Are Clearer Skies Ahead? New Source Review Reform in Tennessee

The Business Environmental Strategic Taskforce ("BEST") was established in the fall of 2003 at the request of Commissioner Betsy Child of the Tennessee Department of Environment and Conservation ("TDEC"). It is composed of industry and environmental advocacy representatives and seeks to facilitate better dialogue and communication concerning environmental regulation and conservation.

The Air Committee of BEST recently addressed the federal New Source Review ("NSR") Reform Rule issued by EPA in December, 2002. Under that rule, Tennessee[1] has three years to submit to EPA a State Implementation Plan ("SIP") revision at least as stringent as the federal rule.[2] EPA's 2002 rule amended the NSR regulations for prevention of significant deterioration ("PSD") and nonattainment new source review for modifications at existing major sources. Thirteen states and the District of Columbia have challenged the December 2002 rule, as well as the August 2003 equipment replacement rule, in the D.C. Circuit Court of Appeals.

On September 22, 2004, the Air Committee of BEST presented its report on NSR Reform[3] to the TDEC's Air Pollution Control ("APC") Board, which has directed TDEC staff to draft a proposed rule for official promulgation. The Air Committee did reach consensus on the need for healthy air and a healthy economy, inclusiveness during the rulemaking process, neutral or beneficial revisions in comparison to the existing rule and the need to eliminate needless complexity and delay.[4]

The NSR Reform Rule consists of five major components: Clean Units; Pollution Control Projects ("PCPs"); Methods for Determining Baseline Emissions; Actual-to-Projected-Actual Methodology for determining whether a project will cause a significant air emissions increase; and Plantwide Applicability Limits ("PALs").

Clean Units The federal rule provides that when a unit has gone through Best Available Control Technology ("BACT") or Lowest Achievable Emission Rate ("LAER") review, or can demonstrate that it has controls comparable to BACT or LAER; then it may make alterations at that unit without triggering additional NSR, provided the alteration does not require a change in the emission limit or other BACT/LAER requirements. Therefore, any emission increases that occur as a result of a project at the source are not considered in determining whether the project is a major modification. The Air Committee agreed that the Clean Unit provision provides additional incentive for source owners to install emission reducing controls. However, the environmental interest groups prefer the BACT/LAER standard for Clean Unit designations, rather than "comparable" controls.[5]

Pollution Control Projects ("PCPs") The PCP exemption was incorporated into the federal rules for utilities in 1992 and applies to industrial source projects in those instances where installation of one pollution control measure will increase emissions of a second pollutant. The exemption is designed to ensure that there is not a disincentive to install pollution control technologies that have an overall beneficial effect. The federal rule contains a rebuttable presumption for certain listed projects and details how other projects may be designated as PCPs. The primary purpose of the project is not required to be pollution control; however, pollutant increases above significance levels requires that the permitting authority determine whether there is a violation of national ambient air quality standards, PSD increment or adversely impacted air quality related values in Class I areas (e.g., national parks). The Air Committee agreed that the State Rule should specifically allow rebutting the presumption of PCP status when the State has evidence that the project would harm the environment. That State Rule should also specifically provide authority to consider the impact of any hazardous air pollutants ("HAPs") that are associated with the PCP itself. Finally, the Air Committee agreed that the State Rule should specifically clarify that emission reduction offsets must be provided for any PCP in a nonattainment area that would result in a significant net increase of a nonattainment pollutant.[6]

Baseline Actual Emissions This provision addresses the way in which sources (other than electric utility steam generating units, or EUSGUs) determine "baseline actual emissions." The level of those emissions is important in three instances: (i) for calculating "pre-change" actual baseline emissions when determining whether a proposed project will increase emissions under the "actual-to-projected actual methodology" discussed in the next section; (ii) when setting a cap for a PAL, discussed in the last section below; and (iii) when used in netting actual emissions against permitted emissions to determine creditable emission increases/decreases.

The federal rule allows a source to average emissions during any consecutive 24-month period during the 10-year period prior to the change to determine the baseline. If a single unit is involved, sources may use a different consecutive 24-month period for each NSR pollutant; however, if multiple emission units are involved, the source must use the same 24-month baseline period for all units. The federal rule also requires that the source adjust its baseline downward to exclude noncompliance emissions during the baseline period and that the baseline must be adjusted for certain sources to reflect current emissions limitations imposed after the baseline period. The federal rule includes fugitive emissions and emissions associated with startups, shutdowns and malfunctions in the calculation.

