# Prevention of Significant Deterioration (PSD) and Nonattainment New Source Review (NSR)

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/fr%3A96-17544

## Record

- **Collection:** Federal Register
- **Document type:** Proposed Rule
- **Published:** July 23, 1996
- **Citation:** 61 FR 38250

## Text

SUMMARY: The EPA is proposing to revise regulations for both the
approval and promulgation of implementation plans and the requirements
for preparation, adoption, and submittal of implementation plans
governing the NSR programs mandated by parts C and D of title I of the
Clean Air Act (Act). These proposed changes are largely drawn from the
discussions and recommendations of the Clean Air Act Advisory
Committee's (CAAAC) Subcommittee on NSR Reform. The proposed changes
are intended to reduce costs and regulatory burdens for permit
applicants, while still ensuring that emissions from new or modifying
major stationary sources of air pollution will not interfere with
efforts to attain and maintain the nation's air quality standards and
goals.

DATES: Comments. All public comments must be received on or before
October 21, 1996.
Public Hearing. A public hearing is scheduled for 8:30 a.m. to 4:30
p.m. in Research Triangle Park, North Carolina September 23, 1996. The
hearing may be canceled if no requests to speak have been received 15
days prior to the scheduled hearing date.

ADDRESSES: Comments. Comments on this proposal should be mailed (in
duplicate if possible) to: U.S. EPA, Air Docket Section, Air Docket A-
90-37; 401 M Street SW., Washington, DC 20460.
Docket. Supporting information for this proposal is contained in
Docket No. A-90-37. This docket is available for public review and
copying between 8:00 a.m. and 4:00 p.m., Monday through Friday at the
EPA's Air Docket Section, 401 M Street SW., Washington, DC; Room M-
1500. A reasonable fee may be charged for copying.
Public Hearing. A document announcing the specific location of the
public hearing will be published in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Dennis Crumpler, Information Transfer
and Program Integration Division, MD-12, Office of Air Quality Planning
and Standards (OAQPS), U.S. EPA, Research Triangle Park, North Carolina
27711, (919) 541-0871. Persons wishing to make oral presentations at
the public hearing, or seeking further information, should contact Pam
J. Smith at (919) 541-5319.

SUPPLEMENTARY INFORMATION: The following outline reflects the contents
of this action:

I. Overview of This Proposal
A. Introduction
B. Background
II. Applicability of the NSR Program
A. Overview
B. Background
1. Current Provisions
2. Litigation over the Actual-to-Potential Test
3. The Wisconsin Electric Power Company (WEPCO) Rulemaking
C. The Proposed ``Clean Unit'' and ``Clean Facility'' Exclusion
1. Introduction
2. Description of the Clean Unit Proposal
3. What Constitutes a ``Clean Unit''
4. Description of the Clean Facility Proposal
D. Revision to the Netting Baseline
1. Introduction
2. Description of Proposed Netting Baseline
3. Protection of Short-term Increments and National Ambient Air
Quality Standards (NAAQS)
E. Proposed Pollution Control Project Exclusion
1. Background
2. Description of Proposed Exclusion of Pollution Control
Projects
3. The Environmentally Beneficial Test
4. Procedural Safeguards
5. Emission Reduction Credits
F. Proposed Plantwide Applicability Limits (PAL)
1. Background
2. Description of PAL's Proposal
3. Discussion
G. Actual-to-Future-Actual Methodology
1. Background
2. Limitation of the WEPCO Rule to One Source Category
3. Issues Regarding the Future-Actual Methodology
H. Proposal of Chemical Manufacturers Association (CMA) Exhibit
B
1. Description of the Exhibit B Methodology
2. The EPA's Preliminary Analysis
3. The EPA Action
I. Allowed Activities Prior to Receipt of Permit
III. Proposed Revisions to Control Technology Review Requirements
A. Introduction
B. Proposed Revisions to the Methodology for Determining Best
Available Control Technology (BACT)
1. General Description of the BACT Determination Process
2. The Core Criteria
3. Description of the Federal Methodology for Determining BACT
4. Additional Guidance for BACT Determinations
C. Improving Information about Available Control Technologies:
Changes to the Reasonably Available Control Technology (RACT)/BACT/
Lowest Achievable Emission Rate (LAER) Clearinghouse (RBLC)
D. Streamline Proposed to BACT/LAER Determinations
1. Permit Applications Must Include Analysis of Control
Technologies That Are Demonstrated in Practice
2. Permitting Authority May Limit Consideration of New or
Emerging Technologies After Complete Application
E. Proposed Complete Application Criteria
F. Proposed Undemonstrated Control Technology or Application
(UT/A)
1. Introduction
2. Description of Proposed UT/A Waiver
G. Pollution Prevention
1. The Pollution Prevention Act (PPA) and the EPA's Pollution
Prevention Policies
2. Pollution Prevention in BACT and LAER
H. States' Discretion to Adopt or Enforce More Stringent
Requirements
I. Addressing the EPA's Obligation Under Pending Settlement
Agreement
IV. Class I Areas
A. Introduction
B. Background
1. Overview of PSD Requirements for Class I Areas
2. The Need to Improve PSD Requirements Related to the
Protection of Air Quality Related Values (AQRV) in Class I Areas
C. The EPA Proposal
1. Defining AQRV and Determining Adverse Impacts
2. Improving Federal Land Manager (FLM)/ Permitting Authority
Coordination
3. Mitigating an Adverse Impact on AQRV
4. Class I Significant Impact Levels
5. Clarification of Miscellaneous Issues
6. Information Clearinghouse (Federal Class I areas)
7. Visibility New Source Review
V. Prevention of Significant Deterioration Preconstruction
Monitoring
VI. Changes Resulting From the 1990 Clean Air Act Amendments (1990
Amendments)
A. NSR Provisions for Nonattainment Area Permitting
1. Provisions for Ozone Nonattainment Areas
2. Provisions for Carbon Monoxide (CO) Nonattainment Areas
3. Provisions for PM-10 Nonattainment Areas
4. Statutory Restrictions for New Sources
5. Applicability of Nonattainment NSR to Internal Combustion
Engines
B. NSR Provisions for Prevention of Significant Deterioration
1. Stratospheric Ozone-Depleting Substances
2. Listed Hazardous Air Pollutants (HAP)
3. Applicability of PSD Requirements to Internal Combustion
Engines
C. Control Technology Information
VII. Other Proposed Changes
A. Emissions Credits Resulting From Source Shutdowns and
Curtailments

[[Page 38251]]

B. Judicial Review of NSR Permits
C. Department of Defense (DOD) Concerns
VIII. Additional Information
A. Public Docket
B. Public Comments and Public Hearing
C. Executive Order (EO) 12866
D. Regulatory Flexibility Act
E. Paperwork Reduction Act
F. Unfunded Mandates Reform Act

I. Overview of This Proposal

A. Introduction

The EPA is proposing substantial changes to the major NSR program,
a preconstruction permitting program required by the Clean Air Act
(Act) that regulates the construction and modification of major
stationary sources of air pollution. This proposal represents the first
comprehensive overhaul of the program in 15 years. The proposed
revisions are largely drawn from the recommendations and deliberations
of the CAAAC's NSR Reform Subcommittee, a panel of industry
representatives, State and local air pollution control officials,
environmentalists and other experts.
This proposal also contains certain revisions to the NSR
regulations for State Implementation Plans (SIP) based on requirements
established by the 1990 Amendments. These revisions are proposed here
in order to clarify certain requirements of the 1990 Amendments. The
adoption of the proposed changes will resolve a number of the
underlying issues that have impeded full adoption of the nonattainment
NSR programs by some States and caused uncertainties in the permitting
process thereby delaying some projects. Other revisions, based on the
CAAAC that are deregulatory in nature have also been included.
If adopted, the proposed reforms will significantly reduce the
number and types of activities at sources that would otherwise be
subject to major NSR under the existing NSR program regulations,
including the new and revised requirements imposed by the 1990
Amendments. At the same time, the proposed changes are intended to
provide States with greater flexibility to customize their own
regulations implementing the NSR program, address concerns raised about
the permitting of sources near protected National Parks and other
wilderness areas (Federal Class I areas), promote the use of innovative
technologies and pollution prevention, and, in general, streamline the
overall NSR permitting process.
The key elements of this proposal designed to relieve regulatory
burden are:
Deregulation of changes at ``clean'' emissions units and
``clean'' facilities and of pollution control and pollution prevention
projects--Existing sources that have clean emissions units or are
undertaking projects to clean up air pollution should not be targeted
for major NSR.
Promotion of voluntary plant-wide limits--Rather than face
complicated, piecemeal applicability decisions every time a change at a
plant is contemplated, plant managers may prefer to work within an
emissions cap or emissions budget, an annual emissions limit that
allows managers to make almost any change anytime as long as the
plant's emissions do not exceed the cap. Today's action proposes to
create this option in EPA's regulations.
Applicability criteria to reflect real emissions
increases--This proposal would extend the range of years sources can
use to establish their historical emissions and would allow sources to
calculate emissions increases using projected future actual emissions
rather than maximum potential to emit (PTE). This will especially
benefit cyclical industries which during economic downturns are
currently penalized for making modernizing changes that are vital to
their recovery, even when the changes lower emissions rates.
Encouragement of pollution prevention and innovative
control technologies--these proposed changes would ensure that
pollution prevention qualifies for the pollution control project
exclusion and revamp the under-used innovative control technology
waiver to simplify the process and eliminate penalties for good faith
failures.
Enhanced Public Awareness--Increased public disclosure of
source impacts on Class I areas, establishment of national database of
major permit applications, and improvements to EPA's pollution control
technology bulletin board to increase opportunities for informed
citizen participation in key permitting decisions.
Revised requirements for control technology
determinations--These proposed changes would allow States to adopt
their own methodologies for reviewing and determining BACT so long as
control technology evaluations include reasoned consideration of the
most stringent control technology. Other proposed changes clarify the
extent of a source's duty to search out new technology and shorten the
technology review process by providing presumptive cut-offs.
Better coordination of permit reviews for sources
potentially affecting air quality in Federal Class I areas--These
proposed changes clarify the role of the FLM, the State permitting
authority and the applicant with regard to the NSR permitting process.
The steps in considering of Class I area issues are clarified and would
be initiated earlier in the permit review process than in current
regulations. De minimis levels for determining whether Class I
increment analyses must be performed would be established. The changes
should reduce delays and disputes associated with permitting near
Federal Class I areas.
Increased State flexibility--Instead of one-size-fits-all
solutions to applicability and other issues, States will be allowed for
the first time to choose applicability and implementation approaches
from a menu of alternatives.
The EPA is taking comment on the range of preliminary
construction activities that might be allowed to proceed prior to the
issuance of an NSR permit in cases of modifications at existing
facilities.
More offset credits available to nonattainment area
sources--Proposed changes will ease restrictions on use of emissions
reductions credits resulting from source shutdowns and curtailments.
New definition to ensure that the definition of
``stationary source'' included stationary internal combustion engines,
but excludes newly-defined ``nonroad engines'' and ``nonroad
vehicles.''
Proposed deregulatory changes that are authorized by the 1990
Amendments include:
Exclusion of HAP from PSD requirements.
Requirements on ozone-depleting substances (ODS)--Relaxes
PSD requirements on the substitution of ODS with lower potency.
Revisions in this document that are being proposed based on
requirements mandated by the 1990 Amendments are:
Revised major source thresholds and emissions offset
ratios for sources of volatile organic compounds (VOC), nitrogen oxides
(NOX), particulate matter with diameter of 10 microns or less (PM-
10) and CO according to severity of a nonattainment area's ambient air
quality problem.
Special requirements for determining major modifications
of VOC and NOX sources in serious and severe ozone nonattainment
areas.
Requirements for the submittal of control technology
information into the EPA's RACT/BACT/LAER Clearinghouse.
This proposal also includes proposed ``housekeeping'' revisions to
the NSR regulations at Sec. 51.165(a) (NSR in nonattainment areas) for
control

[[Page 38252]]

technology review, complete application criteria, and public
participation, which are consistent with similar provisions under the
PSD regulations at Secs. 51.166 and 52.21. Further, consistent with
proposed reform-related revisions to public participation provisions,
the EPA is also proposing provisions that clarify permit applicants'
and the public's opportunities for judicial review in State court
regarding PSD or nonattainment permit actions.
Finally, the EPA is proposing clarification of source definition
criteria as they relate to military installations during ``national
security emergencies''.

