Greenhouse Gas Tailoring Rule – Step 3 and Beyond

It is hard to believe that the two-year anniversary of the Greenhouse Gas Tailoring Rule will be upon us in just a few months.  You remember, don’t you?  It was on June 3, 2010 when U.S. EPA published the Prevention of Significant Deterioration (PSD) and Title V Greenhouse Gas (GHG) Tailoring Rule (Tailoring Rule) at 75 FR 31514.  In that Tailoring Rule U.S. EPA began the phase-in of the applicability of PSD and Title V to GHG-emitting sources by promulgating two steps.  Under Step 1, which began January 2, 2011, PSD permitting requirements applied to sources’ GHG emissions if the sources were subject to PSD anyway due to their non-GHG regulated air pollutants and emitted or had the potential to emit at least 75,000 tons per year (tpy) carbon dioxide equivalent (CO2e) as a new source or undertook modifications that increased emissions by this amount.  For Title V, new sources obtaining Title V permits due to non-GHG emission levels, or existing Title V sources, were required to address GHG emissions in those permits as necessary.  Then came Step 2 beginning July 1, 2011, when sources with GHG emissions above those thresholds were required to obtain PSD or Title V permits based on their GHG emissions alone, even if they would not be subject to these programs based on other non-GHG pollutants.

In the June 2010 Tailoring Rule, U.S. EPA also established a commitment for establishing a Step 3 under which the further lowering of the Tailoring Rule thresholds would be considered.  U.S. EPA also committed to explore and implement measures to make GHG permitting programs more efficient.  Making good on these commitments, on February 24, 2012 U.S. EPA proposed to keep the GHG major source thresholds unchanged from the Step 2 level, at this time.  Also proposed as permitting streamlining measures were revisions to PSD regulations to provide for GHG Plantwide Applicability Limitations (PALs) and to create regulatory authority for U.S. EPA to issue “synthetic minor” permits for GHGs in areas where U.S. EPA is the PSD permitting authority.  These proposals were published at 77 FR 14226 (March 8, 2012).

From the outset of the Tailoring Rule there was much concern about the number of new permitting actions that states and local agencies would need to process for GHGs, and the potential for this increase in permitting actions to result in delays that would impede construction or modification of facilities.  Now that Steps 1 and 2 are in effect, U.S. EPA set out to evaluate if further lowering of the Tailoring Rule thresholds would worsen the situation.  U.S. EPA discovered that states and local agencies have actually not been confronted with the influx of GHG applications that were expected in Steps 1 and 2.  To their credit, though, U.S. EPA recognized that the unexpected small amount of applications up to this point largely reflects economic business decisions, and U.S. EPA expects that the pace of permitting will pick up as economic conditions improve.  There is also a stated belief that states and local agencies have not had the opportunity to obtain the necessary resources and develop their infrastructure to accommodate the level of Step 1 and 2 permitting expected to come.  Could any of this be related to the fact that the current administration in Washington D.C. is gearing up for re-election?  Sure, it could be.  Regardless, the Step 3 proposal is for U.S. EPA to let the PSD and Title V GHG thresholds well enough alone.  But there are three key words that are repeated throughout this proposal.  They are: “at this time.”  It can be expected there will come a time, sooner or later, when U.S. EPA determines that the time is right to lower the thresholds, and more GHG sources will be “phased-in” to the GHG major source program.

The first streamlining proposal is for U.S. EPA to amend federal PSD regulations to make it possible for permitting agencies to issue PALs to major and potentially-major GHG stationary sources.

