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New Source Review

What's New

On October 13, 2005, the EPA proposed changes to its New Source Review permitting program to provide nationwide consistency in how states implement the program for electric generating units. The proposed changes would standardize the emissions tests used in NSR to determine if a physical or operational change at a power plant would cause emission increase that would require the plant to install additional pollution controls. When finalized, the rule would make EPA’s interpretation of the NSR regulations consistent with the definition of “modification” per NSPS regulations and the ruling of the U.S. Court of Appeals for the Fourth Circuit in the Duke Energy case. As a result of the decision in the Duke Energy case, the emissions tests in five states and the District of Columbia now differ from that used throughout the rest of the country. EPA will accept comments on this proposal for 60 days following publication in the Federal Register.

EPA Notice

NPRA Position

NPRA supports EPA's final rules on NSR Reform released in 2002. We believe that these NSR reforms represent an important and well-considered step which will help maintain a healthy and diverse U.S. refining and petrochemical industry. They are common-sense, environmentally-friendly changes which will update the NSR program and help eliminate widespread confusion about what it requires. The Administration's action will also increase national energy security and protect the environment. This is because it will help sustain manufacture of crucial petroleum and petrochemical products such as clean fuels here in the U.S. while encouraging investment in modern, efficient environmental process and control technologies at domestic facilities.

On EPA's new final rule to clarify the definition of RMRR activities under NSR, NPRA believes that the current process is broken and adversely affects our members' need to maintain safe, efficient and reliable operations while fulfilling our commitment to continued environmental improvement. NPRA will be an active participant in this during the remainder of the rulemaking process and any legal challenges to NSR reform.

Issue Brief

On June 24, 2005, the U.S. Court of Appeals for the District of Columbia Circuit published a decision in the case: State of New York, et al. v. U.S. EPA. The court affirmed the use of the past actual-to-projected actual emissions test, the use of a 10-year look back for selecting a two-year baseline, and the use of plantwide applicability limits (PALs). The court, however, struck from the rule the Clean Unit applicability test and the exemption of Pollution Control Projects which cause a collateral increase of some pollutants. The court, also, did not accept the industry argument in favor of the hourly emissions test for “modification.” This is contrary to the decisions in the Alabama Power and Duke Energy cases.

The final New Source Review (NSR) Reform rule was published December 31, 2002. New York and other states immediately filed a lawsuit challenging the NSR rule, including the actual-to-projected actual emissions test. Industry also challenged certain aspects of the rule, including the definition of modification. Industry said a modification should be based on the hourly rate of emissions (as in NSPS) as opposed to annual emissions. NPRA participated with the NSR Manufacturers Roundtable as intervenors in the case. Oral arguments were presented on January 25, 2005.

NPRA press release

Two significant court decisions have affirmed the position of industry. On June 3, 2005, the U.S. District Court for the Northern District of Alabama issued an opinion in U.S. v. Alabama Power, interpreting two key federal new source review (NSR) issues: (1) On the issue of the correct legal test for determining routine maintenance, repair, and replacement (RMRR), the court held that RMRR includes "work of a type performed commonly within the industry" even if performed infrequently at a specific plant. (2) On the issue of the correct legal test for determining a significant net emissions increase, the court held that maximum hourly emission rates must increase before PSD permitting is triggered due to a significant net emissions increase.

Further, with respect to the "actual to potential" test for determining if a significant net emissions increase has occurred, the court said the "actual to potential" test is "largely discredited" and cites a text that describes the "actual to potential" test as "a test that virtually any activity would fail."

On June 15, 2005, the United States Court of Appeals for the Fourth Circuit affirmed the judgment of the Middle District Court of North Carolina and District Judge Frank W. Bullock, Jr. in the NSR case U.S. v. Duke Energy Corp. NPRA is a member of a coalition that filed an amicus brief in support of the District Court Decision against EPA’s interpretation of NSR.

The court ruled that “EPA must interpret the term modification in a consistent manner in the NSPS and PSD regulations.” Therefore, only a project that increases a plant’s hourly rate of emissions constitutes a modification. This decision is contrary to EPA’s interpretation of NSR.

The NSR Routine Maintenance, Repair and Replacement (RMRR) final rule was published October 27, 2003. Because of a court challenge, and subsequent stay of the rule by the court, EPA agreed to reconsider the equipment replacement provision -- specifically the 20 percent cost threshold. On June 6, 2005, EPA announced that after carefully considering the comments received during the NSR RMRR reconsideration process it has determined that the Equipment Replacement Provision (ERP) should be maintained as adopted in 2003. This decision by EPA now allows the lawsuit by New York and other states (suspended by the court) to proceed.

EPA Decision Federal Register Notice

NPRA continues to provide strong support to advance implementation of the NSR rule and Routine Maintenance regulations. The National Petroleum Council's December 2004 report to the Secretary of the Department of Energy also recommended immediate implementation of NSR reforms to improve the climate for investment in domestic refinery operations, including much-needed new capacity.

