NSR Reform 2018: Look to the Past

The time for changes to the New Source Review (NSR) program is upon us.  Our thinking at ALL4 is that the recent reversal in U.S. EPA policy regarding the accounting of emissions decreases from projects is just the beginning.  We are predicting that over the next two years several post-2002 NSR reform proposals will find their way back to favor.  This prediction is based on the President’s Executive Order (EO) 13777 that spurred U.S. EPA to organize a Regulatory Reform Task Force as well as the return of Bill Wehrum as Assistant Air Administrator for U.S. EPA.  Here’s what we think is in store for NSR and why it will have meaning for you.

We expect that the reform and flexibility concepts that were part of the 2002 NSR Reform and subsequent proposal and that ultimately were not reflected in the current NSR rules will form the basis of NSR reform moving forward.  Those policies and concepts include:

• Permitting Exclusions – Clean Units, Clean Facilities and Pollution Control Projects
• Routine Maintenance, Repair, and Replacement Provisions
• Debottlenecking Provisions
• Aggregation Provisions
• Flexibility Provisions – Green Groups, Advanced Approvals and Permit Streamlining

It would also not be unexpected to see new thinking redefining how “ambient air” is interpreted as well as other air quality modeling techniques.  The intent of the anticipated NSR revisions is to simplify the NSR process, particularly around determining if a project is a major modification under the rules, and to ultimately streamline the air quality permitting process.  Should the above polices and concepts come to fruition, the end result will be beneficial to industry in the form of simpler NSR applicability determinations, fewer projects triggering major NSR requirements, reduced air permitting timelines, reduced U.S. EPA oversight, and generally more air permit approvals for capital projects.   Read on to follow our thought process.

Executive Branch Actions

The U.S. EPA under the current administration has been actively reviewing how the NSR regulations are interpreted and implemented.  Much of the reform momentum can be attributed to the U.S. EPA’s Regulatory Reform Task Force seeking public input for potential repeals, replacements, or modifications of existing regulations as directed by the President’s Executive Order (EO) 13777.  Written comments were due by May 15, 2017 and various public meetings were also held prior to the deadline.  Many of the comments were critical of the NSR and related air quality regulations. If the current focus for NSR regulatory reform sounds familiar, you probably recall the discussion regarding NSR reform which began during the first term of the Clinton Administration.  Many of the concerns that are being expressed today by the regulated community mirror the same or very similar concerns that were identified over 20 years ago.

NSR Background and Reform History

The NSR rules include both the prevention of significant deterioration (PSD) and nonattainment new source review (NNSR) programs. PSD applies to new major sources and to major modifications at existing major stationary sources for all regulated NSR pollutants except for those pollutants or precursor pollutants for which the area where the source is located is not attaining the national ambient air quality standards (NAAQS).  In these areas, NNSR applies to new major sources and to major modifications at existing major stationary sources.    The “primary” NAAQS are health-based standards for the “criteria” pollutants nitrogen dioxide (NO2), sulfur dioxide (SO2), particulate matter less than 10 microns (PM10), particulate matter less than 2.5 microns (PM2.5), carbon monoxide (CO), ozone (O3), and lead (Pb).  “Secondary” NAAQS are designed to protect the public’s welfare.

Under the PSD and NNSR permit programs, rigorous requirements are triggered for projects that qualify as major modifications at major stationary sources. The resulting air permitting path associated with major modifications is typically a complex and time-consuming process that can, under certain circumstances, influence the viability of a given project.  The NSR regulations have historically been of concern to the regulated community because of the complexity and uncertainty generated by the case-by-case guidance that became an artifact of the NSR process.  In the mid-1990s, the U.S. EPA began to take a serious look at the NSR regulations to improve implementation and to address concerns expressed by stakeholders.    The result was a July 23, 1996 Notice of Proposed Rulemaking (NOPR), that identified specific revisions and additions to the NSR regulation “…intended to reduce costs and regulatory burdens for permit applicants, while still ensuring that emissions from new or modifying major stationary sources of air pollution will not interfere with efforts to attain and maintain the nation’s air quality standards and goals.”   The comprehensive NOPR addressed a laundry list of issues associated with NSR and proposed several new concepts including:

• Clean Unit and Clean Facility Exclusions
• Revisions to the baseline period
• Pollution Control Project (PCP) Exclusion
• Plantwide Applicability Limits (PAL)
• Actual-to-Future-Actual Methodology

The NOPR also addressed several additional issues including control technology evaluations, Class I area requirements, and PSD preconstruction monitoring.  While recently portrayed as something new, the concept of regulatory reform relative to NSR regulations is hardly new and has been around for well over 20 years.  Equally surprising, regulatory reform was not historically associated with a single political point of view as the NSR reform recommendations that were conceived and developed under the Clinton administration were ultimately proposed and promulgated under the Bush administration, i.e., the NSR Improvement Rule of 2002 reflected the key provisions identified in the 1996 NOPR.

The NSR Improvement Rule of 2002 is the foundation of current NSR rules and codified key revisions of the NOPR including the “actual-to-projected actual applicability test”, excludable emissions, the 10-year baseline period, use of different baselines for different pollutants, and PALs.  The Fact Sheet associated with the 2003 final rule provided the following familiar statement:

“…the NSR program has impeded or resulted in the cancellation of projects that would maintain or improve reliability, efficiency or safety of existing power plants and refineries. Reforms to NSR will remove barriers to pollution prevention projects, energy efficiency improvements, and investments in new technologies and modernization of facilities.”

