Legal Sidebari

EPA Proposes New Permitting Test for Power
Plant Modifications
September 25, 2018
In August, 2018, the U.S. Environmental Protection Agency (EPA) proposed the Affordable Clean Energy
(ACE) Rule to address greenhouse gas (GHG) emissions from existing coal-fired power plants, replacing
the Obama Administration’s Clean Power Plan. (See this companion Sidebar for discussion of the
proposed ACE Rule.) As part of the ACE Rule, EPA proposed a new test for determining whether New
Source Review (NSR) would apply to a modification of an existing power plant. According to EPA, by
requiring preconstruction permits for modifications that would increase emissions above a regulatory
threshold, NSR helps to assure that new or modified industrial facilities are “as clean as possible” and
“advances in pollution control occur concurrently with industrial expansion.” Currently, NSR only applies
to modifications that significantly increase annual emissions.
Under the proposed ACE Rule, NSR would only apply to power plant modifications that would increase
hourly pollutant emissions rates regardless of whether they would increase annual emissions. (H.R. 3128
and S. 2761 include proposals for similar NSR hourly rate applicability tests.) The proposed ACE Rule
hourly emissions rate test raises legal questions regarding the scope of EPA’s discretion to define what
types of modifications are subject to NSR. This Sidebar discusses EPA’s legal justification for its
proposed hourly emissions rate test and legal challenges to EPA’s previous efforts to reform the NSR
permitting program by limiting the modifications that would be subject to NSR.
Background on the Clean Air Act’s New Source Review Permitting Program
The CAA regulates newly constructed or modified stationary sources of air pollution, such as
manufacturing facilities and power plants, through the NSR permitting program and the New Source
Performance Standards (NSPSs). Under the NSR program, a permit is required before construction may
begin on a new stationary source that has the potential to emit more than a specified level of regulated
pollutants. A permit is also required before an existing stationary source may be modified. Section
111(a)(4) of the CAA defines “modification” as “any physical change in, or change in the method of
operation of, a stationary source which increases the amount of any air pollutant emitted by such source
or which results in the emission of any air pollutant not previously emitted.” This statutory definition
governs both NSPSs and NSR programs, which impose technology-based emission limits and other air
pollution controls.
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Despite sharing the same statutory definition of modification, NSPSs and NSR regulations use different
tests to determine when modifications trigger further regulatory requirements. In its NSPSs regulations,
EPA defines modification as any physical or operational change that increases hourly emissions rates as
expressed in kilograms per hour. In comparison, EPA’s NSR regulations define modification as any
physical or operational change that results in a “significant net emissions increase” of its annual
emissions, expressed in tons per year. An emissions increase is considered “significant” if it exceeds
regulatory emissions thresholds.
Proposed Changes to the New Source Review Applicability
In the ACE Rule, EPA proposes to adopt an hourly emissions rate test to determine whether a
modification to an existing power plant would trigger NSR. Currently, EPA requires an NSR permit for
any physical or operational modifications to a source, which would increase its annual emissions of
regulated pollutants above regulatory thresholds. While EPA would retain the annual emissions test, EPA
proposes to allow states to limit NSR to modifications that increase both the power plant’s actual hourly
emissions rate and the power plant’s annual emissions. Therefore, it would be irrelevant whether a power
plant modification would increase annual emissions (tons per year) if the modification did not also
increase the power plant’s hourly emissions rates (pounds per hour) beyond the regulatory threshold. EPA
recognizes that a modification to improve a power plant’s efficiency could increase its annual emissions
(due to increased annual production) without increasing its hourly rate of emissions. However, EPA
argues that reducing NSR permitting costs and burdens would promote efficiency upgrades to power
plants, which, in turn, could reduce sector-wide emissions.
Prior to the proposed ACE Rule, EPA’s interpretation of “modification” under the NSR program had been
subject to various legal challenges. In 2007, the Supreme Court in Environmental Defense v. Duke Energy
Corp. held that EPA could not interpret the NSR regulatory definition of “modification” to incorporate the
NSPSs hourly emissions rate test for identifying “modifications.” The Court determined that the NSR
regulations define a “modification” in terms of an increase in the actual annual emissions, not an increase
in the hourly emission rate.
Since the Duke Energy decision, stakeholders have debated whether the CAA allows EPA to revise the
NSR regulatory definition of modification to incorporate explicitly the hourly emissions rate test used for
NSPSs. EPA argues that the Supreme Court’s decision in Duke Energy does not prevent the Agency from
revising its NSR regulatory definition of “modification” to incorporate an hourly rate test similar to the
test used for NSPSs. The Agency contends that it has broad discretion to do so because the CAA is silent
on how EPA should calculate emissions increases from modifications for both the NSR and NSPSs
programs. After the Duke Energy decision, in 2007, EPA proposed (but did not finalize) an hourly
emissions rate test to determine when power plant modifications would trigger NSR permitting
requirements.
Some commentators, who opposed the 2007 proposal, argued that previous court opinions require EPA to
measure increases in actual emissions (i.e., total pollutants emitted annually), not the rate at which
pollutants are emitted. They claim that an hourly emissions rate test creates an unauthorized exemption to
NSR that is similar to EPA’s previous attempts to create a regulatory exemption for pollution control
modifications, which the U.S. Court of Appeals for the District of Columbia Circuit vacated in New York
v. EPA. In that case, the court held that EPA lacked authority to exempt from NSR “clean units” that had
previously upgraded pollution control technology, concluding that Congress intended to apply NSR to
modifications that increase actual emissions regardless of a source’s “clean unit” status. The court also
vacated EPA’s NSR exemption for pollution control projects that increased emissions of other pollutants
on the grounds that a significant increase in emissions of any regulated pollutant is subject to NSR. EPA
claims that its proposed hourly emissions rate test is consistent with New York because the EPA has
discretion to apply an hourly emissions rate test so long as it is based on increases of actual emissions
emitted on an hourly basis.

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Next Steps
EPA proposes that the hourly emissions rate test would apply to all power plant modifications for states
that choose to adopt the new NSR hourly emissions rate test. EPA seeks comments on whether to limit the
test’s applicability to power plants seeking to improve their heat rate to comply with new emission
standards established by states under the ACE Rule. EPA announced that it will accept comments on the
hourly emissions rate test as part of the proposed ACE Rule until October 30, 2018.
Some Members of Congress may consider submitting comments on EPA’s proposed hourly
emissions rate test based on their interest in reforming EPA’s NSR program. Recent bills (H.R.
3128 and in S. 2761) propose to amend the CAA by requiring NSR permits only if a
modification would increase the maximum achievable hourly emissions rate above (1) the
source’s original design capacity, or (2) the hourly emissions rate actually achieved during the
10-year period preceding the modification. These bills would not require sources to determine if
the modifications would increase total annual emissions.

Author Information

Linda Tsang

Legislative Attorney




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