The New Source Review Routine Maintenance, Repair and Replacement (RMRR) final rule was published October 27, 2003. Because of a court challenge, and subsequent stay of the rule by the court, EPA agreed to reconsider the equipment replacement provision – specifically the 20 percent cost threshold. On May 31, 2005, EPA sent its reconsideration decision to the White House Office of Management and Budget (OMB) for approval.

The NSR reform rules are proceeding through the litigation process in the U.S. Appeals Court. NPRA, as a member of the Manufacturers Roundtable, provided written briefs supporting the NSR rules because they will continue air quality progress, allow for technological innovation, promote energy efficiency and the installation of pollution control equipment, and provide greater certainty and clarity in the permitting process. Oral arguments took place in January 2005.

NPRA Press Release

In addition, Congress has asked the National Academy of Sciences to conduct a review of NSR. NPRA has provided the Academy with examples demonstrating the positive impacts of the NSR reform rule, which has done into effect during the court proceedings.

On January 25, 2005, NPRA issued a statement on the NSR Reform Rule.

NPRA Press Release

On August 30, 2004, NPRA filed written comments with the Environmental Protection Agency on the Agency’s reconsideration of the routine maintenance, repair and replacement (RMRR) rule which was adopted as part of the New Source Review (NSR) reform package, finalized in October 2003.

On August 2, 2004, EPA held a public hearing on the reconsideration of the routine maintenance, repair and replacement (RMRR) rule which was adopted as part of the New Source Review (NSR) reform package, finalized in October 2003. In the testimony, NPRA offered general comments about EPA’s rulemaking process, including that EPA has the legal authority to finalize the ERPs of the RMRR rule; EPA did provide sufficient notice to the public allowing them to comment on EPA’s legal justification; and EPA’s technical analysis supports a 20% threshold for reconstruction. In addition to the testimony, NPRA will submit written comments to EPA by August 30.

NPRA Testimony

On July 14, 2004, NPRA gave a presentation at the National Academies of Sciences public hearing on New Source Review Reform. During the presentation, NPRA offered examples of refinery success stories from the New Source Review program reforms. The examples showed that NSR reform permits can be obtained quickly and do not result in significant increases in emissions as stated by opponents.

NPRA Press Release -- July 14, 2004

Earlier on May 24, 2004, NPRA President Bob Slaughter offered comments at another meeting of the National Academy of Science’s Committee on Changes in the New Source Review (NSR) Programs. The committee is assessing the specific effects of the NSR rule expected to occur in the coming years. The committee will provide its final report by December 2005.

NPRA Press Release -- May 25, 2004

NSR Court Decisions

On May 3, 2004, the U.S. Supreme Court denied a review of the TVA v. Whitman decision (336F.3d 1236 -11th Cir.2003) which stated that EPA’s enforcement orders are unconstitutional and “legally inconsequential.”

On April 15, 2004, the Court in the U.S. v. Duke Energy, 278F. Supp.2d619 (M.D.N.C.) stated

Plaintiffs have conceded that each of the projects in issue in this case are based on increased utilization of the units at issue.
These projects are not subject to Prevention of Significant Deterioration (PSD) as a matter of law and the Plaintiffs cannot prevail at trial
The court rejected the plaintiffs interpretation of the PSD emissions test.
There is nothing left for trial, but the plaintiffs have appropriately reserved the right to appeal the resulting dismissal of their claims.

On December 24, 2003 the U.S. Court of Appeals for the District of Columbia Circuit issued an order to stay the Oct. 27, 2003, routine maintenance, repair & replacement rule (RMRR). The order states that “petitioners have demonstrated the irreparable harm and likelihood of success on the merits required for the issuance of a stay pending review.” The rule was scheduled to go into effect on December 26, 2003. The stay delays implementation of the rule until the case is decided. In the same order, the court denied a motion that also sought to stay the effectiveness of the December 31, 2002, NSR reform rules. NPRA is a member of the NSR Manufacturers Roundtable, a coalition of trade associations that has intervened in NSR litigation to support both the routine maintenance and NSR reform rules. NPRA is disappointed by the decision to issue a stay on the routine maintenance rule, but believes that both rules will eventually be upheld by the courts.

Court of Appeals decision

On September 11, 2003, NPRA, as part of an industry coalition, filed its opposition to the motion filed by the Sierra Club on August 26 to stay part of the 112(j) MACT Hammer rule. NPRA also filed a motion in opposition to the Sierra Club’s lawsuit opposing the final 112(j) MACT Hammer rule. Because EPA has already met the deadlines on the other MACTs specified in the final rule, the Sierra Club’s motion for a stay would only affect the four MACT regulations due in February 2004 and one due in 2005. Further, the Sierra Club is objecting to the deadlines that it agreed to with EPA and which formed the basis for the schedule in the final rule.

On November 26, 2003, nine states filed lawsuits to support EPA's final rule on RMRR, which is an essential component of the NSR reform package. Virginia will be the lead state in the litigation. The other states include: Alabama, Alaska, Arkansas, Kansas, Nebraska, North Dakota, South Dakota, and Utah. Fourteen states filed to block the rule, including New York, California, Connecticut, Illinois, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New Mexico, Pennsylvania, Rhode Island, Vermont, and Wisconsin.

