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EPA Drops “Reactivation Policy”


In an unusual move, the EPA has announced that “the Agency has determined it is not appropriate to continue applying the Reactivation Policy because the policy was not well-grounded in the NSR regulations, and it is not supported by the current NSR regulations.” The decision was announced in the “Response to Comments on the Clean Air Act Plantwide Applicability Limit Permit for the Limetree Bay Terminal and Limetree Bay Refining, St. Croix, U.S. Virgin Islands” issued December 2, 2020 by EPA Administrator Andrew Wheeler. The unusualness of the move is seen in the Administrator’s issuance of the permit instead of an EPA Region II permitting official.


BACKGROUND


Limetree Bay, formerly HOVENSA, is a large refinery complex located on St. Croix in the U.S. Virgin Islands. In the past, the refinery complex has been the source of significant emissions, including air toxics emissions, that have caused concerns about the safety of nearby residents. HOVENSA shutdown the Limetree Bay refinery operations a number of years ago, while maintaining its oil terminal operations, and later sold the entire complex to the current owners. The new owners sought assurances from the EPA that emissions could be “netted” from one part of the complex to another and on how certain upgrades would be reviewed. In that context, Assistant Administrator Bill Wehrum had stated that EPA was “reconsidering” the Reactivation Policy. NSR Law Blog’s discussion of that action is detailed in Harbinger of Things to Come: Limetree Bay Terminals. Please check it out for details of the prior EPA/Limetree Bay discussion.


ANALYSIS


In public comments on the proposed plantwide applicability limit (PAL) permit for the Limetree Bay complex, citizens/environmental groups argued that the “refinery must be treated as a new source under PSD rules because the refinery owners have not demonstrated a continuous intent to reopen the refinery since it was shut down in 2012.” The citizens/environmental groups specifically acknowledged the 2018 Wehrum letter and urged EPA to reject it. The citizens/environmental groups then outlined why, in their view, the Reactivation Policy required new source review, including “the amount of time that the facility has been shut down, the reason for the shutdown, statements of the owner or operator, the cost and time to reactivate, the status of permits, and the ongoing maintenance and inspections at the facility, the refinery can only reasonably be found to be a new source for purposes of PSD review.”


The EPA’s reply was succinct:


"This comment does not demonstrate that EPA must deny Limetree Bay’s PAL permit application. The commenters have not supported their arguments with any references to the permitting regulations at 40 C.F.R. 52.21 that govern this PAL permit application. The regulations do not require that EPA apply the Reactivation Policy in this or any other context under section 52.21 of the regulation, and EPA maintains its earlier view that Limetree Bay has demonstrated under the framework of that policy that the owners of this facility had a continuous intent to restart the refinery operations."


EPA did not leave it there, however, but provided seven more pages of detailed response.


First, EPA stated that it understood that Limetree Bay had approached VIDPNR, the Virgin Islands air permitting authority, and obtained a construction permit under which it was working on construction. EPA stated that both it and VIDPNR regarded the facility as existing and not new and the commenters had not demonstrated that both agencies had made incorrect determinations.


Second, EPA stated that “in evaluating the baseline emission rate … there is no adjustment to the baseline emission rate for permitting actions that should have, but did not, take place.” Accordingly, EPA found that the past emissions were not “noncompliant” and could be considered in establishing the baseline emission rate for the PAL permit it was issuing.


Third, EPA turned to the commenters’ Reactivation Policy claims. EPA declined to apply the policy to Limetree Bay, stating:


"On its face, the Reactivation Policy is just that: a policy. It is not binding, and, if circumstances warrant, it need not be followed. In his 2018 letter to Limetree, Assistant Administrator Wehrum noted that EPA intended to reconsider the Reactivation Policy. Based on EPA’s review since that time, the Agency has determined it is not appropriate to continue applying the Reactivation Policy because the policy was not well-grounded in the NSR regulations, and it is not supported by the current NSR regulations. In addition, the Reactivation Policy is difficult to follow and can produce inconsistent results based on subjective judgments about how to weigh the various factors against each other. EPA believes it would be better to apply an approach that is more consistent with the text of the existing regulations, provides more certainty, and is simpler for permitting agencies and permittees to understand and follow, as discussed in more detail below. Since EPA has concluded that the Reactivation Policy is no longer an appropriate policy in the context of the existing NSR regulations, the Agency is not applying it in this permitting action."