Several aspects of the 2002 NSR Improvement Rule were later challenged and on June 24, 2004, the United States Court of Appeals, District of Columbia Circuit, vacated the Clean Unit and Pollution Control Project provisions of the, citing a lack of EPA authority to promulgate such provisions.  The remaining key aspects of the rule were retained. On June 5, 2007 U.S. EPA removed provisions for Pollution Control Projects and Clean Units from the NSR regulations.

Additional NSR Regulatory Revisions

In the fact sheet that accompanied the proposed 2003 NSR improvement rule, U.S.EPA identified several additional reforms that they would pursue to simplify and improve the NSR permitting process including provisions to address Routine Maintenance, Repair and Replacement, Debottlenecking, Project Netting, and Project Aggregation.  The additional regulatory revisions sought by U.S. EPA were intended to simplify provisions of the NSR rules that had been previously subject to review and interpretation on a case-by-case basis, thereby creating uncertainty and delaying projects.  To ensure consistency within the NSR program, U.S. EPA developed regulatory proposals to address each provision.  While the intentions of the agency were based on sound policy, various non-governmental organizations (NGOs), the courts, and U.S. EPA under a new administration had different opinions:

• U.S. EPA proposed the Routine Maintenance, Repair and Replacement (RMRR) rule on December 31, 2002 and promulgated a final rule on October 27, 2003.  The rule was intended to provide clarity and certainty to the regulated community regarding what types of projects involving maintenance, repair, and replacement were exempt from major NSR permitting requirements.   The RMRR rule was stayed on December 24, 2003 and ultimately vacated by the D.C. Circuit on March 17, 2006.
• On September 14, 2006, U.S. EPA proposed to address Debottlenecking, Aggregation, and Project Netting under the NSR rules. The proposal addressed how emissions from upstream or downstream units are included in the emissions analysis, how and when emissions increases from multiple projects are aggregated to determine NSR applicability, and how emissions decreases from a project may be included in the calculation to determine if a significant emissions increase will result from a project.  The debottlenecking portion of the proposal was withdrawn by U.S. EPA on January 15, 2009.  Also on January 15, 2009 and in a separate action, U.S. EPA decided to take “no action” on the September 16, 2006 project netting proposal. The last action regarding aggregation was on May 18, 2010, which delayed action “…until such time as the proceeding for judicial review of this document is completed.”

Flexible Permitting?

In conjunction with reforming NSR, the U.S EPA was, at the same time, contemplating the concept of “flexible air permits”.   The U.S. EPA initially published three “White Papers” in the mid-1990s, two of which addressed implementation issues associated with the Part 70 permit program and one which addressed flexible permitting, including PALs.  During this period the U.S. EPA also embarked on several flexible permitting initiatives including the Project XL and P4 programs and published a report titled “Evaluation of Implementation Experiences with Innovative Air Permits”, which chronicled associated flexible permit successes. Indirectly, this led to EPA proposing a Flexible Permit Rule on September 12, 2007.  The proposed flexible permit rule included innovative concepts such as green groups, permit streamlining, and advanced approvals as well as approved replicable methodologies and alternative operating scenarios that were identified in U.S. EPA White Papers and used in the pilot programs.  A final Flexible Permit Rule was promulgated on October 6, 2009, arguably without the most beneficial provisions identified in the proposal, the green group.  The September 2007 proposal defined a green group as “a group of new or existing emissions activities that is characterized by use of a common, dedicated air pollution control device and that has been designated as a green group by the administrator in a permit issued pursuant to this section (i.e., NSR).”  The benefit of a green group was primarily operational flexibility for defined sections of a facility (i.e., green groups) by allowing changes within units comprising green groups without major NSR implications.  In the final rule, U.S. EPA decided not to develop a Flexible Permit Rule with prescriptive approaches towards operational flexibility since the prescriptive route might prove counter-productive (i.e., in defining operational flexibility, U.S. EPA might actually constrain it).  Note that the final flexible permit rule was published initially on January 13, 2009, but was subsequently reviewed by U.S. EPA in response to the memo on regulatory review issued by the White House on January 20, 2009 and was delayed.

Where Does This Leave Us?

The NSR rules, as they exist today, reflect key reforms of 2003 that are beneficial to regulated stakeholders including a revised definition of baseline actual emissions (BAE), the “actual-to-projected-actual” NSR applicability test, a definition of projected actual emissions (PAE), the use of “excludable” emissions in an NSR applicability analysis, and PALs which remain in place and have proven beneficial when compared to the NSR program pre-reform.  The reforms although successful, have been watered down by court and agency policy decisions since their implementation in 2003.  U.S. EPA has effectively narrowed the scope of several beneficial aspects of the 2003 reform provisions through policy and guidance.  Several additional reforms intended to address chronic NSR uncertainties (e.g., routine maintenance, repair and replacement, aggregation, and project netting) were proposed as rule revisions after the 2003 NSR Improvement Rule but were never promulgated.  The vacated portions of the rule and the proposals that were never promulgated would have gone a long way towards addressing industry concerns associated with NSR.

Please keep an open eye for further 4TR updates related to NSR and regulatory reform.  ALL4 also plans a series of webinars to help facilities understand how further NSR revisions can impact planning for modifications and expansion projects. Please contact Roy Rakiewicz at (610) 933-5246, extension 127 or via email at rrakiewicz@all4inc.com.