On November 7, 2003, EPA published in the Federal Register the notice of final action on New Source Review (NSR) reconsideration which was announced in a press release of October 30. The agency had requested public comment on six issues related to the NSR rules published December 31, 2002, and March 10, 2003. The November 7 final action defines "replacement unit" and clarifies the Plantwide Applicability Limit (PAL) baseline calculation procedure.

Published NSR Reconsideration Notice

On October 27, 2003, the final rule clarifying the definition of "routine maintenance, repair and replacement" (RMRR) under the NSR program was published in the Federal Register. Acting EPA Administrator Marianne Horinko had signed the final RMRR rule on August 29, 2003. Opponents of the rule - including some environmental organizations and a group of northeastern State Attorney Generals -- were expected to challenge it in court. These petitioners have 60 days from the date of publication to file suit in the D.C. circuit. (This 60-day period coincides with a 60-day period before the rule becomes "effective" and can be implemented.)

The NSR reform package was published in the Federal Register on December 31, 2002, and was signed by EPA Administrator Whitman on November 22, 2002. The package contained a final rule which reforms the existing NSR program and a proposed rule on routine maintenance, replacement and repair (RMRR). NSR Program reforms in the final rule will encourage facilities to use the best available air pollution control technologies, and provide facilities with flexibility to achieve and maintain compliance. The reforms include: Plantwide Applicability Limits (PALs), Clean Unit Provision, Emissions Calculation Test Methodology, and Pollution Control and Prevention Projects. The final NSR rule took effect on March 3, 2003.

On August 27, 2003, Acting Assistant Administrator Marianne Lamont Horinko signed the final NSR RMRR rule. The final rule which is based on the replacement option proposed by EPA uses a 20% value instead of the 50% value currently in use for NSPS value and in the proposal. According to the final rule, facilities can replace existing equipment with identical or functional equivalent equipment as long as it does not exceed the 20% cost of replacement. The cost of replacement is based on current replacement costs of a process unit which is defined as a collection of equipment. EPA chose not to finalize the Routine Maintenance Allowance option which was also proposed by EPA. Critics of providing industry more certainty in making RMRR decisions such as New York, California and Senator Jeffords (I-VT) plan to challenge it in court.

On July 30, 2003, EPA published a proposed rule (68 FR 44620) reconsidering six issues arising from comments received about the final rule. The issues involved the Supplemental Analysis of the Environmental Impact of the 2002 Final NSR improvement rules and five other narrow elements of the final rule. Several commenters argued that EPA did not properly analyze the impacts of the final rule and the final rule's provisions did not reflect ideas included in the proposal. Therefore, EPA decided to provide the public the opportunity to submit comments on these issues.

In January 2003, the Senate supported moving forward with the implementation of the final rule on NSR by defeating (46-50) an amendment by Senator John Edwards' (D-N.C.) which would have delayed the reform of NSR. In addition, the Senate passed (51-45) an amendment by Senator James Inhofe's (R-OK) to have the National Academy of Sciences study the health effects of NSR implementation. That same month, NPRA, as a member of the Manufacturers Roundtable, filed a motion to intervene in support of EPA's New Source Review (NSR) final rule.

More Background. . .

New Source Review, or NSR, is a regulatory permitting program that began in the 1970s as a relatively simple program focusing on new and substantially rebuilt industrial plants. In 1980, after review by the D.C. Circuit Court to consider the 1977 Amendments to the Clean Air Act and the Alabama Power Co. v. Costle decision in 636 F.2d 323 (D.C. Cir. 1980), EPA promulgated the final rules that establish the regulatory applicability requirements still in effect today.

Over time, this simple regulatory program has become a maze of confusing and often contradictory regulatory guidance that, on average, requires 18 months to two years to get an NSR permit.

However, even with these difficulties, according to EPA figures, the refining industry has reduced its emissions by 74% between 1980 and 1996. (Refining capacity declined only 16% during the same period.) Since then industry has made significant progress both in reducing emissions from refineries and in cutting emissions from its products, such as through the reformulated gasoline program.

In 1998, EPA reinterpreted NSR. These new interpretations have created a state of uncertainty within industry and among state regulators. The result has been to curtail industrial modification or expansion. Facility operators, being unwilling, or lacking the resources to undertake the difficult and unpredictable process may postpone plant changes, even energy efficiency projects. State regulators, who have essentially had their hands slapped by EPA headquarters for past approvals of permit applications, are delaying the permit process. In self defense, they are requesting permit reviews for areas never before considered. Also, they are not certain what are the "ground rules," and don't want to be second-guessed by EPA. This reaction to the EPA reinterpretations has the potential to impede the expansion or construction of new facilities needed to generate additional electrical power and the new clean fuels mandated by EPA.

When triggered, NSR is an onerous and time-consuming process. Under pre-reform NSR, despite the fact that it is effectively impossible to determine when an NSR permit is required, refiners and petrochemical plants must somehow decide whether an anticipated action triggers NSR permitting and controls. If it does, they must obtain the required permits before beginning any construction, install appropriate emissions control technology, and perhaps meet other requirements as well. NPRA believes that the new reforms will bring needed clarity to the NSR program.