B. Background

The NSR program legislated by Congress in parts C and D of title I
of the Act is a preconstruction review and permitting program
applicable to new or modified major stationary sources of air
pollutants regulated under the Act.1
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\1\ Section 112(g) of the Act provides for preconstruction
review of HAP. Section 112(b)(6) of the Act specifies that the
``part C'' PSD program shall not apply to HAP listed under section
112. The EPA has published guidance on NSR implementation issues
presented by these provisions. See 57 FR 18074-18075 (April 28,
1992).
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In areas not meeting health-based NAAQS and in ozone transport
regions (OTR), the program is implemented under the requirements of
part D of title I of the Act for ``nonattainment'' NSR. In areas
meeting NAAQS (``attainment'' areas) or for which there is insufficient
information to determine whether they meet the NAAQS
(``unclassifiable'' areas), the NSR requirements for the prevention of
significant deterioration of air quality under part C of title I of the
Act apply. These regulations are contained in 40 CFR 51.165, 51.166,
52.21, 52.24 and part 51 appendix S.
The NSR provisions of the Act are a combination of air quality
planning and air pollution control technology program requirements for
new and modified stationary sources of air pollution. In brief, section
109 of the Act requires the EPA to promulgate primary NAAQS to protect
public health and secondary NAAQS to protect public welfare. Once these
standards have been set, States must develop, adopt, and submit to the
EPA for approval a SIP which contain emission limitations and other
control measures to attain and maintain the NAAQS and to meet the other
requirements of section 110(a) of the Act.
Each SIP is required to contain a preconstruction review program
for the construction and modification of any stationary source of air
pollution to assure that the NAAQS are achieved and maintained; to
protect areas of clean air; to protect AQRV (including visibility) in
national parks and other natural areas of special concern; to assure
appropriate emission controls are applied; to maximize opportunities
for economic development consistent with the preservation of clean air
resources; and to ensure that any decision to increase air pollution is
made only after full public consideration of all the consequences of
such a decision. See, e.g., sections 101(b)(1), 110(a)(2)(C), 160, and
173 of the Act.
On November 15, 1990, Congress enacted numerous changes to title I
of the Act, including changes involving the NSR provisions under parts
C and D for major new sources and major modifications locating in
attainment and unclassifiable areas, nonattainment areas, and ozone
transport regions. Most of these changes are described in the ``General
Preamble for Implementation of Title I of the Clean Air Act Amendments
of 1990'' (General Preamble; see 57 FR 13498, April 16, 1992). The EPA
has not yet revised its NSR regulations to reflect the statutory
changes resulting from the 1990 Amendments.
In August 1992, amidst concerns expressed by regulated industries
that the EPA's major NSR regulations were too complex and burdensome,
the EPA began an effort to revise those regulations. This effort
involved the solicitation of ideas and recommendations from the CAAAC,
as well as public input.2 The goal of the NSR Reform effort is to
eliminate as much of the program complexity, administrative burden and
resultant project delays as possible without sacrificing the current
level of environmental protection and benefits derived from the
program.
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\2\ The meetings of the CAAAC and its NSR Reform Subcommittee
are announced in the Federal Register and open to the public. The
last meeting of the NSR Subcommittee was in July 1994. A preliminary
draft of this rulemaking was discussed at that meeting and made
available for public comments. A copy is in the Docket for this
rulemaking. See 59 FR 35119 (July 8, 1994).
---------------------------------------------------------------------------

In today's action, the EPA is proposing changes to various aspects
of the current NSR program based primarily on its consideration of
recommendations provided through the NSR Reform effort, but also based
on independent EPA initiatives to clarify the NSR program. The EPA
further proposes to add certain new requirements established by the
1990 Amendments.
The reader should note that the proposed new and revised
regulations in this document do not comprehensively address all the
statutory revisions to the NSR program in the 1990 Amendments.
Consequently, EPA's promulgation of any or all revisions in this
proposal should not create the expectation that States and permit
applicants may obtain program approvals or be issued permits,
respectively, by solely following the NSR rules, as proposed or
ultimately promulgated.

II. Applicability of the NSR Program

A. Overview

The issue of NSR applicability proved to be one of the most
difficult and divisive issues for the CAAAC's NSR Reform Subcommittee.
While the issue was considered by a subgroup of the Subcommittee for
several months and debated by the full Subcommittee during several
sessions, consensus proved elusive. As a result, no formal
recommendations were proffered to the CAAAC or the EPA on this issue.
Still the discussions provided the EPA with a better understanding of
the concerns of all sides and revealed a few areas of potential
agreement. There were common elements in many of the competing
proposals circulated by members of the Subcommittee. Thus, while there
was no CAAAC resolution of the issues, today's proposed applicability
changes build upon the Subcommittee's deliberations.
This preamble discusses the following proposed changes to NSR
applicability: (1) A new exclusion from major NSR for existing
emissions units and facilities that are subject to BACT or LAER,
equivalent minor NSR control requirements, or comparable ``clean''
emissions control technology (see section II.C); (2) a new baseline for
determining if a physical or operational change will result in a
significant net emissions increase and thereby trigger major NSR,
allowing sources to use any 12 consecutive months in the past 10 years
to establish the unit's pre-change emissions level (see section II.D);
(3) a pollution control project exclusion, patterned after the
exclusion recently adopted by EPA for utilities but covering all source
categories and pollution prevention projects (see section II.E); (4) a
new provision allowing States to base applicability on a PAL (see
section II.F); and (5) extension of a version of the ``actual-to-
future-actual'' test, currently only available for utilities, to all
source categories (see section II.G). Finally, the EPA is proposing for
comment an applicability approach which the EPA agreed to consider and
take final action

[[Page 38253]]

on in accordance with the settlement of a lawsuit with the CMA and
other industry petitioners (see section II.H).
In the past, EPA has essentially required States to follow a single
applicability methodology. States could, of course, have a more
stringent approach but most followed closely the EPA prototype. The EPA
is proposing to break with this one-size-fits-all approach to
applicability by proposing to adopt these changes as a menu of options
from which a State may pick and choose in order to customize a specific
approach for its individual needs. Thus, in its final action on this
rulemaking, EPA will consider placing all or some of the applicability
options presented today as permissible alternatives in its part 51
regulations containing minimum requirements for State NSR programs in
nonattainment and attainment/unclassified areas. States will then be
free to adopt any combination of these menu options into their own
regulations and SIP to offer sources these alternatives. For instance,
if EPA adopts in its final rulemaking both the ``Clean Unit'' exclusion
and the PAL option, a State could retain its current federally-approved
applicability approach without making changes, retain its existing
approach and add a Clean Unit Test, or retain its existing approach and
add both a Clean Unit Test and an option for PAL. The EPA also proposes
to include these applicability approaches in the part 52 regulations
governing Federal permitting programs. The EPA solicits comment on this
approach and specifically solicits comments on what restrictions, if
any, EPA should place on States in selecting applicability options.

B. Background

1. Current Provisions
The major NSR provisions of part C (PSD) and part D (nonattainment
requirements) of title I of the Act apply to both the construction of
new major sources and the modification of existing major sources. For
new ``greenfield'' sources, ``applicability''--the determination of
whether an activity is subject to the program or, stated differently,
whether the program applies to particular circumstances--is a fairly
straightforward determination. The Act, as implemented by the EPA's
regulations, sets applicability thresholds for nonattainment areas (PTE
above 100 tons per year (tpy) of any pollutant subject to regulation
under the Act, or smaller amounts, depending on the nonattainment
classification) and attainment areas (100 or 250 tpy, depending on the
source type). A new source with a ``PTE'' in excess of the applicable
threshold amount ``triggers'' or is subject to major NSR.3
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\3\ The ``PTE'' is currently defined as the ``maximum capacity
of a stationary source to emit a pollutant under its physical and
operational design.'' Any physical or operational limitation on the
capacity of the source to emit a pollutant, including a permit
limitation, is treated as part of its design provided the limitation
or its effect on emissions is federally enforceable (e.g., see
existing Secs. 51.165(a)(1)(iii) and 51.166(b)(4)).
In recent decisions, National Mining Ass'n v. EPA, 59 F.3d 1351
(D.C. Cir. 1995) and Chemical Manufacturers Ass'n v. EPA, No. 89-
1514, slip op. (D.C. Cir. Sept. 15, 1995), the District of Columbia
Circuit court addressed challenges related to EPA's requirement that
a source which wishes to limit its PTE must obtain a federally
enforceable limit. The EPA is currently reviewing its Federal
enforceability requirements in light of these court decisions, and
has not yet decided how it will address this issue. Once EPA has
completed its review of the Federal enforceability requirements in
all relevant programs including NSR, the Agency will make available
in a Federal Register notice its response to the court decisions.
---------------------------------------------------------------------------

The determination of what should be classified as a modification
subject to major NSR presents more difficult issues. The modification
provisions of the NSR programs in parts C and D are based on the broad
definition of modification in section 111(a)(4) of the Act: the term
``modification'' means ``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.'' That definition
contemplates a two-step test for determining whether activities at an
existing major facility constitute a major modification subject to
major NSR requirements. In the first step, the permitting authority
determines whether a physical or operational change will occur. If so,
then the permitting authority proceeds in the second step to determine
whether the physical or operational change will result in an emissions
increase over baseline levels.
The reference to ``any physical change * * * or change in the
method of operation'' in section 111(a)(4) of the Act could--read
literally--encompass the most mundane activities at an industrial
facility (even the repair or replacement of a single leaky pipe, or an
insignificant change in the way that pipe is utilized). However, the
EPA has recognized that Congress did not intend to make every activity
at a source subject to major new source requirements under parts C and
D. As a result, the EPA has adopted several exclusions from the
``physical or operational change'' component of the definition. For
instance, the EPA has specifically recognized that routine maintenance,
repair and replacement, and changes in hours of operation or in the
production rate are not by themselves considered a physical change or
change in the method of operation within the definition of major
modification. See, e.g., existing Secs. 52.21(b)(2)(iii),
52.24(f)(5)(iii), 51.165(a)(1)(v)(C)(1), and 51.166(b)(2)(iii).
The EPA has likewise limited the reach of the second step of the
statutory definition of modification by excluding all changes that do
not result in an emissions increase above ``significance'' levels for
the pollutant in question. See, e.g., existing Sec. 51.165(a)(1)(x).
Taken together, these regulatory limitations restrict the application
of the NSR program in parts C and D to only ``major modifications'' at
existing major stationary sources. See, e.g., existing
Sec. 51.165(a)(1)(v).
One key attribute of the NSR program in general is that sources
typically ``net'' modifications out of review by coupling proposed
emissions increases at the source with contemporaneous emissions
reductions. The judicial decision in Alabama Power Co. v. Costle, 636
F.2d 323, 400-403 (D.C. Cir. 1979), endorsed use of this ``plantwide
bubble'' concept in the PSD program. The court reasoned that since the
principal purpose of the PSD program was to prevent deterioration in
air quality, a PSD permit was unnecessary so long as new construction
at an existing plant did not increase overall emissions to the
environment. Thus, under the EPA regulations promulgated in 1980
following Alabama Power (which are for the most part still in place
today), source owners may modify or even completely replace or add
emissions units without obtaining a PSD permit so long as ``actual
emissions'' do not increase over baseline levels at the plant as a
whole. In 1984, the EPA regulations expanding the use of the plantwide
bubble to the nonattainment area NSR program under title I, part D of
the Act were upheld in Chevron, U.S.A., Inc. v. NRDC, 467 U.S. 837
(1984).
Applicability of the part C and D NSR provisions must be determined
in advance of construction and is pollutant-specific. In cases
involving existing sources, this requires a pollutant-by-pollutant
determination of the emissions change, if any, that will result from
the physical or operational change. The EPA's 1980 regulations
implementing the PSD and nonattainment NSR programs thus inquire
whether the proposed change constitutes a ``major modification,'' i.e.,
a nonexcluded physical change or change in the method of operation
``that

