EPA Proposes “Project Emissions Accounting” Rule

On August 1, 2019, EPA released its proposed “Prevention of Significant Deterioration (PSD) and Nonattainment New Source Review (NNSR): Project Emissions Accounting” proposal. This proposal had been anticipated as a follow up to Administrator Pruitt’s March 13, 2018 “Project Emissions Accounting Under the New Source Review Preconstruction Permitting Program” guidance (the “March 13, 2018 PEA guidance”).

ANALYSIS

The proposed rule provides an overview of the NSR programs and how EPA has historically used a two-step approach to determining applicability: Step 1 determines “project emissions” and Step 2 determines “net” emissions during the “contemporaneous period. Only projects whose “project emissions” under Step1 exceed significance threshold proceed to Step 2. Only projects that exceed significance thresholds for both Step 1 and Step 2 require either a PSD or major NNSR permit.

In its historical analysis, EPA noted that there had been confusion and inconsistent interpretations about whether emissions decreases may be considered in Step 1 of the analysis or only in Step 2. EPA states that it examined this issue in the March 13, 2018 PEA guidance and determined that the existing regulatory language is consistent with considering emissions decreases, nevertheless it is “proposing revisions to the applicability provisions in the NSR regulations to fully clarify that the regulatory language at 40 CFR 52.21(a)(2)(iv)(f) allows the approach” set forth in the March 13, 2018 PEA guidance.

The gist of EPA’s action is to amend 40 CFR 51.165(2)(ii)(F) (state NNSR programs), 40 CFR 51.166(a)(7)(iv)(f) (state PSD programs), 40 CFR 51, App. S, (IV)(I)(1)(v) (federal interim NNSR program) and 40 CFR 52.21(a)(2)(iv)(f) (federal PSD program), to read as follows:

(f) Hybrid test for projects that involve multiple types of emissions units. A significant emissions increase of a regulated NSR pollutant is projected to occur if the sum of the difference for all emissions units, using the method specified in paragraphs (a)(2)(iv)(c) through (d) of this section as applicable with respect to each emissions unit, equals or exceeds the significant amount for that pollutant (as defined in paragraph (b)(23) of this section).

(g) The “sum of the difference” as used in subparagraphs (c), (d) and (f) shall include both increases and decreases in emissions calculated in accordance with those subparagraphs.

[40 CFR 52.21(a)(2)(iv) shown; similar revisions to all].

In justifying its action, EPA noted that the D.C. Circuit has held that the statutory definition of “increases the amount of any air pollutant emitted” is ambiguous, leaving it to EPA’s discretion how to interpret the term. EPA states its proposal would “encourage emissions decreases that might not otherwise occur or would be delayed” due to the “complexities” of Step 2 contemporaneous review.

On implementation, EPA states that it is proposing that “the scope of a project that a source owner or operator is proposing to undertake” “rests within the reasonable discretion of the source owner or operator.” EPA states that this approach is appropriate because “sources could potentially be incentivized to seek out emissions reductions that otherwise might be foregone entirely” and that “taking account of emissions decreases at Step 1 does not present any reasonable concerns regarding NSR circumvention,” although the agency requested comment on this issue. The agency also requested comment on whether all parts of the project should be “substantially related.” Finally, EPA states that it believes the existing monitoring, recordkeeping and reporting requirements for the “projected actual emissions” test are sufficient to ensure no circumvention.

From a state implementation perspective, EPA states that programs using the existing federal language may immediately implement the new interpretation. Programs that specifically forbid “project netting” might need to review their regulations. EPA requests comment on whether the proposed rule should be considered a “minimum program element” that must be included in a SIP for it to be approvable.

EPA also withdrew the 2006 project netting proposal.

COMMENTARY

The proposed rule closely follows the analysis and argument in the March 13, 2018 PEA guidance. The only substantive additions are a nod to potentially “foregone” emissions decreasing projects due to the “complexity” of the Step 2 netting process and a discussion of why EPA does not believe that stricter scrutiny of project scope determinations is needed – primarily because if the sum of the various projects doesn’t exceed a de minimis increase, in EPA’s view the overall increase is not significant enough to warrant NSR review.

Overall, the proposed rule does not provide substantially more or different justification than the March 13, 2018 PEA guidance.