EPA Issues "Project Emissions Accounting" Rule
On October 22, 2020, Andrew Wheeler, EPA Administrator, signed the final rule adopting the “project emissions accounting” approach to Step1 of the Prevention of Significant Deterioration (PSD) and major nonattainment area new source review (NNSR) programs. The final rule provides that both increases and decreases resulting from a proposed project can be considered in Step 1 of the major NSR modification applicability test, provided that all changes are part of the same “project” as EPA had defined that term in the 2018 reconsideration of “project aggregation.”
The EPA states that the 2002 NSR Reform Rule codified the prior practice of treating “major modification” applicability as a two step process: looking first at whether any emissions increase that would result from the project itself is “significant” before evaluating whether there would be significant “net emissions increase” from the major stationary source. An increase is significant under either step if it would exceed any of the pollutant-specific “significant emission rates” (SERs) listed in the applicable PSD or NNSR regulation. For other unlisted regulated NSR pollutants, “any” increase is significant.
For Step 1, the EPA stated that for “new” units, one looks at the difference between pre- and post-project emissions on a potential to emit basis, while for “existing” units one can compare the post-project “projected actual emissions” or potential to emit to the pre-project “baseline actual emissions” to determine whether it is significant. Based on this comparison, the source determines whether the change in the project is “significant.” If the project is not significant, it is not subject to PSD or NNSR.
If the project increase is significant, then the source proceeds to Step 2, in which the source considers all “contemporaneous” emissions increases and decreases which includes (i) the increase from the project; (ii) any other increases and decreases at the major stationary source that are both contemporaneous and otherwise creditable. Under the EPA rule (and most states), contemporaneous means five years before the date construction on the project commences and the date that the increase from the project occurs. An increase or decrease is creditable only if it has not previously been relied upon by the permitting authority, it represents a “real” increase or decrease in emissions, and, if a decrease, it is enforceable as a practical matter on and after the date the project emissions increase occurs. In NNSR, the source must also show that the emissions decrease was not relied upon for demonstrating attainment or reasonable further progress.
In March 2018, the EPA issued a memorandum stating that “emissions decreases as well as increases are to be considered at Step 1 of the NSR applicability process, provided that they are part of a single project.” In its memorandum, the EPA acknowledged that the rule language for “hybrid” projects was not as clear on allowing decreases as well as increases as the rule language for “new” and “existing” emission units. Accordingly, in its proposed rule, the EPA proposed to replace “sum of the emissions increase” for hybrid projects with “sum of the difference” and, in the case of hybrid projects, to “sum the difference” of “all emission units” rather than for each emission unit.
In the final preamble, the EPA stated:
The EPA believes that allowing for consideration of both emissions increases and decreases from a project is consistent with congressional intent for the PSD and NNSR preconstruction permitting programs to cover existing sources only when they undertake projects which result in a non-de minimis increase in emissions. If the full scope of emissions changes from a project were not considered in Step 1, the regulations could subject a project to major NSR when the actual effect of that project would be to reduce emissions or result in a de minimis increase in emissions, which would be contrary to congressional intent for this program. The EPA sees little policy support for such an outcome.
Page 17-18, pre-publication draft.
The EPA addressed several challenges by commenters to its rule rationale, including:
“The EPA is making a ‘project exemption” similar to the equipment replacement rule rejected by D.C. Circuit.” The EPA rejected this argument, stating that it is merely clarifying the current test, not creating an exemption, noting that it merely applies the same language to “hybrid” projects that previously applied to “new” or “existing” projects.
“The EPA fails to require that ‘any’ physical change or change in the method of operations” be addressed because old decreases could be included. The EPA stated that this is not the case because the “substantially related” test for project it adopted as part of the 2018 project aggregation reconsideration requires that all parts of the project be sufficiently “contemporaneous” in time to be “substantially related.”
“The EPA has failed to require enforceable emissions reductions.” The EPA disagreed, arguing that separate enforceability is required for Step 2 netting because it is an unrelated project that is being used to avoid PSD or NNSR review, while in Step 1 emissions accounting, it is the same project. The EPA also reiterated that if a project subsequently exceeds the SERs, the source may be liable for NSR circumvention.
“The EPA’s proposal makes Step 2 superfluous.” The EPA disagreed, noting that Step 2 is required to count emissions decreases from unrelated projects.
“The EPA’s action gives up benefits under the Clean Air Act and is not justified as an exercise of its de minimis authority.” EPA stated that it is not exercising de minimis authority, merely giving effect to determining when a project is not de minimis.
Because of the importance of defining the “project” under the foregoing arguments, the EPA reaffirmed its decision in the 2018 project aggregation reconsideration that only projects that are “substantially related” may be considered for inclusion together in Step 1. This requires a consideration of the technical and economic relationship of the various components of the project.
The EPA next took up concerns that the “reasonable possibility” recordkeeping requirements were not sufficient to prevent circumvention of NSR requirements given the consideration of decreases in Step 1. Commenters stated that sources would just project emissions decreases to come below the 50% threshold and would proffer explanations when the emissions were different that projected that place an “undue burden” on permitting authorities to review. The EPA rejected these comments as not persuasive and little more than commenters’ belief that sources would circumvent. The EPA noted that reasonable possibility monitoring is required if the project exceeds 50% and that there is ample recordkeeping under state minor NSR programs and Title V to identify problems.
Finally, the EPA determined, based on comments, that it will require adoption of this rule by permitting authorities that exercise “delegated” program authority, but that SIP-
authorized programs do not need to adopt it.
The final rule, which formalizes EPA’s “project emissions accounting” approach that allows emissions increases and decreases from a “project” to be considered in Step 1 is an important step in returning the NSR programs to a more common sense approach and eliminating the “traps for the unwary” which have long characterized this program. The new approach allows sources to build in controls as part of the project to keep from triggering NSR requirements. It is understandable by source management and easier to implement in the corporate world where money can be planned for controls to achieve a project, as opposed to the former approach where controls did not count and additional controls, often on equipment not associated with the project, had to be added. In this respect the rule is welcome.
As a practical matter, it is unfortunate that the EPA allowed itself to be drug into the “project” definition morass further by commenters. Many state and local permitting authorities have preferred to aggregate many projects into fewer PSD or NNSR permits to reduce the permitting burden on both them and the source. The effect of this approach has been to require PSD or NNSR permits as more increases were involved. This practice may be in jeopardy. One can easily envision a future where environmental groups comment on applications to try to “redefine” projects so that they can argue that parts of the project should be excluded and hence the project rejected and redefined and resubmitted, leading to delay for source and redundant application of agency resources. Under this line of legal thinking, it may not even matter whether exclusion of part of a project would have changed the permitting decision because it would be a procedural error. One hopes that EPA and authorized states will reject such efforts that lead to no environmental benefit, just delay.