EPA Proposes New Permitting Test for Power Plant Modifications

Legal Sidebari

EPA Proposes New Permitting Test for Power

Plant Modifications

September 25, 2018

In August, 2018, the U.S. Environmental Protection Agency (EPA) proposed the Affordable Clean Energy

(ACE) Rule to address greenhouse gas (GHG) emissions from existing coal-fired power plants, replacing

the Obama Administration’s Clean Power Plan. (See this companion Sidebar for discussion of the

proposed ACE Rule.) As part of the ACE Rule, EPA proposed a new test for determining whether New

Source Review (NSR) would apply to a modification of an existing power plant. According to EPA, by

requiring preconstruction permits for modifications that would increase emissions above a regulatory

threshold, NSR helps to assure that new or modified industrial facilities are “as clean as possible” and

“advances in pollution control occur concurrently with industrial expansion.” Currently, NSR only applies

to modifications that significantly increase annual emissions.

Under the proposed ACE Rule, NSR would only apply to power plant modifications that would increase

hourly pollutant emissions rates regardless of whether they would increase annual emissions. (H.R. 3128

and S. 2761 include proposals for similar NSR hourly rate applicability tests.) The proposed ACE Rule

hourly emissions rate test raises legal questions regarding the scope of EPA’s discretion to define what

types of modifications are subject to NSR. This Sidebar discusses EPA’s legal justification for its

proposed hourly emissions rate test and legal challenges to EPA’s previous efforts to reform the NSR

permitting program by limiting the modifications that would be subject to NSR.

Background on the Clean Air Act’s New Source Review Permitting Program

The CAA regulates newly constructed or modified stationary sources of air pollution, such as

manufacturing facilities and power plants, through the NSR permitting program and the New Source

Performance Standards (NSPSs). Under the NSR program, a permit is required before construction may

begin on a new stationary source that has the potential to emit more than a specified level of regulated

pollutants. A permit is also required before an existing stationary source may be modified. Section

111(a)(4) of the CAA defines “modification” as “any physical change in, or change in the method of

operation of, a stationary source which increases the amount of any air pollutant emitted by such source

or which results in the emission of any air pollutant not previously emitted.” This statutory definition

governs both NSPSs and NSR programs, which impose technology-based emission limits and other air

pollution controls.

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Despite sharing the same statutory definition of modification, NSPSs and NSR regulations use different

tests to determine when modifications trigger further regulatory requirements. In its NSPSs regulations,

EPA defines modification as any physical or operational change that increases hourly emissions rates as

expressed in kilograms per hour. In comparison, EPA’s NSR regulations define modification as any

physical or operational change that results in a “significant net emissions increase” of its annual

emissions, expressed in tons per year. An emissions increase is considered “significant” if it exceeds

regulatory emissions thresholds.

Proposed Changes to the New Source Review Applicability

In the ACE Rule, EPA proposes to adopt an hourly emissions rate test to determine whether a

modification to an existing power plant would trigger NSR. Currently, EPA requires an NSR permit for

any physical or operational modifications to a source, which would increase its annual emissions of

regulated pollutants above regulatory thresholds. While EPA would retain the annual emissions test, EPA

proposes to allow states to limit NSR to modifications that increase both the power plant’s actual hourly

emissions rate and the power plant’s annual emissions. Therefore, it would be irrelevant whether a power

plant modification would increase annual emissions (tons per year) if the modification did not also

increase the power plant’s hourly emissions rates (pounds per hour) beyond the regulatory threshold. EPA

recognizes that a modification to improve a power plant’s efficiency could increase its annual emissions

(due to increased annual production) without increasing its hourly rate of emissions. However, EPA

argues that reducing NSR permitting costs and burdens would promote efficiency upgrades to power

plants, which, in turn, could reduce sector-wide emissions.

Prior to the proposed ACE Rule, EPA’s interpretation of “modification” under the NSR program had been

subject to various legal challenges. In 2007, the Supreme Court in Environmental Defense v. Duke Energy

Corp. held that EPA could not interpret the NSR regulatory definition of “modification” to incorporate the

NSPSs hourly emissions rate test for identifying “modifications.” The Court determined that the NSR

regulations define a “modification” in terms of an increase in the actual annual emissions, not an increase

in the hourly emission rate.

Since the Duke Energy decision, stakeholders have debated whether the CAA allows EPA to revise the

NSR regulatory definition of modification to incorporate explicitly the hourly emissions rate test used for

NSPSs. EPA argues that the Supreme Court’s decision in Duke Energy does not prevent the Agency from

revising its NSR regulatory definition of “modification” to incorporate an hourly rate test similar to the

test used for NSPSs. The Agency contends that it has broad discretion to do so because the CAA is silent

on how EPA should calculate emissions increases from modifications for both the NSR and NSPSs

programs. After the Duke Energy decision, in 2007, EPA proposed (but did not finalize) an hourly

emissions rate test to determine when power plant modifications would trigger NSR permitting

requirements.

Some commentators, who opposed the 2007 proposal, argued that previous court opinions require EPA to

measure increases in actual emissions (i.e., total pollutants emitted annually), not the rate at which

pollutants are emitted. They claim that an hourly emissions rate test creates an unauthorized exemption to

NSR that is similar to EPA’s previous attempts to create a regulatory exemption for pollution control

modifications, which the U.S. Court of Appeals for the District of Columbia Circuit vacated in New York

v. EPA. In that case, the court held that EPA lacked authority to exempt from NSR “clean units” that had

previously upgraded pollution control technology, concluding that Congress intended to apply NSR to

modifications that increase actual emissions regardless of a source’s “clean unit” status. The court also

vacated EPA’s NSR exemption for pollution control projects that increased emissions of other pollutants

on the grounds that a significant increase in emissions of any regulated pollutant is subject to NSR. EPA

claims that its proposed hourly emissions rate test is consistent with New York because the EPA has

discretion to apply an hourly emissions rate test so long as it is based on increases of actual emissions

emitted on an hourly basis.

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Next Steps

EPA proposes that the hourly emissions rate test would apply to all power plant modifications for states

that choose to adopt the new NSR hourly emissions rate test. EPA seeks comments on whether to limit the

test’s applicability to power plants seeking to improve their heat rate to comply with new emission

standards established by states under the ACE Rule. EPA announced that it will accept comments on the

hourly emissions rate test as part of the proposed ACE Rule until October 30, 2018.

Some Members of Congress may consider submitting comments on EPA’s proposed hourly

emissions rate test based on their interest in reforming EPA’s NSR program. Recent bills (H.R.

3128 and in S. 2761) propose to amend the CAA by requiring NSR permits only if a

modification would increase the maximum achievable hourly emissions rate above (1) the

source’s original design capacity, or (2) the hourly emissions rate actually achieved during the

10-year period preceding the modification. These bills would not require sources to determine if

the modifications would increase total annual emissions.

Author Information

Linda Tsang

Legislative Attorney

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