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New Source Review for Stationary Sources of Air Pollution (2006)

Chapter: 2 Regulatory Overview

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Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
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2
Regulatory Overview

INTRODUCTION

The Clean Air Act (CAA) requires the U.S. Environmental Protection Agency (EPA) to set National Ambient Air Quality Standards (NAAQS) at levels that protect public health and welfare (see Table 2-1). These pollutants are known as criteria air pollutants because the NAAQS are based on “criteria documents” that describe the sources and effects of each pollutant.

The CAA seeks to control emissions of air pollutants to ensure that the NAAQS are attained and maintained and that air quality that is better than the NAAQS is protected. The statute’s mechanisms include a pair of programs that together are known as New Source Review (NSR). These programs establish requirements that must be met before a large stationary source of pollution (a source with a fixed location, such as a factory or an electricity-generating facility) may be constructed or modified. NSR thus covers modifications of existing large sources as well as construction of new ones.

One NSR program, Prevention of Significant Deterioration (PSD), applies to the construction or modification of any “major emitting facility” locating in an “attainment area”—an area whose air quality meets the NAAQS or is unclassifiable (CAA § 165(a), 42 USC § 7465(a)). The other, commonly called Part D NSR, applies to the construction or modification of “major stationary sources” (slightly different from “major emitting facilities”) in “nonattainment areas”—those classified as not meeting the NAAQS (CAA § 172(b)(5), 42 USC § 7502 (b)(5)). We provide an overview of both NSR programs later in this chapter.

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
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TABLE 2-1 National Ambient Air Quality Standards

Pollutant or Indicator

Averaging Times

Primary Standard

Secondary Standard

Carbon monoxide (CO)

8 hra

9 ppm (10 mg/m3)

None

 

1 hra

35 ppm (40 mg/m3)

None

Lead (Pb)

Quarter (average)

1.5 µg/m3

Same as primary

Nitrogen dioxide (NO2)

Year (average)

0.053 ppm (100 µg/m3)

Same as primary

Particulate matter < 10 µm in aerodynamic diameter (PM10)f

Year (average)b

50 µg/m3

Same as primary

24 hra

150 µg/m3

Same as primary

Particulate matter < 2.5 µm in aerodynamic diameter (PM2.5)f

Year (average)c

15 µg/m3

Same as primary

24 hrd

65 µg/m3

Same as primary

Ozone (O3

)8 hre

0.08 ppm

Same as primary

Sulfur oxides (SOx)

Year (average)

0.03 ppm

 

24 hra

0.14 ppm

 

3 hra

0.5 ppm (1,300 µg/m3)

aNot to be exceeded more than once per calendar year.

bTo attain this standard, the expected annual average PM10 concentration at each monitor in an area must not exceed 50 µg/m3.

cTo attain this standard, the 3-year average of the annual average PM2.5 concentrations from single or multiple community-oriented monitors must not exceed 15 µg/m3.

dTo attain this standard, the 3-year average of the 98th percentile of 24-hr concentrations at each population-oriented monitor in an area must not exceed 65 µg/m3.

eTo attain this standard, the 3-year average of the fourth-highest daily maximal 8-hr average O3 concentrations measured at each monitor in an area over each year must not exceed 0.08 ppm.

fEPA has recently proposed to revise these standards (see 71 Fed. Reg. 2620 [2006]).

SOURCE: EPA 2004a.

The CAA defines a modification as “any physical change, or change in the method of operation of a stationary source” that significantly “increases” its emissions of air pollution (CAA §111(a)(4), 42 USC § 7411(a)(4)).1 That definition applies to both the PSD (CAA §169(2)(C), 42 USC § 7479(2)(C)) and Part D NSR (CAA § 171(4), 42 USC § 7501(4)) programs. The definition covers not only the addition of new emission points to existing sources

1

The CAA does not expressly exempt even very small increases in emissions. But EPA, with court approval, has exempted nonsignificant increases from NSR. Significance levels are set out in Box 2-1. Use of the term “physical change” in the rest of this report also includes a change in the method of operation of a stationary source.

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

but also to at least some changes at existing emission points. (As discussed later, EPA has exempted changes that are “routine maintenance, repair, and replacement,” a term whose scope is in considerable dispute.)

EPA regulations governing NSR (40 CFR 51.165-166 and 40 CFR 52.21) elaborate on the statutory definition of a modification.2 In 2002 and 2003, EPA amended those regulations. The alterations affect only existing sources whose operations are being altered; the treatment of new sources is unchanged. The first of the revisions, published December 31, 2002 (67 Fed. Reg. 80186 [2002]), changed the rules in five ways. These changes are mainly concerned with determining whether a proposed project would “increase” emissions and with exempting from NSR some kinds of projects that were subject to NSR prior to the rule change. Portions of the 2002 rule were vacated by the D.C. Circuit Court of Appeals in New York v. EPA, 413 F.3d 3 (D.C. Cir. 2005).

EPA amended the rules again on October 27, 2003 (68 Fed. Reg. 61248 [2003]). This revision established what became known as the equipment replacement provision (ERP); it provided that some kind of replacements of equipment at existing major stationary sources would be considered routine maintenance, repair, and replacement and hence exempt from NSR. This rule never went into effect, due to a judicial stay, and was vacated by the D.C. Circuit Court of Appeals in New York v. EPA, 443 F.3d. 880 (D.C. Cir. 2006). (EPA’s petition for rehearing by the entire active membership of the circuit court is currently pending.)

NEW SOURCE REVIEW PROGRAMS

The two NSR programs—the PSD program and the Part D NSR program—have two special characteristics. First, each program requires that the allowable emission level of a proposed new or modified source be based on a case-by-case evaluation of how much emission reduction can be accomplished. Second, each program gives special attention to proposed new or modified sources in or near sensitive areas; the Part D NSR program emphasizes areas that violate air-quality standards, and PSD seeks to give special protection to national parklands, such as large national parks and wilderness areas, as well as areas that have experienced substantial growth in concentrations of sulfur dioxide (SO2), nitrogen oxides (NOx), and particulate matter (PM).

2

EPA’s regulations refer to a covered modification as a “major modification.” In this report, we use the statutory term “modification” interchangeably with the regulatory term “major modification.”

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

Prevention of Significant Deterioration: Evolution and Summary

The PSD program was born in the early 1970s after enactment of the CAA amendments of 1970 (Pub. L. 91-604). The amendments established the basics of today’s CAA. EPA was required to establish NAAQS, and the states were commanded to write state implementation plans (SIPs) to ensure that the NAAQS were attained and maintained. EPA was also obligated to develop New Source Performance Standards (NSPS), based on levels of emissions that can be achieved using the best demonstrated technology, for categories of new and modified stationary sources whose emissions might endanger public health or welfare. A source within a category for which there are NSPS must comply when the source is constructed or physically or operationally changed in a way that increases emissions.

The 1970 amendments did not expressly stipulate whether states were required to establish measures to prevent the deterioration of air quality that is superior to the NAAQS. EPA administrator William Ruckelshaus ruled that states had no obligation to do so. However, the U.S. District Court for the District of Columbia overturned that interpretation of the Act (Sierra Club v. Ruckelshaus, 344 F. Supp. 253 [1972]). An equally divided U.S. Supreme Court eventually affirmed that decision without opinion (Fri v. Sierra Club, 412 U.S. 541 [1973]). As a result, EPA created the PSD program in 1974 to impose requirements on the construction or modification of major sources in clean air areas (39 Fed. Reg. 42510 [1974]). Congress altered and codified the program in the CAA amendments of 1977 (Pub. L. 95-95, § 127). Later, by technical amendment, Congress made clear that the PSD program, as in EPA’s 1974 rules, covers modifications (Pub. L. 95-190, § 14(a)(54) [adding CAA § 169(2)(C), 42 USC § 7479(2)(C) defining the term construction to include modifications]).

In Section 160 of the CAA (42 USC § 7460), Congress articulated several goals for the PSD program, such as protection of national parks and the prevention of health and welfare effects that can occur at ambient concentrations allowed by the NAAQS (see Box 2-1). Some of these goals (e.g., to prevent transboundary air pollution) seem primarily focused on decreasing national or regional emissions loadings. Others, such as the prevention of health effects, are concerned also with local growth in emissions that may have little effect on broad regional or national emissions but which threaten the health of nearby individuals and the welfare of adjacent national parks or other national treasures.

The PSD program requires a permit for the construction or modification of a “major emitting facility” in an area to which the program applies (CAA § 165(a), 42 USC § 7475(a)) (see Box 2-2).

The program applies in every area that attains at least one of the NAAQS (Alabama Power v. Costle, 636 F.2d 323, 364-368 [D.C. Cir. 1980] [CAA

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

BOX 2-1

Section 160 of the Clean Air Act

The purposes of this part are as follows:

  1. to protect public health and welfare from any actual or potential adverse effect which in the Administrator’s judgment may reasonably be anticipate[d] to occur from air pollution or from exposures to pollutants in other media, which pollutants originate as emissions to the ambient air[,] notwithstanding attainment and maintenance of all national ambient air quality standards;

  2. to preserve, protect, and enhance the air quality in national parks, national wilderness areas, national monuments, national seashores, and other areas of special national or regional natural, recreational, scenic, or historic value;

  3. to insure that economic growth will occur in a manner consistent with the preservation of existing clean air resources;

  4. to assure that emissions from any source in any State will not interfere with any portion of the applicable implementation plan to prevent significant deterioration of air quality for any other State; and

  5. to assure that any decision to permit increased air pollution in any area to which this section applies is made only after careful evaluation of all the consequences of such a decision and after adequate procedural opportunities for informed public participation in the decision-making process.

