Seeking to further clarify its New Source Review, or NSR, program, a March 13 memo from the U.S. Environmental Protection Agency will streamline the two-step process that industrial facilities such as power plants must go through before construction can begin on any upgrade project that may increase emissions.
The memo issued by EPA Administrator Scott Pruitt interprets a regulation that sets the threshold for when proposed modifications to facilities such as power plants or chemical plants trigger more stringent emissions requirements.
Proposed modifications go through a two-step process to determine the type of permit they will need to proceed — either a major source construction permit or a state-issued minor source permit. The former means a project will have to undergo complex analysis and modeling processes, which industry says can delay projects or even prevent them from happening in the first place.
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According to Charles Wehland, a partner at the Jones Day law firm who focuses on energy and environmental litigation, the memo simplifies the determination of whether NSR applies to a particular project and streamlines the determination process. He suspects that because of the changes fewer projects will move on to Step 2, which can involve months of complex modeling and analysis only to discover that a major source permit is not required.
The clarification also means that developers can consider a broader project. For instance, if capacity is being expanded at a power plant and the project will increase emissions, Wehland said the developer could include in its NSR analysis the addition of more efficient processes downstream that will mitigate or eliminate the emissions increase.
The memo "lets you sort of look at the whole project together, including capacity increase and downstream efficiency improvements, rather than having to separate them and consider how they each might figure into a new source review calculation," Wehland said.
A 'grey area'
The NSR program has been described as "onerous," "complex," "tricky," "blurry" and a "grey area," and so the EPA has been chipping away at reforms to provide certainty and clarity to regulated facilities. The March 13 memo adds to guidance issued in December that declared that the EPA will no longer scrutinize companies' pre-construction analyses for NSR.
Wehland said the industry is seeking clarity on what projects need a major source permit and which ones do not "so that it's not a surprise when EPA shows up at your doorstep." The memo hinted at further reforms to the NSR program, including clarifying the definition of a project and related aggregation issues, Wehland said.
"Aggregation is a big deal because it focuses on time and space if you will," Wehland said. He explained that some interpretations of the rule maintain that actions separated by a certain amount of time cannot be considered a single project and that each individual modification has to be considered for the NSR process separately. This issue impacts oil and gas exploration the most, he noted.
Another EPA goal, according to Wehland, is to create a common-sense definition of a major modification based on actual emissions that can be used to determine whether the NSR rule applies. Certain industry stakeholders have said they are not holding their breath waiting for a major new regulation to be issued by the Trump administration on NSR. Wehland said the issuance of memos or guidance that tackle rule interpretation issues could shield Pruitt and his team from legal review.
"Of course if you take a final regulatory action, it's an obvious target to be challenged in court," Wehland said. Instead, parties seeking to challenge the rule may have to wait until the guidance has an actual impact on a particular permit decision. A memo is also a much easier process than a full regulatory action, he added.
Sierra Club responds
While industry has heralded the EPA's attempts to provide clarity, environmental groups have slammed the agency for poking holes in an important emissions control program. Sierra Club Managing Attorney Sanjay Narayan said the EPA's latest action prevents projects from moving on to the second step of NSR determination, which is when the important analysis is conducted to determine whether a project will increase emissions or not.
"What this does is create a mechanism by which facilities can bypass all those accounting requirements," Narayan said. Step 2 is important, according to Narayan, because a projected decrease is verified during that part of the NSR process. "Everything that makes sure that a decrease is a real decrease, all of that is built into Step 2. None of it exists in Step 1," he maintained.
Narayan also has concerns that the EPA is giving project developers a blank check to define their projects in a way that will avoid the NSR program's oversight. Moreover, he said the changes are a significant shift away from transparency and accountability to the public.
Like Wehland, Narayan believes the EPA chose to issue a memo over a larger regulatory overhaul to avoid legal scrutiny. But Narayan nevertheless thinks the clarifications are under the jurisdiction of the U.S. Court of Appeals for the District of Columbia Circuit, which hears matters related to EPA rules of national significance, or other appeals courts across the nation.
"Any plant that chose to rely on this would be accepting risk that the circuit courts might not agree with EPA as to its reading," Narayan said.

