Update on efforts to reform the [EPA] New Source Review process.

National Governors Association ^ | February 21, 2002 | Tim Lawler

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Congress enacted New Source Review (NSR) in 1977 as a permitting program for construction of large new industrial facilities, or major modifications to existing ones. If new construction or a major modification will increase emissions by an amount large enough to trigger NSR requirements, the facility must obtain a permit before it can begin construction and install the best available air pollution control technology. States are key partners in the program. Under the Act, states have the primary responsibility for issuing permits. States are allowed to customize their NSR programs within the limits of Environmental Protection Agency (EPA) regulations.

In 1999 EPA and the Department of Justice launched an enforcement initiative against utilities, petroleum refineries, and other manufacturing sectors. EPA has maintained that these groups were undertaking major modifications to their plants and not undergoing New Source Review and subsequently installing the necessary pollution controls. However, the industries targeted in this initiative have maintained that they were just performing routine maintenance - which exempt from NSR requirements.

In recent years, EPA has been involved in a reform effort to streamline the NSR program and make it more workable for stakeholders. Specific reforms were proposed by EPA in a 1996 proposed rule that has yet to be finalized. The major components to the reform effort have focused on increased certainty and flexibility.

NGA's Position

Within our federal system, the states have responsibilities over such areas as land use planning, environmental protection, public health and safety, and the conservation and management of natural resources. The states have the lead responsibility for the protection of the environment and the judicious management of their energy and other natural resources. Regulatory practices should encourage net environmental improvements, while providing a stable planning environment for energy providers and consumers as well as a well-defined planning horizon. Unnecessary federal regulations, policies, and programs should be reviewed and revised as necessary.

New Source Review requirements should be reformed to achieve improvements that enhance the environment and increase energy production capacity, while encouraging energy efficiency, fuel diversity, and the use of renewable resources.

Current Status

Some members of the Senate Subcommittee on Clean Air, Wetlands, Private Property and Nuclear Safety have expressed an interest in developing legislation to reform and streamline the New Source Review process during the 107^th Congress.

President Bush's National Energy Policy, released May 17, called on the Justice Department to "review existing enforcement actions regarding New Source Review to ensure that the enforcement actions are consistent with the Clean Air Act and its regulations."

Under a similar directive, EPA was ordered to conduct a 90-day review of New Source Review regulations for their impact on investment in new utility and petroleum refinery capacity, energy efficiency, and environmental protection.

EPA is continuing its review and expects to release its recommendations in the coming months. EPA's recommendations will be released in two forms. The first will be a final rule that will codify many of the reforms proposed in 1996. The second will be a proposed rule that will be subject to a public notice and comment period.

The final rule will include a "clean unit" exemption from NSR, Plantwide Applicability Limits (PALs), and changes to the emissions accounting requirements that determine NSR applicability.

• The clean unit exemption will exempt a facility from NSR for a period of time (10 to 15 years) once it has installed state-of-the-art pollution controls.
• PALs are emission caps placed on an entire facility, so that whatever modifications or upgrades a facility makes as long as it stays under the emission cap it will be exempt from NSR
• Currently existing facilities are subject to NSR if "major modifications" to plant operations or processes would result in a "significant" increase in air emissions. A significant increase is measured by comparing a facility's emissions before the modification to a facility's "potential" emissions after the change. EPA's reforms will measure a significant increase by comparing a facility's emissions before the modification to a facility's "actual" emissions after the change.

The proposed rule will seek to identify a bright-line definition of "routine maintenance and repair." Currently, maintenance, repair, and replacement activities that are considered "routine" are exempt from NSR. However, routine was never defined. The question of "what is routine" is one of the major points of contention in EPA's current NSR enforcement initiative.

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And from Platts.com

Washington (Platts)--7Mar2002

US Environmental Protection Agency Administrator Christie Whitman told a Senate committee Thursday that the Tennessee Valley Authority's air emissions' case against the agency could impact settlements with other power generators on new source review regulations. The EPA and TVA are locked in a battle at the 11th Circuit Court over TVA's attempt to overturn a 1999 order from the EPA forcing the federal marketing agency to comply with NSR requirements and reduce air pollution at several of its plants.

Whitman said that TVA's suit against EPA is "a major case" and its outcome "will determine if other companies come to the table or not." EPA in 1999 sued nine power companies claiming that they upgraded older coal plants without installing pollution controls, violating the Clean Air Act.

Whitman said EPA is in negotiations with power companies on a weekly basis over NSR. The Senate Governmental Affairs Committee called Whitman to testify on NSR rules and their enforcement in the wake of the agency's delayed report to the White House on how the administration should move forward on NSR.

Whitman defended President Bush's recent Clear Skies proposal to reduce power plant emissions through cap and trade requirements as more effective than NSR. But committee Chairman Joseph Lieberman (D-Conn.), who is sponsoring a more stringent bill, concluded that he remains "un-reassured about the administration's direction in environmental policy."