§ 165(a), 42 USC § 7475(a)]). Because no area violates all the NAAQS, PSD applies nationwide. (It does not apply, however, to emissions of pollutants for which the source’s locale does not attain the NAAQS; the Part D NSR program applies to those.) If a source is in one of 28 named categories, it is a major emitting facility if its “potential to emit” any regulated air pollutant is 100 tons/year or more. Otherwise, the source is covered if its potential to emit is 250 tons/year or more (CAA § 169(1), 42 USC § 7479(1)). Potential to emit generally represents the source’s emissions if it is operated at maximum design capacity. A source may reduce its potential to emit by agreeing to a legally binding limit on its emissions (e.g., 40 CFR § 51.166(b)(4)). 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. Such a source is often called a synthetic minor.

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

BOX 2-2

Major Requirements for Obtaining a PSD Permit

A public hearing has been held on the application.


The owner or operator has shown that the proposed project would not contribute to a violation of the NAAQS or the PSD increments.


The proposed project is subject to the best available control technology for each pollutant emitted in more than de minimis amounts.


Effects of the proposed project on the air-quality-related values of Class I areas have been analyzed.


The applicant agrees to monitor the source’s effects.


SOURCE: Adapted from CAA § 165(a), 42 USC § 7475(a).

A modification of a major emitting facility requires a PSD permit if it would increase the net emissions of a pollutant by a “significant amount” (see Box 2-3). Significance levels are based on the levels at which, in EPA’s view, the benefits of regulation would be de minimis or where administrative necessity dictates an exemption. An applicant for a PSD permit must show

BOX 2-3

EPA Significance Levels of Emission of Criteria Pollutants


Carbon monoxide: 100 tons/year


Nitrogen oxides: 40 tons/year


Sulfur dioxide: 40 tons/year


Ozone: 40 tons of volatile organic compounds per year


Lead: 0.6 tons/year


PM10: 25 tons/year


PM2.5: 15 tons/year


SOURCE: 40 CFR § 51.166(b)(23)(i).

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

that the new or modified facility will, for each regulated pollutant emitted in significant amounts, limit emissions to the level achievable through use of the best available control technology (BACT). The BACT determination is made on a case-by-case basis and must be at least as stringent as whatever NSPS exist for the source’s category (CAA § 169(3), 42 USC § 7479(3)). Since 1987, EPA has stated that BACT must be set with a top-down approach; that is, BACT should be set at the most stringent level achieved by a source in the same category unless the applicant can show that level to be unachievable (61 Fed. Reg. 38250, 38272-38273 [1996], which proposes to incorporate this approach formally into EPA’s rules).

The applicant also must show that the new or modified source, in combination with emission increases from other sources, will comply with a system of increments that limit permissible growth in air pollution above the baseline concentrations—the concentrations that existed in an area when the first application was filed for a PSD permit there (CAA § 169(4), 42 USC § 7479(4)). Increments exist for NO2, SO2, and PM (see Box 2-4).3 The size of the increments varies with an area’s classification as Class I, II, or III. The largest increments, and hence the least stringent restrictions on growth, apply in Class III areas. The tightest increments apply in Class I areas. This tends to encourage new sources to stay away from these areas or to install strict control technology if they wish to locate near Class I areas.

Congress designated 158 large national parks and wilderness areas existing in 1977 as mandatory Class I areas. Most Class I areas are west of the Mississippi River; nearly one-fourth of them are in Utah, Arizona, New Mexico, or Colorado (Oren 1989). The remainder of the nation initially was classified as Class II. States and Indian tribes are allowed to redesignate areas as Class I or (except for some parklands) as Class III. The states have not redesignated any areas. To date, several Indian tribes have designated their reservations as Class I. No areas have been designated as Class III, and the many national parks and wilderness areas created since 1977 (e.g., those created by Congress in 1980 in Alaska) have remained Class II areas.

About 39 states have incorporated the PSD program into their SIPs. In some of the remainder (such as New York), EPA runs the program itself but delegates its responsibility to the state for most day-by-day decisions; in the rest, EPA runs the program directly.

In 2001, EPA estimated that PSD control-technology determinations from 1997 to 2001 eliminated a potential increase of 1.4 million tons of air

3

The SO2 increments are stated in the CAA. The statute also established increments for total suspended particulates (TSP). EPA, pursuant to Congressional direction, has since replaced those increments with equivalently strict increments. The statute imposes an obligation on EPA to establish increments or equivalent measures for other criteria pollutants (CAA § 166, 42 USC § 7476). This mandate has been used to force EPA to set increments for NOx, but there has been no effort to compel the agency to meet section 166 for other pollutants.

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

BOX 2-4

PSD Increments

Class I

Increment (µg/m3)

SO2

 

Annual arithmetic mean

2

24-hr maximum

5

3-hr maximum

25

NO2

 

Annual arithmetic mean

2.5

PM10

 

Annual arithmetic mean

4

24-hr maximum

8

Class II

 

SO2

 

Annual arithmetic mean

20

24-hr maximum

91

3-hr maximum

512

NO2

 

Annual arithmetic mean

25

PM10

 

Annual arithmetic mean

17

24-hr maximum

30

Class III PSD increments

 

SO2

 

Annual arithmetic mean

40

24-hr maximum

182

3-hr maximum

700

NO2

 

Annual arithmetic mean

50

PM10

 

Annual arithmetic mean

34

24-hr maximum

60

SOURCE: 40 CFR § 51.166(c).

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

pollution per year. About 822,000 tons of these reductions, or about 60%, were NOx, and about 420,000 tons, or about 30%, were SO2. Some 90% of such benefits are believed to have occurred at new electricity-generating facilities (EPA 2001). These estimates do not take into account benefits that occur when source operators limit emissions so that the PSD permit process will not apply.

Part D New Source Review

The 1977 CAA amendments included an NSR program for nonattainment areas (those whose air quality does not meet the NAAQS). The program also applies to major stationary sources of volatile organic compounds (VOCs) in the ozone (O3) transport region in the Northeast even if they are in attainment areas (CAA § 184(b)(2), 42 USC § 7511c(b)(2)), because emissions of VOCs contribute to violations of the O3 ambient standards.

In 1970, Congress required attainment of the primary standards no later than 3 years after approval of a state’s SIP, with a possible 2-year extension. It became clear that timetable would not be met, and in late 1976, EPA published an interpretive ruling that outlined conditions under which new and modified major sources would be allowed in areas that failed to attain the air-quality standards on schedule (41 Fed. Reg. 55524 [1976], codified as 40 C.F.R. § 51, Appendix S). The purpose of the ruling’s conditions was to allow economic growth while minimizing the effect of new and modified sources on air quality in areas that had failed to meet the standards. Congress codified the program (known as Part D NSR because it is included in that part of the CAA) in 1977 as part of a renewed effort to bring about attainment of the NAAQS (Pub. L. 95-95, § 129). Part D NSR requires that an operator obtain a permit before construction or modification of a major stationary source (see Box 2-5). Generally, a major stationary source is defined as one that emits or has the potential to emit any air pollutant at more than 100 tons/year (CAA § 302(j), 42 USC § 7602(j)). (The quantity is lower for NOx and VOCs in O3 nonattainment areas that are classified as in “moderate,” “serious,” “severe,” or “extreme” violation [e.g., CAA §182(c), 42 USC § 7511a (c)]). A major source is covered only to the extent that its emissions would contribute to nonattainment of a NAAQS. Thus, if a proposed source would emit two pollutants and the area violates the NAAQS for only one, the source is covered by Part D NSR for that pollutant and by PSD for the other. As under the PSD permit, a modification is covered if it would result in an increase in pollutants that is “significant”—that is, at least exceeding the levels in Box 2-1.

To obtain a permit to construct or modify, the applicant must show that the new or modified source will emit at the lowest achievable emission rate (LAER), defined in the statute as the more stringent of the tightest emission

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

BOX 2-5

Part D NSR Permit Requirements

  • The applicant must obtain emission offsets (or, in an area in an economic development zone, fit within a margin for growth specified in the SIP).

  • The applicant must show that all sources it owns or operates in the state are in compliance.

  • EPA must not have found that the area is not implementing its SIP.

  • The benefits of the proposed source significantly outweigh the environmental and social costs.

SOURCE: Adapted from CAA § 173, 42 USC § 7503.

limit achieved in practice or the tightest SIP limit for that category of source (unless the operator can show that level not to be achievable) (Section § 173 (a)(2), 42 USC § 7503(a)(2)). The applicant must also (except in a few cases) obtain emission offsets—reductions in emission from other sources that are enforceable and not otherwise required—so that the construction or modification will not disrupt progress toward attaining the NAAQS. In areas classified as in serious, severe, or extreme nonattainment of the O3 standard, the offset must be greater than 1-to-1.

The Part D NSR program has been incorporated by the states into their SIPs for all nonattainment areas. Thus, in contrast with the case of PSD, there is no area where EPA runs the program.

NEW SOURCE REVIEW IN THE FRAMEWORK OF THE CLEAN AIR ACT

The role of NSR can best be appreciated by outlining the other mechanisms in the act that control emissions from stationary sources:

  • Under section 110 (42 USC § 7410), each state must prepare and enforce a SIP for the NAAQS pollutants. The SIP must demonstrate that it will result in attainment and maintenance of the primary NAAQS by a given deadline and of the secondary standards as expeditiously as practicable. If an area is in attainment, its SIP must show that the standards will be maintained. SIPs are required to include “minor” NSR programs that control emissions from the construction and modification of sources that

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

are too small to be covered by the NSR programs. SIPs may regulate new and modified major stationary sources of air pollution more strictly than NSR, although this does not happen often.

