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Clean Air Issues: New Source Review (7-7-04)

On November 22, 2002, the Environmental Protection Agency (EPA) announced changes to the New Source Review (NSR) program. The new NSR regulations increase the ease with which older generating plants can upgrade and expand. Some believe that the current NSR procedures have acted to discourage companies from doing even routine maintenance because of the regulation processes. Environmentalists have voiced disapproval of the changes to the new NSR, pointing out that it will hinder air quality and may undercut enforcement actions currently waiting in the court system that the EPA has taken against power companies. They are also uneasy about increasing industry autonomy, allowing industry to make structural changes without checking the environmental impact.

Most Recent Action

The Environmental Protection Agency (EPA) announced on June 30th that it would reconsider some of the reforms made last fall to the Clean Air Act's New Source Review (NSR). This announcement came in response to a request made by environmentalists and some state attorneys who believed the new reforms were too lax and favored coal-burning utilities. Although the EPA said it is not planning to change the reforms, they will open a 60-day public comment period before issuing a final decision within the next 180 days. Their review will include the justification for their reforms under the Clean Air Act since they have the legal authority to interpret the Act. The review will also address the controversial reform involving a capital spending provision that establishes a 20% capital spending threshold on industry maintenance before the Clean Air Act's pollution requirements are triggered. This is the second time the NSR has been reformed; the U.S. Court of Appeals for the District of Columbia Circuit blocked these new rules from implementation until a ruling is handed down. The EPA responded by submitting a rule to the Federal Register that codifies old NSR regulations until the court clears the new reforms. The Bush administration, however, has decided to pursue new NSR cases only if laws under the new regulations are broken. EPA Administrator Mike Leavitt said that, until the court makes a decision and the review is complete, the EPA will enforce Clean Air Act laws under the earlier reforms. Only one case against East Kentucky Power Cooperative has been heard so far. (7/7/04)

Previous Action

On January 30, 2003, Virginia Attorney General Jerry Kilgore, leading eight states - Virginia, South Carolina, Indiana, Kansas, Nebraska, North Dakota, South Dakota, and Utah - filed a brief in the U.S. Court of Appeals for the District of Columbia Circuit, supporting the EPA's NSR reform package. The delegation intervened on behalf of the government on a challenge to the NSR rules brought by nine Northeastern states - New York, Connecticut, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, Rhode Island, and Vermont. According to Greenwire, the delegation led by New York attorney general Elliot Spitzer argues that NSR changes will lead to an "increase in air pollution, particularly from the industrial facilities that produce emissions upwind from the U.S. Northeast." The Virginia-led brief stated that a New York win would "reduce [the states'] flexibility in enforcing the Clean Air Act, increase their enforcement costs and frustrate the achievement of the Clean Air Act's pollution control goals in a more effective and inexpensive fashion." Greenwire also reports that Pennsylvania Governor Ed Rendell (D) will lead a separate lawsuit against NSR reforms. California, Oregon, Washington, Texas, Wisconsin, Illinois, Michigan, North Carolina, and Delaware are also considering their options. (2/6/03)

On March 6, 2003, according to Greenwire, the U.S. Court of Appeals for the District of Columbia denied the petition led by New York Attorney General Eliot Spitzer to delay the NSR rules' immediate implementation in several states and local air districts. Arguing that the rules will drastically increase emissions, Spitzer will next present the case to a separate three-judge panel who will decide the case on its merits. (3/10/03)

On July 25th, the Environmental Protection Agency (EPA) announced its intention to reopen debate on its December 31, 2002 New Source Review (NSR) reforms, largely in response to suits brought against the agency by a group of Northeastern states. These states argue that the new rules contain a loophole in terminology allowing industrial facilities to upgrade and expand their operations without introducing technology to reduce emissions. Such facilities include power plants, petroleum refiners, chemical manufacturers, and automakers. More information on the controversial terminology can be found in this page's Background section. While making a concession in reopening the debate, the EPA has denied the plaintiffs' requests to delay implementation of the rules until they are completely reviewed, stating, "We believe that the final rules are a reasonable exercise of our discretion under the [Clean Air Act] and will result in greater emission reductions compared to the former [NSR] program," (Greenwire, 7/28/03). Critics of the EPA's decision to reopen debate call it an acknowledgment of problems with the new rules, while supporters of the decision see it as a conscientious move, made in order to avoid any perception that the agency wishes to dodge debate and criticism. (8-1-03)

On August 26th, the Bush Administration announced final changes to the definition of "equipment replacement" under the New Source Review portion of the Clean Air Act. Under the new definition, thousands of power plants, refineries, pulp and paper mills, chemical plants and other industrial facilities will be able to make upgrades without having to install new antipollution devices as long as the upgrade costs less than 20% of the replacement value of the entire unit. The Natural Resources Defense Council estimates that more than 17,000 plants will be affected.