In support of its policy interpretation, EPA noted that under the pre-NSR Reform rules, applicability was determined based on the emissions in the two years’ preceding a change, unless the source could demonstrate that they were not representative. The NSR Reform rule changed that subjective period to a 10-year look back to avoid the significantly different outcomes that could occur from different administrative agencies evaluating “representative.” EPA noted that Limetree Bay was within the 10-year lookback period. EPA then concluded that “under this current framework in the NSR regulations, the Reactivation Policy no longer serves the purpose that it did under the pre-Reform NSR regulations, when sources could seed to establish baseline emissions by demonstrating that emissions experienced before the last 24 months were more representative of normal operations.” EPA then concluded that “it is thus not consistent with the current approach for determining baseline emissions to then apply the Reactivation Policy to presume that refinery operations have permanently shut down based on some emissions units being idle for the past two years.”


EPA also noted that the Reactivation Policy is inconsistent with the definition of a “new emissions unit” and the definition of “construction,” which discusses fabrication or erection and not “modification” of a unit.


Fourth, EPA stated that even if it applied the Reactivation Policy, it would stand by its conclusion that the policy does not apply. EPA reiterated that the complex has “never completely shut down” and that the “oil storage and terminal operations, wastewater treatment plant, and power generation equipment” had always operated and did not constitute “the complete cessation of operations” at a facility. EPA also stated that the eight years some parts were shut down had not previously been found sufficient to invoke the Reactivation Policy. It also dismissed HOVENSA’s statements about the shutdown cited by the commenters, noting that “financial and economic reasons will frequently be part of the motivation for shutting down a portion of a stationary source” and that “facility operations inherently ebb and flow.” EPA distinguished earlier decisions in Monroe Electric and Noranda Lakeshore Mines. Finally, EPA noted that Assistant Administrator’s Wehrum’s discussion of $400 million spent was in the context of demonstrating “ongoing maintenance and inspections” under the policy and was an appropriate application of expenditures to that part of the policy. Similarly, EPA rejected the citizens/environmental groups argument that Limetree had not maintained the permits based on an EPA website, noting that the comment did not dispute Limetree Bay’s representations that all permits had been maintained and renewed and the refinery portions maintained in compliance with applicable MACT and NSPS standards. Finally, EPA disagreed in its interpretation of the length and expense of restart. In summary, EPA stated that:


"Considering the totality of circumstances, were EPA to apply the Reactivation Policy, EPA would continue to find that the presumption of permanent shutdown has been rebutted in this case. While there are some statements indicating that HOVENSA pursued the option of permanently using the facility for only product storage and transfer, EPA has not received information showing that the company had definite plans to do so or took actions at the facility site to implement such a plan. The presumption of permanent shutdown would be rebutted in this case by evidence showing that the source continued to operate in part and that the owners invested substantial sums in maintenance of the idled portions of the facility and continued to hold permits governing the operation of the idled equipment."


EPA also rejected arguments that it should refuse to issue the permit because of HOVENSA’s past violations of the Clean Air Act, noting that “the PAL provisions do not provide EPA with authority to deny a PAL permit due to the applicant’s history of noncompliance under either the Clean Air Act or other environmental statutes.”


COMMENTARY


The Limetree Bay case is an interesting and extremely complex matter with numerous other issues besides the reactivation policy discussed herein. It is interesting that EPA chose it as the vehicle for setting forth its current interpretation that the Reactivation Policy no longer applies after the 2002 NSR Reform Rules.


As a matter of policy, EPA’s dropping of the Reactivation Policy is probably correct. The original Reactivation Policy has little direct regulatory support in the statute or the regulations although it does express certain commonsense limits on the meaning of an NSR permit. Those “commonsense limits” however, are constrained by EPA’s adoption of the 10-year look back period, which makes it difficult to see how the policy’s “two-year shutdown is presumed permanent” presumption could legitimately be applied to sources within the regulatorily-allowed 5 or 10-year look back period, at least for sources that are still operable at least in part during that period. If a source has been completely dismantled, that might be a different question.


In the end, EPA’s recognition that the Reactivation Policy needs to be rethought in light of the substantial changes to the NSR programs and the Clean Air Act since 1990 and 2002 is timely and appropriate. It will be interesting to see whether the issue goes to court and, if so, what the courts say and whether the incoming Biden Administration will see things differently.


Stay tuned. It is about to get interesting!

 

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