EPA Denies Petition to Reconsider “Project Emissions Accounting” Rule

By Eric L. Hiser

On October 12, 2021, EPA Administrator Regan denied the January 22, 2021, petition for reconsideration and stay of the Project Emissions Accounting rule sought by the Environmental Defense Fund (EDF), the Natural Resources Defense Council (NRDC), the Environmental Integrity Project (EIP), the Sierra Club, and the Adirondack Council (collectively Environmental Petitioners). EPA found that it was not “impracticable” for the Environmental Petitioners to have raised their concerns during the public comment period. Despite its denial of the petition and requested stay, EPA stated that it would commence a rulemaking action to further consider the concerns raised in the petition and whether withdrawal or revision of the Project Emissions Accounting memorandum is appropriate.

ANALYSIS

On March 13, 2018, former Administrator Pruitt issued the “Project Emissions Accounting Under the New Source Review Preconstruction Permitting Program” memorandum announcing that EPA intended to let sources consider emissions reductions resulting from a “project” in determining whether the project’s emissions themselves exceeded the “significant levels” triggering PSD or NNSR review. This is the “Step 1” analysis and precedes the Step 2 analysis, which considers whether the “net” of the project emissions, in conjunction with other “contemporaneous” projects, exceeds the significant levels and hence triggers PSD or NNSR review. The import is that if the “project” does not exceed significant levels, then the source does not need to conduct the Step 2 analysis. EPA followed up the March 13, 2018, memorandum with the Project Emissions Accounting rule, which adjusted the regulatory text to use the term “sum of the difference” in place of “sum of the emissions increases” to clarify that both increases and decreases should be considered. The Project Emissions Accounting rule was promulgated on November 24, 2020. See 85 Fed. Reg. 74890.

On January 22, 2021, the Environmental Petitioners filed their request for administrative reconsideration and stay of the Project Emissions Accounting rule under Clean Air Act section 307(d)(7)(B) and also requested withdrawal of the March 13, 2018, memorandum. The Environmental Petitioners argued that reconsideration, stay and withdrawal was required due to the following three concerns:

1. The final rule fails to ensure that offsetting emission decreases used to show that a “project” will not cause a significant emissions increase in Step 1 will result from the change being evaluated;

2. The final rule unlawfully allows a source to avoid NSR by offsetting emissions increases with non-contemporaneous emission decreases; and

3. The EPA has not ensured that the project emission decreases will occur and be maintained.

The Environmental Petitioners argued that these concerns were not practicable to raise because the text of the proposal did not specifically address the scope of the “project,” its enforceability and verifiability.

In response, EPA stated that reconsideration requires a petition to demonstrate “both” (1) that it was impracticable to raise the objection during the comment period or that the grounds arose after the comment period but within the time specified for judicial review and (2) that the objection is of central relevance to the outcome of the rule, citing 42 U.S.C. § 7607(d)(7)(B).

Turning to the Environmental Petitioners’ argument that the rule failed to ensure that the “decreases” used to show that the project will not cause a significant increases “will result from the project,” EPA stated that it clearly identified that the “substantially related” test set forth in the 2018 Project Aggregation reconsideration rule would be applied. EPA then addressed the further concern that its invocation of the test “does not guarantee that sources will apply the test.” EPA rejected this distinction, however, noting that it specifically requested comment on “whether, if, in order for an emissions decrease to be accounted for at Step 1, it would be reasonable to require that a source owner or operator determine whether the activity (or activities) to which the emissions decreases is projected to occur is ‘substantially related’ to another activity (or activities) to which an emissions increase is projected to occur.” EPA also noted that several commenters specifically commented on this issue and that the final rule included a recommendation that state permitting authorities apply the “substantially related” test. EPA also cited Clean Air Council v. Pruitt, 862 F.3d 1 (D.C. Cir. 2017), where the D.C. Circuit held that it was not impracticable to provide comments when the EPA specifically requested comment on an issue even where EPA did not propose regulatory text. Accordingly, EPA held that this issue was not “impracticable to raise.”

2. The final rule unlawfully allows a source to avoid NSR by offsetting emissions increases with non-contemporaneous emission decreases

EPA then turned to the concern about non-contemporaneous emission decreases. EPA rejected this argument as well, stating that it was addressed by EPA’s specific request for comment on the “project aggregation” rule’s “substantially related” criterion. EPA also noted that it had heard and addressed this very concern in the preamble to the final rule where it stated that “commenters also argued that the EPA had unlawfully not required that emissions decreases be contemporaneous or enforceable in Step 1 of the NSR major modification applicability test” at 85 Federal Register, page 74898. EPA also noted that the Response to Comment document states that “the EPA has decided that it would be appropriate to apply the same criteria to determine whether physical and operational changes are part of the same project as it does when considering both under- and over-aggregation. Therefore, … the final PEA rule does impose a temporal requirement in defining the scope of the project to include emissions increases and decreases that are ‘substantially related.’” Based on its analysis of the comments received and responded to, EPA held that the requirements for reconsideration “are not satisfied” because Environmental Petitioners had failed to demonstrate that it was “impracticable” to raise this objection during the comment period because others did.

