2003]), the U.S. Environmental Protection Agency (EPA) promulgated changes in the NSR programs were published. The changes have resulted in controversy. EPA and other supporters of the changes say that they will provide greater flexibility for industry, increase the energy efficiency of industrial facilities, and contribute to the modernization

1

The extent of emission reductions that can be accomplished for a proposed new or modified source is based on a case-by-case evaluation.

2

The NAAQS specify the maximal allowable concentrations of six pollutants in ambient air that are protective of public health and welfare: carbon monoxide, lead, nitrogen dioxide, ozone, particulate matter, and sulfur dioxide. These pollutants are known as criteria pollutants because the Environmental Protection Agency prepares “criteria documents” for them that describe their sources and effects.



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New Source Review for Stationary Sources of Air Pollution 1 Introduction The Clean Air Act (CAA) includes New Source Review (NSR) permit programs that apply to major stationary sources of air pollution, such as factories and electric generating facilities. Under NSR, each new major stationary source must have a permit before construction begins, and an existing major stationary source must have a permit before a physical or operational change is made that 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.1 In addition, construction or modification cannot result in significant deterioration of air quality in areas that meet the National Ambient Air Quality Standards (NAAQS)2 or interfere with progress toward attainment in areas where air quality violates NAAQS. On December 31, 2002 (67 Fed. Reg. 80186 [2002]), and October 27, 2003 (68 Fed. Reg. 61248 [2003]), the U.S. Environmental Protection Agency (EPA) promulgated changes in the NSR programs were published. The changes have resulted in controversy. EPA and other supporters of the changes say that they will provide greater flexibility for industry, increase the energy efficiency of industrial facilities, and contribute to the modernization 1 The extent of emission reductions that can be accomplished for a proposed new or modified source is based on a case-by-case evaluation. 2 The NAAQS specify the maximal allowable concentrations of six pollutants in ambient air that are protective of public health and welfare: carbon monoxide, lead, nitrogen dioxide, ozone, particulate matter, and sulfur dioxide. These pollutants are known as criteria pollutants because the Environmental Protection Agency prepares “criteria documents” for them that describe their sources and effects.

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New Source Review for Stationary Sources of Air Pollution of American industry—all without damaging the environment. Opponents say that the changes will slow progress in cleaning the nation’s air and thus damage human health and that they are not necessary to provide flexibility (GAO 2004). (Chapter 2 describes the NSR changes in the context of the CAA.) As detailed below, Congress asked the National Research Council (NRC) to study the 2002 and 2003 regulations. There have been extensive developments during the course of this examination—for instance, EPA’s promulgation in 2005 of the Clean Air Interstate Rule (CAIR). The most important changes have come from decisions of the D.C. Circuit Court of Appeals, the court that has jurisdiction over challenges to EPA regulations. (These decisions are described in Chapter 2.) In July 2005, the D.C. Circuit invalidated portions of the 2002 rule as contrary to the CAA or as insufficiently explained (New York v. EPA, 413 F.3d 3 [D.C. Cir. 2005]). Then, in March 2006—while this report was in the final stages of preparation—the D.C. Circuit vacated the 2003 rule, finding that it conflicts with the Act’s language (New York v. EPA, 443 F.3d 880 [D.C. Cir. 2006]). The shifts in the regulatory landscape since the committee began its evaluations do not negate the core value of this report. The fundamental issue raised by the 2002 and 2003 rules—the question of which alterations at existing major sources ought to be subject to NSR—remains important. As is detailed in Chapter 7, existing major sources emit a large portion of the total air-pollution burden in some areas. In addition, the topic continues to be one of current concern. EPA is considering a number of rule changes, described in Chapter 2, that would narrow the possible applicability of NSR in various ways. The most important example is EPA’s proposal that a physical or operational change at an electric generating facility be subject to NSR only if the maximum hourly emissions from the unit would increase (70 Fed. Reg. 70565 [2005]). Any significant change in NSR should be accompanied by careful prospective and retrospective analyses. This report serves as a case study on how such analyses could be conducted. Although the report focuses on the 2002 and 2003 rules, its analytic framework applies as well to other possible changes in NSR and to other regulatory contexts. Our methodology and recommendations about necessary data and information, and development of better research methods are as important, as are the evaluations of this report regarding the 2002 and 2003 rules. CHARGE TO THE COMMITTEE Because of the controversy over the NSR changes, Congress mandated that EPA arrange for the NRC to assess potential effects of EPA’s final rules of December 2002 and October 2003. The NRC was asked to assess