[[Page 38254]]

would result in a significant net emissions increase of any pollutant
subject to regulation under the Act.'' See existing
Sec. 52.21(b)(2)(i). A ``net emissions increase'' is defined as the
increase in ``actual emissions'' from the particular physical or
operational change (taking into account the use of emissions control
technology and restrictions on hours of operation or rates of
production where such controls and restrictions are federally
enforceable), together with other contemporaneous increases or
decreases in actual emissions at the source. See footnote 3 and
existing Sec. 52.21(b)(3)(i).4 In order to trigger major NSR, the
net emissions increase must exceed specified ``significance'' levels
when compared to a pre-modification ``baseline.'' 5 See existing
Secs. 52.21(b)(2)(i) and 52.21(b)(23).
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\4\ In approximate terms, ``contemporaneous'' emissions
increases or decreases are those which have occurred between the
date 5 years preceding the proposed physical or operational change
and the date that the increase from the change occurs [see, e.g.,
existing section 52.21(b)(3)(ii)].
\5\ Once a modification is determined to be major, the PSD
requirements apply only to those specific pollutants for which there
would be a significant net emissions increase. See, e.g., existing
sections 52.21(j)(3) (BACT) and 52.21(m)(1)(b) (air quality
analysis).
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The EPA's existing regulations generally define baseline actual
emissions as ``the average rate, in tpy, at which the unit actually
emitted the pollutant during a 2-year period which precedes the
particular date and which is representative of normal source
operation'' (see, e.g., existing Sec. 52.21(b)(21)(ii)). The
Administrator ``shall'' allow use of a different time period ``upon a
determination that it is more representative of normal source
operation.'' Id. The EPA has historically used the 2 years immediately
preceding the proposed change to establish the baseline [see 45 FR
52676, 52705, 52718]. However, in some cases it has allowed use of an
earlier period.
With respect to modifications at existing sources, a prediction of
whether the physical or operational change will result in a significant
net increase in the source's actual emissions following the
modification is thus necessary. In part this involves a straightforward
and readily predictable engineering judgment--how will the change
affect the emissions factor or emissions rate of the emissions units
that are to be changed. It also necessarily involves a prediction of
utilization rates--how much of the source's full production
capabilities as modified will be used per hour, and how many hours per
year the source will be operated.
The current regulations provide that when an emissions unit (other
than an electric utility steam generating unit) ``has not begun normal
operations,'' actual emissions equal the PTE of the unit. See existing
Sec. 52.21(b)(21)(iv). The EPA has interpreted this provision as
creating an initial presumption that because the changed unit ``has not
begun normal operations'' following the change, it will operate at its
full capacity year round, i.e., at its full emissions potential. This
is referred to as the ``actual-to-potential'' test. The owner or
operator is free to rebut the presumption that actual emissions will
increase over pre-modification levels by agreeing to limit its PTE,
through the use of federally enforceable restrictions, to pre-
modification actual emissions levels (plus an amount that is less than
``significant''). See footnote 3. The effect of this methodology is to
require the source to take minor NSR permit limits to ensure that
actual emissions will not increase (by more than a prescribed
``significant'' amount, if any) above baseline levels following the
physical or operational change.
2. Litigation Over the Actual-to-Potential Test
Industry has long been concerned that most physical or operational
changes under EPA's rules will initially register as emissions
increases under EPA's actual-to-potential test because most sources are
operated at less than full capacity on an annual basis. As a result, a
change at the source that does not affect instantaneous emissions rates
shows up as a presumed emissions increase because the pre-modification
actual utilization is less than the projected post-modification
utilization, which is presumed to reflect full capacity at all times.
Hence, often sources have accept federally enforceable limits on post-
modification emissions or operations to avoid major NSR.6 As a
legal matter, some industry representatives argue that under current
regulations the EPA cannot properly presume that every non-routine or
otherwise nonexcluded change to an existing emissions unit cannot be
the basis for finding that the unit ``has not begun normal
operations.'' They contend that the fact that a unit is proposed to be
``changed'' should not necessarily mean that it has not yet ``begun
normal operations'' following the change.
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\6\ For example, consider an industrial coal-fired boiler,
constructed in the late 1960s and therefore ``grandfathered'' from
NSR, which originally had a PTE of 1000 tons per year of SO2.
Since the mid-1980s, this source has actually operated at 50 percent
of its capacity and emitted only 500 tons per year due to economic
conditions or because the boiler became less efficient as it aged,
and hence less economic to operate at full capacity. If the boiler
were to be modified through a non-routine physical change which did
not affect the unit's hourly emissions rate, the owner or operator
would need either to accept a cap on its post-modification emissions
at 539 tons per year (i.e., a level less than a significant increase
over its past actual emissions, where the significant increase level
for SO2 is 40 tons per year), or to obtain a major NSR permit
if it desires to maintain the ability to operate at 100 percent of
its rated capacity. The 500 ton ``cushion'' between actual and
potential emissions that existed prior to the modification would no
longer exist.
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Two cases have addressed the EPA's application of the actual-to-
potential test, and specifically, the interpretation of the phrase
``begun normal operations.'' In Puerto Rican Cement Co. v. EPA, 889
F.2d 292 (1st Cir. 1989), the court upheld the EPA's application of the
actual-to-potential methodology in a case involving conversion of a
cement plant from a wet process to a more efficient dry process. The
court upheld the EPA's interpretation that the words ``emissions unit
that has not begun normal operations'' include modified units as well
as new units, citing a passage from the 1980 rulemaking preamble that,
in the court's view, made it clear that the EPA intended to apply the
actual-to-potential test to a ``new or modified unit.'' 889 F.2d at 298
(45 FR 52676, 52677) (emphasis added by court).
The court noted that its endorsement of EPA's use of the ``actual-
to-potential'' approach for calculating an emission change in this case
was simplified by the facts presented, and that under other
circumstances, the decision could have been more difficult.
On a related issue, the court agreed with the EPA's position that
the regulatory exclusion for certain increases in a source's production
rate or hours of operation applies only when such an increase is
unaccompanied by construction or modification activity. See id. at 916,
n.11. The EPA is today proposing to make the existing exclusion
explicitly clear on this point by inserting the phrase ``standing
alone'' at the beginning of the exclusion. See proposed amendatory
language for Secs. 51.165(a)(1)(v)(C)(6), 51.166(b)(2)(iii)(F),
52.21(b)(2)(iii)(F) and 52.24(f).
The actual-to-potential test was also at the heart of a legal
challenge brought by WEPCO, see Wisconsin Electric Power Co. v. Reilly,
893 F.2d 901 (7th Cir. 1990). The WEPCO proposed extensive, life-
extension renovations for several older (35- to 50-year old) coal-fired
electric utility boilers. The EPA sought to apply the ``actual-to-
potential'' test reasoning that the modernizing changes, as confirmed
by the WEPCO's own projections, would increase reliability

[[Page 38255]]

and decrease operating costs, thus likely leading to increased
utilization and, hence, increased actual emissions. However, the
Seventh Circuit disagreed with the EPA's interpretation. The court
coined the phrase ``like-kind replacement'' to describe the type of
renovations occurring at the WEPCO plant, where steam drums and other
major components were replaced by new components of identical design
and function. 893 F.2d at 917. The court said that where the
renovations were like-kind replacements, the EPA could not reasonably
interpret its regulations to say that such a unit was so different that
it has not begun normal operations.
Following the remand in the WEPCO case, the EPA employed an
``actual-to-future-actual'' test for the WEPCO facility comparing
WEPCO's emissions during the baseline period to estimated future-actual
emissions drawn from utilization projections available in the record.
3. The WEPCO Rulemaking
In 1992, the EPA promulgated revisions to its applicability
regulations creating special rules for physical and operational changes
at electric utility steam generating units [see 57 FR 32314, July 21,
1992].7 In this rule, prompted by the WEPCO litigation and
commonly referred to as the ``WEPCO Rule,'' the EPA adopted an actual-
to-future-actual methodology for all changes at electric utility steam
generating units except the construction of a new electric generating
unit or the replacement or reconstruction of an existing emissions
unit. Under this methodology, a utility compares its actual annual
emissions before the change with its projected annual emissions after
the change to determine if a physical or operational change would
result in a significant increase in emissions. To ensure that the
projection is valid, the rule requires the source to track its
emissions for the next 5 years. The EPA is today proposing to allow use
of this methodology for all source categories as described in more
detail in section II.G of this preamble.
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\7\ The regulations define ``electric utility steam generating
units'' as any steam electric generating unit that is constructed
for the purpose of supplying more than one-third of its potential
electric output capacity and more than 25 megawatts (MW) of
electrical output to any utility power distribution system for sale.
See e.g., existing section 51.166(b)(30).
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The EPA also made changes to the baseline portion of the actual-to-
future-actual methodology. The EPA retained the existing regulatory
language, but adopted a presumption that utilities may use as baseline
emissions the annual actual emissions from any 2 consecutive years
within the prior 5 years. This presumption would be superseded by the
proposed baseline changes for all source categories discussed in
section II.D. of this preamble. In the WEPCO rule, the EPA also created
a pollution control project exclusion for utilities. As discussed in
section II.E. of this preamble, today's proposal would replace this
pollution control project exclusion with a new pollution control
project exclusion for all source categories.8
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\8\ In the WEPCO Rule, the EPA also created special new source
performance standard (NSPS) treatment for certain repowering
projects and provided limited NSR exemptions for temporary and
permanent Clean Coal Technology projects, and for certain ``very
clean'' units. See e.g., existing section 51.166(b)(2)(iii) (i), (j)
and (k)]. All of these changes implemented special provisions in the
1990 Amendments. In the rule, the EPA also amended its NSPS
regulations (40 CFR part 60) to allow a utility to use as its pre-
change baseline its highest hourly emissions rate achieved during
the 5 years prior to the proposed physical or operational change.
The changes implementing the NSPS baseline change are neither
discussed nor affected by today's rulemaking proposal.
---------------------------------------------------------------------------

C. The ``Clean Unit'' and ``Clean Facility'' Exclusion

1. Introduction
The Applicability Subgroup of the CAAAC's NSR Reform Subcommittee
considered many applicability options. While none of these proposals
garnered the full Subcommittee's support, representatives of State and
local regulators as well as environmental groups expressed general
support for the idea that ``benign'' changes at existing emissions
units should not be subject to the complicated NSR applicability rules
related to determining a significant net emissions increase. There was
also support for the proposition that the NSR applicability test should
provide some deference to sources that have already undergone major
NSR.
The EPA, after careful consideration of these discussions, believes
that the best approach for a new exclusion is one that focuses on the
existing emissions control of a unit, rather than the change being
proposed. Almost all stakeholders identified the goal of ensuring that
modified units apply state-of-the-art controls as being of paramount
importance. Accordingly, where an emissions unit already meets this
goal, environmental concerns associated with proposed changes are
likely reduced. For example, it is the EPA's experience that in many
cases where an existing well-controlled unit triggers major NSR, the
permitting process does not necessarily result in improved controls. On
the other hand, where the review is focused on units which have not
recently been required to meet a control technology requirement, NSR
can be expected to result in more effective controls and meaningful
reductions in actual emissions.
Similarly, where an entire facility already meets the goal of the
application of state-of-the-art controls and has undergone an air
quality impact analysis of its emissions, environmental concerns
associated with proposed changes are likely reduced if the changes
remain consistent with requirements imposed by the original analysis.
Thus, EPA is also proposing a ``clean'' facility exclusion that allows
a major stationary source to make changes at its facility consistent
with PSD or NSR permits that have been recently issued.
2. Description of the Clean Unit Proposal
Based on these factors, the EPA is today proposing a simplified
applicability test for changes to existing emissions units that already
are well-controlled considering the extent a current BACT/LAER review
for a particular unit would result in lower emissions. In general, this
new ``clean unit'' exclusion will allow States to exclude from major
NSR, proposed changes to existing emissions units that have installed
major BACT or LAER within the last 10 years or which otherwise qualify
as a ``clean unit.'' Under this exclusion, sources can make any change
to a qualifying unit so long as the change will not increase the unit's
emissions rate (measured in terms of the unit's maximum hourly
emissions, the NSPS test found at 40 CFR 60.14). Specifically, changes
which do not increase the unit's hourly potential emissions would not
be considered a physical or operational change and thus would not
trigger major NSR.9 See proposed

