By Zack Hale

October 24, 2020 - The U.S. Environmental Protection Agency on Oct. 22 released a final rule that allows industrial facilities, such as power plants and refineries, to make upgrades in certain cases without obtaining major construction permits that often require pollution controls.

The EPA first outlined a new interpretation of a two-step process required under the Clean Air Act's New Source Review, or NSR, program in the form of agency guidance in March 2018 under former EPA Administrator Scott Pruitt.

Under the EPA's previous interpretation, the first step required an analysis of whether a discrete proposed project would result in a "significant emissions increase" of a regulated pollutant. If the result was a significant increase, a broader second analysis was required to determine whether a facility-wide "significant net emissions increase" would result from the specific modification.

However, the EPA's March 2018 guidance — now a final rule — clarified that facilities may account for both emissions increases and decreases across a facility when conducting the first-step analysis for a single proposed project.

"This rule incentivizes installation of new technologies that can both improve operator efficiency and reduce air pollution," EPA Administrator Andrew Wheeler said in a statement.

Utility industry trade groups, including the American Public Power Association and National Rural Electric Cooperative Association, supported the changes in public comments submitted after the EPA in August 2019 proposed codifying its guidance into a final rule.

The APPA, for example, argued that the new approach would help existing generators like coal-fired units implement compliance strategies for the Trump administration's Clean Power Plan replacement: the Affordable Clean Energy, or ACE, rule. Projected to cut emissions less than 1% by 2030 compared with a business-as-usual approach, the ACE rule requires existing coal plants to undertake a range of efficiency upgrades known as heat-rate improvements depending on their remaining useful lives.

But a coalition of environmental groups led by the Sierra Club and Environmental Defense Fund argued that the revisions would allow facilities to conduct physical and operational changes "that significantly increase emissions source-wide." As a result of the changes to the step one analysis, facilities could evade the NSR permitting requirements "by selecting unrelated activities within the source, and deeming those activities a 'project' that produces no net increase in emissions — even while the sum total of contemporaneous activities at the source in fact produce an increase in emissions," the groups said.

The New York University School of Law's nonpartisan Institute for Policy Integrity also faulted the EPA for declining to conduct a cost-benefit analysis for the changes, noting that the agency cited the March 2018 guidance in claiming its proposed rule would not result in a change to existing regulations.

"An agency cannot evade its responsibility to provide a reasoned explanation for a policy change — including a discussion of the relevant factor of cost — simply by announcing the change in a memorandum prior to codifying it in a regulation," the institute said.