Utilities, which have pushed for this revision for several years, said the change would allow them to keep their plants in good working order. That, they say, will benefit consumers because the supply of electricity will be more reliable. Companies also say rate hikes will be less likely as production becomes more energy-efficient.

Environmentalists contend the change would make it much easier for plants to increase emissions and could have devastating effects on health and the environment, causing more asthma and premature deaths and choking cities and national parks with smog.

Unfortunately, there isn't much data to back up either of these claims. Although the EPA received over 150,000 written comments during the 120-day comment period and had more than 450 individuals participate in 5 public hearings across the country, most of the evidence either way is anecdotal, according to a recent report by the General Accounting Office, the investigative arm of Congress.

Marianna Horinko, EPA's Acting Administrator, said that the existing authorities under the Clean Air Act, including the Acid Rain Amendments of 1990, already control emissions from these facilities and will do so in the future. The Administration has simply made a wording clarification so industry now knows exactly what is expected of them. She added that enforcement of those standards will continue to play an important role in pollution abatement efforts.

Industry is hailing the new rule. Thomas R. Huhn, president of the Edison Electric Institute, a trade group for utilities, said the rule set a common-sense standard that would "lift a major cloud of uncertainty, boosting…efforts to provide affordable, reliable electric service and cleaner air." According to Huhn, the rule will encourage plants to make efficiency improvements without fear that they would trigger the requirement for new pollution controls. These upgrades, he said, would allow generators to produce electricity using less fuel, resulting in lower emissions.

Critics like Eric Schaeffer, director of the Rockefeller Family Fund's Environment Integrity Project and former head of the EPA's enforcement division, claim that this change "blows a big hole in the Clean Air Act." They argue that there will be greater pollution as pre-1970 facilities will be able to make use of this "routine maintenance" for years and years, extending the life of facilities that should be shut down in favor of bringing newer, safer, more technologically advanced plants on-line. Opponents want the new rule thrown out.

As with many other things in our modern world, this too will likely be settled in court. New York Attorney General Eliot Spritzer and Massachusetts Attorney General Thomas F. Reilly have said separately that each will challenge the new rule in court. This rule will also likely be hashed over at the Senate confirmation hearings for Utah Governor Mike Leavitt, whom Bush nominated to head the EPA earlier this month.

Additional information and copies of the final rule are available on the Web at: http://www.eps.gov/nsr. (9/02/03)

On September 5, 2003, The Department of Justice (DOJ) filed a brief that redefined "routine maintenance" of industrial facilities, making it easier to upgrade such plants without installing the antipollution technology required under the New Source Review (NSR) portion of the Clean Air Act (CAA). NSR requires that clean air devices be installed during any major upgrade but not as part of "routine maintenance." In late August, however, the Environmental Protection Agency (EPA) expanded "routine maintenance" to include all upgrades that cost less than 20% of the total value of the equipment being upgraded. This has already led to legal wrangling in Illinois, where government lawyers prosecuting Illinois power plant Dynegy Midwest Generation Inc. are struggling to convince U.S. District Judge Michael J. Reagan that the original interpretation of routine maintenance applies rather than the new one, released part way through the case. According to the Washington Post, EPA Director of Air Enforcement Bruce Buckheit agrees that the "current [narrow] interpretation is the one that applies in this case." A DOJ spokesman skirted the issue, instead pointing to DOJ's prosecution of the Dynegy plant for making "significant modifications to their Baldwin plant without obtaining a permit." DOJ's position on the Dynegy case is a departure from an August 7, 2003 ruling, where a federal judge held FirstEnergy Ohio Edison Co. accountable for failing to install anti-pollution devices when upgrading seven coal-fired power plants. (10/6/03)

The EPA published its final New Source Review rule in the Federal Register on October 27th. As reported by Greenwire, the NSR program formerly dealt with industrial facilities on a case-by-case basis using a multi-factor test to determine if a particular activity falls within the routine maintenace exclusion. Now, the program will be triggered only for companies that spend more than 20 percent of the replacement costs of a plant.