[[Page 38256]]

Sec. Sec. 51.165(a)(1)(v)(C)(10), 51.166(b)(2)(iii)(L),
52.21(b)(2)(iii)(L), and 52.24(f).
---------------------------------------------------------------------------

\9\ Under today's proposal, for units that are permitted to
change feedstocks frequently, such as pharmaceutical manufacturing
and certain chemical batch processes, the maximum hourly emissions
rate test would be applied on a per feedstock basis to determine if
an emission increase will occur. For example, a unit which has
state-of-the-art volatile organic compounds (VOC) control technology
and uses toluene and other organic solvents as feedstocks, the
hourly maximum emission rate of toluene before and after the
proposed physical or operational change would be assessed as if
toluene alone was to be fully utilized by the unit before and after
the proposed change. The other feedstocks would also be individually
assessed. A change in feedstock would not trigger NSR if the control
technology designed to control emissions resulting from the
feedstock and the unit was previously permitted to use the
feedstock. The EPA encourages suggestions in developing rules or
guidance on other approaches for determining emissions increases for
processes with rapidly changing and mixed feedstocks.
---------------------------------------------------------------------------

The proposed ``clean unit'' exclusion would both simplify the
applicability test for qualifying units and increase source
flexibility. It would also reward sources that in the recent past have
applied controls to their emissions units that were equal or comparable
to BACT or LAER.
Ideally, the change in hourly potential emissions would be assessed
immediately before and after the change to determine if an emissions
increase did indeed occur. However, this may not be practical in many
instances because information necessary to establish the hourly
potential emissions rate may require considerable time to develop or
collect. Therefore, under the proposed provision, the pre-change hourly
potential emission rate may be established or verified at any time up
to 6 months prior to the proposed activity or project. The EPA solicits
comment on alternative periods for establishing the pre-change hourly
emissions rate, particularly periods which might allow the use of
routine compliance emissions tests to determine the emissions rate
(e.g., annual). Also, under the proposed provision, where the unit is
subject to a federally enforceable limitation (on operations or
emissions) which limits the unit's hourly potential emissions to less
than the maximum physically-achievable hourly rate, the unit's lower
allowable rate must be used in determining if an emissions increase
will occur at the unit.
3. What Constitutes a ``Clean Unit''?
For this exclusion to function, it is necessary to distinguish a
well-controlled unit from a poorly controlled one. In other words, what
criteria distinguish a unit eligible for this exclusion from one which
is not? Criteria which allow a broad range of units to qualify could
largely transform the existing applicability system into one based
solely on assessing a unit's potential emissions, with the possibility
of a dramatic increase in a unit's actual annual emissions without
undergoing NSR.
The EPA proposes to require that in order to qualify as a ``clean
unit'' an emissions unit must have a federally enforceable emissions
limit that ``is comparable'' to the BACT or LAER requirements for that
type of unit, whichever would otherwise be applicable to the proposed
change. See proposed Secs. 51.165(a)(1)(v)(C) (10) through (13),
51.166(b)(2)(iii)(L), 52.21(b)(2)(iii)(L), and 52.24(f). The EPA
envisions that three types of limits would qualify: (1) BACT or LAER
limits set within the last 10 years for the particular unit; (2) a
limit set within the last 10 years for the particular unit by a State
technology review program determined by EPA to be comparable to the
Federal BACT or LAER programs; and (3) a limit found on a case-by-case
basis--after notice and opportunity for public comment--to be
comparable to the current BACT or LAER limits that would otherwise be
imposed on the source after weighing the cost and benefits of
additional or modified controls, including retrofit cost and benefits.
a. Units with BACT or LAER Limits. One starting point for
determining whether a unit is well-controlled is the level of control
required to satisfy BACT (in attainment/unclassified areas) or LAER (in
nonattainment areas). For units which have recently undergone these
reviews, re-evaluation of the technology shortly after the source is
constructed or modified to determine if the technology is still
``state-of-the-art'' would likely result in very little or no
incremental improvement in emissions control. Moreover, units that are
recently permitted are far less likely to have physically deteriorated
and more likely to be running near permitted capacity, reducing the
risk that changes to the unit will result in increased utilization and
increased actual emissions.
Therefore, the EPA is proposing that the new exclusion may
presumptively apply to any unit which received a BACT or LAER limit in
a currently applicable major NSR permit within 10 years of the proposed
change under consideration. See proposed
Secs. 51.165(a)(1)(v)(C)(11)(i), 51.166(b)(2)(iii)(L)(2)(i),
52.21(b)(2)(iii)(L)(2)(i), and 52.24(f). In other words, for the first
10 years following issuance of a PSD or nonattainment NSR permit, units
subject to BACT or LAER set in that permit are eligible for the clean
unit exclusion. At least some members of the Subcommittee expressed
concern that the 10-year period is too long given the improvement in
control technology that can occur in some source categories. For this
reason, EPA solicits comment on using a shorter period such as 5 years
as the length of the Clean Unit presumption derived from a NSR permit.
During consideration of the Clean Unit Exclusion, several
participants suggested that units subject to maximum achievable control
technology (MACT) or reasonably available control technology (RACT)
should also automatically qualify as clean units. A recently required
MACT emissions limit, while not necessarily equal to BACT or LAER, is
likely to result in significant emissions controls such that a BACT or
LAER review would not necessarily result in significant additional
emissions reductions. However, the EPA is also concerned that a MACT
limit could be significantly less effective in limiting VOC emissions
than BACT or LAER in many circumstances. A MACT emission limit may
adequately control a toxic VOC but could result in emission increases
of pollutants subject to NSR. For example, an incinerator installed to
reduce a toxic VOC will increase nitrogen oxides (NOX) emissions
emitted to the atmosphere.
The EPA also has concerns with using Federal RACT limits to
presumptively qualify a unit as a clean unit since RACT emission limits
can be less stringent than LAER and BACT. Further, in some instances
RACT is based on the attainment needs of the area and not a specific
control technology standard. While EPA solicits comment on
presumptively applying the clean unit exclusion test to units with
Federal MACT or RACT limits, the EPA is not inclined to do so across
the board. Rather, the EPA believes that MACT or RACT limits should be
found to qualify for the Clean Unit exclusion using the case-by-case
option described in section II.C.3.c.
b. State Technology Programs Comparable to BACT or LAER.There are
many emissions units at stationary sources that were permitted
according to a State's minor NSR permitting program. While these units
were not subject to a major source BACT or LAER limit per se, they may
have installed controls that would have satisfied major source BACT or
LAER requirements at the time the permit was issued. For instance,
several jurisdictions have control technology reviews as part of a
State, local or tribal minor NSR program which requires new or
modifying sources to meet emissions levels comparable to major source
control technology requirements (BACT or LAER). For this reason, the
EPA is proposing that permitting authorities may submit minor NSR
control technology requirements for certification by the EPA that the
minor NSR program requires control technology that would satisfy the
requirements for the clean unit exclusion. See proposed
Secs. 51.165(a)(1)(v)(C)(11)(ii), 51.166(b)(2)(iii)(L)(2)(ii),

[[Page 38257]]

52.21(b)(2)(iii)(L)(2)(ii), and 52.24(f). Once determined by EPA to be
comparable, all units subject to emissions limitation established under
the jurisdiction's minor NSR program would be eligible for the clean
unit exclusion for the first 10 years following issuance of the permit.
This could also apply to permits that have been issued previously under
minor NSR technology requirements that are later determined to be
comparable to major source BACT or LAER requirements. In such a case,
the clean unit exclusion would apply to the unit covered by the minor
NSR permit, and it would take effect once EPA makes the certification
of comparability (i.e., the clean unit test would apply only to
modifications taking place after the EPA certification of
comparability). The clean unit test could apply to the qualifying unit
for up to 10 years after issuance of the minor source permit. The EPA
also solicits comment on whether a shorter period, such as 5 years,
would be more appropriate.
The EPA also solicits comment on the appropriate standards for EPA
to use in determining whether a permitting authority's minor NSR
program control technology requirements are comparable to the BACT and
LAER requirements. The EPA envisions that as a minimum a ``pre-
certified'' minor NSR program comply with 40 CFR 51.160 through
164.10
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\10\ In a separate rulemaking EPA has proposed revising the
public review and comment requirements at 40 CFR 51.161 to give
States more flexibility in processing minor source permits for
projects that are determined to be ``less environmentally
significant.'' Certain minor source actions, e.g., netting, that in
effect shield a source from major source permitting requirements
would not qualify for less environmentally significant status. See
60 FR 45529, 45549 (August 31, 1995).
---------------------------------------------------------------------------

c. Qualification of Units on a Case-By-Case Basis. In many cases an
emissions unit not subject to major NSR is constructed or retrofitted
with a control technology or strategy comparable to the best controls
applied in practice. This may occur when a source minimizes emissions
in order to ``net'' a unit out of major NSR or applies controls to
comply with other provisions of the Act. For this reason, the EPA's
proposed regulations would allow a source having a limit on an
emissions unit determined to be comparable to BACT or LAER for the
particular unit considering cost and benefits of additional or modified
controls, including retrofit cost and benefits to qualify for the
``clean unit'' exclusion on a case-by-case basis. Specifically, an
existing unit which has not undergone a BACT or LAER determination or
comparable State technology requirement can also qualify as a ``clean
unit'' if, in the informed judgment of the permitting agency, a current
BACT or LAER determination for the unit would not be expected to result
in any lower level of emissions from the unit for the pollutant in
question. The costs, benefits and technical consideration associated
with the retrofit application of additional controls to the particular
unit may be considered by the permitting agency in the evaluation.
Since this in effect may require the permitting authority to engage in
a technology review that is similar to BACT or LAER review in order to
qualify a unit for this exclusion, the EPA is asking for comment on
other approaches for qualifying units.
Once a permitting authority makes this determination through a
process involving notice and opportunity for public comment, the unit
would be eligible for the clean unit exclusion for the next 5 years. As
with the other types of proposed clean unit exclusions, EPA requests
public comments on the proposed exclusion eligibility period. See
proposed Secs. 51.165(a)(1)(v)(C)(11)(iii),
51.166(b)(2)(iii)(L)(2)(iii), 52.21(b)(2)(iii)(L)(2)(iii), and
52.24(f).
The EPA solicits comments on several other alternative bases upon
which a permitting authority could take to make the determination that
a unit has a comparable BACT or LAER emissions limitation. The first
would be based on an average of BACT or LAER for equivalent or similar
sources over a recent period of time (e.g., most recent 3 years). The
second would be based on the unit's control level being within some
percentage (e.g., 5 or 10 percent) of the most recent, or average of
the most recent, BACT or LAER levels for equivalent or similar sources.
The EPA solicits comment on these approaches and on the general issues
concerning whether and how EPA should impose a specific methodology for
determining that a specific emissions limit is ``comparable'' to the
BACT or LAER limit that would result from a major source review.
For all of the above tests, the EPA realizes that there are many
source and emission unit categories for which BACT or LAER
determinations do not exist, let alone recent determinations. For these
sources, the EPA proposes that their level of control be gauged against
the control level associated with BACT or LAER for emission units with
similar emission stream characteristics. Since this in effect requires
the permitting authority to engage in a BACT or LAER review in order to
qualify a unit for this exclusion, the EPA is asking for comment on
other approaches for qualifying units.
States are encouraged to use the permitting process required by
title V of the Act as the vehicle for determining and recording which
units at a title V source can qualify for this exclusion.11 The
permitting authority could use the title V permit issuance, revision or
renewal process as the mechanism for making the case-by-case
determination (so long as the opportunity for public comment is
provided). For convenience, one, many or all units at a source could be
reviewed and subjected to public notice and comment concurrently with
the issuance or renewal of a title V operating permit. For units
eligible for the ``clean unit'' exclusion due to a prior NSR BACT or
LAER determination, or a determination under a program found comparable
by EPA, the title V permit offers the opportunity to clearly set forth
the status of the unit under the clean unit exclusion. Qualifying clean
units and the pollutant for which the determination was made should be
clearly identified and listed in the title V permit as ``clean units''
for NSR purposes.
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\11\ While rules implementing title V address how the unit's
major NSR permit and BACT or LAER limit are incorporated into the
title V permit, it is not clear that the status of a unit as a NSR
clean unit would be included in the title V permit as an applicable
requirement. Whether the status of a unit as a NSR clean unit
presumption is an applicable requirement in the title V permit will
likely depend upon how the clean unit test is adopted by the
permitting authority (e.g., adopted as a SIP requirement). The EPA
solicits comment on the best approach for implementing and
coordinating the review and designation of clean units with the
title V permit process.
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Under this proposal, a unit that does not initially qualify for the
clean unit exclusion could install controls meeting the criteria the
EPA establishes for well-controlled units and thereby qualify to use
the exclusion. The controls or pollution reduction strategy that are
the basis for the clean unit determination must be in place and
federally enforceable at the time the source relies on an exclusion
under this provision. So long as these federally enforceable conditions
are met, the source is free to make any change at the permitted unit
including those which could affect a unit's efficiency, capacity,
availability, longevity and utilization. However, changes which would
compromise the original emissions unit's BACT or LAER control level or
air quality impact (e.g., modified stack parameters which would cause
or contribute to violation of any applicable ambient standard,
replacement of the unit with a different type or size of unit, or
reconstruction of the unit) would not be allowed. Also,

