See the latest EHS federal and state regulatory updates due to COVID-19

If you live in a world where New Source Review (NSR) laws, regulations, and guidance documents are part of your everyday conversation, you may be a little on edge right now. Feeling uncertain about the future direction of the NSR program is normal given recent developments. NSR reform has been back in the spotlight with the Trump Administration's push for regulatory reform, and it is the focus of action by both Congress and the U.S. Environmental Protection Agency (EPA). This article explores the recent developments by both EPA and Congress with respect to the NSR program. While multiple entities have efforts under way to reform the NSR program, at this point, future changes to the program are uncertain.

NSR Reform and the U.S. EPA

The last significant changes to EPA regulations governing the NSR program originated with a 1996 Notice of Proposed Rulemaking (NOPR) and were published in their final form in 2002. The rule changes were focused on the definition of major modification and included (1) changes to the lookback period for baseline emissions in the calculation to determine whether there is a major modification at an existing major source, and (2) the use of projected actual emissions as opposed to potential emissions in the same calculation. There were other changes promulgated in 2002, including the NSR exemption for pollution control projects, the clean unit exemption, and the equipment replacement provision, but those changes did not survive litigation.

Shortly after President Trump took office in 2017, he issued several executive orders and a memorandum related to regulatory reform.1 U.S. EPA followed its obligations under the executive orders and ultimately established a Regulatory Reform Task Force that identified NSR reform as a key initiative. Some of the elements the Task Force identified for reform are left over from the 2002 NSR Reform rule, including provisions for routine maintenance, repair, and replacement (RMRR) pollution control projects. Other elements include further clarifications to the definition of major modification and the related emission increase calculation.

Consistent with President Trump's priorities, EPA is taking steps to clarify, revise, and streamline the requirements of the NSR program. Listed below are the seven areas the Task Force has identified for reform.

  1. Projected Actual Emissions (PAE)
  2. Net Emission Increase (NEI)
  3. Project aggregation
  4. Ambient air
  5. Debottlenecking and identifying associated emission units
  6. Routine Maintenance, Repair, and Replacement(RMRR)
  7. Pollution Control Projects (PCPs)

Bill Wehrum, the Assistant Administrator of EPA's Office of Air and Radiation, has indicated that the Task Force will address the above elements one by one using regulations and memorandums as needed, thus leading to a piecemeal approach to modern NSR reform. Since establishing the Task Force in 2017, EPA has issued three memorandums. The first two are discussed below and address the first two items listed above; the third, not covered here, is on a topic related to NSR reform but not included on the list, specifically, what constitutes a single source. It is interesting that while EPA left some issues unresolved from the 2002 NSR reform era, the first area tackled by the new Task Force was the emission increase applicability calculation. The second area of focus was the net emission increase applicability calculation. The fact that Prevention of Significant Deterioration (PSD) applicability emission calculations were the first areas addressed by the Task Force indicates a level of urgency for EPA to provide clarification for the determination of major modifications.

Memo #1 - New Source Review Preconstruction Permitting Requirements: Enforceability and Use of the Actual to Projected Actual Applicability Test to Determine Major Modification Applicability - December 7, 2017 (from EPA Administrator Scott Pruitt to EPA Regional Administrators)

While it has been 16 years since the 2002 NSR reform rules were promulgated, there has been uncertainty over that time period regarding the use of Projected Actual Emissions (PAE) in the Project Emission Increase (PEI) calculation. This uncertainty stems primarily from the definition of PAE in the existing regulations and the exemptions allowed by this definition. EPA's December 7, 2017 memo clarifies the definition of PAE and affirms that so long as a company follows the regulations for estimating the PAE as part of the PEI calculation, then EPA will not “second guess” the PAE analysis.

For more insight into EPA's meaning with respect to not second guessing a permit applicant's projected actual emissions, consider the following PEI analysis.

Fundamentally, the emission increase for a project is the sum of the emission increases for each of the new and existing units affected by the project (please refer to the discussion under Memo 2 for details on changes to project emissions accounting). For a new unit, the emission increase is the potential to emit for the new unit; for an existing unit, the emission increase is the projected actual emissions (PAE) minus baseline actual emissions (BAE).

“Projected actual emissions” is defined in 40 CFR 52.21(b)(41) as follows:

(i) Projected actual emissions means the maximum annual rate, in tons per year, at which an existing emissions unit is projected to emit a regulated NSR pollutant in any one of the 5 years (12-month period) following the date the unit resumes regular operation after the project, or in any one of the 10 years following that date, if the project involves increasing the emissions unit's design capacity or its potential to emit that regulated NSR pollutant and full utilization of the unit would result in a significant emissions increase or a significant net emissions increase at the major stationary source.