What is a PAL?  Under current U.S. EPA regulations, a PAL permit establishes a single, facility-wide emission limit for designated regulated pollutants.  PALs can be established for one (1) or more regulated PSD pollutants at an existing major stationary source.  Each PAL level is based on a 12-month rolling total, expressed in mass units of tons of pollutant per year.  Each limit is generally established based on the average annual baseline emission rate for a 24-month consecutive period during the prior 10 years of facility operation.  The PSD significant increase threshold for the regulated NSR pollutant that is specified in the rule is then added to the baseline actual emission rate to set the PAL level.  Provisions for PALs are not new and are codified in the Federal regulations at 40 CFR §52.21(aa), §51.165(f), and Appendix S to Part 51.  A number of existing facilities have recognized the advantages of PAL permits and have been operating in compliance with such permits for non-GHG pollutants for many years.

The advantage of a PAL permit is that as long as the facility demonstrates compliance with the PAL, physical changes and changes in the method of operation are not major modifications and projects do not require approval under applicable PSD (or state Nonattainment New Source Review [NNSR]) programs.  State construction permits may still be required for such projects. However, the ability to avoid major New Source Review (NSR) is a significant advantage for any existing major stationary source.  Having a PAL permit in place eliminates the need to consider major NSR applicability for the typical types of facility projects that occur on a regular basis.  Since a significant source of GHG emissions is the combustion of fuel, it is easy to imagine the benefit to certain sources of having the opportunity to obtain a GHG PAL.

Before we go any further we need to review some of the terms we must use when discussing GHG emissions.

• GHG means the sum of the following six well-mixed gasses: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), sulfur hexafluoride (SF6), hydrofluorocarbons (HFC), and perfluorocarbons (PFCs).  For PSD applicability purposes, GHG is calculated in two (2) different ways (i.e., on a mass basis and expressed as a carbon dioxide equivalent (CO2e)).
• GHG on a mass basis is calculated by summing the mass amount of emissions of the six well-mixed gases.
• GHG expressed as CO2e is calculated by summing the resultant values from multiplying the mass amount of each of the six well-mixed gases by each gas’s associated global warming potential.
• Global warming potential (GWP) is a measure of how much a given mass of each gas is estimated to contribute to global warming.  It is a relative scale which compares the gas in question to CO2.
• “Subject to regulation” means that below a certain threshold, a pollutant is simply not regulated.  For all PSD regulated pollutants other than GHGs, that level is zero.  For GHGs, a stationary source is not subject to regulation unless the GHGs equal or exceed 100,000 tpy CO2e.  For a modification, GHGs are not subject to regulation unless the emissions increase equals or exceeds 75,000 tpy CO2e.

A “GHG-only source” is a stationary source whose CO2e emissions are greater than 100,000 tpy and GHG mass emissions are greater than 100/250 tpy on a mass basis.   All other PSD regulated pollutants have a potential to emit that is less than the major stationary source thresholds.

OK then.  Even though not new, the existing PAL and PSD regulations restrict permitting agencies from issuing certain kinds of GHG PALs that would be most advantageous.  For example, current regulations only allow a PAL to be issued on a mass basis (e.g., tpy) because a PAL is an alternative to NSR, which has traditionally been triggered by mass-based changes in emissions.  However, under the somewhat convoluted Tailoring Rule, GHG sources use CO2e (tpy) to determine whether a change causes GHG emissions to be subject to regulation, but GHG mass emissions (tpy) to determine whether a change results in a major modification.  So, under the current regulations sources seeking a GHG PAL would have two sets of limits and would have to monitor both metrics monthly to demonstrate compliance.

Another problem with the existing regulations is that U.S. EPA did not promulgate a mass-based significant emissions rate for GHG in the Tailoring Rule.  Permitting agencies typically establish a PAL level by adding a pollutant’s significant rate to baseline actual emissions.  Unless a significant emissions rate for GHG is established, the significant rate is effectively zero and there is no margin above the baseline emissions to make a PAL advantageous.  There is also an issue with “GHG-only sources” that were created by the Tailoring Rule.  Under existing regulations, regardless of how much GHG a GHG-only source emits, it is treated as a minor source not subject to PSD unless it proposes a modification that increases GHG emissions by 75,000 tpy or more CO2e, thereby making GHGs subject to regulation.  Thus, a GHG-only source would have to wait to obtain a GHG PAL until it proposed a change that triggers the threshold.  However, since under the Tailoring Rule even minor sources must evaluate whether any project’s GHG emissions are subject to regulation (on a CO2e basis) and will also result in a major modification (on a mass basis), extension of the PAL program to these sources could also provide advantages of not having to perform these cumbersome evaluations for every project.