  • Under Section 111 (42 USC § 7411), EPA establishes NSPS for categories of stationary sources that emit air pollution that may endanger public health or welfare. NSPS emission limits are based on the degree of emission limitation that can be achieved by a source in a category through use of the best demonstrated technology. NSPS (with an exception not relevant here) apply only to sources that commence construction or modification after the NSPS for the category are proposed (CAA § 111(a)(2), 42 USC § 7411(a)(2)). As summarized above, BACT and LAER emission limits under the NSR programs must be at least as stringent as NSPS. Thus, NSPS generally do not require control in excess of NSR.4

  • Section 112 (42 USC § 7412) requires EPA to establish categorywide standards to limit emissions of hazardous air pollutants (HAPs). Those standards are known as National Emissions Standards for Hazardous Air Pollutants (NESHAPs). Because some HAPs are subsets of PM and VOCs (precursors to ozone formation), this requirement results in regulation of pollutants covered by the NAAQS. The requirement can potentially lead to regulation of new and modified sources that is stricter than NSR.

  • Section 169A (42 USC § 7491) establishes a national goal of eliminating human-caused degradation of visibility in mandatory Class I areas (national parks and similar areas) where visibility is an air-quality-related value. (Out of the 158 mandatory Class I areas, 156 fall into this category.) The program requires EPA to establish requirements for implementing this goal and to mandate the installation of the best available retrofit technology (BART) on some categories of large sources constructed in the period of 1962 and 1977. In 1980, EPA established rules for regulating visibility degradation that can be reasonably attributed to one or a few large stationary sources (40 CFR § 51.302). The program includes regulation of major new sources that are in nonattainment areas (and are therefore exempt from PSD) but might damage visibility in Class I areas (40 CFR § 51.307). The rules in effect fill a gap in NSR as it had been interpreted by the courts. The agency has also promulgated rules for combating regional haze, which is caused by many sources. These rules set out criteria for states to use in making BART determinations. States need not make BART determinations to the extent their programs are “better than BART.”5 There are two main categories of such programs. The first consists of programs in states subject to the Clean Air Interstate Rule (CAIR) summarized below. In these states,

4

There can be exceptions. NSPS can cover sources that are not large enough to be “major sources” covered by NSR.

5

The “better than BART” provisions are presently being challenged in court.

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

BART does not apply to electricity-generating facilities. The states subject to CAIR are in the East and Midwest, so BART’s application to electricity-generating facilities is likely to be largely confined to the West. The second consists of programs that adopt the cap-and-trade initiative established by the Western Regional Air Partnership (WRAP) as a result of the recommendations of the Grand Canyon Visibility Transport Commission; five states have indicated that they will adopt this initiative, which sets up a cap-and-trade program that will apply if emissions in 2018 exceed projections.6

Several very significant cap-and-trade programs have been established to limit emissions from electricity-generating facilities. Those programs assign a reduction target to the nation or a region. Regulated sources are granted allowances in proportion to their historical emissions and are allowed to trade allowances so that the cap can be achieved at the lowest cost. Sometimes sources make early reductions in emissions to enable them to “bank” allowances for use in future years. New sources, and existing sources that increase emissions, must generally obtain allowances from other sources covered by the overall cap.

  • Electricity-generating facilities are subject to the acid rain program of Title IV, enacted as part of the 1990 CAA amendments. Generally, an electricity-generating source is issued allowances for SO2 that equals 1.2 lb per million British thermal units multiplied by the source’s annual average heat input (a measure of the source’s use) for the period 1985-1987. Each allowance enables its holder to emit a ton of SO2. This program phases in by 2010 a limit of 8.97 million annual allowances. (Because sources often made early reductions and banked the saved allowances, annual emissions will be over 8.97 million tons until several years later.) The program also includes requirements for controlling NOx emissions from electricity-generating facilities.

  • Section 110(a)(2)(D) requires each state’s SIP to prevent emissions that “contribute significantly” to nonattainment of the NAAQS in other states or that interfere with another state’s PSD or visibility protection program. That has led to the formation of two programs:

    • In 1998, EPA found that NOx emissions in 22 (later reduced to 19) states interfered with attainment of the O3 NAAQS in other states. EPA ordered that the states cut back NOx emissions by 28%, or more than 1 million tons/year, during the April-October period when O3 concentrations are at their highest. (This order is referred to as the “NOx SIP call.”) That target represents the reduction that EPA found could be made through

6

EPA is in the process of revising its rules to make it possible for states to adopt the program.

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

cost-effective measures (those costing less than $2,000/ton of emissions eliminated) (Michigan v. EPA, 213 F.3d 663 [D.C. Cir. 2000]). The states have followed EPA’s suggestion to establish cap-and-trade programs to accomplish the reduction at the lowest cost. Because existing electricity-generating facilities are the most cost-effective sources to control, the brunt of the reductions falls on them.

  • In March 2005, while this report was being prepared, EPA promulgated CAIR. EPA found that emissions of SO2, NOx, or both from 29 eastern and midwestern states interfere with attainment and maintenance of the air-quality standards for O3 and/or PM. (For a map of the affected states under the promulgated rule, see EPA [2005a]. The rule has since been revised to include New Jersey and Delaware for PM [71 Fed. Reg. 25287 (2006)]). EPA expects that, as with the NOx SIP call described above, the states in the CAIR region will each adopt a cap-and-trade program directed at lowering emissions from electricity-generating facilities. Emissions of SO2 from such facilities in these states will be capped at 3.9 million tons in 2010 and at 2.7 million tons in 2015. (The banking of allowances by sources through early reductions will keep emissions above 2.7 million tons/year for some years after 2015; see Chapter 6.) EPA (2004b) estimated that these caps will result in a reduction of 3.6 million tons of SO2 emissions in 2010 and an additional reduction of 2 million tons/year when the rules are fully implemented in 2015 (about 70% below 2002 emission levels). Emissions of NOx from electricity-generating facilities are capped at 1.6 million tons in 2010 and 1.3 million tons in 2015. EPA estimated that NOx emissions would be reduced by 1.5 million tons in 2010 and by 1.8 million tons when fully implemented in 2015 (about 65% below 2002 emission levels). As with the 1998 NOx SIP call, the emission goals are based on what can be done through control technologies that are cost-effective compared to other regulatory controls. CAIR has been challenged in the courts, but the program will remain in effect during the litigation, because of the D.C. Circuit’s recent refusal to order a stay of the program. EPA has considered and rejected several petitions to reconsider some aspects of CAIR. Nevertheless, the challenges to CAIR mean that its prospects are somewhat uncertain.

  • EPA in 2005 also launched a program, known as the Clean Air Mercury Rule (CAMR), to reduce emissions of mercury (Hg) with a cap-and-trade approach for coal- and oil-fired electricity-generating facilities. Beginning in 2010, allowances for 38 tons/year will be distributed by EPA. Allowances will be reduced to 15 tons beginning in 2018. (Present annual emissions are 48 tons/year [EPA 2005b].) However, because of the banking of emissions, annual emissions are expected to remain over 15 tons for some time after 2018 (EPA 2005c). The caps are not expected to cause electricity-generating facilities to adopt strategies that lower national SO2 and NOx

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

emissions beyond reductions resulting from other programs (Palmer et al. 2005). (We are not expressing any judgment about whether the agency chose the caps correctly.) Although Hg, as a pollutant listed under section 112, is not regulated by NSR, we mention the Hg-control program because EPA’s air-quality modeling includes CAMR in its assessment of future emissions under the CAIR program.

CAIR and CAMR both stem from the Clear Skies proposal first made by the Bush administration in 2002 and renewed in 2003 and 2005. Clear Skies (109th Cong., S. 131) would cap SO2 emissions at 4.5 million tons in 2010—half what is allowed by the acid-rain program of Title IV—and at 3 million tons in 2018. That would mean a 73% decrease from 2000. Clear Skies would reduce NOx emissions from 5 million tons in 2000 to 2.1 million tons in 2008 and 1.7 million tons in 2018—a two-thirds reduction. The Clear Skies legislation would also codify the trading program proposed by WRAP to prevent degradation of visibility in the Southwest.

Clear Skies has provoked opposition from the electricity-generating sector and other industrial groups, which say that the goals are too stringent, and from environmental groups, which contend that they are too lax. Environmentalists have tended to favor Senator James Jeffords’s proposed Clean Power Act (109th Cong., S. 150), which calls for more extensive and quicker emissions cuts. For instance, the Clean Power Act would cap SO2 emissions at 2.25 million tons in 2010 compared with Clear Skies’ proposal of a 4.5-million-ton cap in 2010 and a 3-million-ton cap in 2018.

Neither of those proposals has been endorsed by committee or reached the floor of the Senate or the House of Representatives, and their futures are unclear. In early 2005, proponents of Clear Skies failed to persuade a majority of the Senate Committee on Environment and Public Works to report it to the Senate floor.

Cap-and-trade programs, such as CAIR, can in theory reduce emissions from individual new sources beyond what is achieved by other programs of the CAA such as NSR. That can occur because new sources must purchase allowances from existing sources. If the emission cap is very tight, the cost of allowances will be high and operators of new sources might reduce their emissions lower than what NSR would require rather than purchase allowances. EPA, however, has not projected such an effect of CAIR except to the extent that the presence of a cap encourages investment in natural gas to reduce SO2 emissions.

For similar reasons, it is unlikely that Clear Skies would reduce emissions from individual new sources. In addition, Clear Skies would exempt new electricity-generating facilities, and under certain conditions, it would exempt some modifying electricity-generating facilities from most NSR

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

requirements.7 It is therefore unlikely that Clear Skies would result in emission limits at individual new or modified sources that are more stringent than those achieved when NSR is triggered at the same sources. (We are not expressing any judgment about the overall environmental effects of Clear Skies.)

Concerns About Modifications

The controversy about EPA’s changes in its rules regarding modifications stems from the CAA’s differentiation between new and existing stationary sources. NSR, as mentioned previously, requires new sources to meet strict technology-based standards as well as show that they will not damage air quality. In contrast, most existing sources (those that do not go through reconstruction or modification) need generally accomplish only as much emission reduction as is necessary to enable their locales to meet and maintain the NAAQS set by EPA; even those existing sources that are subject to the technology-based standard of reasonably available control technology (RACT) need not control as much as new sources.

