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Related Practices
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Full Summary: EPA Issues Final NSR Rules for “Reasonable Possibility in Recordkeeping”

Beveridge & Diamond, P.C., February 26, 2008

On December 21, 2007 the Environmental Protection Agency (EPA) announced a final rule to clarify its “reasonable possibility” recordkeeping standard.  72 Fed. Reg. 72,607 (Dec. 21, 2007). The “reasonable possibility” standard applies to projects that do not result in a “significant net emissions increase” under the Clean Air Act’s Nonattainment New Source Review (NNSR) or Prevention of Significant Deterioration (PSD) programs (collectively “NSR”). While such projects are exempt from NSR permitting, EPA nevertheless requires that facilities document their determinations and track future emissions if there is a “reasonable possibility” that a significant net emissions increase could occur. Prior to the release of this rule, however, it was unclear what constituted a “reasonable possibility.” EPA’s final rule clarifies that a “reasonable possibility” of a significant emissions increase exists—and therefore recordkeeping and reporting requirements apply—if the projected increase in emissions equals or exceeds fifty percent of the applicable NSR significance level for a relevant pollutant.

The final rule became effective January 22, 2008 for federal programs, and will become effective in each state once the state either formally adopts the rule or publicly announces it will follow the interpretation set forth in the rule. The reasonable possibility standard is a required program element for state NSR programs.

Background & History of the Reasonable Possibility Standard

The “reasonable possibility” rule is a creature of the 2002 NSR Reform rule.  67 Fed. Reg. 80,186 (Dec. 31, 2002). Prior to that time, EPA took the position that all non-utility projects had to be evaluated under an “actual to potential” test – i.e., by comparing a source’s pre-change actual emissions to its post-change potential to emit. In 2002, after years of controversy, EPA finally agreed to allow facilities to evaluate projects using an “actual to projected future actuals” test. Thus, NSR applicability determinations could be based on estimates of future actual emissions, rather than on theoretical maximum emissions that would never be achieved in practice. 67 Fed. Reg. 80,186 (Dec. 31, 2002). 

The “actual to projected future actual” approach, however, raised the possibility that the future projections would be incorrect. Absent some degree of oversight, a facility could conclude that NSR was not triggered based on artificially low projections of future operations, and then later operate at much higher levels—levels that would have triggered NSR review if they had been properly projected. Accordingly, when EPA adopted the actual to actual test in 2002, it also required recordkeeping and reporting for all projects that present a “reasonable possibility” of a significant emissions increase.  See, e.g., 40 C.F.R. § 52.21(r)(6).    

The 2002 rule, however, failed to define or otherwise delineate what would constitute a “reasonable possibility.” As such, neither the regulated community nor enforcement agencies could determine with certainty when recordkeeping obligations applied. In 2005, the United States Court of Appeals for the D.C. Circuit remanded the “reasonable possibility” provision for this very reason, and required EPA to either provide an “acceptable explanation . . . or to devise an appropriately supported alternative.”  New York v. EPA, 413 F.3d 3, 35-36 (D.C. Cir 2005). 

EPA’s Response to the New York v. EPA Remand  

In response to the  New York decision, EPA proposed two options to elucidate the “reasonable possibility” standard:  the “percentage increase trigger” and the “potential emissions trigger.” 45 Fed. Reg. 10,445 (Mar. 8, 2007). See EPA Issues Proposed ‘Reasonable Possibility Recordkeeping’ NSR Rule,” March 12, 2007. Under the percentage increase trigger, a  reasonable possibility of a significant emissions increase would exist where a modification’s increase in projected actual emissions equals or exceeds a percentage of the applicable NSR significance level for any pollutant.  In the proposed rule, EPA suggested a fifty percent trigger, but also solicited comment on other values. Under the potential emissions trigger, a reasonable possibility of a significant emissions increase would exist if the project’s post-change potential to emit equals or exceeds NSR significance levels.  In other words, even though NSR applicability would still be determined based on future actual emissions, recordkeeping requirements would be based on future potential emissions. EPA identified the percentage increase trigger as its preferred option.

