NSR REFORM RULES REGARDING NET EMISSION INCREASE CHANGES, PALS,

On December 31, 2002, EPA published the final rule to improve the New Source Review (NSR) Program.  The reforms center on net emission increase calculational changes, use of plantwide applicability limits (PALS), Clean Unit provisions, and pollution control project (PCP) exclusions.

NSR Reformation History

The NSR Reform effort has been underway for over a decade.  Proposed changes to the program were published on July 23, 1996 (61 FR 38250) and supplemented with a Notice of Availability (NOA) on July 24, 1998 (63 FR 39857) during the Clinton Administration.  These proposed changes addressed applicability issues, actual emissions baseline, clean unit exclusion, pollution control project exclusion, revisions to BACT process, restrictions on netting, de-bottlenecking, de-linking and aggregation, to name a few.  However, these changes were subject to extraordinary technical review and public comment and never implemented. 

NSR reform was re-visited under the Bush Administration.  The May 2001 National Energy Report directed the Environmental Protection Agency (EPA) to review the NSR program.  The review was to include administrative interpretation and implementation, as well as the impact of the program on investment in new utility and determine if reforms are necessary.  In response to this direction, EPA issued a Background Paper in June 2001 and held four (4) public meetings to discuss the reformations.  On June 13, 2002, EPA issued a report directly to President Bush that summarized the following:

1. For new power plants or refineries, NSR has not significantly impeded investment.

2. For existing power plants and refineries, NSR has impeded or resulted in the cancellation of projects that would have maintained or improved reliability, efficiency or safety.

3. Outside the power plant sector, NSR has discouraged projects that improve capacity or efficiency that did not result in an increase of actual air emissions.

4. NSR has resulted in significant environmental and public health benefits.

The June 13, 2002 report recommended finalized changes for Plantwide Applicability Limits (PALs), Pollution Control and Prevention Projects, Clean Unit Provision, Actual-to-Projected Future Actual Applicability Tests and Baseline Actual Emissions.  The report also recommended proposed changes for the Routine Maintenance, Repair and Replacement test, De-Bottlenecking Policy and Project Aggregation Policy. 

Final Rule Changes - Emissions Calculation Test for Determination of the Net Emission Increase

Previous NSR Methodology

The previous methodology for determining whether a modification caused a significant emission increase was to calculate the net emission increases using the actual-to-potential test (except for electric utility stream generating units (EUSGU’s)).  If the net emission increases were determined to be “significant”, i.e. greater than the PSD modification threshold for the particular pollutant, then NSR permitting was triggered. 

Net emissions increases were calculated by summing the proposed increases from the new source/modification with those credible increases and decreases that have occurred over a contemporaneous 5-year period before commencement of construction of the proposed modification.  The first step in this process was the determination if the modification alone resulted in a significant emission increase, using potential emissions if the unit has not begun normal operations.  If the emissions increases from the modification were significant, then it was necessary to account for the credible increases and decreases over the contemporaneous period. 

Creditable increases were to be calculated by subtracting the “pre-change” emissions level from the “post-change” emissions level that resulted from the physical or operational change.  The “pre-change” emissions, now referred to as the baseline actual emissions, were the average actual emission rate during a two (2) year period just prior to the modification.  The period may be extended for up to 5-years if evidence was available that the two-year period is not representative.  The post-change emissions were the units’ potential-to-emit emissions if the unit had not begun normal operations. 

New NSR Reform Methodology

The NSR reform regulations revise the method for determining whether a proposed modification results in a significant emission increase with a new procedure for determining baseline actual emission and by supplementing the existing actual-to-potential test with the actual-to- projected actual applicability test. 

Baseline actual emissions for existing emissions units, except EUSGU’s, may be calculated as an average annual emissions rate in tpy using any consecutive 24 months during the 10-year period immediately preceding the modification.  For EUSGU’s, the baseline actual emissions are determined using the current policy (which is now codified), where the baseline actual emissions is the average rate in tpy at which the unit actually emitted the pollutant during a consecutive 24-month period within the 5-year period immediately preceding actual construction, known as the 2-in-5 years presumption.  The permitting authority may permit a different time period for EUSGU’s if it is more representative of normal operations.

The changes made to the method for calculating baseline actual emissions are only for modifications to determine a modified unit’s pre-change baseline actual emissions as part of the new actual-to-projected actual applicability test, for netting to determine the pre-change baseline actual emissions of a unit that underwent a physical or operational change in the contemporaneous period, and for PALS to establish the PAL emission cap.

For existing emission units, including EUSGU’s, post change (projected actual) emissions may be estimated using the maximum emission rate at which the changed units are projected to emit the pollutant in any of the 5-years following the time the unit resumes regular operation or 10 years if there is an increase the unit’s design capacity or potential to emit.  If using post-change projected actual emissions, the facility will be required to track annual emissions for the next 5 year (or 10 years if appropriate).  At the end of each year, if the post change emissions exceed the baseline actual emissions by a significant amount different from the projections, the facility will need to submit a report with that information within 60 days after the end of the year (EUSGU’s must send this report regardless).  Instead of relying on the projected emissions, the facility can continue to use to existing actual-to-potential case by using potential emissions of the modified unit.  In that case, the facility will not be required to track or report post change emissions. 