That differentiation has attracted debate. Supporters assert that it is justified because new sources can most easily incorporate the latest pollution-control technology. In addition, supporters argue, tight regulation of new sources is the best way to ensure against future air-pollution problems and to guarantee that the turnover of capital stock results in reduced emissions. Critics argue, by contrast, that the differentiation between old and new sources encourages industry to keep older, heavily polluting sources on line longer instead of building new, cleaner sources, thus potentially hindering environmental progress. Emission-trading advocates urge that it would be preferable to allow trading between sources, whether new or existing, to achieve the needed emission reductions. Opponents of this suggested change argue that a trading approach by itself would not be sufficient to protect especially vulnerable areas from large new sources.

Alterations at existing plants pose an especially difficult question. Plants where physical or operational changes are occurring occupy a middle ground between new and existing sources. Inserting state-of-the-art technology when a source experiences a change is, at least sometimes, more problematic than including such controls in a new plant. Plants where changes are occurring may often be better targets for regulation than unaltered existing sources. For instance, changes in existing plants, if unregulated by NSR, might keep such plants on line longer and slow their replacement with new, cleaner facilities. (On the other hand, it is also possible that regulat-

7

New electricity-generating facilities locating within 50 km of a Class I area, such as a national park, would have to conduct an analysis of the air-quality effects on the park.

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

ing such changes will discourage them, thus delaying clean-up.) Slowing replacement of existing plants may give them a competitive edge over new plants, therefore perpetuating high emissions. Furthermore, adding control technology at an existing source when it is undergoing modification may well be easier than installing such controls at an existing source that is not undergoing modification. (For instance, a boiler modification will take a unit off line and thus make it possible to install, for example, an electrostatic precipitator with less disruption than trying to retrofit a unit not undergoing modification.) Those arguments are reflected in the different viewpoints about how the term modification should be defined.

Environmental groups argue that a broad definition is needed because of the following:

  • Health and the environment may be endangered when existing sources increase emissions.

  • Narrowing the definition would interfere with enforcement actions that are permanently lowering emissions and thus bettering air quality.

  • Congress intended a broad definition as a way of ensuring that older sources eventually would have to install the up-to-date pollution controls.

  • A narrow definition of the term “modification” would allow renovations that permit existing sources, particularly electricity-generating facilities, to remain in operation indefinitely. A broader interpretation would discourage those renovations and instead lead to replacing the plants with new capacity that would be far cleaner than existing plants.

Industry groups counter by saying that a narrower definition is appropriate because of the following:

  • Many projects that would be covered under a broad definition do not increase emissions and in fact reduce them by replacing older equipment with less-polluting equipment.

  • The programs are complex, and it is difficult to determine whether an NSR permit is required for a given change.

  • Preparing a permit application, obtaining needed offsets, waiting for EPA or state officials to process the application, and complying with BACT for the modification may be expensive and burdensome. The process of reviewing the application takes additional time that slows completion of the project.

  • Other programs, such as caps on emissions from electricity-generating facilities, can constrain emissions at a lower cost than a stringent NSR program.

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

Environmental Protection Agency’s 1980 New Source Review Rules and Their Interpretation

Congress’s 1977 codification of PSD and Part D NSR made it necessary for EPA to revise its rules governing the programs. That was done through a rulemaking in 1978. In 1979, the D.C. Circuit Court of Appeals in the Alabama Power decision overturned several important portions of the rules. EPA then promulgated new rules in 1980 (45 Fed. Reg. 52676 [1980]), and these rules are largely still in effect.

The 1980 rules covered both the “physical or operational change” and the “any increase in emissions” aspects of the congressional definition of modification. The term physical or operational change was defined to exclude “routine maintenance, repair, and replacement,” a term that the regulations do not elaborate on.8

An increase in emissions was defined in terms of an increase in actual annual emissions, taking into account contemporaneous increases and decreases in emissions. Emissions before the change were specified to mean the average emissions at the source over the previous 2-year period unless the source could show that a different consecutive 2-year period was more representative of normal source operation.

The 1980 regulations subjected postchange emissions to a special meaning of the term “actual emissions.” For units that have not entered normal operation, the term actual emissions was defined as equal to the unit’s potential to emit. Thus, for a unit that had not entered normal operations, the 1980 rules covered a physical or operational change as a modification if the source’s postchange potential to emit exceeded the source’s prechange actual emissions by a significant amount. That is commonly referred to as the “actual-to-potential” test. Because a source’s potential to emit is often greater than its actual emissions, an actual-to-potential test tends to lead to coverage of a project by NSR. The plant owner can escape coverage only by making a binding promise never to increase actual emissions significantly over prechange emission levels.

The Puerto Rican Cement case illustrates the workings of the test. Puerto Rican Cement had been running its kilns at 60% capacity and emitting 1,100 tons of NOx and 1,340 tons of SO2 per year. The company planned to build a new cement kiln. If operated at the same 60% capacity as the older unit, the new kiln would emit 578 tons of NOx and 850 tons of SO2 per year—a decrease from previous levels. But if the unit operated at full allowable capacity, it would emit 1,250 tons of NOx and 1,927 tons

8

The statute does not expressly exclude routine maintenance. Presumably, as recently suggested by the D.C. Circuit Court of Appeals in New York v. EPA, 440 F.3d 880 (D.C. Cir. 2006), the exemption is based on the inherent power of an agency to exclude from regulation those activities that have a “de minimis” effect.

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

of SO2 annually. This represented its potential to emit. EPA compared the latter numbers with the prechange annual tonnages of 1,100 and 1,340, respectively, and ruled that construction of the new kiln would increase emissions within the meaning of its 1980 regulations and that, therefore, a PSD permit was required.

The U.S. Court of Appeals for the First Circuit upheld that approach in a decision written by Judge Stephen Breyer (Puerto Rican Cement v. EPA, 889 F.2d 292 [1st Cir. 1989]). The court rejected the company’s argument that EPA’s approach was arbitrary because it would discourage modernizations that decreased emissions at the present rate of use. Instead, the court reasoned EPA had decided to focus on the possibility that the introduction of new, more-efficient equipment would lead a company to produce at higher levels and therefore increase emissions. Hence, the company needed a PSD permit for the new kiln unless it was willing to reduce the unit’s potential to emit by making a binding commitment never to increase emissions by a significant amount over prechange emission levels.

The court acknowledged, however, that in some situations, EPA’s actual-to-potential test might be unreasonable. For instance, the court suggested, it might be irrational to assume that a replaced peak-load generator would run at full capacity. That observation became important in the Wisconsin Electric Power (WEPCO) decision (Wisconsin Electric Power v. Reilly, 893 F.2d 901 [7th Cir. 1991]), which involved a so-called life-extension project at WEPCO’s Port Washington plant. The plant consisted of five coal-fired steam-generating units placed in service in the period 1935-1960. Over time, each had deteriorated from its design capacity of 80 megawatts (MW), and one unit had been shut down because of the risk of catastrophic failure. The aim of the project was to keep the units operating until 2010 beyond their original 1992 retirement date. As part of the project, WEPCO planned to replace air heaters, steam drums, and other major components on four units.

EPA ruled that a PSD permit was required on the grounds that the project did not constitute routine maintenance, repair, and replacement and that it would increase emissions according to the actual-to-potential test. Hence, the dispute involved both the physical change and the emissions-increase aspect of modification. The electricity-generating facility appealed to the U.S. Court of Appeals for the Seventh Circuit, which decided for EPA on the physical-change issue, although holding that the project would not increase emissions for NSR purposes. WEPCO argued that “like-kind” changes—the replacement of existing equipment—do not constitute physical changes, because they do not alter the plant. EPA countered that the WEPCO project was unprecedented: “WEPCO did not identify, and EPA did not find, even a single instance of renovation work at any electricity-generating station that approached the Port Washington life extension project in nature, scope or

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

extent” (Wisconsin Electric Power v. Reilly, 893. F.2d 901 [7th Cir. 1991], p. 911). The court agreed with EPA, saying that a contrary reading would contravene Congress’s intent to stimulate the advance of pollution-control techniques by requiring controls when generating systems are extensively replaced. The court also rejected WEPCO’s argument that its project qualified as routine maintenance, repair, and replacement under EPA’s rules. The court noted that EPA stated that it “makes a case-by-case determination by weighing the nature, extent, purpose, frequency and cost of the work, as well as other relevant factors, to arrive at a common-sense finding.” In this case, EPA had relied on the magnitude of the project, the exclusion from the project of repetitive maintenance normally performed during outages, and the lack of similar projects at other power plants. The court held that EPA could use these factors and that EPA had reasonably applied them to the facts of the case. The court noted that WEPCO had stated that its project involved a life extension and that the project would involve items that normally would occur only once or twice during a unit’s expected life cycle; this, according to the court, supported EPA’s finding that the project did not constitute routine maintenance, repair, and replacement.

But the court rejected EPA’s argument that the project would increase emissions within the meaning of the NSR programs. The court distinguished between the NSPS program and the NSR programs. In the NSPS program, the court explained, EPA’s regulations call for a comparison of prechange and postchange emission rates, as expressed in kilograms per hour, at maximum physical capacity (40 CFR § 60.14(b); 57 Fed. Reg. 32314, 32316 [1992]). Because such an increase had occurred at three of the five units, the project needed to comply with the NSPS for the source’s category for those units.

The court held that, in contrast, actual annual emissions must increase for a project to be subject to NSR. The court overturned EPA’s use of the actual-to-potential test to determine whether an increase would occur. The court found it unreasonable for EPA to disregard past operating conditions at the plant and to regard the units as having never entered normal operation. The Puerto Rican Cement case was distinguished as involving a new unit at an existing site, unlike a “like-kind replacement” of equipment at an existing unit. The latter, the WEPCO court ruled, resembled the peak-operating-unit example in the Puerto Rican Cement decision.