(ii) In determining the projected actual emissions under paragraph (b)(41)(i) of this section (before beginning actual construction), the owner or operator of the major stationary source:

(c) Shall exclude, in calculating any increase in emissions that results from the particular project, that portion of the unit's emissions following the project that an existing unit have accommodated during the consecutive 24-month period used to establish the baseline actual emissions under paragraph (b)(48) of this section and that are also unrelated to the particular project, including any increased utilization due to product demand growth; or …

As indicated in the definition above, EPA allows sources to exclude emissions from the PAE as long as the emissions meet a two-prong test: (1) an emission unit was capable of accommodating (COA) the emissions before implementing the project, and (2) the emissions are unrelated to the project. Shown below is the equation for estimating the PEI when the full definition of projected actual emissions is relied upon to determine the emission increase for a unit.

Summer EQ 2018_Article 1_chart 1

A schematic of the emissions increase equation is shown in Figure 1 below.

Summer EQ 2018_Article 1_Figure 1

The first prong of the two-prong test to exempt emissions, the “Capable of Accommodating” test, is fairly straightforward to implement. It typically involves taking a peak 30-day emissions rate from the baseline period and annualizing this rate to reflect what a unit can accommodate on a 12-month basis. The second prong of the test, determining what is related to the project, has been more difficult to implement. It is not uncommon to have emissions that an emission unit can accommodate that are above the PAE. This may lead to the conclusion that if emissions can be accommodated, they must not be related to the project. There are clear cases where this conclusion is correct; however, there are also cases where a project will clearly drive an emissions increase, even though the unit is capable of accommodating emissions that are above the PAE.

Listed below are the appropriate steps to follow to determine a source's emission increase.

  1. Calculate the Baseline Actual Emissions (BAE)
  2. Calculate the Projected Actual Emissions (PAE)
  3. Determine the emissions the source is capable of accommodating (COA)
  4. Determine the emissions related to the project (RTP)
  5. Determine the PAE Exemption
  6. Determine the Project Emission Increase (PEI)

Consider a 1970's era unit that is down 15% of the time for maintenance. The unit has baseline NOx emissions of 300 tpy. The company wants to modify the unit to eliminate the issues requiring increased maintenance and essentially restore the unit to its original condition. Would the PEI be such that the changes to the unit would be a major modification for NOx? Detailed below are the steps in calculating the PEI, which can then be compared to the major modification threshold for NOx of 40 tpy.

  1. Calculate the Baseline Actual Emissions
    (BAE)BAE = 300 tpy

  2. Calculate the Projected Actual Emissions (PAE)
    PAE = BAE + 15% BAE
    BAE = 300
    PAE = 300 + 300 * 15% = 345 tpy

  3. Determine the emissions the source is capable of accommodating (COA)
    COA = 30 tons/mo * 12 mo = 360 tpy

  4. Determine what is related to the project (RTP)
    RTP = BAE * 15% = 300 * 15% = 45 tpy

  5. Determine the PAE Exemption
    PAE Exemption = COA - RTP - BAE
    COA = 30 tons/mo * 12 mo = 360 tpy
    PAE Exemption = 360 - 45 - 300 = 15 tpy

  6. Determine the Project Emission Increase
    PEI = PAE - PAE Exemption - BAE
    PEI = 345 - 15 - 300 = 30 tpy

The PEI for the unit is 30 tpy, which is less than the major modification threshold of 40 tpy; therefore, the proposed changes would not be considered a major modification. However, it is worth noting that the PEI without taking advantage of the PAE exemption would be 45 tpy (PEI = 345 - 300 = 45 tpy), which exceeds the major modification threshold of 40 tpy. Thus, in this case, the use of the PAE exemption was a critical component of the analysis. According to EPA's December 7, 2017 memo, EPA would not second guess the emissions analysis based on the PAE exemption.

The December 7, 2017 memo relies on a court decision in the Detroit Edison Energy (DTE Energy) Monroe Power Plant case, where DTE overhauled a coal unit without obtaining a permit. DTE argued that its emission calculations, including using PAE and exempting what could already be accommodated, did not show a significant increase. DTE did not submit the calculations for approval prior to starting the overhaul, as DTE did not interpret the regulations as requiring pre-approval of the emissions analysis. Furthermore, DTE argued that it is the post-project actual increases that are relevant and not the pre-project paper projections, and there had been no actual significant increase in emissions since the project was completed. The court ultimately concluded that the Clean Air Act is designed to prevent emission increases before they occur, and that pre-project approval of emission projections is required.

