EPA relaxes preconstruction ERC requirements

On July 1, 2026, Aaron Szabo, EPA Assistant Administrator for Air and Radiation, released “Guidance on Clean Air Act Nonattainment New Source Review Emission Offsets” (2026 ERC Guidance) providing increased flexibility on when sources must have federally enforceable emission reduction credits (ERCs) in hand to permit and construct major NSR sources in nonattainment areas.

ANALYSIS

The 2026 ERC Guidance begins by noting that both Clean Air Act (CAA) Section 173(a)(1) and 173(c) speak in terms of an NNSR major source or major modification needing to have sufficient offsets in place by the “time of operation” and that the EPA has historically interpreted this to mean that the offsets must “actually occur” by the time of operation.  2026 ERC Guidance at 1-2.  The 2026 ERC Guidance acknowledges that Section 173(a) requires that “any emissions reductions required as a prerequisite” for an NNSR permit “must be federally enforceable before such permit may be issued.”  Id.  The EPA notes, however, that neither Section 173(a) nor EPA’s implementing regulations specify how such federal enforceability must occur.

EPA concedes that in prior guidance, it had taken the position that generally a permit should not issue “until creditable emission reductions are identified, quantified, and secured in a federally enforceable requirement,” citing “sound policy” and “reasons of equity” concerning the perceived difficulty stopping a development that had already been built from operating.  EPA stated, however, that even under its prior guidance “under certain circumstances an NNSR permit may be issued before ERCs have been secured, provided the permit applicant is subject to (1) a federally-enforceable commitment to secure federally-enforceable ERCs by the time the source is ready to commence operation, and (2) a federally-enforceable permit provision that ‘expressly prohibit[s] the commencement of any actual operations until such time as the necessary offsetting emissions reductions have been identified, approved, and secured with appropriate permit restrictions on the source[s] providing the [offsetting emission reductions].’”  2026 ERC Guidance at 3 (citing Memorandum dated June 14, 1994, from John S. Seitz, Director, Office of Air Quality Planning and Standards, to Air Division Directors, EPA Regions 1-10, Subject: “Offsets Required Prior to Permit Issuance” at 1, 4).

The 2026 ERC Guidance then states: “Two points in time are significant for purposes of complying with the requirements for offsets in CAA section 173: (1) before the permit is issued, emission reductions required as a precondition of permit issuance must be ‘federally enforceable,’ and (2) by the time the source commences operation, the required emission reductions must be ‘obtained’ and ‘in effect.’”  2026 ERC Guidance at 4.  Significantly, the Guidance then states:

The phrase “emission reductions required as a precondition” in CAA section 173(a) is best read to mean a permittee’s obligation to obtain sufficient ERCs prior to operation. So long as the permittee’s obligation to obtain the required ERCs prior to operation is federally enforceable, a permit may be issued. The CAA thus allows for an enforceable commitment along with a related prohibition on operations in the permit to serve as the vehicle to meet the Federal enforceability requirement in CAA section 173(a).

2026 ERC Guidance at 4.  This interpretation relieves two burdens on an NNSR permit applicant:  (1) the applicant no longer needs to have ERCs in place until the start of operation so long as there is an enforceable commitment to obtain them; and (2) the obligation is shifted from the ERC supplying source, where it was under prior EPA policy to the ERC using source.

The 2026 ERC Guidance affirms that this is its intent:

the permitting authority may issue an NNSR permit that contains: (1) a federally-enforceable commitment by the permit applicant to secure the requisite amount of federally-enforceable ERCs by the time the source is ready to commence operation, and (2) a federally-enforceable permit provision that expressly prohibits the commencement of any actual operations until such time as the necessary offsetting emissions reductions have been identified, approved, and secured with appropriate federally-enforceable restrictions on the source(s) providing the ERCs (e.g., a source-specific SIP or permit condition).

Id.  The 2026 ERC Guidance also notes that this policy can apply to phased construction projects, noting that the federally enforceable conditions can apply to each phase separately and that one phase can begin operation upon submittal of the necessary ERCs.

The 2026 ERC Guidance does not address or relax any of the requirements that an offset must be surplus, permanent, and quantifiable.  It only addresses federal enforceability and timing.  

The 2026 ERC Guidance acknowledges that the EPA is not often the permitting authority and that state and local authorities and even EPA regions are not “directed” to apply the guidance, which the EPA states should be applied on a case-by-case basis and does not create any rights to force a particular outcome.

COMMENTARY

The 2026 ERC Guidance represents a material change in how the EPA is evaluating the application of ERCs to offset emissions from new major sources or major modifications of existing sources in nonattainment areas. Historically, the EPA had required that the offsets be identified and made enforceable against the source of the emissions reductions before they could be used to support issuance of an NNSR permit.  In this new guidance, considerably greater latitude is provided because while the NNSR permittee must “commit” to obtaining the permits, the permittee does not need to have them “in hand” until the start of operation. This change is certainly consistent with the Executive Orders seeking to expedite permitting of infrastructure, particularly power and data centers.

Whether state and local agencies responsible for nonattainment areas will be supportive is more difficult to say. As EPA states clearly in the 2026 ERC Guide, no state or local permitting authority is required to use this added flexibility, although permit applicants will doubtlessly request it. The principal difficulty that NSR Law Blog sees with the 2026 ERC Guidance is that in nonattainment areas with few ERCs several sources might build, eying the same ERC opportunities, but not all can be built.  As a result, some investors may lose their investment. The EPA may be correct that the market is the best way to allocate scarce credits (e.g., the project with the best prospects can afford to pay the most for the limited ERCs) but there likely will be gnashing of teeth in the interim.  Stay tuned as we watch this newest development.