EPA responded to the decision with what is known as the WEPCO rule (57 Fed. Reg. 32314 [1992]). This rule excludes electricity-generating facilities from the actual-to-potential test as long as the proposed project neither adds a new unit nor replaces an existing one. Instead, the facility may compare prechange actual annual emissions with postchange projected annual emissions. If the electricity-generating facility concludes that there would be no significant increase in emissions, thereby exempting the project

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

from NSR, it must submit documentation of its emissions for 5 years after the change to confirm that a significant increase in emissions did not occur as a result of the project. In addition, the calculation of postchange emissions may exclude emission increases attributable to increased market demand rather than to the physical or operational change; this exclusion can apply to increases that legally and physically would have been feasible without the change.

EPA also altered the definition of prechange emissions for electricity-generating sources. Before the alteration, prechange emissions were calculated by averaging emissions over the 2 years before the change unless the source could show that a different 2-year period was more representative. EPA changed the rule to allow electricity-generating sources to use any consecutive 2-year period in the preceding 5 years. In the preamble to the WEPCO rule, EPA promised guidance on what is “routine maintenance, repair, and replacement” (57 Fed. Reg. 32326 [1992]). Instead, as discussed later, EPA in 2003 issued a rule defining certain activities as exempt from NSR because they did not constitute physical or operational changes.

Finally, the 1992 rule excluded from the definition of physical or operational change, and hence from NSR review, pollution-control projects (PCPs) that “do not render the unit less environmentally beneficial.” In that way, EPA asserted, the prospect of NSR review would not influence an electricity-generating facility’s choice of how to cut emissions to comply with the acid-rain-control program that had been adopted by Congress in 1990. This exclusion for PCPs was later invalidated in New York v. EPA, 413 F.3d (D.C. Cir. 2005).

Those changes were confined to electricity-generating facilities because EPA believed that it did not have enough knowledge of other source categories to allow the changes to be extended to them. However, EPA later issued guidance that extended the PCP exemption to other source categories (67 Fed. Reg. 80232 [2002]).

NEW SOURCE REVIEW REFORM PROJECT

EPA also launched in 1992 an effort to simplify and streamline its NSR rules. It formed a subcommittee of its Clean Air Act Advisory Committee composed of representatives of states, environmental groups, and industries. For several years, the subcommittee members discussed possible changes in the rules. It did not achieve consensus, but in EPA’s view, its existence helped to make clear which issues were important.

In 1996, EPA proposed a package of changes to the NSR rules (61 Fed. Reg. 38250 [1996]). The proposal discussed the topics later covered in the 2002 rule (for example, expanded use of the actual-to-projected-actual method), although the 2002 rule differs in important respects. The proposed

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

changes also included elements sought by environmental groups, such as greater protection of national parks and codification of the longstanding top-down method of determining what constitutes BACT.

The 1996 proposal generated a great deal of comment. In 1998, EPA issued a “notice of availability” in which it expressed reservations about some of its proposed changes (such as the enforceability of the actual-to-projected-actual approach and of allowing sources to exclude emission increases due to demand growth in projecting future emissions) and solicited comment on possible alternatives (63 Fed. Reg. 39857 [1998]). EPA did not complete the rule-making process before the end of the Clinton administration in January 2001.

Enforcement Initiative

EPA’s 1996 proposal did not discuss which changes constitute routine maintenance, repair, and replacement. That issue became increasingly important in the late 1990s. EPA, often joined by environmental groups and northeastern states, asserted that some large electricity-generating plants had been undertaking modifications without obtaining NSR permits. According to EPA, those projects allow electricity-generating facilities to run the altered plants at higher capacity and therefore to increase emissions. In addition, EPA claimed that the projects allow the plants to remain on line longer instead of being replaced by new, cleaner plants that would decrease emissions substantially from present levels. The agency contended that, under the multifactor test used in WEPCO, the electricity-generating facility projects did not qualify for the routine-maintenance exemption and instead constituted physical or operational changes that increased emissions.

Electricity-generating facilities, in contrast, argue that such projects should be considered to constitute routine maintenance, repair, and replacement and therefore exempt from NSR. The projects, according to owners of electricity-generating facilities, have always been undertaken in the industry and are necessary to ensure adequate and reliable generating capacity. A report by the National Coal Council states that coal-fired power plants more than 20 years old—a category that accounts for two-thirds of electricity generation from coal—have been derated (reduced in power-generating capacity) and that a substantial amount of generation capacity (about 20,000 MW) could be regained by addressing the causes of derating (EPA 2001).

EPA brought enforcement actions against electricity-generating facilities, alleging that the companies had undertaken major modifications without obtaining required NSR permits. Those actions and their status as of August 2005 are listed in Table 2-2. In addition, EPA brought administrative enforcement actions against the Tennessee Valley Authority (TVA) and WEPCO. The action against TVA eventually was judicially invalidated on

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

procedural grounds (Tennessee Valley Authority v. Whitman, 336 F.3d 1236 [11th Cir. 2003]); environmental groups and North Carolina are currently pursuing their own actions against TVA. Both of the suits brought by environmental groups have been dismissed by the district courts on procedural grounds and are presently on appeal.

Several of the actions have been settled, as shown in Table 2-3.9 As the table shows, the settlements, when fully implemented in 2010-2015, will reduce SO2 emissions by more than 650,000 tons/year and NOx emissions by about 250,000 tons/year. (It is possible that some of these reductions might have been required by other programs under the CAA, such as the 1998 NOx SIP call, although in many cases, the settlements brought about the reductions sooner.) Each settlement agreement requires the source to surrender SO2 emission allowances annually. (These surrenders would not have been required by other programs.) Surrendered allowances are retired by EPA, and thus become unavailable for use by other sources. Similarly, the required reductions in NOx may not be used to generate NOx credits that can be sold to other sources.

Generally, the number of allowances surrendered annually equals the number of tons by which the settlement reduces the source’s allowable SO2 emissions. There are two exceptions. First, if the source had more allowances than its presettlement emissions, it must surrender the surplus allowances in addition to the allowances represented by the emission reductions required by the settlement. If the settlement would reduce a source’s allowable emissions below its annual allowances, then the company need surrender only the difference between presettlement emissions and its allowances. The principle, therefore, is that a source need not surrender allowances that are necessary to keep it in compliance with cap-and-trade programs. The Virginia Electric and Power Company (VEPCO) settlement summarized below is an example of this.

The surrender of allowances in effect reduced allowable emissions below those permitted by the Title IV acid-rain program. The number of allowances surrendered will probably be reduced under CAIR, because that program considerably decreases the amount of SO2 that can be emitted under an allowance, so the settling sources will need to keep their allowances to be in compliance. (The settling sources, as well as those against which enforcement actions are pending, are all in the CAIR region.) The same will be true if Clear Skies is enacted.

Table 2-3 also shows estimates of the capital cost of the required reductions. These costs are stated in dollars as of the date of the settlement, and

9

In 2000, EPA reached an agreement in principle to settle its action against Cinergy, Inc; the agreement has not been incorporated into a consent agreement, so litigation between the electricity-generating facility and EPA continues.

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

TABLE 2-2 Pending NSR Enforcement Actions Against Coal-Fired Power Plants (as of August 2005) by Date of Filing

Case Title (District Court)

Judge

Date Filed

United States v. Cinergy Corp., et al.

(S.D. Ind.)

Judge McKinney

November 1999

United States and State of New York, et al. v. American Electric Power Service Corp. (“AEP”), et al. consolidated with Ohio Citizen Action, et al. v. AEP, et al.

(S.D. Ohio)

Judge Sargus

November 1999

United States v. Georgia Power Co. and Savannah Electric and Power Co.

(N.D. Ga.)

Judge Carnes

November 1999

United States v. Alabama Power Co.

(N.D. Ala.)

Judge Bowdre

November 1999; refiled in N.D. Ala. January 2001

United States v. East Kentucky Power Cooperative

January 2004

United States v. Duke Energy Corp.

(M.D. N.C.)

Judge Bullock; Environmental Defense v. Duke Energy Corp., cert. granted sub. nom., No. 05-848 (May 15, 2006)

December 2000

SOURCE: Adapted from EPA, unpublished material, 2005.

so are not discounted to reflect the value of postponing an investment for several years. Moreover, the cost figures are not annualized; therefore, they cannot be used to generate cost-effectiveness numbers. According to EPA enforcement personnel, the costs of the reductions are about $500/ton for SO2 and $900-3,000/ton for NOx (EPA 2004c). Those costs are comparable with those for installing BACT generally.

The settlement between EPA and VEPCO illustrates the kind of steps that an agreement to end the enforcement litigation may involve. The company has committed itself to, among other things, installing scrubbers on

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

Utility Defendants

Status

Cinergy Corp., Cincinnati Gas and Electric Co., PSI Energy, Inc.

Permission to appeal from preliminary district court decision granted July 2006

American Electric Power Service Corp., Appalachian Power Co., Cardinal Power Co., Central Operating Co., Columbus Southern Power Co., Indiana Michigan Power Co., Ohio Power Co.

Liability trial July 2005

Georgia Power Co., Savannah Electric and Power Co. (Southern Co. operating subsidiaries)

Judge held, awaiting final decision in TVA v. EPA

Alabama Power Co. (Southern Co. operating subsidiary)

Stay lifted June 2004; liability trial as to Miller plant scheduled for March 2006; remainder undergoing court-ordered mediation; court held in June 2005 that emissions increase for non-Miller plants would be measured on the basis of “maximum hourly emission rate”

East Kentucky Power Cooperative

Answer filed June 2004; in settlement negotiations

Duke Energy Corp.