[[Page 38258]]

for units excluded from major NSR under this proposed revision, the
physical or operational change must still comply with all otherwise
applicable Act and SIP requirements including any federally enforceable
limits on emissions or operations and minor NSR requirements.
Finally, the determination that a unit is ``clean'' or ``well-
controlled'' under this proposal is an applicability test and is
independent from the case-by-case determination of BACT or LAER for
sources subject to major NSR. While control technology which qualifies
a unit as ``clean'' may be ``comparable'' to BACT or LAER for a
particular unit considering its unique circumstances, it is not
necessarily equal to BACT or LAER for that unit when considered as part
of a new major facility or major modification, and in no way
establishes a presumptive BACT or LAER for that unit, source type or
category. Further, a 5- or 10-year presumption that a unit is ``clean''
does not in any way ``freeze'' BACT or LAER determinations in
permitting actions. The Act requires that BACT and LAER be current
determinations for sources subject to major NSR and the clean unit
designation does not override this determination.
4. Description of the Clean Facility Proposal
Similar to the clean unit exclusion, EPA is proposing an exclusion
for changes at clean facilities. This ``clean facility'' exclusion will
allow States to exclude from major NSR, proposed changes to an existing
major stationary source that has undergone major NSR for the entire
source within the last 10 years. See proposed
Secs. 51.165(a)(1)(v)(C)(11), 51.166(b)(2)(iii)(M),
52.21(b)(2)(iii)(M), and 52.24(f). Under this exclusion, a major source
can make any change as long as the source would still be in compliance
with its major NSR permit. The EPA envisions this to allow any changes
that do not include adding new units or allowing emissions trades that
were not evaluated for air quality impacts in the major NSR permit. The
exclusion would, however, allow a source to replace or reconstruct
existing units so long as they continue to meet the emissions
limitations established in the permit. Thus, such replacement or
reconstruction would not result in a different type of emissions unit
than envisioned and covered by the major NSR permit and its
requirements. The addition of new emissions units would not be allowed
under the proposal because such changes would not be consistent with
the existing NSR permit. However, all other changes consistent with the
terms of the major NSR permit would not be considered a ``physical or
operational change'' for the purposes of major NSR applicability.
Similarly, emissions trades may not be permissible where a different
air quality impact would result since the PSD or NSR permit might limit
such differing impacts.
As proposed, a clean major stationary source is one that underwent
NSR within the last 10 years. The EPA requests comment on this approach
and specifically on whether this proposed approach should not allow
units or facilities to be replaced or reconstructed.

D. Revision to the Netting Baseline

This preamble describes and solicits comment on a new method for
determining an existing source's baseline emissions for purposes of
determining whether a physical or operational change will cause an
increase in emissions and trigger NSR.
1. Introduction
As discussed, in order to determine whether a physical or
operational change will result in an increase in emissions, it is
necessary to compare a source's emissions before the change (its
baseline emissions) with its emissions after the change. The EPA's
existing regulations generally define baseline actual emissions as
``the average rate, in tpy, at which the unit actually emitted the
pollutant during a 2-year period which precedes the particular date and
which is representative of normal source operation.'' See, e.g.,
existing Sec. 52.21(b)(21)(ii). The Administrator ``shall'' allow use
of a different time period ``upon a determination that it is more
representative of normal source operation.'' Id. Prior to the WEPCO
rule, EPA historically used the 2 years immediately preceding the
proposed change to establish the baseline. (See 57 FR 32323.) However,
in the WEPCO rule, EPA adopted a ``presumption'' that utility sources
could use any 2-year period out of the preceding 5 years.
During the CAAAC Subcommittee deliberations, there was considerable
interest in the issue of the proper baseline. For instance in the
automobile industry, where low utilization rates have persisted at some
plants for several years, EPA's baseline presumptions have the effect
of leaving plant managers with the choice of surrendering capacity
(that would not be considered representative of normal operations under
the current NSR rules) or taking the time and expense to secure a major
NSR permit for even small, non-excluded changes to a portion of the
plant.
Provisions in the existing regulations which, at the discretion of
the permitting authority, allow the use a different, ``more
representative,'' period have not alleviated the problem in the view of
many Subcommittee members. As with other aspects of current netting
rules, establishing representative baseline periods other than the 2-
year period preceding the proposed change can be complex and time-
consuming, and often involves disputed judgment calls.
Several industry applicability proposals included changing to a
netting baseline that allows sources to use the highest year or 12
consecutive months out of the previous 10 years. Generally, the
participating State air pollution management officials favored this
increase in flexibility. Some of the environmental group
representatives also recognized that the existing baseline approach has
the impact of taking away ``used and useful'' capacity and that a
longer baseline period would be appropriate. On the other hand, some
participants were concerned that the test for determining a net
emissions increase take into account not only annual emissions levels
but short-term levels as well. The proposal outlined below addresses
these concerns.
2. Description of Proposed Netting Baseline
The EPA is today proposing to extend the time period for
determining baseline in the definition of actual emissions to 10 years
for all source categories and to allow sources to base their actual
emissions on the highest consecutive 12 months during this 10-year
period. See proposed Secs. 51.165(a)(1)(xii)(b), 51.166(b)(21)(ii) and
52.21(b)(21)(ii). As described below, in nonattainment areas and ozone
transport regions, the EPA proposes that the 12-month period begin on
or after November 15, 1990 to be consistent with the area's emissions
inventory and attainment plan requirements. See proposed Sec. 51.165
(a)(1)(xii)(B). In addition, this proposal would replace the any 2-
years-in-5 baseline established as a presumption for utilities in the
WEPCO rulemaking and would be available for all source categories,
subject to the restrictions discussed below. See, e.g., existing
Sec. 51.166(b)(21)(v).
The EPA's intent is to allow sources to determine applicability
based on their highest level of utilization and not necessarily their
highest emissions rate. The emissions rate of units at issue may be
subject to any number of current Federal or State restrictions (e.g.,
RACT,

[[Page 38259]]

MACT, BACT, LAER, NSPS, national emission standard for HAP (NESHAP)) as
well as voluntary limits (e.g., reductions used for netting, offsets,
Emission Reduction Credits creation) and these limits may have been
imposed since the time the source achieved its highest emissions level.
Therefore, these limits must be included in establishing the baseline
emissions. For this reason, the EPA is today proposing that sources
calculate the baseline by using their current emissions factor in
combination with the utilization level from the 12-month time period
selected. This safeguard insures that no significant loss of
environmental protection will result from the proposed change.
Under the proposed provision, EPA also would limit the new baseline
in nonattainment areas and ozone transport regions to no sooner than
the enactment date of the 1990 Amendments, November 15, 1990. The 1990
Amendments included a number of changes in how emissions are to be
inventoried and tracked, particularly in nonattainment areas and ozone
transport regions. The changes strengthen reasonable further progress
tracking requirements, offset limitations and RACT requirements for
nonattainment areas and establish enhanced emissions inventory
requirements for all areas. The EPA believes that allowing baselines
prior to the 1990 Amendments may complicate and impede State and local
efforts to track and reduce emissions from a 1990 emissions baseline
which in many cases may be lower than pre-1990 emission levels.
Therefore, the EPA is proposing to limit use of an expanded baseline in
nonattainment areas and ozone transport regions to a period of time no
earlier than November 15, 1990 and no greater than 10 years, whichever
is more restrictive. This means that sources in nonattainment areas
would not be able to utilize a 10-year look back until November 15,
2000.
In attainment/unclassifiable areas, use of pre-1990 emission
baselines would also pre-date general emission inventory and reporting
requirements of the 1990 Amendments which are expected to improve
recordkeeping and inventory maintenance by State and local agencies.
Unlike nonattainment areas and ozone transport regions, however, these
inventory and data requirements are not directly linked to the PSD
requirements. Therefore, the EPA sees no clear reason why the use of a
10 year look back should be limited to after November 15, 1990 in
attainment/ unclassifiable areas. However, EPA solicits comment on this
issue for both attainment/unclassifiable areas and nonattainment areas.
It is the EPA's experience that many sources keep accurate records
on emissions or operations for only 3 to 5 years, unless expressly
required to do so for a longer period. A number of State and local
permitting authorities have similar experiences. Thus, the EPA has
reservations concerning the use of 10-year, and longer, baselines and
solicits comment on whether a shorter (e.g., 5-year) period would be
more appropriate. In addition, if the EPA adopts a 10-year look back
period, the EPA also proposes that such period be available only when
adequate emissions and/or capacity utilization data are available for
the baseline calculation. The EPA solicits comment on the need to
condition the use of such periods upon the accuracy and completeness of
available data, and the need to establish specific criteria, through
guidance or otherwise, for accuracy, completeness and recordkeeping
when using older data.
As noted, the EPA's existing regulations provide that the source
may seek to use another time period outside the 2 preceding years upon
a finding by the permitting authority that this other period is ``more
representative'' of normal source operations. See existing
Secs. 51.165(a)(1)(xii)(B), 51.166(b)(21)(ii), 52.21(b)(21)(ii), and
52.24(f)(13)(ii). This provision has been a source of confusion and
uneven implementation. The EPA therefore proposes to eliminate this
provision. In other words, if the EPA were to adopt a 10-year look
back, a source may simply choose the highest consecutive 12-month
period of utilization within the 10 years prior to a proposed physical
or operational change (but not before November 15, 1990 in ozone
transport regions and nonattainment areas). Neither the permitting
authority nor the EPA will retain any discretion to allow a time period
outside this extended range.
The EPA also solicits comment on how this proposed extension of the
emissions baseline for netting may interact with the statutory
requirements in section 182 (c) and (e) of the Act applicable in
serious, severe and extreme ozone nonattainment areas. Section 182(c)
(6), (7) and (8) of the Act provides special rules for modifications at
major sources in serious and severe ozone nonattainment areas including
an aggregation of all net increases in emissions from a source over 5
consecutive calendar years. Section 182(e)(2) of the Act governs
applicability of NSR to modifications in extreme ozone nonattainment
areas requiring any change that results in any increase in emissions
from a discrete operation or unit to be subject to major NSR. While the
determination of the emissions baseline is somewhat independent of the
actual netting calculation, clearly the proposed new baseline can
affect netting transactions and may be in tension with the design and
intent of these statutory provisions.
This proposal does not extend the current 5-year contemporaneous
period for considering increases and decreases for netting. See, e.g.,
existing Secs. 51.165(a)(1)(vi)(B), 51.166(b)(3)(ii), 52.21(b)(3)(ii),
and 52.24(f)(6)(ii). While this proposal would allow a 10-year look
back from the activity under review to determine baseline emissions,
any contemporaneous increases and decreases must occur within the 5-
year window to be applicable for netting. The EPA solicits comment on
the effect of the differing look back and contemporaneous periods and
any reasons why these periods should be consistent, over either 5 or 10
years.
3. Protection of Short-term Increments and NAAQS
In discussions of a longer baseline, environmental group
representatives linked any change from the existing baseline with the
adoption of safeguards for short-term NAAQS and PSD increments.12
These representatives suggested that the current netting analysis be
changed to require a source to go through major NSR when there is a net
increase in short-term (e.g., hourly, daily, weekly or monthly,
depending on the emission tracking capability of the source) emissions
when past actual emissions are represented by the highest short-term
emissions in the previous year. This step could provide assurances that
peak emissions, which could cause violations of short-term NAAQS, would
not be allowed to increase without major NSR. Some applicability
subgroup members argued that the short-term test should be an air
quality screening test rather than an NSR applicability trigger.
---------------------------------------------------------------------------

\12\ The PSD increments are explained in section IV.B.1.
---------------------------------------------------------------------------

The EPA carefully considered the possibility of adding a short-term
``increase'' test to the netting calculation; however, ultimately
decided against this in the proposal for two reasons. First, the EPA is
concerned that a test that relies on a source's highest short-term
actual emissions would be too easy to circumvent. For a short time,
sources can run at maximum capacity so that the baseline short-term
emissions would likely be nothing less than the source's maximum
potential emissions.

