U.S. Environmental Protection Agency Issues New Source Review Interpretive Memo: Project Emissions Accounting

Specifically, the Administrator’s directive allows permittees to avoid burdensome NSR permitting if the proposed project, as a whole, will not increase emissions above the significance threshold. In the past, EPA used the term “project netting” to describe situations where a source had evaluated all the emission increases and decreases throughout a facility resulting from a particular project to determine if the project triggered NSR permitting. EPA and state/local permitting authorities did not allow this type of analysis, as EPA asserted the NSR rules did not permit that approach. In this new policy directive, EPA has renamed this analysis “project emissions accounting” and is reinterpreting its existing NSR regulations to allow sources to use this type of project analysis to assess whether an NSR permit is required.

Past EPA interpretation. To understand the impact of project emissions accounting, it is helpful first to understand how EPA previously interpreted its regulations. To trigger NSR at an existing major source, there must be (a) a physical change or change in the method of operation and (b) a significant increase in emissions. In part (b) of the applicability analysis, EPA has historically followed a two-step process to determine if there is a significant increase in the emissions: In Step 1, the permittee identifies the emission increases from the project by comparing the baseline actual emissions to the projected actual emissions (or the potential to emit) after the project is completed. (Note that emission decreases from the project are not yet considered.) In Step 2, the permittee determines whether there would be significant “net emissions increase” by examining “contemporaneous” (within five years) emission increases and decreases throughout the facility — and considered only decreases that were “federally enforceable” under a permit or other legally binding measure.

EPA’s new interpretation — and its significance. EPA’s new interpretation changes that approach. Whereas in the past, in Step 1 EPA allowed sources to evaluate only emission increases, the Administrator’s new interpretation allows permitting authorities to consider both increases and decreases. The impact of allowing emission decreases to be considered in Step 1 is significant.

First, by allowing permittees to consider emission decreases at Step 1, permittees can consider emission reductions from various changes at emission units within the scope of the proposed project or that are affected by the proposed project. This more practical review encourages efficiency and pollution prevention efforts up front without the burden of going through Step 2 netting process, which can be quite complicated.

Second, the new policy specifically allows permittees to consider the addition of pollution controls as part of the overall project in Step 1. By considering pollution controls in Step 1, permittees can reduce projected emission increases based on the expected performance of such controls. Crucially, unlike in Step 2, the emission reductions considered in Step 1 do not need to be federally enforceable but only need to be projected to occur after the project is completed and operational. This approach provides significant flexibility by allowing industrial facilities to account for the expected operation of pollution controls. Permittees also have flexibility in defining the scope and impact of a proposed project, although the memorandum cautions that permittees cannot define a project in a manner that would circumvent NSR.

 *****

While this new guidance may result in fewer NSR permits being issued, states will continue to permit projects and ensure proper operation of pollution controls through their minor source permitting programs