EPA Finalizes Revisions to NSR Project Emissions Accounting (Step 1)

On October 22, 2020, EPA issued the final rule regarding project emissions accounting in New Source Review (NSR) permitting. This new approach will potentially allow companies to avoid NSR applicability for projects that would have previously required PSD or NNSR permitting or would not have been feasible.

Background

Prevention of Significant Deterioration (PSD) and Nonattainment New Source Review (NNSR) are preconstruction permitting programs applicable to new major sources or existing major sources making a major modification. Proposed modifications at existing major sources must be assessed using a two-step applicability test to determine if the modification triggers PSD or NNSR permitting.

• Step 1 (“project emissions accounting”): Determine if emissions from a proposed project will result in an increase in emissions above the “significant emission rate” (SER) of a regulated NSR pollutant.
• Step 2 (“contemporaneous netting”): Determine if there is a significant net emissions increase of any pollutant exceeding the SER by taking account of emission increases and decreases from all projects within the past 5-year “contemporaneous” period, including the project under consideration, and comparing this net value to the SER thresholds.

Prior to the October 2020 rulemaking, EPA has interpreted the rule such that emissions reductions associated with a proposed project should only be included in Step 2. This means that emissions reductions related to removal of any emission units were not creditable under Step 1.

New Guidance

In March 2018, EPA published a memorandum indicating that the interpretation had changed to allow emissions decreases to be considered as part of Step 1, as long as they are part of a single project. The October 2020 final rule formally revises the federal NSR regulations to reflect the content of the March 2018 Memorandum.

This new approach to Step 1 will potentially allow companies to avoid NSR applicability for projects that would have previously required lengthy and costly PSD or NNSR permitting or would not have been feasible. For example, a major facility proposing to replace a boiler can now take advantage of the emissions decreases from the removal of the existing boiler in Step 1 instead of Step 2, which would require the facility to include emissions increases from other projects in the five years prior.

It is important to note that emissions decreases are only creditable in Step 1 if they are part of the proposed project. EPA revised its interpretation of “project aggregation” in a final action dated November 7, 2018, which lays out several key points for determining the boundaries of a project.

For More Information

The final rule, fact sheet, and additional background information can be found on the EPA website here.

The final rule is expected to reduce uncertainty concerning Step 1 and may allow facilities to implement projects that would have triggered PSD or NSR permitting under the previous interpretation. State and local air agencies that implement NSR regulations through State Implementation Plans (SIPs) may need to revise their regulations to align with the with final rule unless NSR regulations are incorporated by reference. Therefore, projects will need to be assessed on a case-by-case basis.

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