Project Emissions Accounting (PEA) Final Rule

Overview

On November 24, 2020 the United States Environmental Protection Agency (U.S. EPA), in an effort to streamline the air permitting process, promulgated a rule that makes changes to the New Source Review (NSR) Preconstruction Permitting Program.  Specifically, the rule codifies a guidance document from March 2018 titled “Project Emissions Accounting Under the New Source Review Preconstruction Permitting Program” and makes changes to the process for assessing NSR major modification applicability under 40 CFR Part 51.166(a)(7) and 52.21(a)(2).  The final rule becomes effective on December 24, 2020.  This rule was initially proposed in the Federal Register on August 9, 2019.

The New Source Review Program

The NSR program is a preconstruction permitting program designed to protect public health and aid states in meeting the National Ambient Air Quality Standards (NAAQS).  The two major facets of the program are Prevention of Significant Deterioration (PSD) and Nonattainment New Source Review (NNSR).  The applicability of PSD and NNSR are determined based upon the emissions increases that result from a project.  Facilities have historically sought to avoid triggering major NSR requirements largely because of the associated impacts of a longer permitting timeline, more rigorous agency and public review, and the uncertainty that can accompany a major PSD or NNSR permitting project.  More information on the NSR Program in general can be found at the following blog, Prevention of Significant Deterioration (PSD) & the Major Modification, written by Roy Rakiewicz.

Changes in Assessing NSR Major Modification Applicability

When an existing major stationary source proposes a project, it must be determined whether that project is a major modification.  40 CFR part 51.166(b)(2) and 52.21(b)(2) define a major modification as “any physical change in or change in the method of operation of a major stationary source that would result in: a significant emissions increase of a regulated NSR pollutant and a significant net emissions increase of that pollutant from the major stationary source.”  That determination is made through completion of an applicability test, where pre-project emissions (baseline actual emissions) are compared to post-project emissions (projected actual emissions or potential emissions) to determine if the increase is significant.  Determining whether emissions from a project are significant is considered “Step 1” in the major modification applicability determination, while assessing “significant net emissions increases” is known as “Step 2.”  For major modification status to apply, both a significant emissions increase and a significant net emissions increase must occur as a result of a project.  The calculation tests for determining Step 1 emissions increases differ depending on the emissions units that are associated with a given project.  There are three possible applicability tests:

1. 1. Actual-to-projected-actual applicability test for projects that only involve existing emissions units;
   2. Actual-to-potential test for projects that only involve construction of a new emissions unit(s); and
   3. Hybrid test for projects that involve multiple types (new and existing) of emissions units.

Prior to this rulemaking, only emissions increases associated with the modification could be counted during Step 1.  Emissions decreases associated with the project could only be counted during the Step 2 netting process, which considers all contemporaneous emissions increases and decreases that may have occurred at the plant over the previous five to seven years when determining NSR applicability.  With this rulemaking, project-related decreases in emissions can now be counted during Step 1 for each type of applicability test.

A simple example is the replacement of an existing coal-fired boiler with a new natural gas-fired boiler at an existing major stationary source.  Previously, only the emissions increases from the installation of the new natural gas fired boiler would be considered in Step 1.  If the Step 1 emissions increases were significant, only then would the emissions decreases associated with the shutdown of the coal fired boiler be counted during Step 2, along with any other contemporaneous increases and decreases at the facility.  With this regulatory change, sources are now able to account for related emissions reductions in Step 1 and thereby potentially avoid a Step 2 netting evaluation.  This makes the analysis simpler to prepare and easier for the agency to review, and it could make it less likely that a project will cause a significant emissions increase.  If there is no Step 1 significant emissions increase, the project is not a major modification.

The preamble to the final rule states that U.S. EPA’s 2018 project aggregation interpretation and policy should be incorporated into Step 1.  The agency believes that this addresses commenters’ concerns that facilities could group unrelated projects together to avoid PSD review.  The 2018 final action on project aggregation required that projects that are “substantially related” (e.g., there is a technical or economic interconnection between the activities) be aggregated.  It also included a rebuttable presumption that activities that occur outside a 3-year period are not related and should not be grouped into one project.  Facilities wishing to take advantage of the new PEA rule (if it is allowed by their state or local agency) will need to justify what projects they are grouping together in their permit application with the 2018 interpretation in mind.

It is important to note that states are not required to implement the project emissions accounting (PEA) rule in their State Implementation Plans (SIPs).  Furthermore, some state laws as they are currently written (e.g., the Pennsylvania NNSR rules) do not allow for consideration of emission decreases in Step 1.  Be advised to check state-specific regulations before using the PEA revisions.

If you have questions regarding how this final rule could impact your projects, please reach out to Graham Brittain at gbrittain@all4inc.com or 571-325-0712.