July 27, 2001

Environmental Protection Agency's New Source Review Program

Key materials
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Rulemaking:

Public comment on an EPA background paper regarding the effects of the Clean Air Act’s New Source Review program. (EPA Docket # A-2001-19)

Stated Purpose:

To develop findings and recommendations to the President regarding the impact of NSR on investment in new utility and refinery capacity, energy efficiency, and environmental protection.

Summary of RSP Comment:

EPA's New Source Review (NSR) program is a substantial deterrent to investment in new oil refinery and power generation capacity. For "greenfield" new sources, EPA has little discretion to change the fundamental features of the NSR program, but can continue its efforts to reduce permitting times and to clarify BACT and LAER requirements. For existing sources EPA has significant opportunities, using the settlement process, to alter its NSR policy in ways that will improve the environment while giving much needed flexibility and regulatory certainty to the refining and power generation industries.

Existing sources are at risk of triggering new source review, even when making relatively minor modifications to their facilities, and even when those modifications will improve environmental performance. The NSR process is so onerous that companies try to avoid that risk by forgoing investments in capacity expansion and other needed improvements. EPA's aggressive application of NSR appears to be motivated by a desire to reduce emissions at older existing sources. But this strategy creates counterproductive incentives and encourages litigation, with little effect on emissions.

EPA has an opportunity to use the settlement process to reach agreements that allow these two industries to modernize and upgrade their existing facilities-improving capacity, energy efficiency, reliability, and environmental performance at the same time. The key is to decouple the NSR process from the investment decision by agreeing that new, lower emissions rates will be required after a fixed amount of time, rather than when a particular modification is made. That way companies can plan their investment decisions around a known regulatory requirement and deadline, without fear of stumbling on a "tripwire." For its part, EPA would ensure that the largest existing sources of emissions would not continue indefinitely, but would be abated after an agreed upon interim period. This type of settlement can be made even more useful if the excess emissions during the interim period are liquidated-that is, if they are deemed "offsets" that are available to be used, banked, or sold. This would provide additional flexibility, not only to the affected existing sources, but to the entire NSR program and to the economic incentive program as it applies to offsets in nonattainment areas.