[[Page 38260]]

Moreover, the EPA is not sure that limiting the source to its
highest past short-term emissions level will necessarily provide any
additional protection to NAAQS, increments or Class I AQRV. The current
regulations already restrict the creditability of some decreases in
emissions where the overall netting transaction could jeopardize air
quality. In particular, a provision in the definition of ``net
emissions increase'' allows credit for a reduction only to the extent
that it has approximately the same qualitative significance for public
health and welfare as the increase from the proposed change. See,
existing Secs. 51.165(a)(1)(vi)(E)(4), 51.166(b)(3)(vi)(c),
52.21(b)(3)(vi)(c), and 52.24(f)(6)(v)(d). In a June 28, 1989,
rulemaking (54 FR 27286) EPA clarified that aspect of the regulations
to require that, despite the absence of a significant net increase in
emissions, an applicant proposing to net out of review must demonstrate
that the proposed netting transaction will not cause or contribute to
an air quality violation before the emissions reduction may be
credited.
To ensure that the change to a netting baseline based on the
highest 12 consecutive months out of the last 120 consecutive months
does not adversely impact short- (or long-) term ambient standards, the
EPA is proposing to clarify the regulations by requiring that, to be
creditable for netting purposes, an emissions reduction must be
sufficient to prevent the proposed increase from causing or
contributing to a violation of any NAAQS or PSD increment and must not
have an adverse impact on AQRV (including visibility) of Class I
areas.13 See proposed Secs. 51.165(a)(1)(vi)(E)(4),
51.166(b)(3)(vi)(C), 52.21(b)(3)(vi)(C) and 52.24(f). As discussed
above, this requirement is inherent in the EPA's current regulations
and, therefore, should already be part of any netting analysis.
---------------------------------------------------------------------------

\13\ The AQRV in Federal Class I areas are explained in section
IV.
---------------------------------------------------------------------------

E. Pollution Control Project Exclusion

The 1990 Amendments are stimulating a vast number of sources in the
country to undertake pollution control and pollution prevention
projects during the next few years. As a result, most stakeholders
urged EPA to clarify the applicability of major NSR requirements to
pollution control and pollution prevention projects. The EPA has
previously adopted a limited exclusion for pollution control project
undertaken by utilities as part of the 1992 WEPCO rulemaking. See 57 FR
32314. Based on the stakeholder deliberations, EPA issued policy
guidance which covered all other source categories and which excluded
qualifying pollution control projects from major NSR.14 Today, EPA
proposes to replace both the WEPCO exclusion and the policy guidance
with a single comprehensive regulatory exclusion for all types of
pollution control projects (including add-on controls, switches to
less-polluting fuels, and pollution prevention projects). The proposed
exclusion is designed to minimize procedural delays while still
ensuring appropriate environmental protection (i.e., that a project be
allowed not cause or contribute to a violation of a NAAQS or PSD
increment and not adversely impact on the AQRV of Class I areas).
---------------------------------------------------------------------------

\14\ July 1, 1994 memorandum from John Seitz, Director, OAQPS,
``Pollution Control Projects and New Source Review (NSR)
Applicability''.
---------------------------------------------------------------------------

While this proposal was modeled after the WEPCO exclusion, it
contains several significant changes reflecting the fact that the WEPCO
exclusion was limited to a single source category and covered only a
small, finite set of pollution control projects specific to utility
units. In contrast to the WEPCO exclusion, this proposal reflects the
more complex task of addressing a vast array of pollution control and
pollution prevention projects at a variety of sources facing numerous
Federal, State and local environmental requirements. Specifically, this
proposal:
Provides a much broader definition of ``pollution control
project'' than that adopted in the WEPCO rule and includes, unlike the
WEPCO rule, pollution prevention projects;
Deletes the requirement that add-on controls and fuel
switches be subject to an ``environmentally beneficial'' test; instead
only pollution prevention projects are subject to this additional
safeguard;
Incorporates the safeguard that no project, whether an
add-on control, a fuel switch, or pollution prevention, can result in
an increase in actual emissions that will cause or contribute to a
violation of a NAAQS or PSD increment, and extends the policy to
protection against adverse impacts of AQRV in a Class I areas.15
---------------------------------------------------------------------------

\15\ The WEPCO rule refers specifically to ``visibility
limitation'' rather than ``air quality related values.'' However,
EPA clearly stated in the preamble to the final rule that permitting
agencies have the authority to ``solicit the views of others in
taking any other appropriate remedial steps deemed necessary to
protect Class I areas * * *. EPA emphasizes that all environmental
impacts, including those on Class I areas, can be considered * *
*.'' See 57 FR 32322. Further, the statutory provisions in section
165(d) of the Act plainly are intended to protect against any
adverse impact on AQRV in such Class I lands (including visibility).
Based on this statutory provision, EPA believes that any air quality
assessment for a pollution control project should consider impacts
on visibility and any other relevant AQRV for any Class I areas that
may be affected by the proposed project.
---------------------------------------------------------------------------

The EPA encourages commenters to address EPA's proposed decision to
supersede the WEPCO pollution control project exclusion with a single
exclusion applicable to all types of sources. Specifically, EPA invites
comment on two alternative approaches: (1) In addition to today's
proposed exclusion for all source categories, retain the WEPCO
pollution control project exclusion for utilities only or (2) in lieu
of the comprehensive exclusion proposed today, extend the WEPCO
pollution control project exclusion to all source categories.
1. Background
In the WEPCO rulemaking, the EPA amended its PSD and nonattainment
NSR regulations as they pertain to utilities by adding ``the addition,
replacement or use of a pollution control project at an existing
electric utility steam generating unit'' to the list of activities
excluded from major NSR applicability. See, e.g., existing
Sec. 51.166(b)(2)(iii)(h). Because the WEPCO rulemaking was directed
only at the utility industry, the EPA limited the types of projects
eligible for the exclusion to those types of controls typically
associated with that industry, namely add-on controls and fuel switches
to a less polluting fuel.16
---------------------------------------------------------------------------

\16\ The definition also includes certain clean coal technology
demonstration projects. See, e.g., existing section
51.166(b)(2)(iii)(i) and (j). Today's proposal would not affect
these applicability rules for certain clean coal technology projects
that were codified in the WEPCO rulemaking.
---------------------------------------------------------------------------

The EPA built two safeguards into the exclusion in the WEPCO
rulemaking. First, a project that meets the definition of pollution
control project would nonetheless not qualify for the exclusion where
the ``reviewing authority determines that [the proposed project]
renders the unit less environmentally beneficial.'' See, e.g., existing
Sec. 51.165(a)(1)(v)(C)(8). This provision is buttressed by a second
safeguard that directs permitting authorities to evaluate the air
quality impacts of a proposed pollution control project that the
reviewing authority believes could result in a significant net increase
in representative actual annual emissions of a criteria pollutant (id.;
see also 57 FR 32322), since under no circumstances can a pollution
control project cause or contribute to violation of a NAAQS, PSD
increment, or visibility limitation.17 See, e.g., existing
Sec. 51.165(a)(1)(v)(C)(8)(ii); 57 FR 32322.
---------------------------------------------------------------------------

\17\ The WEPCO rule adds that when evaluating impacts the
permitting authority may use that part of any increase that exceeds
an emissions level used for that source--if any--in the most recent
air quality impact analysis in the area conducted for the purpose of
title I.

---------------------------------------------------------------------------

[[Page 38261]]

Subsequent to issuance of the WEPCO rule, EPA's July 1, 1994,
policy guidance provided a limited pollution control project exclusion
for other source categories on a case-by-case basis. The July 1994
guidance will remain in effect until the EPA takes final action on
today's proposal.
2. Description of Proposed Exclusion of Pollution Control Projects
The EPA proposes to adopt for all source categories a pollution
control project exclusion from the definition of ``physical or
operational change'' within the definition of major modification. See
proposed Secs. 51.165(a)(1)(v)(C)(8), 51.166(b)(2)(iii)(H),
52.21(b)(2)(iii)(H), and 52.24(f). This proposed exclusion will shield
these projects from being considered ``major modifications'' and
subject to major NSR. As proposed, the exclusion encompasses add-on
controls, switches to less polluting fuels and pollution prevention
projects and is subject to one overarching safeguard first applied in
WEPCO: that the proposed pollution control project cannot result in an
emissions increase that will cause or contribute to a violation of a
NAAQS or PSD increment. See 57 FR 32322. As discussed, while the WEPCO
rulemaking also extended this prohibition to ``visibility
limitations,'' EPA is proposing instead to focus the protection on AQRV
(including visibility) in Class I areas. In addition, for pollution
prevention projects, the permitting authority must find that the
project is environmentally beneficial before such projects may qualify
as a pollution control project.
a. Types of Projects Covered. (1) Add-On Controls and Fuel
Switches. In the WEPCO rulemaking, EPA found that both add-on emissions
control projects and fuel switches to less polluting fuels could be
considered to be pollution control projects. Today's proposal affirms
that these types of projects are appropriate candidates for the
exclusion, but also greatly expands the types of add-on controls
covered to include other control projects. See proposed
Secs. 51.165(a)(1)(xxv), 51.166(b)(31), 52.21(b)(31), and 52.24(f).
These types of projects include:

--The installation of conventional and advanced flue gas
desulfurization and sorbent injection for sulfur dioxide (SO2);
---Electrostatic precipitators, baghouses, high-efficiency multiclones,
and scrubbers for particulate or other pollutants;
--Flue gas recirculation, low-NOX burners, selective non-catalytic
reduction and selective catalytic reduction for NOX; and
--Regenerative thermal oxidizers, catalytic oxidizers, condensers,
thermal incinerators, flares and carbon absorbers for VOC and HAP.