U.S. EPA’s stated goal in developing GHG permitting streamlining measures is to allow permitting agencies to be more efficient in administering their GHG permit programs by reducing the overall resources needed, both now and in the future.  U.S. EPA seems to believe that one step towards this goal is to extend the opportunity for obtaining a GHG PAL to as many sources as possible.  For this reason, U.S. EPA has proposed to amend the PSD and PAL regulations to allow permitting agencies to do the following:

• Issue PALs to GHG-only sources;
• Issue either a mass-based (tpy) or a CO2e- based PAL to a source (without having to mix the two);
• Allow CO2e-based PALs to include the 75,000 tpy CO2e emission increase threshold; and
• Allow compliance with a GHG PAL (either mass or CO2e-based) to be used as an alternate applicability approach for determining both whether a project is a major modification and whether GHG emissions are subject to regulation.

U.S. EPA is also seeking comment on adopting one of two approaches for regulating GHG-only sources under a PAL.  The first, called “Major Source Opt-in,” would have a GHG-only source agree to become a major source so that it can obtain a PAL for GHG and any other eligible pollutant emitted.  The second, which is called the “Minor Source Approach,” would allow a GHG-only source to obtain a GHG PAL while remaining a minor source, but not being able to obtain a PAL for any other non-GHG pollutant.

The other streamlining proposal put forth by U.S. EPA in this rulemaking is to create synthetic minor permit authority within the federal PSD regulations.  A synthetic minor limitation is a legal and enforceable restriction that a source can voluntarily accept to avoid major source permitting requirements, such as PSD and Title V.  This new GHG synthetic minor authority would only apply in areas where U.S. EPA is the permitting authority.  State and Local permitting agencies that have minor source permitting programs typically have the authority in their programs to do this, and have been using it for many years.  However, since there is generally not a federal minor source permitting program outside of Indian country, U.S. EPA wants to be able to offer the option for synthetic minor permits to GHG sources under its jurisdiction as part of the overall GHG phase-in approach.

Keep in mind that all of these changes are, as yet, only proposed.  Regardless of whether these changes would bring about the permitting streamlining U.S. EPA envisions, there are generally benefits to PALs and Synthetic Minor Permits to certain facilities, and having these extended to GHGs at this early stage in the regulation of this pollutant could be significant.  It is no secret that the goal in the U.S. is to reduce overall GHG emissions.  In the absence of legislative solutions, U.S. EPA will proceed towards that goal by regulating GHG emissions under the Clean Air Act (CAA), such as through NSR, New Source Performance Standards (NSPS) and National Emission Standards for Hazardous Air Pollutants (NESHAP).  Right now they are working on such GHG standards for Electric Utilities and Refineries, but it surely won’t stop there.  Remember that under U.S. EPA’s separate GHG Reporting Rule, facilities that emit 25,000 tpy CO2e are considered by U.S. EPA to be among “the largest GHG emitters.”  That could easily include your facility.  And as stated above, the major source thresholds for GHG are likely to come down at some point.  Hence, a GHG PAL might make good sense for a facility to allow for future flexibility, as a PAL could “preserve” baseline GHG emissions and add a margin up to the current 75,000 tpy CO2e threshold.

U.S. EPA is accepting comments on this proposed rulemaking until April 20, 2012.  As with anything related to PSD and U.S. EPA rules in general, it can be complicated to make an evaluation.  But if your facility operations emit GHGs, it would be a good idea to take a closer look and, if you see potential advantages, submit comments in support of the proposed changes that may be beneficial to you.