Final judgment issued for defendants by stipulation April 15, 2004, affirmed by 4th Circuit, May 2005

70% of its coal-fired generation capacity. That will reduce SO2 emissions by 176,500 tons per year by 2012. The company will also install by 2013 selective catalytic reduction technology on 67% of its coal-fired-generation capacity, thereby reducing annual NOx emissions by 66,000 tons more than other then-existing EPA programs required. In addition, the company will surrender to EPA 45,000 allowances per year beginning in 2012 (EPA 2003a). (As mentioned above, the number of allowances surrendered will probably be reduced by CAIR for sources located in the CAIR region.) Settlements can affect emissions significantly in an area. A settlement by

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

TABLE 2-3 Summary of Expenditures and Emission Reductions Resulting from Settled NSR Enforcement Actions

Company

Capital (millions of dollars)

Penalty (millions of dollars)

Environmental Projects (millions of dollars)

NOx Tons Removed Annually

SO2 Tons Removed Annually

Date Consent Decree Lodged

VEPCO

1,200

5.3

13.9

61,651

176,545

April 2003

WEPCO

600

3.2

20.0

31,770

65,053

April 2003

TECO

1,000

3.5

11.0

53,000

70,000

February 2000

PSEG

330

1.4

6.0

18,273

35,937

January 2002

SIGECO

30

0.6

2.5

4,232

6,384

June 2003

Alcoa, Inc

330

1.5

2.5

15,482

52,899

April 2003

Santee Cooper, COOPER

400

2.0

4.5

29,735

39,351

February 2004

DMG, IL Power

350

9.0

15.0

14,706

37,201

March 2005

Ohio Edison

1,100

8.5

25.0

31,050

171,500

March 2005

Totals

5,340

35.0

100.4

259,899

654,870

 

ABBREVIATIONS: DMG, Dynegy Midwest Generation; PSEG, Public Service Enterprise Group; SIGECO, Southern Indiana Gas and Electric Company; TECO, Tampa Electric Company; VEPCO, Virginia Electric and Power Company; WEPCO, Wisconsin Electric Power Company.

SOURCE: EPA 2004b; EPA, unpublished material, 2005.

EPA and New Jersey with an electricity-generating plant on the outskirts of Trenton and another in Jersey City will reduce SO2 and NOx emissions in the state by 19% and 5%, respectively, by 2012 (EPA 2002a).

EPA enforcement officials have asserted that the cases they are currently pursuing could reduce annual SO2 and NOx emissions in 10 years by 1,750,000 tons and 629,000 tons, respectively (EPA 2004c). It is not clear what the actual reductions will be. In addition, those estimates were made before CAIR was promulgated; many of the reductions may now be accomplished under CAIR, although perhaps on a longer timetable than under the enforcement initiative. That, of course, assumes that CAIR takes effect despite the current litigation. It should also be noted that CAIR applies only in the eastern and midwestern region.

We discuss later the prospects of the enforcement initiative for further surrenders in allowances.

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

The History of the 2002 and 2003 Rule Changes

Shortly after his inauguration in 2001, President George W. Bush directed Vice President Richard Cheney to develop a national energy policy. A report that year from a task force chaired by the vice president recommended that legislation be introduced to cap NOx and SO2 emissions from electricity-generating facilities; this resulted in the Clear Skies legislation that the Bush administration has submitted to Congress. The report also recommended that EPA, in conjunction with the Department of Energy and other federal agencies, examine EPA’s NSR regulations, including their administrative interpretation and implementation, and report on the effect of NSR on investment in new electricity generation and refinery generation, energy efficiency, and environmental protection.

EPA undertook a 90-day review of the NSR program and in June 2001 issued a background report (EPA 2001) that became the basis of a report to President Bush in May 2002 (EPA 2002b). Those reports concluded that the overall benefits of NSR are significant and that, so far as new sources are concerned, NSR has not substantially impeded the construction of new electricity-generating facilities or refineries. In contrast, the reports found that, when it comes to change in existing sources, NSR “has impeded or resulted in the cancellation of projects which would maintain and improve reliability, efficiency and safety of existing energy capacity” (EPA 2002b). In some cases involving refineries and other industries, the reports found, the impeded projects either would not have increased air pollution or would have decreased air pollution. Those conclusions were based largely on anecdotal reports that lacked specifics about the projects (GAO 2003).

The report to the president recommended that changes be made in EPA’s NSR regulations. EPA followed up on the recommendation by promulgating new rules in 2002.

The 2002 Rule Changes

The 2002 rules made the following alterations in EPA’s NSR rules:

  • Sources that are not electricity-generating facilities are allowed to calculate annual emissions before a proposed physical or operational change by averaging annual emissions in any 24-month period within the 10 years immediately before the change. The average must be reduced to reflect any tightening of the source’s emission limit since that 24-month period. The previous rules had required such source to average its annual emissions over the 2 years immediately before the change unless the operator could show that a different period was more representative of normal operations. (Electricity-generating facilities continue to be allowed under the WEPCO rule to use any 2-year period within the 5 years immediately before the change.)

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×
  • A source that is not an electricity-generating facility is allowed to calculate annual emissions after a proposed physical change by projecting its actual emissions after the change. The projected emissions are compared with emissions before the change to see whether there would be a significant increase, so this method is known as the actual-to-projected-actual approach. The source need not obtain a permit that limits it to the projected emissions. (Electricity-generating facilities were already permitted by the WEPCO rule to use this approach.) Increases in emissions that result from increased demand, rather than from the change itself, can be excluded in calculating postchange annual emissions if the emission increase would have been physically possible during the 24-month period for calculating prechange emissions. If using the new method would exempt the project from NSR and it is reasonable to believe that the project might result in a significant emission increase, the source must track its postchange emissions for 5 years (10 years in some cases).10 The previous rules, as described earlier, had used the source’s postchange potential to emit (its maximum design emissions reduced in accordance with any legal limit on its emissions) as the measure of its postchange emissions; this method is now required only for new units at existing facilities.11

  • Sources are allowed to seek permission to establish a plantwide applicability limitation (PAL)—a limit on emissions from the plant as a whole—to determine whether an individual physical or operational change increases emissions and therefore constitutes a modification. A PAL runs for 10 years and is renewable. Physical changes at a plant do not require an NSR permit so long as the PAL is not exceeded. The PAL’s size for each pollutant is calculated by adding the appropriate “significance level” (see Box 2-1) to the source’s average annual emissions (calculated under the 2-years-in-10 methodology described above for calculating prechange emissions). The previous rules had no similar provisions.12

  • Physical changes at a “clean unit”—one that meets emission limits that are equal in stringency to those required under the NSR programs— were exempted from needing an NSR permit if the changed unit continues to meet its maximum-allowable emission rate. The unit need not have passed through NSR if its operator presents analyses of its air-quality effects that

10

The D.C. Court of Appeals, in June 2005, remanded this requirement to EPA for explanation of why the agency does not apply it to all sources using the actual-to-projected-actual test (New York v. EPA, 413 F.3d 3 [D.C. Cir. 2005]).

11

Many industries believe that NSR should apply only to a change that increases a source’s potential to emit. EPA in 1982 promised to propose this approach in what is known as Exhibit B to the settlement in Chemical Manufacturers Association v. EPA. EPA proposed and rejected this approach in the 2002 rule making, and the New York court upheld the agency.

12

This provision was modeled after a program that has been in effect in Oregon for a number of years.

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
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are like those required by NSR. The exemption lasts for 10 years after pollution controls are brought into operation and is renewable if the pollution controls continue to be as strict as those required by NSR. This change was vacated in New York v. EPA, 413 F.3d 3 (D.C. Cir. 2005) as beyond EPA’s authority under the CAA.

  • The existing exemption from NSR for PCPs was expanded. This exemption applies when a permitting authority deems the project to be environmentally beneficial, even if it would significantly increase emission of an air pollutant other than the pollutants reduced by the project. Sources no longer must show that reducing air pollution is the primary purpose of the PCP. In addition, the rule listed a number of projects presumed to be eligible for the exemption.13 For more detail, see pages 20-22 of our interim report (NRC 2005). This change was vacated in New York v. EPA, 413 F.3d 3 (D.C. Cir. 2005) as beyond EPA’s authority under the CAA.

To support those revisions, EPA conducted an analysis for each of the changes being made and concluded that either varying levels of emission-reduction benefits or no significant effects would result from the 2002 changes. However, EPA indicated that it did not have sufficient data to quantify with specificity the emission changes that might result from the NSR rule changes. EPA also said it could not reliably determine the anticipated locations of any emission changes to estimate the rule’s effects on public heath (EPA 2002c). GAO (2003) reviewed EPA’s analysis and concluded that because the information used is anecdotal, EPA’s findings do not necessarily represent the NSR program’s effects across the industries subject to the program.

In response to petitions for reconsideration, EPA announced in the middle of 2003 that it would take further comments on its conclusion (EPA 2002c) that the new rules would benefit air quality (68 Fed. Reg. 44620 [2003]). Later that year, EPA decided to clarify some portions of the 2002 rule change but to otherwise leave them in place (68 Fed. Reg. 63021 [2003]). EPA justified that partly on the basis of a supplemental statement arguing that the rule changes were unlikely to affect the environment adversely.

Uncertainties About the 2002 Rules

There are a number of uncertainties about the meaning and impact of the 2002 changes:

13

For nonlisted projects, the rule established detailed requirements that go well beyond previous policy on PCPs for demonstrating project eligibility.

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
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  • The change in calculation of prechange emissions. EPA has argued that, since a source must use today’s emission limit to calculate its prechange emissions, the change in rules will have a practical effect only when the source was experiencing a drop in market demand or a forced outage in the 2 years prior to the change. In these situations, EPA contends, it is reasonable to assume that the source would have been able to persuade the permitting authority to use a more representative period than the 2 years prior to the source’s permit application. It appears, however, that there was a substantial division among states in their willingness under the prerevision rules to allow a source to substitute a more representative period for the 2 years immediately preceding the change. There does not appear to be a relevant database on use of the “more representative” provision. Hence, it is difficult to appraise the impact of the change.