The Air Committee agreed that the State Rule should require that the same two-year baseline period be used for all pollutants and sources, regardless of whether single or multiple units are involved. However, industry's agreement was predicated on adoption of the ten year look-back period, with a strong preference stated for averaging during any consecutive 12-month, rather than 24-month period to determine baseline. Environmental interest groups believe the long look-back may be used to inflate the baseline above current actual emissions, thereby allowing projects to evade NSR. The environmental groups are comfortable with the current state and federal look-back of the two-years immediately preceding the change. Environmental interest groups point out that the existing rules allow a source owner to demonstrate that another two-year period would serve as a more representative baseline. Industry's experience is that demonstration is frequently difficult and time-consuming. Other alternatives discussed include: (i) An average ton per year emission rate over the ten-year period; or (ii) Any two consecutive years during the past five years, with discretion to look back an additional five years if granted by TDEC.[7]

Actual-To-Projected-Actual Test Historically, EPA's rule provided that a plant's potential to emit should be used to calculate post-project emissions. Under the new federal rule, a source may project future actual emissions as the maximum emissions that will occur in any one of the five (and in some cases ten) years after the change. To calculate projected emissions, the source looks at historical utilization and emissions and tries to determine increases that may occur as a result of the project itself, not increases the unit was capable of accommodating before the project, including any demand growth that could have been accommodated before the project. The federal rule does not make the projected emissions levels enforceable limits, but requires the source to submit reports when post-change emissions increase by a significant amount and are in excess of the pre-change projections.

The Air Committee agreed that the State Rule should also provide an administrative mechanism that provides an opportunity for transparency with respect to the emissions calculations made by the source. It should focus attention on projects that have a reasonable possibility of resulting in a significant emissions increase. It should also provide notice and an opportunity to review the calculations methodology if net emissions increase. The environmental community opposes the demand growth exclusion, preferring BACT/LAER controls because of the difficulty in distinguishing between emission increases attributable to growth in demand rather than physical or operational changes to the source. Industry believes that the abundant monitoring and record keeping requirements currently in place make determining demand growth exclusions fairly straightforward.[8]

Plantwide Applicability Limits PALs allow sources to manage emissions under a plantwide cap, thus permitting changes in operations, without undergoing NSR review, so long as plantwide emissions do not exceed the PAL. Emissions may increase by significant amounts at some units, if there is a corresponding decrease at other units. The federal rule does not require that the source commit to any decrease in emissions over the ten-year effective period of the PAL.

Environmental members of the Air Committee were concerned about how the "actuals' limit is determined. These same arguments are detailed above in the Baseline Actual Emissions section. Environmental advocates also want a "bad actor" exclusion, prohibiting use of PALs by entities with a history of Clean Air Act violations. Industry strongly objects to any preclusion, arguing that bad actors are unlikely to use PALs, the record keeping requirements allow monitoring compliance, defining "bad actor" will prove difficult and it is was not addressed in either the old or new federal rule. The environmental community also believes that declining caps on emissions would be valuable and justified in nonattainment areas. Industry counters that air quality goals in nonattainment areas should be decided on an area-by-area basis in the SIP, with no automatic declining caps in PALs.[9]

The BEST Air Committee has completed a difficult and adversarial negotiation to arrive at initial comments for TDEC's consideration in promulgating NSR provisions for the Tennessee SIP. Their continued involvement during the rulemaking process will assist the Department in promulgating a rule that not only fosters economic growth, but also protects Tennessee's rich environmental heritage.

[1] As well as other states that have State Implementation Plan ("SIP") approved NSR programs. BEST Report, p.1.

[2] BEST Report, pp. 3-4. The EPA has not provided guidance as to how it will determine whether a state rule is at least as stringent as the federal rule.

[3] Cited herein as the BEST Report.

[4] BEST Report, p.5.

[5] BEST Report, p.6.

[6] BEST Report, p 7.

[7] BEST Report, p.8.

[8] BEST Report, p.10.

[9] BEST Report, pp. 11-12.