The new NSR provisions are set to go into effect on December 26th for states and local air pollution districts that have allocated permitting authority to the federal government. For the rest of the country, implementation does not begin for another three years. Regardless, the rule will first have to survive a spate of lawsuits challenging the rule on the grounds that the changes are illegal and will lead to increased air pollution.

New York Attorney General Eliot Spitzer is leading the challenge for the states, including Connecticut, the District of Columbia, Maine, Maryland, Massachusetts, New Hamphire, New Mexico, New Jersey, Pennsylvania, Rhode Island, Vermont and Wisconsin. Illinois is also expected to join the fight. The environmental and health groups challenging the rule (Natural Resources Defense Council, American Lung Association, Sierra Club, Communities for a Better Environment and Envionrmental Defense) are being represented by EarthJustice. The Clean Air Task Force is filing suit on behalf of several regional environmental groups, including the Alabama, Michigan and Ohio environmental councils, Scenic Hudson and the Southern Alliance for Clean Energy. Opponents of the rule have until December 26th to challenge the rule changes in court. (10/28/03)

The National Academies' National Science Review (NAS) held its first hearing on May 25th to review the Bush administration's new rules under the Clean Air Act New Source Review program. The rules and official EPA statements can be found on the EPA's New Source Review website. The two sets of NSR rules under review include some controversial provisions, described below. The NAS panel was originally authorized by Congress to review only the first set of rules, but in November the Senate Environment and Public Works Committee decided to incorporate both sets in the panel's review. The second set has been blocked from implementation by the U.S. Circuit Court of Appeals for the District of Columbia until a lawsuit challenging the reforms is resolved.

A Senate Environment and Public Works Committee aide said in his testimony that the panel should aim to provide only a nonbiased review of the NSR rules, and consider the wide range of possible effects they may have. Jeff Holmstead, EPA's assistant administrator for the Office of Air and Radiation and lead author of the NSR rules, told the panel that he is confident "the scientists would come up with the same findings when they release their interim report next year." Opponents of the new rules who called for the review argue that the rules contain significant loopholes, undermine states' ability to regulate emissions, and are not supported by sufficient scientific evidence. The panel's final report is due to Congress by Jan. 1, 2006, and an interim report should be completed by Jan. 1, 2005. (5/26/04)

Background

The Clean Air Act's (CAA) New Source Review (NSR) requirements have been a major source of contention in recent years, leading to a revision of the rules and numerous lawsuits between industry, the Environmental Protection Agency (EPA), and several states. NSR requires industry to install modern pollution control equipment when a power plant is built or when it makes a major modifications to existing sources.

The controversy stems from the definition of "modification" in the NSR language. Industry generally claims most of its changes are "routine maintenance" rather than a modification, and therefore not applicable to the NSR process. In the 1990's, the EPA began reviewing industry records to determine if their changes were indeed routine. Consequently, the EPA and the Department of Justice have filed suits against 14 electric companies since 1999, claiming major modifications were made in absence of NSR and without installing the best available pollution controls. Of these suits, 13 were filed during the Clinton administration.

The release of President Bush's energy plan in May 2001 prompted a review of NSR rules by the EPA. The review was completed in June 2002 and followed by the EPA enacting four new rules and proposing one new rule on November 22, 2002. The proposed rule has gained the most attention by redefining routine maintenance and exempting NSR modifications that cost less than a threshold amount. The EPA hails the changes, saying they streamline the regulatory process by removing barriers standing in the way of energy efficiency and pollution control projects. Environmentalist, along with key Democrats and a number of states, see the changes as a hindrance to good air quality and argue that they undercut ongoing court cases against several power companies.

For additional information see AGI's Update on Clean Air Issues from the 107th Congress and the Congressional Research Service report provided by the National Library for the Environment.

Sources: Environmental Protection Agency, E&E News, Greenwire, Thomas website, The Washington Post, The New York Times, the Los Angeles Times, USA Today and hearing testimony.

Contributed by Charna Meth, 2003 AGI/AAPG Spring Semester Intern; Emily Scott, 2003 AGI/AIPG Summer Intern; Emily M. Lehr, AGI Government Affairs Staff, Ashley M. Smith, 2003 AGI/AAPG Fall Semester Intern; Bridget Martin, 2004 AGI/AIPG Summer Intern; and Ashlee Dere, 2004 AGI/AIPG Summer Intern.

Background section includes material from AGI's Update on the Clean Air Act for the 107th Congress.

Please send any comments or requests for information to AGI Government Affairs Program.

Last updated on July 7, 2004.


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