  • The actual-to-projected-actual test. EPA suggests that the change would not increase emissions. Under the previous approach of comparing prechange actual emissions to postchange potential emissions, a source could avoid NSR by making a binding promise that it would never increase emissions by more than a significant amount over its prechange emissions. Allowing the source instead to compare its actual with its projected-actual emissions is, according to EPA, a simpler method of accomplishing the same result. Environmental groups dispute this, saying that the new methodology contains enforcement loopholes that could in practice allow an altered source to increase its emissions without being detected. For instance, environmental groups point out that a source must report its emissions only when there is a reasonable possibility of a significant increase, and argue that this test is vague enough to create a substantial gap in enforcement. Projecting the magnitude of these enforcement effects is very difficult.

Moreover, EPA suggests that the actual/potential test discouraged projects that, while theoretically increasing emissions under the test, would in reality lead to decreases in emissions. The validity of this position depends on the frequency of such projects and on the extent to which NSR applicability makes a difference to businesses in considering whether to undertake a project that would decrease emissions. This is difficult to determine. Similar difficulties are posed by EPA’s decision that increases in emissions due to factors other than the physical or operational change (e.g., growth in demand for the source’s product) need not be included in the projection. There is little information about whether excluding these emissions has a substantial impact on whether the increase in emissions would be great enough to be significant. EPA suggested in 1998 that a demand growth exclusion would be difficult to enforce, possibly inviting abuse (63 Fed. Reg. 39857 [1998]). Nor is it clear how easy it will be for sources to convince permitting authorities that an increase in emissions is due to factors other than the change.

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×
  • Establishment of PALs. The new rules authorize sources to obtain plantwide applicability limits—that is, caps on total emissions from the plant. A source with a PAL needs an NSR permit under the new rules only if the PAL is exceeded.

It is difficult to estimate how many sources are likely to adopt PALs. EPA suggests that use of PALs will be confined to sources that need to make rapid operational changes and for which it is therefore worthwhile to go through the process of establishing a PAL. In addition, it is unknown how sources with PALs would behave. EPA has been allowing the use of PALs in pilot projects. Based on that experience, EPA believes there is considerable potential for emission reductions. This occurs in part because a PAL can tighten the limit on a source’s maximum allowable emissions. Without a PAL, a source’s maximum allowable emissions are based on its potential to emit, taking into account legal limits on its emissions. A source operating under a PAL, however, is limited to actual emissions plus a margin for de minimis increases. Because sources typically operate below theoretical maximum capacity, a PAL considerably limits emissions from sources. Moreover, sources with PALs have an incentive to keep their emissions below PAL levels in order to avoid NSR. Environmental groups, on the other hand, point out that EPA is allowing actual emissions to be calculated by using the highest 24 months in the last 10 years, thus eliminating some of the reduction in maximum emissions.

Status of the 2002 Rules

In proposing a predecessor version of these rules in 1996, EPA stated that it would allow states to choose between following the old and the new rules. In contrast, EPA’s 2002 rule requires that all states adopt these changes or changes that are at least as stringent. The agency considers its revised rules to be environmentally more beneficial than the prerevision rules; thus, states do not have the option of continuing to follow the prerevision rules (67 Fed. Reg. 80241 [2002]). Some state and local air-program officials strongly disagree with that position (STAPPA/ALAPCO 2002, 2003). EPA gave the states until January 2, 2006, to submit SIP revisions adopting the new or equivalently stringent measures. If a state does not submit an approvable revision, EPA may, after notice and public comment, insert its rules into the state’s SIP. As of the writing of this report, EPA has taken no action to insert its rules into the SIPs of states that have not adopted the 2002 rules. The agency reports that it is evaluating its options for dealing with these states, including incorporating the 2002 changes directly into their plans or proposing sanctions for these states.

EPA indicated that, as of mid-April 2006, it has proposed approval

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

of revisions by 5 states adopting the new rules, and that another 20 states have submitted revisions adopting the new rules or asking EPA to approve them as part of the SIP. According to the State and Territorial Air Pollution Program Administrators, 11 states have indicated that they will not adopt the new rules, and some states have not indicated their intentions.

In some areas, the PSD program is not part of the SIP. In those areas, changes went into effect on March 3, 2003. That occurred in about 50 jurisdictions (14 states and territories, 30 air-quality districts in California, such as those covering Los Angeles and San Francisco, and several localities such as Philadelphia, Pittsburgh, Phoenix, and Tucson) in which the PSD program is run by EPA directly or through a delegation agreement.

Fourteen states and several environmental groups filed suit in the D.C. Circuit Court of Appeals to overturn the 2002 rule. (Industry groups intervened to challenge the rule on several points.) In New York v. EPA, 413 F.3d 3 (D.C. Cir. 2005), the industry challenge was rejected, as were several of the state and environmental challenges. For instance, the court upheld EPA’s new approach of allowing sources, in general, to determine prechange annual emissions by averaging the highest 24-month period of emissions during the immediately previous 10 years. By contrast, the court vacated the “clean unit” and pollution-control-project portions of the rule as beyond EPA’s authority under the CAA.14 It also remanded to the agency for further explanation its decision not to require reporting by all sources using the actual-to-projected-actual methodology. It is not clear how or when the agency will respond.

2003 Rule Change: Routine Maintenance, Repair, and Replacement

On the same day that EPA promulgated the 2002 NSR revisions, EPA proposed changes in its definition of “routine maintenance, repair and replacement.” This rule was promulgated in August 2003 and published in October 2003 (68 Fed. Reg. 61248 [2003]). The change—known as ERP—defines certain kinds of equipment replacements as “routine maintenance, repair, and replacement” and as therefore not constituting “physical changes or changes in the method of operation.” Hence, these replacements do not need NSR permits, even if a significant emission increase can be expected to occur.15

Under the rule, the replacement of components of a process unit with

14

The court’s decision vacating the PCP exclusion also invalidates the PCP exemption previously made under the WEPCO rule discussed above.

15

Sources often emit 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.

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
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identical components (or their functional equivalents) is exempt from NSR if

  • The cost of replacing the component (including the fixed capital cost and costs of the replacement activity, such as construction) is less than 20% of the replacement value of the process unit.

  • The replacement does not change the unit’s basic design parameters.

  • The unit continues to meet enforceable emission and operational limitations—that is, the unit, while possibly emitting more than in the past because of greater utilization, does not emit more than is legally allowed.

Under the previous rules, EPA used a case-by-case approach in determining which equipment replacements constituted routine maintenance, repair, or replacement. The ERP provided that the case-by-case approach continued to be available for a source whose project does not qualify under the categorical exemption.

EPA evaluated the possible emission consequences of the ERP through computer model analysis of the electricity-generating industry and six case studies of industrial sectors other than electricity generation. EPA concluded that the ERP would have little impact on future emission reductions. (Chapter 6 of this report discusses the use of industrial-sector modeling for assessing emission impacts of the ERP.)

On June 30, 2004, EPA announced a 180-day period for reconsideration of the rule. The agency requested comment on the rule’s legality and on the choice of the 20% threshold (69 Fed. Reg. 40278 [2004]). The agency decided to adhere to the rule as promulgated (70 Fed. Reg. 33838 [2005]).

This rule never went into effect. In December 2004, the D.C. Circuit Court of Appeals issued a stay at the request of a coalition of some states and environmental groups on the grounds that the petitioners had shown irreparable harm and the likelihood of success on the merits. In March 2006, the D.C. Court of Appeals vacated the rule as beyond EPA’s authority under the CAA (New York v. EPA, 443 F.3d 880 [D.C. Cir. 2006]).

Further Developments

EPA, as discussed in more detail below, proposed in 2005 adoption of an hourly emission test for determining whether a physical or operational change at an electricity-generating facility would increase emissions. This proposed change would compare the maximum achievable hourly emissions at a source before and after a physical or operational change. This is like the approach used in the NSPS program. Such a test would exclude from coverage those projects that, although not increasing the source’s hourly

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
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emissions, raise annual emissions by increasing the number of hours the source can, in practice, operate each year. EPA has also invited comment on other approaches, such as comparing actual pre- and postchange hourly emissions. EPA expects to publish proposed regulatory language and an updated environmental assessment in the summer of 2006 and to take final action by the end of the year.

In September 2005, the House Committee on Energy and Commerce reported out H.R. 3853. As reported to the floor, the bill would have codified the ERP as well as the hourly-increase approach to whether an increase in emissions has occurred. These provisions were removed from the bill before it reached the floor of the House.

EPA also intends to propose in the summer of 2006 a rule dealing with debottlenecking and aggregation. Debottlenecking deals with the situation in which a change at an emission unit would make it possible for a source to increase production, and hence emissions, at units upstream or downstream of the changed unit. Questions have arisen about whether the upstream or downstream emission increases count in determining whether the source has increased emissions significantly. EPA, in promulgating its 2002 rule, promised action on the debottlenecking issue. The issue of aggregation involves deciding whether unrelated changes at a source should be combined in deciding whether there would be a significant increase in emissions. Both topics have long been issues in the NSR program.

Future Prospects for the Enforcement Initiative

As recounted earlier, the enforcement initiative led to a number of settlements in which electricity-generating facilities committed to cut emissions and surrender allowances. Whether this continues to occur depends on several factors. One important question is whether the courts will accept EPA’s argument that the projects in question constitute “physical or operational changes” that “significantly increase emissions” and are therefore modifications that require PSD permits. Both quoted terms have been at issue.16

In EPA’s enforcement initiative, the agency has argued that the definition of routine maintenance has three hallmarks:

First, the exemption applies to a narrow range of activities, in keeping with EPA’s limited authority to exempt activities from the [CAA.] Second, the exemption applies only to activities that are routine for a generating unit. The exemption does not turn on whether the activity is prevalent within the industry as a

16

There is also the additional issue of whether the regulated companies had fair notice of the interpretation of routine maintenance that is the basis for the enforcement initiative. The one case on point, U.S. v. Southern Indiana Gas & Elec. Co., 245 F. Supp. 2d 994 (S.D. Ind. 2003) has held that there was such notice.

