What EPA Plan To Count Emission Decreases Means For Cos.

On Aug. 9, the U.S. Environmental Protection Agency published a proposed rule to codify the current interpretation of New Source Review project emissions accounting. The rule would explicitly allow consideration of emissions decreases from a project, alongside any emissions increases, when determining whether the project causes a significant emissions increase from the source.

Historically, many state regulators, and even certain EPA applicability determinations, have suggested that only emissions increases (and not decreases) should be considered. Considering emissions decreases in this analysis allows more projects to avoid triggering NSR requirements.

Regulatory Background

Projects (including physical and operational changes) at existing sources that increase annual emissions can trigger NSR. Projects are “major modifications” and require an NSR permit if they would result in both a “significant emissions increase” and a “significant net emissions increase” of a regulated pollutant. And projects that do not rise to the level of a major modification can trigger NSR record keeping and reporting obligations, if there is a reasonable possibility that they may result in a significant emissions increase of a regulated pollutant.

Determining whether a project would result in a “significant emissions increase” is step one of the major modification applicability analysis. A project results in a “significant emissions increase” of a regulated pollutant if it causes annual emissions from that source to increase over a threshold level. Step one used to be known as “project netting”; more recently, the EPA has referred to this analysis as “project emissions accounting.”

If a project would result in a “significant emissions increase,” then the analysis proceeds to step two: determining whether a project would also result in a “significant net emissions increase.” Step two is also known as the “contemporaneous netting analysis.” Under this analysis, emissions calculated in step one are added to “any other increases and decreases in actual emissions” that are contemporaneous (meaning they occur between five years before construction of the project commences, and the date the increase from the project occurs) and creditable.

Suffice it to say that this analysis is complex. If the sum of emissions considered in steps one and two is over the significance threshold for a regulated pollutant, the project is a major modification, and triggers NSR for that pollutant.

The EPA Clarifies Project Emissions Accounting

For years, many state regulators allowed sources to consider only emission increases, and not emission decreases, in step one, often in reliance on positions the EPA articulated in applicability determinations. In a 2006 proposed rule, titled “Prevention of Significant Deterioration and Nonattainment New Source Review: Debottlenecking, Aggregation and Project Netting,” the EPA observed that the current NSR regulations suggested that emissions decreases could be considered for only certain types of projects in step one.

The EPA never took final action on the project netting portion of that proposed rule and, through the new proposed rule, has withdrawn it. The EPA reversed course in a March 2018 memorandum from the EPA administrator, titled “Project Emissions Accounting Under the New Source Review Preconstruction Permitting Program.”

This memorandum outlined the EPA’s current interpretation of step one: that the agency’s NSR regulations “provide that” both emissions increases and decreases “are to be considered at Step 1.” The EPA now proposes to make this approach explicit in its regulations.

Why Is This Important?

Counting decreases in step one is important for companies whose proposed projects will affect emissions from more than one emissions unit at a source, with increases from some units and decreases from others. For example, a company may propose to add pollution control equipment to the primary emission unit at a source, dramatically decreasing emissions of a pollutant such as PM2.5. But that project may also cause a much smaller emissions increase from ancillary emission units, or even from roadway dust as a result of trucks hauling away the emissions collected from the primary unit.

On the balance, the project would decrease emissions of PM2.5 from the source. But if only increases are counted in step one, the project could trigger NSR recordkeeping and reporting obligations, or even result in a significant emissions increase. If it causes a significant emissions increase in step one and no NSR exclusion applies, it would trigger NSR for PM2.5, unless it does not result in a significant net emissions increase when considering all other contemporaneous and creditable increases and decreases.

Making the EPA’s current interpretation explicit in the rules is significant, because it significantly raises the burden for the EPA to reverse course in the future. It also increases the likelihood that this approach will be followed by state regulators.

Public Comments

The EPA will accept public comments that it receives on or before Oct. 8 and has specifically identified several topics where it would like public comments, including:

• Examples of projects that were delayed or not undertaken as a result of the apparent inability to consider emissions decreases in step one;
• Whether other revisions to the regulatory text would provide better clarity of the EPA’s approach to project emissions accounting;
• Whether the EPA should require a source owner or operator to determine that activities resulting in decreases are “substantially related” to those resulting in increases in order to account for those decreases in step one;
• How sources should keep records of their emissions increases and decreases;
• Whether states would need to modify their state implementation plans in order to accommodate the rule’s clarifications; and
• Whether the clarification would be “minimum program elements” that all state implementation plans must include in order to be approved by the EPA.

Originally published on Law360 (Subscription required)