Projects undertaken to accommodate switching to a less-polluting
fuel, such as natural gas when the source is burning coal, would also
qualify for the proposed exclusion. In some instances, where the
emissions unit's capability would otherwise be impaired as a result of
the fuel switch, this may involve certain necessary changes to the
pollution generating equipment (e.g., boiler) in order to maintain the
normal operating capability of the unit at the time of the project.
The EPA has also concluded that substitutions of less potent ODS
for more potent ODS is environmentally beneficial and is therefore
proposing that such substitutions be considered a pollution control
project for PSD purposes. See proposed Secs. 51.166(b)(2)(iii)(N) and
40 CFR 52.21(b)(2)(iii)(N). This proposed exclusion is described
further in section VI.B.2. of this preamble.
(2) Pollution Prevention Projects. The EPA's policy is to promote
pollution prevention approaches and to remove regulatory barriers to
sources seeking to develop and implement pollution prevention solutions
to the extent allowed under the Act. For this reason, the EPA proposes
today to include in the definition of pollution control projects
switches to inherently less-polluting raw materials and processes and
certain other types of ``pollution prevention'' projects.18 For
instance, under these proposed regulations, VOC users who switch to
water-based or powder paint application systems as a strategy for
meeting RACT or switch to a non-toxic VOC to comply with MACT
requirements, could qualify for this exclusion.
---------------------------------------------------------------------------

\18\ As defined in proposed sections, pollution prevention means
any activity that through process changes, product reformulation or
redesign, or substitution of less-polluting raw materials,
eliminates or reduces the release of air pollutants and other
pollutants to the environment (including fugitive emissions) prior
to recycling, treatment, or disposal; it does not mean recycling
(other than certain ``in-process recycling'' practices), energy
recovery, treatment, or disposal [see Pollution Prevention Act of
1990, Pub. L. 101-508, section 6602(b) and section 6603(5) (A) and
(B), 42 U.S.C. sections 13101(b) and 13102(5) (A) and (B); see also
``EPA Definition of 'Pollution Prevention,' '' memorandum from F.
Henry Habicht II, May 28, 1992].
---------------------------------------------------------------------------

Accordingly, under this proposal permitting authorities would be
allowed to consider excluding from major NSR raw material
substitutions, process changes and other pollution prevention
strategies where the proposed changes are determined to be
environmentally beneficial as discussed below. See proposed
Secs. 51.165(a)(1)(xxv)(A)(6), 51.166(b)(31)(i)(F), 52.21(b)(32)(i)(F),
and 52.24(f).
b. Safeguards. (1) General Applicability. For the purpose of this
proposed exclusion, a pollution control project is an activity or
project at an existing emissions unit where the primary purpose of such
activity or project is the reduction of air pollutants subject to
regulation under the Act at the emissions unit. See proposed
Secs. 51.165(a)(1)(xxv), 51.166(b)(31), 52.21(b)(31), and 52.24(f). The
proposed exclusion would not be applicable to air pollution controls
and emissions associated with the construction of a proposed new
emissions unit. Consistent with the WEPCO rule and EPA's existing
policy guidance the replacement of an existing emissions unit with a
newer or different one (albeit more efficient and less polluting) or
the reconstruction of an existing emissions unit would not qualify as a
pollution control project. Similarly, the fabrication, manufacture or
production of pollution control/prevention equipment and inherently
less-polluting fuels or raw materials would not qualify as pollution
control projects (e.g., a physical or operational change for the
purpose of producing reformulated gasoline at a refinery is not a
pollution control project under the proposed exclusion).
A point was raised to EPA that new pollution control technologies
are likely to be developed over time that will meet the same criteria
that technologies named above have met. Consequently, a process would
be useful whereby any such new technology qualifies as a ``pollution
control project'' when a history of performance has been established.
The EPA is therefore proposing that a new technology which meets the
following criteria should be considered eligible for a pollution
control project exclusion: (1) It has been installed for the purposes
of a pollution control project as defined in the regulation; (2) it has
been demonstrated in practice; (3) it has been determined by the
permitting authority to be environmentally beneficial. See proposed
Secs. 51.165(a)(1)(xxv)(A)(7), 52.21(b)(32)(i)(G), 51.166(b)(31)(i)(G),
and 52.24(f).
The EPA solicits comment on extending the pollution control project

[[Page 38262]]

exclusion to new qualifying technologies and the qualification
criteria. Specifically, EPA requests comment on whether control
technologies, other than those listed above and at
Secs. 51.165(a)(1)(xxv)(A)(1) through (6), 52.21(b)(32)(i) (A) through
(E), and 51.166(b)(31)(i) (A) through (E) must be comparable in
effectiveness to those listed technologies on a pollutant-specific
basis in order to qualify for the exclusion contained under proposed
Secs. 51.165(a)(1)(xxv)(A)(7), 52.21(b)(32)(i)(G), 51.166(b)(31)(i)(G),
and 52.24(f).
The EPA also solicits comment on whether applicability of the
pollution control project exemption should be extended to ``cross
media'' pollution control projects, and whether they should be required
to meet the ``environmentally beneficial'' test.19 To qualify for
this exemption, as for all pollution control projects, a ``cross
media'' pollution control project could not cause or contribute to a
violation of any NAAQS or PSD increment or have an adverse impact on
AQRV in a Class I area.
---------------------------------------------------------------------------

\19\ A ``cross media'' pollution control project could be
defined as either a control technology or application to comply with
limitations established under other Federal environmental laws
(e.g., Safe Drinking Water Act or Clean Water Act) that results in
emissions to the atmosphere. For example, to comply with an effluent
limitation established under the Clean Water Act, a source chooses
to install a control device that removes the pollutant from the
wastewater stream and discharges it into the atmosphere. This type
of pollution control project could qualify for the exclusion provide
it is environmentally beneficial.
---------------------------------------------------------------------------

(2) The Cause or Contribute Test. A proposed pollution control
project, or any physical or operational change, cannot result in an
emissions increase that will cause or contribute to a violation of any
NAAQS or PSD increment, or have an adverse impact on AQRV in a Class I
area. See sections 110(a)(2)(C), 165, and 173 of the Act; see also 57
FR 32322-32323. To ensure that the proposed pollution control project
exclusion does not have this proscribed impact, EPA is also proposing
to adopt (with some changes) the air quality impacts safeguard
currently in place for utility pollution control projects. See proposed
Secs. 51.165(a)(1)(v)(C)(8), Sec. 51.166(b)(2)(iii)(H),
Sec. 52.21(b)(2)(iii)(H), and Sec. 52.24(f).
It is possible that a pollution control project, while
significantly reducing the emissions rate of a targeted pollutant,
could still cause an increase in actual emissions of that or another
pollutant at the source. This could occur either from the project
causing collateral emissions (such as in the case of a VOC incinerator
which causes NOX emissions) or through a utilization change (where
a project reduces an emission rate but increased utilization stemming
from the project results in increased emissions of the same or other
air pollutants). In either case, the emissions increases could cause or
contribute to a violation of any NAAQS or PSD increment, or have an
adverse impact on AQRV.
Under the WEPCO rule, permitting authorities can require a source
to model its impacts whenever (1) the permitting authority has reason
to believe that the proposed project would result in a significant net
increase in actual emissions of any criteria pollutant over levels used
for that source in the most recent air quality impact analysis; and (2)
the permitting authority has reason to believe that such an increase
would cause or contribute to a violation of any NAAQS or PSD increment
or visibility limitation. If this analysis indicates that the increase
in emissions will cause or contribute to a violation of any NAAQS or
PSD increment, or result in either visibility limitation or impairment,
the pollution control exclusion does not apply. See 57 FR 32322.
The EPA believes that such safeguard needs to be included in this
proposal as well. Thus, where a pollution control project will result
in a significant increase in actual emissions and the increased level
has not been previously analyzed for its air quality impact and raises
the possibility of a NAAQS or increment or adverse impact on an AQRV,
the permitting authority would require the source to provide an air
quality analysis sufficient to demonstrate that the impact of the
project would not cause or contribute to a violation of any NAAQS or
PSD increment, or have an adverse impact on AQRV. The EPA would not
necessarily require that the increase be modeled, but the source must
provide sufficient data to satisfy the permitting authority that the
new levels of emissions will not cause or contribute to a violation of
any NAAQS or PSD increment, and will have an adverse impact the AQRV in
nearby Class I areas.
Since a significant increase in a nonattainment pollutant would be
considered to contribute to the existing nonattainment problem, in the
case of nonattainment areas the State or the source would be required
under this proposal to mitigate (e.g, through offsets or SIP measures)
any significant increase in a nonattainment pollutant resulting from
the pollution control project. De minimis collateral emissions
increases (e.g., less than 40 tpy of VOC in a moderate ozone
nonattainment area) would not trigger such mitigation requirements.
However, a de minimis increase may be subject to a State's minor NSR
requirements.
(3) Determination of Increase in Emissions. The EPA is today
proposing to use a representative actual annual emissions approach to
determining whether a pollution control project will result in
increased emissions. See proposed Secs. 51.165(a)(1)(v)(C)(8),
51.166(b)(2)(iii)(H), 52.21(b)(2)(iii)(H), and 52.24(f). This is the
methodology developed in the WEPCO rule and is explained in detail in
that rulemaking. See 57 FR 32323. The use of this approach is premised
on the EPA's experience and expectation that in most circumstances
pollution control projects will not affect how the source is operated
so that the calculation of whether a pollution control project will
result in an emissions increase can be made through the simple
comparison of pre-change and post-change emissions rates. Of course,
where the permitting authority expects source operations to change,
this methodology allows the post-change emissions to be projected based
on the new operating levels. In the case of a pollution control project
that will not affect utilization but collaterally increases a non-
targeted pollutant, this proposal requires that the actual increase
(calculated using the new emissions rate and current utilization
pattern) must be analyzed to determine its air quality impact.
Although the EPA is supportive of pollution prevention projects and
strategies, special care must be taken in classifying a project as a
pollution control project and in evaluating a project under a pollution
control project exclusion. Virtually every modernization or upgrade
project at an existing industrial facility which reduces inputs and
lowers unit costs has the concurrent effect of lowering an emissions
rate per unit of fuel, raw material or output. Nevertheless, it is
clear that these major capital investments in industrial equipment are
the very types of projects that Congress intended to address in the new
source modification provisions. See Wisconsin Electric Power Co. v.
Reilly, 893 F.2d 901, 907-10 (7th Cir. 1990) (rejecting contention that
the utility life-extension project was not a physical or operational
change); Puerto Rican Cement Co., Inc. v. EPA, 889 F.2d 292, 296-98
(1st Cir. 1989) (major NSR was found to be applicable to a
modernization that decreased emissions per unit of output). Moreover,
projects which significantly increase capacity, decrease production
costs, or improve product marketability may dramatically increase
source operations. In these situations, the

[[Page 38263]]

environment may or may not see a reduction in overall source emissions
due to the project.20 Nevertheless, the EPA believes that these
types of projects may have other desirable environmental effects by
reducing energy and raw materials consumption and minimizing waste by-
products. Consequently, the EPA solicits comment on how to address
pollution prevention projects that can be reasonably expected to result
in a significant increase in emissions resulting from increased
utilization of the affected emissions unit(s) where notwithstanding
such increase an overall positive environmental benefit is evident.
Specifically, where emissions are expected to increase significantly as
a result of a pollution prevention project, should these types of
projects be allowed to take advantage of this pollution control project
exclusion?
---------------------------------------------------------------------------

\20\ This is in marked contrast to the addition of pollution
control equipment which typically does not, in EPA's experience,
result in any increase in the source's utilization of the emission
unit in question.
---------------------------------------------------------------------------