The Final Rule

In the December 21 final rule, EPA adopted a modified version of its preferred “percentage increase trigger” test. Under the final rule, a source must subtract its baseline actual emissions from its projected post-project actual emissions.  If this calculation indicates that the anticipated emissions increase associated with the project will exceed fifty-percent of NSR significance levels, the project is deemed to have a “reasonable possibility” of resulting in a significant net emissions increase, and pre- and post-project recordkeeping and reporting requirements apply. Specifically, the owner must document and retain pre-project records that describe the project, the emissions units affected, and the applicability calculations made, and in some cases must submit reports to the reviewing authority. Post-construction, the owner must engage in recordkeeping and emissions monitoring for five or ten years.  If annual emissions significantly exceed baseline actual emissions and differ from the preconstruction project as documented, the source must also submit reports to the reviewing authority. 40 C.F.R. §§ 51.165(a)(6), 52.21(r)(6). 

Only projects that are “major modifications” are subject to recordkeeping and reporting requirements. Therefore, the rule does not apply to projects that are otherwise exempt (e.g., routine maintenance). 

The “Reasonable Possibility” Rule and the Demand Growth Exclusion 

The “reasonable possibility” rule, as promulgated, may lead to confusion over whether and how facilities must account for emissions from demand growth.  Under the 2002 NSR Reform Rules, facilities are specifically authorized to exclude from their applicability determinations any increased utilization attributable to demand growth that the facility could accommodate without the change.  In other words, simply increasing utilization of existing capacity is not an NSR-triggering event. The March, 2007 proposed “reasonable possibility” rule similarly allowed a facility to exclude such emissions from its applicability analysis and future emissions tracking. 

Several commenters objected to this approach. Echoing the court in New York v. EPA, commenters argued that without documentation of the source’s calculations, EPA would be unable judge whether a source’s estimate of future demand growth was reasonable, or whether the source was instead avoiding NSR by attributing an artificially high amount of the future emissions to demand growth instead of to the project in question. In response to these concerns, EPA reversed course. Under the final rule, sources must consider—and track—both project-related emissions and emissions attributable to demand growth. However, if a project that exceeds the percentage increase trigger only because of  independent factors such as demand growth, a source need only maintain pre-change records of its determination; no pre-change reporting or post-change recordkeeping or reporting requirements apply.   

Including emissions from independent factors in post-project recordkeeping and reporting may well create confusion for sources and enforcement authorities, because it may require facilities to report “noncompliance” even when no violation has occurred. For example, presume that prior to undertaking a project, a source estimates the project will result in a 30 ton per year (tpy) increase in NOx emissions, and that NOx emissions will increase another 5 tpy in response to demand growth. Because 30 tpy exceeds the 50% threshold (even without considering demand growth), the source is required to track its future emissions. Two years later, however, it becomes apparent that the facility significantly underestimated demand growth in its initial analysis, and that this unanticipated growth has in fact increased NOx emissions by 15 tpy, instead of 5 tpy (all of which could have been accommodated before the project). Thus, the facility must now “report” a 45 tpy increase in NOx emissions—an apparent PSD violation—even though the “violation” is entirely attributable to exempt emissions that cannot, by law, trigger PSD. Even though EPA has acknowledged that “NSR applicability is not affected by whether a source overestimates or underestimates demand growth emissions,” the source could still be forced to defend against an enforcement action or citizens’ suit as a result of reporting what appears, on its face, to be a violation but was, in fact, no such thing.   

Challenge to the Rule

While the “reasonable possibility” rule attempts to provide some clarity as to when facilities must document their applicability determinations and track future emissions, the future of the rule itself is somewhat uncertain. On February 19, 2008, the state of New Jersey filed a petition for reconsideration with EPA and formally challenged the rule in the Court of Appeals for the D.C. Circuit. While the legal basis for New Jersey’s petition is presently unclear, a press release indicates that New Jersey believes the rule undermines other existing accountability mechanisms used by state regulators. In its press release, the state asserted that, “in order for state regulators to determine that emissions at a given facility have increased [and triggered NSR,] . . . the type of change at and the emissions from the facility must be known. However, the EPA rule being challenged essentially works against regulators knowing the nature and quantity of plant emissions.” Whether other parties join New Jersey’s challenge, and the outcome of that challenge, may affect whether this rule really represents the final word on when recordkeeping and reporting requirements apply.

For more information, please contact Laura McAfee, lmcafee@bdlaw.com, or Jennifer Abdella, jabdella@bdlaw.com.

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