Regulatory Update: Nuanced, Streamlined, and Realized - A Shift in NSR Applicability Guidance

On March 13, 2018, EPA Administrator Scott Pruitt released a guidance memorandum outlining the EPA’s latest interpretation of how a project’s air emissions should be accounted for during the first step of a New Source Review (NSR) pre-construction permit applicability determination process. The revised guidance is seen as industry-friendly by some, and in addition to clarifying prior guidance and policy, it provides a more streamlined path to permitting a project or facility modification.

When a facility with air emissions is looking to make a modification such as a unit upgrade or process stream change, there are critical steps in determining whether the project requires a Prevention of Significant Deterioration (PSD) pre-construction permit under the NSR program. The first step in the determination process is designed to evaluate whether the modification project would lead to a significant emission increase by itself. If the project alone would result in a significant emissions increase, the evaluation continues to a second emissions evaluation step that calculates contemporaneous emission changes (increases and decreases that have occurred at the facility during the five years prior to the project) at the site that are not directly related to the modification project to determine the facility’s net emissions increase. If a significant net emissions increase is determined to result from the modification project combined with other facility changes, the project is considered a “major modification,” and therefore requires a PSD/NSR preconstruction permit.

New interpretation aims to simplify permitting for emissions-reducing modifications

Prior to the March 13 memorandum, NSR regulations were interpreted such that the first step of the emissions evaluation did not take into account a project’s resultant emission decreases. This meant sometimes unnecessarily undertaking the more onerous exercise of determining whether contemporaneous emissions changes would be sufficient to “net out” of the PSD/NSR permitting process.

Industry and the current administration have made the case that the previous interpretation of what can be included in the project emissions calculation during the first evaluation step resulted in many emissions-reducing efficiency modifications being shelved due to potential exposure to complicated PSD/NSR permitting. The second step requiring investigating contemporaneous facility-wide emissions changes is complex and typically requires expert assistance. On the other hand, opponents of the new interpretation would argue that the previous interpretation conservatively protected air quality and, by determining facility-wide net emissions in the second step, led to reduced facility emissions overall.

Potential impact of new guidance on sample project

Typical of NSR guidance and policy, this issue is complex and difficult to generalize, requiring case-by-case consideration for specific projects. The example below illustrates how potential implications and very different results could be derived from the change in regulatory interpretation.

Consider a hypothetical facility (located in an attainment area) with the following modifications timeline…

As you can see, under the prior regulatory interpretation, all the projects during the last five years would need to be considered in the 2018 project permit applicability netting calculation (adding 230 tpy to the net emissions increase). Under the new interpretation, the 2018 project would require no PSD permit.

The new March 13th guidance suggests that future projects or facility modifications will have an easier time avoiding PSD/NSR permitting by considering project emission decreases earlier in the evaluation process. However, facilities will not simply be able to broaden a project characterization solely to take advantage of unrelated emission decreases in the first step evaluation. Careful evaluation by experts in PSD/NSR nuance is still needed, especially since this new guidance is not yet a formal rule and is likely to be challenged aggressively in the courts.

While the effects of this interpretation change are complex enough, additional guidance may still be forthcoming from the EPA related to other aspects of so-called project emission “aggregation” and “bottlenecking,” further changing approaches to PSD/NSR applicability evaluations. Woodard & Curran has and will continue to support our clients in evaluating shifting and contentious air quality regulatory paradigms such as PSD/NSR and developing solutions to help them reach their goals.


Kelley Begin Practice Leader Air Services

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