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EPA Finalizes Clean Air Act Rule to Allow Some Sources to Exclude Fugitive Emissions from New Source Review Applicability Calculations

Beveridge & Diamond, P.C., December 29, 2008

On December 19, 2008, the Environmental Protection Agency (EPA) published a final rule that will allow some emissions sources to exclude fugitive emissions from Prevention of Significant Deterioration (PSD) and New Source Review (NSR) applicability determinations. 73 Fed. Reg. 77,882 (Dec. 19, 2008).

The fugitive emissions rule will amend the Clean Air Act’s ("the Act") existing NSR Rules. Under the current rules, all major sources must include fugitive emissions when calculating whether a physical change or change in operations constitutes a "major modification" subject to NSR requirements. Under the new rule, only sources that fall within designated categories will be required to include fugitive emissions when making such a determination. EPA also clarified its procedure for determining whether emissions are "fugitive." 

Background & History of the Fugitive Emissions Rule 

The NSR Program requires new major sources of air pollution to install pollution controls at the time of construction. A facility is a "major source" if it emits or has the potential to emit a regulated pollutant in excess of a specified threshold amount. In its original 1978 PSD rules, EPA required sources to include all quantifiable emissions – both stack and fugitive – in determining whether a project would exceed these emissions thresholds. The D.C. Circuit overruled this interpretation, finding that the plain language of the Clean Air Act required consideration of fugitive emissions only for those source categories "determined by rule" by EPA. Alabama Power Co. v. Costle, 636 F. 2d 325, 370 (D.C. Cir. 1979); CAA § 302(j), 42 U.S.C. § 7602(j). Accordingly, in its August 7, 1980 PSD rules, EPA determined that (1) sources within 26 listed source categories and (2) sources subject to regulation as of that date under the § 111 New Source Performance Standards or § 112 National Emissions Standards for Hazardous Air Pollutants would be required to include fugitive emissions in their major source determinations (so-called "§ 302(j) sources"). 40 C.F.R. §§ 70.2, 71.2.

The NSR program also applies to "major modifications" to existing major sources – i.e., modifications that result in a "significant net emissions increase." The CAA does not, however, clearly specify whether this determination is limited to stack emissions or whether it must include fugitive emissions as well, and EPA’s interpretation has followed a somewhat tortured path. In its post-Alabama Power 1980 regulations, EPA initially applied the same rule for "major modifications" as it did for "major sources" – i.e., only § 302(j) sources must include fugitive emissions when calculating the source’s potential to emit. 45 Fed. Reg. 52,676, 52,689-91 (August 7, 1980). In 1984, however, EPA changed course, proposing an Interpretive Ruling that would require all sources to include fugitive emissions in their "major modification" calculations. 49 Fed. Reg. 43,202 (Oct. 26, 1984). Noting its departure from the 1980 rule, EPA explained that the 1980 rule was based on the agency’s erroneous assumption that
§ 302(j) applied to both "major source" and "major modification" determinations, but that the Agency had since determined that the language of § 302(j) itself applied only to major sources. 49 Fed. Reg. at 43,213. EPA finalized the Interpretive Ruling in 1989, 54 Fed. Reg. 48,870 (Nov. 28, 1989), and codified it in the 2002 NSR Reform Rule. 67 Fed. Reg. 80,186 (Dec. 31, 2002). Accordingly, since 1984, fugitive emissions have been generally excluded when determining whether a facility is a "major source," but included when determining whether a specific project at a major source is a "major modification."

The December 19, 2008 Fugitive Emissions Rule

Shortly after the NSR Reform Rule was finalized, Newmont Mining Company petitioned the agency to reconsider its treatment of fugitive emissions. In 2004, EPA granted Newmont’s petition. After several more years of review, EPA has now revised the NSR program to return to the Agency’s original interpretation of § 302(j).

Under the new rule, EPA will once again treat "major sources" and "major modifications" consistently: only § 302(j) sources will be required to include fugitive emissions when determining whether a project triggers NSR. The new rule amends the NSR regulations to conform to this revised position, and it also addresses the treatment of fugitive emissions in other areas of the NSR Program:

  • The rule revises monitoring and reporting requirements for sources that determine, prior to construction, that a change does not constitute a major modification. Such sources must monitor and report on fugitive emissions only if the emissions unit or source in question falls within a § 302(j) category.
  • The rule preserves the existing treatment of fugitive emissions for Plantwide Applicability Limitations (PALs). PALs allow a source to track total emissions rather than the effect of each physical or operational change individually. EPA will continue to require the inclusion of fugitive emissions in setting the PAL and tracking compliance for facilities in all source categories.
  • The rule also limits the inclusion of fugitive emissions in a source’s netting analysis. Because the NSR applicability turns on the net increase of emissions, sources consider all contemporaneous increases and decreases in emissions to determine whether a change results in a significant increase in emissions. Under the new rule, only § 302(j) emissions units and sources may obtain "credit" for a decrease in quantifiable fugitive emissions. A source that is not required to include fugitive emissions when calculating its emissions increase may not use a contemporaneous decrease in fugitive emissions to "net out" of the NSR program requirements.
  • Finally, the rule requires states to specify how fugitive emissions are accounted for in the state’s minor NSR program. This requirement will exist as a minimum element of each state implementation plan. EPA stressed that the requirement is intended to facilitate clarity on how states treat fugitive emissions in their minor NSR programs, not to prescribe specific requirements for minor NSR programs.

The Rule will become effective January 20, 2009. States must adopt interpretations that conform with the rules or, if necessary, revise the NSR program within the State Implementation Plan within 3 years to conform to the regulation.

Guidance on Determining whether Emissions are “Fugitive”  

In addition to the changes detailed above, EPA also clarified its guidance on determining whether emissions are "fugitive" in the rule finalized on December 10. By regulation, fugitive emissions are "emissions that could not reasonably pass through a stack, chimney, vent, or other functionally equivalent opening" (e.g. windblown dust from surface mines and volatile organic compounds emitted from leaking pipes and fittings at petroleum refineries). 40 C.F.R. § 52.21(b)(20). The agency interprets the phase "could not reasonably pass" to mean whether emissions can be reasonably collected or captured, for example in an enclosure or hood.

In the preamble to the December 10 rule, EPA clarified the analysis for determining whether emissions qualify as "fugitive."

  1. To determine whether emissions can "reasonably pass" through a stack, chimney, vent, or other opening, agencies make a case-by-case decision based on whether the emissions can be reasonably collected or captured.
         
  2. While not dispositive, the fact that a similar facility collects, captures, or controls emissions will be a factor in each consideration
    1. Emissions already captured and discharged, e.g. through a stack, chimney, or vent, are non-fugitive at that source;
    2. The establishment of a national emissions standard or regulation requiring some sources in a category to collect or capture and control emissions will weigh heavily towards finding that the emissions are non-fugitive at other sources in the category; and
    3. The more commonly other similar sources collect or capture emissions, the more heavily this factor will weigh toward finding that collection is reasonable.
                     
  3. The cost to collect or capture and control emissions is a factor when determining what is reasonable.
    1. The regulatory agency may consider the combined costs to collect or capture and control emissions as an alternative measure to the costs of emissions capture or collection alone;
    2. Surrounding air quality will be considered when deciding if costs are reasonable; and
    3. If it is not technically or economically feasible to control emissions, then collection or capture may not be reasonable.

This guidance is significant because EPA has historically focused on the cost of collection or capture, not the cost of control. Though it may be feasible to capture or collect emissions, there may be no technically or economically feasible method to control emissions once they are captured. In such a case, EPA concluded that "collecting the emissions is nonsensical, and thus, may not be reasonable." 73 Fed. Reg. at 77,892.

Implications of the Final Rule

The change in the fugitive emissions program is intended to restore a uniform approach to threshold NSR applicability determinations as they relate to fugitive emissions. The rule may significantly affect a number of source categories that have not been designated under § 302(j) but that have a potentially significant amount of fugitive emissions – i.e., surface mines, landfills, agricultural businesses, loading docks, the crushed stone, sand, and gravel industry, sugar mills, and some industrial boilers.

Note, however, that the rule affects only the threshold applicability determinations for the NSR program – it does not create a blanket regulatory exemption for fugitive emissions from non-section 302(j) sources. States may – and many do – impose permitting and control requirements on fugitive emission sources outside of the NSR program through the application of emissions limits, MACT standards, or state and local permitting programs. In addition, once a source does trigger NSR, then all applicable emissions at the source – including fugitive emissions – are subject to subsequent NSR requirements, including BACT and LAER pollution controls.

The new rule already faces strong opposition from various environmental groups. Interestingly, the rule also becomes effective on the same day President-Elect Obama takes office. In light of these events, political and/or judicial efforts to challenge, block, or rescind the rule appear likely.

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For more information, please contact Laura McAfee at (410) 230-1330 (lmcafee@bdlaw.com) or Jen Abdella at (202) 789-6005 (jabdella@bdlaw.com).

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