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
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whole. Third, no activity is categorically exempt. EPA examines each activity on a case-by-case basis, looking at the nature and extent, purpose, frequency, and cost of activity (U.S. v. Southern Indiana Gas & Elec. Co., 245 F. Supp. 2d 994, 1008 [S.D. Ind. 2003]).

The courts have thus far split on whether to follow this interpretation. Two published district court decisions (U.S. v. Southern Indiana Gas & Elec. Co., 245 F. Supp. 2d 994 [S.D. Ind. 2003] and U.S. v. Ohio Edison Co., 276 F. Supp. 2d 819 [S.D. Ohio 2003]) have upheld EPA’s multifactor reading as reasonable. Two other decisions disagree and have consequently dismissed enforcement actions (U.S. v. Duke Energy Corp., 278 F. Supp. 2d 619 [M.D. N.C. 2003] aff’d on other grounds, 411 F.3d 539 [4th Cir. 2005], cert. granted sub. nom.; Environmental Defense v. Duke Energy Corp., No. 05-848 [May 15, 2006]; and U.S. v. Alabama Power Co., 372 F. Supp. 2d 1283 [N.D. Ala. 2005]). The latter decisions hold that the key question is whether similar plants undergo the same project.17 Thus, under the enforcement initiative’s view, a project that is likely to occur only once in a plant’s life would generally not qualify as routine maintenance; the disagreeing courts hold that such a project can be routine maintenance if it is routine in the industry to carry it out. The Ohio Edison and Duke Energy decisions also split on which party has the burden of showing that a particular project constitutes routine maintenance; the former holds that the burden is on the source to show that the project is routine maintenance, and the latter concludes that the burden is on the government to show that it is not.

The recent decision in New York v. EPA invalidating the ERP provision may affect future judicial interpretations. There the D.C. Circuit held that EPA may exempt physical or operational changes only if an exemption has a de minimis effect on the environment or is administratively necessary. Arguably, under such a test, the scope of the routine-maintenance exemption is restricted. But because the decision is so recent, it is difficult to predict its consequences.

The cases also disagree on how to define whether an increase in emissions has occurred. A project at an existing source may be intended to allow the source to run more often (and thus emit more over the course of a year), rather than to increase its emissions during any given hour of operation. There is debate about whether such a project has increased emissions within the CAA’s meaning and thus requires an NSR permit. EPA has argued in the enforcement initiative litigation that NSR covers a source that significantly increases annual emissions even if there is no increase in

17

The recent decision in U.S. v. Cinergy Corp. (S.D. Ind. slip opinion, Feb. 16, 2006) seems to adopt an intermediate view. It agrees with EPA’s view of the scope of the routine-maintenance exemption but allows industry practice to be considered as a factor in judging whether a particular project constitutes routine maintenance.

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
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hourly emissions. This interpretation, which the agency has long followed, contrasts with the NSPS program, in which a project is covered only if it would increase maximum hourly emissions. Ohio Edison and the recent district court decision in U.S. v. Cinergy Corp., 384 F. Supp 2d 1272 (S.D. Ind. 2005) (permission to appeal granted by the 7th Circuit Court of Appeals, Jan. 3, 2006), agree with the agency’s view, while Duke Energy holds that an increase in the hourly emission rate also must have occurred. The latter holding was affirmed in U.S. v. Duke Energy Corp., 411 F.3d 539 (4th Cir. 2005). The recent New York v. EPA decision by the D.C. Circuit on the 2002 EPA rules, however, disagrees with this approach. The U.S. Supreme Court recently decided to hear an appeal by environmental groups of the Duke Energy decision (Environmental Defense v. Duke Energy Corp., No. 05-848 [May 15, 2006]).

Given the disputes over the scope of NSR, it is difficult to estimate what emission reductions would be brought about by EPA’s enforcement theory. There is an additional reason for this. EPA proposed in October 2005 to adopt the U.S. v. Duke Energy approach for electricity-generating facilities (70 FR 61081 [2005]). Existing electricity-generating facilities would, as in the NSPS program, compare the maximum hourly emissions achievable at that unit during the past 5 years to the maximum hourly emissions achievable at that unit after the change to determine whether an emissions increase would occur. The agency said that the proposed change was needed to assure uniformity between the nation as a whole and the states within the 4th Circuit. EPA argued in addition that the proposed approach would allow electricity-generating facilities to make changes that promote their safety, reliability, and efficiency and that the change was desirable in view of the substantial emissions reductions from programs more efficient than NSR. These latter rationales resemble those put forth for the 2003 rule establishing the now-invalidated ERP, although the legal theory behind the proposed hourly emission rule is different from that underlying that rule.

EPA’s proposal of this rule may cause difficulty in applying the enforcement initiative to past projects that violated the theory underlying the initiative. Legally speaking, the proposal or adoption of a new rule is not retroactive, and therefore, enforcement actions based on the previous rules may proceed. But, as a practical matter, a court might be reluctant to find liability or to impose a substantial penalty for violating rules that are no longer in force. (This concern was voiced by EPA enforcement officials when the ERP was adopted in 2003 [EPA 2004c] and more recently when the hourly emission test was proposed [Eilperin 2005]). Indeed, the U.S. v. Alabama Power case, summarized above, used the promulgation of the ERP as an argument against EPA’s enforcement theory. Hence, the proposed rule changes could diminish the size of future settlements. Estimating the magnitude of this effect is difficult.

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
×

The potential of the enforcement initiative to reduce emissions also depends on the number of lawsuits brought under the initiative and the aggressiveness with which they are prosecuted. According to press reports, 22 electricity-generating facilities could face new NSR enforcement lawsuits if the Bush administration decided to advance them (Samuelsohn 2004). None, however, have been brought. In October 2005, EPA administrator Stephen Johnson announced that no new enforcement actions would be pursued under the enforcement initiative’s theory (Greenwire 2005). If EPA holds to this position, the only future enforcement actions will be those brought by states or individuals under the CAA’s citizen suit provision. It is uncertain how many such suits there will be; the lengthy trials that have occurred so far in enforcement cases indicate that these cases are quite resource-intensive.

This is especially important because only enforcement actions against violators result in the surrender of allowances. By contrast, a source that complies with EPA’s NSR rules need not surrender allowances. Instead, compliance would reduce an electricity-generating facility’s need to find additional allowances to accommodate the emission increase at the facility that would be caused by the change. These allowances would then be available to other sources, perhaps resulting in increases in emissions from those sources that might offset, in part or in whole, the effect of compliance by the source seeking an NSR permit. This has special significance because there will likely be fewer enforcement actions once the definition of routine maintenance becomes more certain as cases are decided; it is reasonable to expect that operators of electricity-generating facilities will adjust their conduct to meet the requirements of that definition. It is therefore quite difficult to estimate the changes in emissions—whether local or national—that would be brought about by the enforcement initiative and therefore to gauge the effects of alterations in the NSR program.

The situation is further complicated by the establishment of CAIR subsequent to the adoption of the 2002 and 2003 rule changes. As discussed above, CAIR tightens the Title IV cap for SO2 and requires reductions in NOx emissions in the East and Midwest. To be useful, any analysis of changes in the NSR rules must take into account the potential implementation of CAIR. This makes the analysis more complex. We address this later in our report. Because CAIR covers only the East and Midwest, it has little or no effect on emissions outside that region and will have little impact on emissions from plants that are not electricity-generating facilities. Moreover, the CAIR program does not cover emissions of carbon monoxide (CO), PM, and VOCs. Hence, the program does not compensate for whatever changes in emissions of these pollutants that might be caused by EPA’s position on the coverage of NSR. For instance, the changes in Part D NSR coverage may reduce the number of projects in the northeastern Ozone Transport

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
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Corridor that are subject to NSR. Any resulting emission increases are not guaranteed to be offset by other programs such as CAIR. On the other hand, the CAIR program, by encouraging reductions in SO2 and NOx emissions, might lead to the retrofitting of controls that would also reduce CO, PM, and VOC emissions.

CLOSING COMMENTS

The regulatory background has continued to evolve during the period of our study. New settlements have been reached, new regulatory initiatives have been unveiled, and court decisions that affect the NSR programs have been handed down. We have tried to take into account all those changes in our report. However, we caution the reader that matters have not yet come to rest and that NSR will probably be affected by future and unpredictable events.

Three matters are particularly significant:

  • The 2002 rules are partly in effect in a few states; the remaining portions were struck down. The 2003 rules never went into effect and have been invalidated.

  • It is unclear at this writing how much emission reduction will be brought about by the enforcement initiative. That is partly because the courts have split over whether the enforcement initiative is in accord with the CAA. This makes it difficult to analyze the effects of changes to the NSR programs.

  • As we have stressed, the CAIR rule (whose fate in the courts is undetermined) may have a substantial effect on the consequences of the NSR reforms.

Suggested Citation:"2 Regulatory Overview." National Research Council. 2006. New Source Review for Stationary Sources of Air Pollution. Washington, DC: The National Academies Press. doi: 10.17226/11701.
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The Clean Air Act established a pair of programs—known as New Source Review (NSR)—that regulate large stationary sources of air pollution, such as factories and electricity-generating facilities. Congress then asked the National Research Council to estimate the effects of NSR rule changes made in 2002 and 2003 in terms of the effects on emissions and human health, and changes in operating efficiency (including energy efficiency), pollution prevention, and pollution-control activities. New Source Review for Stationary Sources of Air Pollution provides insights into the potential effects of the rule changes on national emissions from the electric power industry. Although this book focuses on the 2002 and 2003 rules, its analytic framework applies to other possible changes in NSR and to other regulatory contexts. Helpful, in that it outlines the data-collection efforts needed to assess the impact of the NSR rules, the book recommends EPA and other government agencies undertake and sustain the recommended methods.

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