Note that the projected emissions are not to be used by the permitting authorities as federally enforceable emission limitations.

The Hybrid Test

The hybrid applicability test applies when a project affects two or more of existing emission units, new emission units or clean emission units.  Emission increases for existing and new emission units are calculated using the actual-to-projected actual or actual-to-potential applicability tests, respectively.  No emission increases is deemed to occur at Clean Units (refer to text below for a description of Clean Unit).  Next, the total increases of all emission units of all types must be summed, and if this amount exceeds the significant level.  If significant, the facility could take into consideration all contemporaneous emissions increases and decreases to “net-out” of NSR.

Plantwide Applicability Limits (PALs)

A PAL is a voluntary option that allows facilities to manage facility-wide emissions without triggering NSR.  Actual PALS are a rolling 12-month emission cap [tons per year (tpy)] that includes all conditions necessary to make the limitation enforceable.  Once the PAL is established, the facility can modify and install new equipment or modify existing equipment just as long as the modifications do not cause the actual emissions to violate the PAL.     

To obtain a PAL, a complete application must be submitted to the permitting authority who will establish the actual PALs in a federally enforceable permit.  The PAL level is then calculated by summing the baseline actual emissions for all emission units and adding an amount equal to the applicable significant level for the PAL pollutant.  The actual baseline emissions are the average rates in tpy, at which the emission units emitted the PAL pollutants during a consecutive 24-month period, within the 10-year period immediately preceding the application for a PAL.  The baseline actual emissions for an emission unit can not exceed the emissions limitation allowed by permit or applicable regulations.  However, a PAL may eliminate enforceable permit limits that have been previously taken to avoid the applicability of NSR to new or modified emission units.

In order to demonstrate compliance with the PALs, the PAL monitoring system must be comprised of one or more of the four general approaches: (1) mass balance for processes, work practices or emissions sources using coatings or solvents; (2) Continuous Emissions Monitoring Systems (CEMS); (3) Continuous Parameter Monitoring Systems (CPMS) or Predictive Emissions Monitoring Systems (PEMS) with Continuous Emissions Rate Monitoring Systems (CERMS) or Automated Data Acquisition and Handling Systems (ADHS); or (4) emission factors.  Recordkeeping and reporting requirements will also be required.

PALS will be effective for a term of 10 years and is renewed by submitting a PAL application at least 6 months prior to, but not earlier than 18 months from, the expiration date of the PAL.

Clean Unit Provisions

The final rule sets a new NSR applicability test for units designated as “Clean Units”, allowing these units to undergo changes without triggering NSR so long as the emission limitations are not exceeded, work practice standards are still implemented and the project would not alter any physical or operational characteristics that formed the basis for the BACT or LAER determination. 

To automatically qualify as a Clean Unit, the unit must have gone through the NSR permitting process and is complying with BACT or LAER.  If the source has not gone through the NSR permitting process, the source must go through the permitting process to determine whether the unit meets the criteria to be designated as a Clean Unit, which means BACT or LAER must be installed and compliance with the NAAQS must be demonstrated.

If BACT or LAER resulted in an emission limitation without add-on controls, pollution prevention techniques or work practices standards, the unit will not qualify as a Clean Unit.  An investment is required to initially qualify as a Clean Unit.  Finally, the Clean Unit applicability test may be used for a period up to 10 years.

Pollution Control Project (PCP) Exclusion

Certain work practices and the installation of qualifying pollution control and pollution prevention projects which benefit the environment will be excluded from NSR permitting under the “Pollution Control Project Exclusion”, or PCP Exclusion. 

A PCP is defined as an activity, set of work practices, or project at an existing emissions unit that reduces emissions of air pollution from the unit.  A PCP may reduce emissions of one air pollutant while causing an increase in emissions of a “collateral” pollutant. The final rule gives an example of a thermal incinerator, which may have increased NOx emissions, but dramatic VOC reductions.   The environmental impact of the collateral pollutants’ emissions increase must be evaluated and weighed against the emissions decrease of the primary pollutant to determine whether the PCP provides an environmental benefit. 

PCP’s include the installation of add-on control technologies, switches to less polluting fuels and switches to different ozone depleting substances with a less damaging ozone-depleting effect. A list of presumptively environmentally beneficial projects is in the rule.  If the PCP is a listed environmentally beneficial project, a notice must be sent to the permitting authority.  Immediately upon submitting the notice, construction on the PCP may commence.  For those PCP’s not listed in the rule, the PCP will have to be evaluated on a case-by-case basis through a SIP-approved permitting process. 

The final rule will prohibit the generation of netting credits of offsets for the emission reduction, but will allow these reductions to generate allowances for the purposes of complying with the Acid Rain Program under Title IV.