3. The EPA has not ensured that the project emission decreases will occur and be maintained

EPA then addressed the argument that the monitoring and recordkeeping provisions are insufficient to assure that source comply with the substantially related test. Environmental Petitioners argued that the requirements of 52.21(r)(6) were insufficient to review the “technical or economical interconnection” between the various activities either relied upon or excluded from the project and that they are insufficient to show the timing of the various elements. EPA rejected the claim that this issue could not have been raised, noting that it requested comment on “whether the 40 CFR 52.21(r)(6) provisions provide appropriate monitoring, recordkeeping and reporting requirements for both emissions decreases and increases, as relevant, int eh context of Step 1 of the major modification applicability test.” EPA also notes that it received and responded to comments, including a comment that the proposed rule’s reliance on “self-reporting and self-monitoring provisions failed to ensure compliance with the Clean Air Act’s NSR provisions, and failed to provide a mechanism to ensure that the source’s project increases in emissions would be enforceable.” EPA noted that its response clearly stated that EPA construed the relevant 52.21(r)(6) provisions to require monitoring of both emissions increases and decreases and that this duty extends to any equipment that supplies any part of the emissions increase or decrease to the project. Based on the actual comments raised and record, EPA found that it was not “impracticable” for Environmental Petitioners to have raised their concerns during the comment period.

In conclusion, EPA stated that it “is denying the petition for reconsideration under section 307(d)(7)(B) of the CAA and the request that the Project Emissions Accounting Rule be stayed.” EPA did not take action on the request to withdraw the March 13, 2018 Project Emissions Accounting memorandum. EPA did state, however that:

The EPA agrees that the petition raises concerns that warrant further consider by the EPA in a separate rulemaking effort. The EPA, therefore, plans to initiate, at its own discretion, a rulemaking process to consider revisions to the NSR regulations to address the concerns raised by the petition for reconsideration. The EPA also plans to consider if withdrawal or revision of the March 2018 Memorandum is necessary.

EPA footnoted that its action is consistent with President Biden’s Executive Order 13990, Protecting Public Health and the Environment by Restoring Science to Tackle the Climate Crisis. Letter at 1 n.2.

COMMENTARY

The Administrator’s denial of the Environmental Petitioners’ petition removes some of the uncertainty about the administration of the NSR program for permittees and permitting authorities. However, the statement that the EPA intends to initiate yet another rulemaking on the same topic essentially reinstates much of that uncertainty. It thus appears that the EPA’s real intent in this action is to force commenters to raise all possible comments and not rely on the reconsideration mechanism. This writer agrees with that objective but notes that EPA’s proposed actions are becoming vaguer and riddled with alternatives and options, which make the possible number of permutations multiply rapidly. Courts will need to be vigilant lest agencies merely propose such a wide range of actions that meaningful comment becomes impossible.

On the merits, the Environmental Petitioners’ real concern appears to be that no project should avoid NSR review, regardless of its actual emissions impact, unless they can review it. However, the D.C. Circuit has held that “modification” applies to “increases” in emissions from a source exceeding the NSR significant levels. If a source “aggregates” an activity into a project that causes an emissions decrease, it is unclear why that reduction in actual emissions should be rejected a priori as it is still an emissions reduction and under EPA’s view must be completed as part of the “project.” The Environmental Petitioners’ preferred NSR controls would just be a different reduction associated with the project. Their rationale appears to be that if NSR review is required we will get both the NSR reductions and the “other” reduction. This is unlikely, however, as the economics are likely against the “additional” reduction activity if NSR costs are added back to the primary project and there is also an assumption, possibly unwarranted, that NSR review will lead to additional controls on the primary project. If NSR does not lead to additional control, then overall emissions will be higher due to the Environmental Petitioners' proposed NSR process than if the emissions reduction activity had been aggregated and the project released from NSR. In short, the emphasis on a costly, case-by-case NSR review may discourages both projects and offsetting emissions reduction activities that depend upon the project’s return on investment, resulting in less-efficient, from an emissions perspective, equipment remaining in place.