3. The Environmentally Beneficial Test
The WEPCO rule also provided that, to qualify for exclusion, a
pollution control project cannot render the unit less environmentally
beneficial. For the proposed list of pollution control projects and for
fuel switches to a less-polluting fuel, EPA is satisfied that the
overall impact on the environment of these projects is beneficial and
that, consequently, such projects are desirable from an environmental
perspective. These are the very types of pollution controls that have
historically been applied to new and modified major and minor sources
for the purpose of reducing emissions based on known and permissible
environmental effects. Inherent in their historic use has been the
basic understanding that from an overall environmental perspective the
use of such controls is acceptable. The EPA has no reason at this time
to doubt the validity of this presumption when such controls are
applied to existing sources in a manner consistent with standard and
reasonable practices.21 Consequently, as part of the exclusion for
pollution control projects, EPA's proposal would not require an overall
environmental impact test for the listed pollution control projects.
See proposed Secs. 51.165(a)(1)(xxv)(A) (1) through (5),
51.166(b)(31)(i) (A) through (E), 52.21(b)(31)(i) (A) through (E), and
52.24(f).
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\21\ The presumption that the listed projects are
environmentally acceptable is premised on an understanding that such
controls would be designed and operated in a manner consistent with
standard and reasonable practices, (e.g., increases in collateral
pollutants are minimized within the control's inherent design, no
unacceptable increased risk due to the release of toxic pollutants
would occur). Where a permitting agency determines that an otherwise
listed project would not be constructed and operated in such a
manner, then that specific project would not qualify as a listed
project for the purpose of the exclusion.
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However, the EPA proposes to retain the environmentally beneficial
standard for pollution prevention projects. See proposed
Secs. 51.165(a)(1)(xxv)(A)(6), 51.166(b)(31)(i)(F), 52.21(b)(31)(i)(F),
and 52.24(f). Unlike the list of pollution control projects described
above for which the environmental impacts are known and EPA is
satisfied that the projects will be environmentally acceptable, a
project that may be acclaimed as a pollution prevention project may not
be as well documented or substantiated as others and its effectiveness
may depend on site-specific factors. Any project requesting a pollution
prevention exclusion should be reviewed by the permitting authority to
ensure that the project's overall impact on the environment is
beneficial.22 Once a particular kind of project has been
demonstrated to be environmentally beneficial, the permitting authority
could rely on this demonstration in evaluating subsequent applications
for the same kind of project. A subsequent project could be presumed
environmentally beneficial unless case-specific factors or impacts
would indicate otherwise.
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\22\ For example, a pollution prevention project which while
decreasing emissions of a criteria pollutant results in an
unacceptable increased risk due to the release of air toxics should
not be considered environmentally beneficial. However, the EPA
expects that many pollution prevention projects will be for the
purpose of compliance with title III MACT requirements and by their
nature will result in reduced risk from air toxics. Consequently, in
judging whether a pollution prevention project can be considered
environmentally beneficial, permitting authorities may consider as a
relevant factor whether a project is being undertaken to bring a
source into compliance with a MACT, RACT, or other Act requirement.
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4. Procedural Safeguards
Nothing in current guidance or in this proposal voids or creates an
exclusion from any applicable minor NSR preconstruction review
requirement in any SIP that has been approved pursuant to section
110(a)(2)(C) of the Act and 40 CFR 51.160 through 164. See footnote 10.
Accordingly, the EPA believes that a pollution control project
qualifying for this proposed exclusion generally will be required by
the applicable SIP to obtain a minor NSR permit prior to beginning
construction. The EPA expects the minor NSR permitting process to be
the mechanism by which the permitting agency reviews the pollution
control project to ensure that the project design is consistent with
standard and reasonable practices, determines if a significant net
increase in representative actual emissions will occur and, if so,
whether the resultant air quality or AQRV impacts are acceptable. See
57 FR 32322.
In addition, as discussed above, for a proposed project to qualify
as a pollution control project the permitting agency must first
determine that the project will be environmentally beneficial. The
decision-making process should include documentation of the basis for a
finding that a proposed pollution prevention project is environmentally
beneficial. The EPA also solicits comment on the adequacy of these
procedural safeguards and the need for any additional or alternative
safeguards.
5. Emission Reduction Credits
In general, certain pollution control projects approved for an
exclusion from major NSR could result in emission reductions which may
serve as NSR offsets or netting credits. Under this proposal, credit
may be given for all or part of the emission reductions equal to the
difference between the pre-modification actual baseline emissions and
post-modification PTE for the decreased pollutant provided that (1) the
project will not result in a significant collateral increase in actual
emissions of any criteria pollutant, (2) the project is still
considered environmentally beneficial, and (3) all otherwise applicable
criteria for the crediting of such reductions are met (e.g.,
quantifiable, surplus, permanent, and enforceable). Where an excluded
pollution control project results in a significant collateral increase
of a criteria pollutant, emissions reduction credits from the pollution
control project for the controlled pollutant could still be granted
provided, in addition to (2) and (3) above, the actual collateral
increase is reduced below the applicable significance level, through
either internal contemporaneous reductions or external offsets.
However, neither the exclusion from major NSR nor any credit (full or
partial) for emission reductions would be available where the type or
amount of the emissions increase which would result from the use of
such credits would lessen the environmental benefit associated with the
pollution control project to the point where the project would not have
initially qualified for an exclusion.
The EPA solicits comment on alternative methods for calculating
emissions reduction credits, especially if the NSR applicability rules
are revised.

[[Page 38264]]

F. Proposed Plantwide Applicability Limitations (PAL)

The EPA today proposes a new applicability approach for existing
sources under which a source, if authorized by a State in a SIP, may
base its NSR applicability on a plantwide emissions cap, termed a
plantwide applicability limitation (PAL). So long as source activities
do not result in emissions above the cap level, the source will not be
subject to major NSR. The voluntary source-specific PAL is a
straightforward, flexible approach to determine whether changes to an
existing major stationary source result in an emissions increase. In
the NSR Reform Subcommittee deliberations, the PAL was viewed as an
alternative that a plant manager could readily understand. Instead of a
case-by-case assessment of whether a modification is excluded from
major NSR, the manager knows that as long as the plant stays within its
emissions cap, major NSR will not be triggered. Production units can be
started and stopped, product lines reconfigured, and products changed
and revamped without delay from major NSR.
In addition, the PAL approach should provide a valuable tool for
managing a number of other Act requirements. For instance, a NSR PAL
may also include terms that allow changes to be made without triggering
minor NSR or which essentially preauthorize the minor NSR approval, as
allowed by State law and the SIP. In fact, the EPA and the State of
Oregon have been working with Intel to develop a NSR/title V permit
that uses Oregon's plant site emission limit program, minor NSR pre-
approval, pollution prevention, and synthetic minor limits on any HAP
to create a flexible permit under title V, major NSR, and the State's
preconstruction review program. Available information regarding this
permit is in the public docket identified at the beginning of this
preamble.
In short, EPA foresees the PAL option offering a number of
advantages for industry, permitting authorities and the environment,
including (1) increased operational flexibility and the ability to make
timely changes to react to market demand; (2) certainty regarding the
level of emissions at which a stationary source will be required to
undergo major NSR (thereby eliminating the need to establish a baseline
for each modification, calculate the contemporaneous increases and
decreases, and determine whether the source qualifies under another
exclusion or another emissions increase test); (3) a decreased
permitting burden for the source and the permitting authority; (4) an
incentive for source owners and operators to create room for growth
under the cap by implementing pollution prevention and other pollution
reduction strategies on existing emissions units; and (5) reduction of
some of the ``paper'' emissions in the system, thereby creating
additional room for growth for new and modified sources.
1. Background
Plantwide emissions limits for NSR applicability have been used in
Oregon for many years and have been utilized by individual sources on a
case-by-case basis. The state-wide applicability system in Oregon,
known as the ``plant site emission limit'' program, bases major NSR
applicability on an emission limit set for each major source in the
State. When the program originated, the State capped sources at their
actual emissions levels. New sources are capped at their NSR permitted
level. During the NSR Reform Subcommittee deliberations,
representatives from several companies with operations in Oregon
briefed members on the advantages of the system for their firms. They
focused on the flexibility afforded under the cap and their ability to
expand operations and production without regulatory review.
During the NSR Reform Subcommittee deliberations, the EPA also
developed and presented a voluntary, source-specific PAL approach,
similar to that demonstrated by a Minnesota Manufacturing and Mining
(3M) facility in St. Paul, Minnesota. This permit established a PAL
which allowed 3M to make many changes to its facility without
triggering NSR review. The source's baseline emissions were based on a
level that was lower than past actual emissions but reflected most
current actual emissions based on current operations with new controls.
Since the 3M permit, EPA understands that other States (and sources)
have experimented with the issuance of permits with emissions caps
under EPA's existing regulations. Additional information on these
approaches is contained in the docket for this proposal.
2. Description of the PAL Proposal
The EPA proposes to revise the NSR regulations to allow States to
authorize PAL approaches on a voluntary source-by-source basis.
Although a source-by-source PAL approach may be implemented in many
situations under the current regulations, several PAL-related issues
are not clearly addressed by the current regulations, policies, or
practice. The EPA believes that regulatory changes would allow for more
ease, clarity, and certainty in the implementation of a PAL approach.
Accordingly, the EPA proposes to define PAL and PAL major modification.
See proposed Secs. 51.165(a)(1)(xxx) and (a)(1)(xxxi), 51.166(b)(44)
and (b)(45), 52.21(b)(45) and (b)(46), and 52.24(f).
The EPA proposes to define ``plantwide applicability limitation''
as a federally enforceable plantwide emissions limitation established
for a stationary source to limit the allowable emissions of a source to
a level such that major NSR is not required for changes under that
emissions limitation. The applicable emissions limitation must be
established in a federally enforceable permit that includes all
conditions needed to make the limitation practically enforceable. The
EPA proposes to define a ``plantwide emissions limitation major
modification'' as any emissions increase over the PAL, notwithstanding
the general definition of ``major modification.''
The EPA proposes to add regulatory provisions that (1) allow the
use of a PAL for applicability determinations for major modifications
rather than the existing or proposed provisions, (see proposed
Secs. 51.165(a)(9)(i), 51.166(u)(1) and 52.21(x)(1)); (2) prescribe the
basis for establishing a PAL and additional PAL terms and conditions,
(see proposed Secs. 51.165(a)(9)(iii), 51.166(u)(3) and 52.21(x)(3));
(3) describe control technology application when a source proposes a
PAL major modification, (see proposed Secs. 51.165(a)(9)(iv),
51.166(u)(4) and 52.21(x)(4)); (4) describe public notice and comment
procedures for establishing a PAL, (see proposed
Secs. 51.165(a)(9)(ii), 51.166(u)(2) and 52.21(x)(2)); (5) describe the
process for periodic reevaluation of a PAL, (see proposed
Secs. 51.165(a)(9)(v), 51.166(u)(5) and 52.21(x)(5)); and (6) describe
additional conditions that would ensure a PAL remains protective of air
quality while providing flexibility for source operations, (see
proposed Secs. 51.165(a)(9)(iv)(A), 51.166(u)(4)(i) and
52.21(x)(4)(i)).
3. Discussion
The EPA has determined that the voluntary source-specific PAL is a
practical method to provide both flexibility and regulatory certainty
to many existing sources, as well as benefits to permitting
authorities, while maintaining air quality. Accordingly, the EPA today
proposes to revise its NSR regulations to provide for this approach as
a voluntary source-specific

[[Page 38265]]

option that States may adopt in their SIP.
The regulatory proposal allows PAL to be established for existing
major stationary sources in PSD areas, and for proposed and existing
major stationary sources in nonattainment areas. In all cases, the EPA
is proposing that the PAL be established through a public participation
process consistent with the requirements at 40 CFR 51.161, and with a
public comment period of at least 30 days. See proposed
Secs. 51.165(a)(9)(ii), 51.166(u)(2) and 52.21(x)(2).
The EPA considered a number of regulatory options addressing new
and existing sources in both areas and is requesting comment on
emissions levels for PAL for both areas. The EPA believes that the
proposed PAL regulatory provisions offer the best approach for both
proposed and existing major stationary sources located in nonattainment
areas and existing major stationary sources in attainment/
unclassifiable areas. In PSD areas, the ``Clean Facility'' exclusion
offers the best flexibility for new major stationary sources.
Certainly, when a facility cannot exercise the clean facility exclusion
either because its permit is older than 10 years or because a change is
not consistent with the PSD permit, it will have historic emissions of
at least 2 years upon which to establish a PAL.
A permitting authority may choose to adopt an area-wide PAL
approach, rather than a voluntary source-specific approach, so that all
major sources in the entire area, designated as nonattainment or
attainment/unclassifiable for a given pollutant, would have a PAL.
Area-wide PAL approaches would be options for States and not mandatory
for any area under this proposal. The EPA seeks comment on area-wide
PAL approaches in light of the source specific voluntary criteria in
this proposal and requests comment on other criteria or minimum
requirements for area-wide PAL approaches. The EPA also seeks comment
on whether States adopting an area-wide PAL system should be allowed to
establish PAL at levels higher than actual emissions.
The EPA proposes that once a PAL's is established for a facility,
the source may make any physical or operational changes at the facility
as long as its emissions remain under the PAL. Under the proposal, for
a source to increase emissions over its PAL, whether or not in
connection with a physical or operational change, it must first undergo
major NSR. The EPA proposes to provide that emissions levels set by the
PAL may be reevaluated periodically, consistent with the title V
permitting and public participation process, to review the need for
revisions. The EPA also proposes to require that the PAL must be
federally and practicably enforceable and therefore must be
incorporated into federally enforceable permits containing compliance
methods and monitoring requirements.
a. PAL Levels. The EPA proposes that a PAL be based on plantwide
actual emissions, including a reasonable operating margin less than the
applicable significant emissions rate, fo

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A96-17544. Public record. Not legal advice.