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New Source Review for Stationary Sources of Air Pollution changes in emissions of pollutants regulated under the NSR programs, effects on human health, and changes in operating efficiency, pollution prevention, and pollution control at facilities subject to NSR. (The congressional mandate for the study is in Appendix B.) In response to the request, the NRC established the Committee on Changes in New Source Review Programs for Stationary Sources of Air Pollutants (see Appendix A). The committee was also asked to estimate and evaluate the amount of uncertainty associated with the effects being considered. In addition, the committee was asked to consider the data and methods necessary to assess specific effects of the NSR rules expected to occur in the coming years, taking into account the relatively short time that will have elapsed since the promulgation of the NSR rules and the economic conditions that have prevailed in the interim. (The committee’s full statement of task is in Appendix C.) Congress asked that an interim report of the committee’s study be provided and that it include all conclusions and recommendations the committee determined to be feasible and appropriate at that stage in its study. In January 2005, the committee provided an interim report (NRC 2005) that synthesized relevant background information to serve as a basis of the final report. It also described the committee’s general approach for assessing the effects it was asked to address. Because information gathering and analysis had not been completed when the interim report was written, the committee had not reached its final conclusions or recommendations in response to its charge. Much of the committee’s discussion presented in the interim report has been carried forward in this final report. However, the reader is referred to the interim report itself in some cases. Effective decisions to manage air quality are made by elected and appointed leaders in the context of diverse social, economic, and political considerations. This report is intended to provide input to those leaders that is focused only on scientific and technical aspects. Congress did not ask the NRC to determine the desirability of the new NSR rules or to decide whether they should be revised or repealed. Such conclusions involve considerations that go beyond science and involve value judgments, such as how to weigh environmental protection against other societal goals. Congress also did not ask for an appraisal of whether EPA acted within the scope of its authority and, if it did, whether its decisions were reasonable. Finally, Congress did not ask the NRC to investigate any effects of the NSR changes other than effects on emissions, human health, and industry actions concerning efficiency, pollution control, and pollution prevention. The committee was directed to focus on those specific effects, so it did not consider other possible effects of the NSR changes, such as effects on nonhuman biota (for example, agricultural crops and forests), atmospheric visibility, and materials (for example, monuments and buildings). The committee was

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New Source Review for Stationary Sources of Air Pollution not asked to and did not include emissions of greenhouse gases, such as carbon dioxide and methane, in its assessment; EPA does not consider these gases to be regulated under the CAA. Emissions of hazardous air pollutants (HAPs) may be affected by NSR because many HAPs are subsets of volatile organic compounds or particulate matter, both of which are regulated by NSR. However, since 1990, a separate program has regulated the construction and modification of sources that emit HAPs (CAA § 112(d)(3), 42 USC § 7412(d)(3)),3 and Congress did not ask the committee to analyze the effects of any changes in emissions of HAPs. In carrying out its charge, the committee considered relevant scientific and technical documents prepared by EPA, other federal agencies, states, industry, and environmental and other nongovernment organizations. The committee sought to gather information on how the revised NSR rules may affect emissions, air quality, public health, and industry actions concerning pollution control, pollution prevention, and operating efficiency. It also gathered background information on the types of facilities that may be subject to NSR rules, including numbers and ages of facilities, emission trends, locations relative to NAAQS nonattainment areas, and population sizes downwind of facilities. The committee sought information from states on the status of their NSR permitting programs and efforts to collect and maintain relevant databases. Because of the various types of industries potentially affected by NSR, the committee could not consider the effects of the rule changes for each type in detail; instead, it focused on a few representative industries. Of the various types of pollutants affected by NSR programs, much of the committee’s assessment focused on emissions of sulfur dioxide (SO2) and nitrogen oxides (NOx), not because of their own health effects, but because of their contribution to the formation of airborne particulate matter, and NOx is an important precursor to ozone in the lower atmosphere. The electric-power sector was a primary focus of many of the committee’s assessments. The sector, especially coal-fired power plants, dominates national emissions of SO2 and NOx, compared with other large stationary sources that may be affected by NSR. Because many of the outcomes that the committee has been asked to consider can be affected by factors outside the realm of NSR, the committee considered other factors, such as economic conditions and government investment in research and development. Those factors can play an important role in the decisions firms make on whether to proceed with a given investment project that may be subject to NSR requirements. For example, in the case of the electric power industry, conditions such as growth in the demand for electricity, fuel prices, and investment costs for different electricity- 3 In the CAA amendments of 1990, Congress provided a list of 189 compounds, such as benzene, formaldehyde, and mercury compounds, to be controlled by EPA as HAPs.

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New Source Review for Stationary Sources of Air Pollution production and pollution-control technologies are important considerations. The committee also recognizes that future developments in other pollution laws and regulations could have a substantial influence on the effects of NSR changes. Thus, the committee strove to consider the plausibility, significance, and interactions of those other relevant requirements. To establish a background and context for the committee’s technical and scientific analysis, Chapter 2 provides a regulatory overview of the NSR programs in the context of the CAA. It also describes and discusses the NSR changes that are the subject of the committee’s evaluation. Chapter 3 considers emission sources subject to NSR and technology options available for their control. Chapter 4 continues discussions begun in the committee’s interim report on an analytic framework for assessing effects of NSR changes. Chapter 5 discusses econometrics as a way to measure effects of the NSR changes. Chapter 6 assesses the potential efficiency, technology, and emission implications of the NSR changes on electricity-generating facilities. Chapter 7 examines contributions that emission sources subject to NSR may make to ambient air quality and relationships between specific air pollutants and health effects. Chapter 8 presents the committee’s overall conclusions and suggests the kinds of analyses that are needed to address the information needs identified in this report. Terms and abbreviations used in this report are defined in a section after the references.