Summer EQ 2018_Article 1_graphic 1

While the DTE case was a significant driver of EPA's December 7, 2017 memo, questions remain. While the memo indicates that EPA will not second guess the PEI calculations, the memo appears to conflict with the outcome of the DTE case, which concluded that NSR permitting requirements must be determined before construction commences. Thus, it may not be totally clear as to when the projected emissions matter: before construction begins, or after project completion. Does the source need evidence prior to the project that confirms that the project is not a major modification subject to the NSR program, or can a source actively manage emissions after a modification is complete to restrict emissions levels below those associated with a calculated significant emissions increase? This is the most significant question going forward.

Memo #2 - Project Emissions Accounting Under the New Source Review Preconstruction Program - March 13, 2018 (from EPA Administrator Scott Pruitt to EPA Regional Administrators)

EPA issued a memo dated March 13, 2018, that clarified EPA's position on whether emission reductions can be considered as part of the PEI calculations described previously. The longstanding generally accepted policy has been that, in characterizing the emission changes expected for a project, only emission increases could be considered. Emission decreases could be considered only if an applicant were proposing a full review of the net emissions changes in an approximately five-year period preceding the project (i.e., the contemporaneous period). EPA suggests in its memo that this prior interpretation of the regulations is problematic because it does not consider the full scope of the project's emission changes on the Project Emission Increase.

EPA emphasizes in the memo that the purpose of the PEI calculation is to evaluate the project's full impact on emissions. For example, if a site is replacing a smaller boiler with a larger boiler, the decrease in emissions for the boiler being shutdown should be considered as part of the Project Emission Increase. In short, EPA is now allowing emissions reductions directly related to the project to be included when calculating the PEI.

For the regulated community, the two memos described above outline favorable approaches for calculating both the project emissions increase as well as the net emission increase. However, the concepts endorsed by EPA in the memos are subject to change and could be reversed just as easily as they were put in place. It is anybody's guess what future administrations and bipartisan politics will do to NSR reform. While it is unclear how EPA intends to approach further reforms of the NSR program, and whether those reforms will stand the test of time, all signs indicate that the agency is continuing to move forward.

NSR Reform and Congress

In an effort separate from EPA's NSR reform activity, Congress is pursuing changes to the NSR requirements found in the Clean Air Act. Congressman Morgan Griffith from Virginia introduced bill H.R. 3128 on June 29, 2017, to amend the NSR regulations. Included in the bill is a proposal to revise the definition of a “modification” to a unit for NSR purposes so that it would no longer be based on an estimate of the annual emission increase but instead on a change in a unit's design capacity that causes an hourly increase in emissions. This would be a significant change to the NSR program, and it would have a major impact when determining which projects require construction permits. On February 14, 2018, the Committee on Energy and Commerce held an oversight hearing to discuss “New Source Review Permitting Challenges for Manufacturing and Infrastructure,” which included testimony on H.R. 3128. In April, House Republicans released a discussion draft of the bill; and in July, a subcommittee prepared a markup of the draft. The principal focus of the discussion draft is on refining the definition of “modification” in the Clean Air Act to make it simpler. Under the draft approach, a project at an existing stationary source would trigger NSR only when that project results in an increase in the source's maximum design capacity to emit - that is, results in an increase in the source's hourly emission rate. This is consistent with the approach to applicability determination under EPA's New Source Performance Standards program.

While H.R. 3128 would simplify the emissions analysis for NSR, the bill has virtually no chance of moving through Congress and becoming a law without garnering bipartisan support. While it may pass the House, it will face stiff opposition from the Senate's Committee on Environment and Public Works (EPW), and it has next to no chance of getting the 60 votes needed in the Senate. Although this controversial bill is not likely to get through Congress, it does keep Congress engaged in discussing NSR reform and is a sign that NSR legislation may be a path forward for NSR Reform.


As of now, very little has changed for the NSR Program. Yes, EPA has issued a few memorandums: one that concludes that regulated sources should continue to evaluate emissions increases the way the regulations currently require and another that concludes with a somewhat revised interpretation of how to account for emission decreases caused by a project at an existing major source. But there are no new regulations, or even any proposed regulations for that matter. And, there are no bills pending the final stages of becoming law. This means we need to stay tuned to future actions of both EPA and Congress on NSR reform and closely monitor all regulatory development. EPA appears to be moving quickly to release regulatory memorandums. However, since the memorandums are non-binding; they may not stand the test of time.



1 EO 13783: Promoting Energy Independence and Economic Growth; EO 13777: Enforcing the Regulatory Reform Agenda; and Presidential Memorandum on Streamlining Permitting and Reducing Regulatory Burdens for Domestic Manufacturing. 82 Fed Reg 8667 (January 30, 2017)