Proposed Changes to Project Emissions Accounting (PEA) Regulations

The U.S. Environmental Protection Agency (EPA) signed proposed changes to the 2020 Project Emissions Accounting (PEA) provisions in the Prevention of Significant Deterioration (PSD) and Nonattainment New Source Review (NNSR) regulations on February 22, 2024. Collectively, the PSD and NNSR regulations are considered the New Source Review (NSR) permitting program. The signed proposal was quietly posted to EPA’s website with little fanfare. Although EPA denied an earlier petition to reconsider the 2020 PEA rule, this proposal, if finalized as is, will complicate the use of the PEA provisions in future PSD and NNSR permitting events.

Background

The PSD program applies to sources located in areas that are in attainment with the National Ambient Air Quality Standards (NAAQS). When  permitting a project that will modify your NSR major source, you need determine whether the project will result in a significant emissions increase. Prior to the PEA rule, you would use a two-step applicability test, where any emissions increases related to your project would be determined in Step 1, and any project-related emissions decreases, along with other contemporaneous emissions increases and decreases, would be determined in Step 2 of the calculations. When the PEA rule was finalized in 2020, it clarified that project-related emissions increases AND decreases could be included in Step 1 to determine if a project resulted in a significant emissions increase. The PEA rule made it easier to permit projects such as equipment replacements and fuel switching by accounting for emissions decreases during Step 1 and thereby avoiding Step 2.

Proposed Changes

EPA is proposing three primary changes to the NSR/PSD regulations related to PEA. First, the following new definition of “project” is proposed: “Project means a discrete physical change in, or change in the method of operation of, an existing major stationary source, or a discrete group of such changes (occurring contemporaneously at the same major stationary source) that are substantially related to each other. Such changes are substantially related if they are dependent on each other to be economically or technically viable.” With this proposed change, EPA is responding to concerns that permit applicants were “over-aggregating” activities under a project to include emissions decreases in Step 1 and not trigger PSD review.

The proposed new definition of project is based on EPA’s 2018 project aggregation rule, where EPA established criteria for determining whether nominally separate activities are considered as one project under NSR. Typically, agencies are concerned with applicants under-aggregating activities  where multiple “unrelated” permit applications are submitted, each with project emissions increases that do not trigger PSD review, but with total emissions increases that would trigger PSD review. Under this proposal, EPA is concerned that applicants could be over-aggregating activities to avoid triggering PSD review through the inclusion of emissions reductions in Step 1 that would be considered unrelated under the new definition of project. If this change is finalized as proposed, whether some project components are dependent on each other to be economically or technically viable is likely to be a point of contention. It is relatively straightforward that shutting down and replacing an old piece of equipment  with a new piece of equipment is one project, i.e., you wouldn’t shut down the old unit unless you were replacing it with the new  unit. However, if you are permitting a facility reconfiguration project based on a set of multiple activities, some of which increase emissions and some of which decrease emissions, the agency could determine that the activities are not all substantially related and the emissions decreases cannot be included in Step 1. However, in this example, an unintended consequence could be the separation of the reconfiguration project into several smaller projects, each with less than significant emissions increases.

Second, EPA is proposing that projects using the PEA provisions be subject to the “reasonable possibility” recordkeeping provisions under 40 CFR 51.166(r)(6) or 40 CFR 52.21(r)(6). The reasonable possibility provisions require annual recordkeeping and reporting of actual emissions for 5 or 10 years after a project when the applicant uses projected actual emissions to determine NSR applicability and where the project emissions increases are at least 50 percent of any significant emissions rate. If a facility uses PEA to determine that major NSR permitting is not required for a project and the reasonable possibility recordkeeping and reporting must be memorialized in the facility’s air permit, then more projects may need full minor NSR permit applications instead of being covered under Title V minor modifications or off-permit changes.

Third, EPA is proposing that any Step 1 emissions decreases be legally and practicably enforceable. This change is being proposed to ensure that emissions decreases that are claimed will actually occur and will be maintained. If the project involves the shutdown of a unit, then this requirement is fairly straightforward, i.e., the shutdown unit will be removed from the permit as part of the project. If the Step 1 emissions decreases are due to reconfiguration of the facility or a change in product, and the facility receives a permit limit based on the applicability analysis, a future change to that limit could automatically trigger retroactive review under the source obligation provisions. Lacking further clarification, this proposed change, when promulgated, will require careful thought when determining how to structure NSR applicability calculations for complex projects. EPA is requesting comment on the types of projects that would be impacted by a requirement that Step 1 decreases be enforceable prior to beginning actual construction.

Conclusions

There are other aspects to the proposal and requests for comment, including whether EPA should revise the regulations to expressly disallow PEA.  Assuming that  revised PEA provisions are retained, the three primary proposed changes discussed above, if promulgated as-is, will significantly complicate future use of this approach and likely cause more projects to trigger PSD review. The development and outcome of this proposal is important to track, especially in the wake of the lower fine particulate NAAQS, which will make a successful modeling demonstration for a PSD project much more difficult. ALL4 is on top of air regulatory changes and can help you develop an air permitting strategy and evaluate different air permitting approaches and project scopes. Reach out to your ALL4 project manager or Amy Marshall for assistance with air quality permitting or for more information on this proposal.