1
Recommended
Improvements
to
the
New
Source
Review
Program
June
2002
The
President's
National
Energy
Policy
Report
directed
the
US
Environmental
Protection
Agency
(
EPA),
in
consultation
with
the
Department
of
Energy
(
DOE)
and
other
relevant
agencies,
to
review
the
New
Source
Review
(
NSR)
program
and
to
issue
a
report
on
the
impact
of
the
program
on
investment
in
new
utility
and
refinery
generation
capacity,
energy
efficiency
and
environmental
protection.
Having
carefully
considered
the
comments
received
during
this
review
and
other
relevant
information,
EPA
has
identified
the
following
ways
in
which
to
reform
existing
rules
and
guidance
to
improve
and
streamline
NSR
applicability
provisions.
Also,
with
respect
to
electricity
generators
and
refiners,
these
changes
will
help
to
address
the
extreme
demands
being
placed
on
our
nation's
energy
supply
infrastructure.
These
changes
would
assure
that
the
NSR
program
operates
in
a
manner
that
provides
greater
regulatory
certainty
and
flexibility
for
business
investment
decisions,
while
at
the
same
time
protecting
the
environment.

(
1)
Plantwide
Applicabililty
Limits
(
PALs)

EPA
would
finalize
its
1996
NSR
reform
proposal
for
PALs
by
allowing
source
owners
to
make
changes
to
their
facilities
without
obtaining
a
major
NSR
permit,
provided
their
emissions
do
not
exceed
the
plantwide
cap.
A
source
could
apply
for
and
obtain
a
PAL
based
upon
its
actual
emissions
baseline.
The
actual
emissions
baseline
would
be
determined
according
to
the
method
described
in
Section
4,
below.
The
framework
of
the
actual
PAL
requirements
is
as
follows:
PALs
would
be
valid
for
a
term
of
ten
years.
Once
a
PAL
is
established
at
a
facility,
the
company
may
make
any
change
without
undergoing
major
NSR
provided
the
emissions
do
not
increase
above
the
PAL
level.
Upon
renewal
of
the
PAL,
the
emissions
levels
set
by
the
PAL
may
be
reevaluated
by
the
State
or
local
permitting
authority
to
determine
the
need
for
an
adjustment
based
on
air
quality
needs,
advances
in
technology
and
control
cost
effectiveness
considerations.
A
PAL
may
be
increased
provided
certain
criteria
are
met.
If
the
area
is
nonattainment,
the
State
must
provide
an
opportunity
for
public
participation,
model
the
increase
as
appropriate,
apply
control
technology
to
the
changed
or
new
emissions
unit
and
secure
the
necessary
offsets.
If
the
area
is
in
attainment,
the
State
must
provide
an
opportunity
for
public
participation,
model
the
increase,
apply
control
technology
to
the
changed
or
new
emissions
unit
and
undertake
any
mitigation
measures
that
might
be
required.
Using
this
approach,
we
also
plan
to
develop
an
alternative
that
would
give
a
source
the
option
of
obtaining
a
PAL
based
on
allowable
emissions.

We
believe
that
PALs
offer
a
number
of
advantages
for
industry,
permitting
authorities
and
the
environment.
First,
PALs
provide
certainty
and
operational
flexibility.
Source
owners
would
be
able
to
make
any
change
to
their
facilities
without
obtaining
a
major
NSR
permit,
provided
their
emissions
do
not
exceed
the
plantwide
cap.
We
believe
the
cap
ensures
environmental
protection
and
that
facility
owners
that
use
PALs
will
have
the
incentive
to
install
good
controls
to
maximize
their
flexibility
and
certainty.
Finally,
the
public
obtains
a
complete
picture
of
the
emissions
profile
2
of
the
source
and
is
assured
that
there
is
an
opportunity
for
public
participation
in
the
event
emissions
are
increased
in
the
future.

(
2)
Clean
Unit
Exclusion
EPA
would
finalize
its
1996
proposal
for
the
Clean
Unit
Exclusion.
A
unit
would
be
considered
to
be
"
clean"
if
it
underwent
a
review
process
that
resulted
in
its
achieving
federal
Best
Available
Control
Technology
(
BACT)
or
Lowest
Achievable
Emission
Rate
(
LAER)
control
levels
or
comparable
State
minor
source
BACT.
A
clean
unit
would
only
trigger
NSR
if
permitted
allowable
emissions
increase.
This
exclusion
would
provide
an
incentive
for
source
owners
to
install
the
best
emission
controls
on
new
or
modified
emission
units.
Specifically,
a
source
that
underwent
a
valid
BACT/
LAER
process
or
State
minor
source
BACT
since
1990
would
be
entitled
to
the
exclusion.
The
exclusion
would
be
valid
for
ten
to
fifteen
years
and
would
run
from
the
date
the
control
technology
was
installed
or
the
project
was
implemented.
Sources
that
installed
Maximum
Achievable
Control
Technology
(
MACT),
Reasonably
Available
Control
Technology
(
RACT)
or
undertook
pollution
prevention
that
required
capital
expenditures
could
also
qualify
for
the
exclusion,
provided
the
results
are
determined
to
be
comparable
to
BACT
or
LAER
that
would
have
been
employed
at
the
time
the
control
measures
or
devices
were
originally
installed.
Finally,
sources
that
invest
capital
to
purchase
equipment
or
implement
processes
that
are
inherently
clean
or
lower
emitting
and
which
achieve
emission
reductions
comparable
to
BACT
or
LAER
at
the
time
the
investment
was
made
would
also
qualify
for
the
exclusion.
The
Clean
Unit
Exclusion
would
provide
greater
certainty
and
flexibility
for
changes
at
clean
emission
units
without
sacrificing
the
environmental
benefit
provided
by
the
current
program
or
meaningful
public
participation.

(
3)
Pollution
Control
and
Prevention
Projects
The
EPA's
policy
is
to
promote
pollution
control
and
prevention
approaches
and
to
remove
regulatory
disincentives
to
companies
seeking
to
develop
and
implement
these
solutions
to
the
extent
allowed
under
the
Clean
Air
Act.
As
part
of
finalizing
its
1996
NSR
reform
rulemaking,
the
Agency
will
revise
its
Prevention
of
Significant
Deterioration
(
PSD)
and
nonattainment
NSR
regulations
to
exclude
from
NSR
projects
that
will
result
in
a
net
overall
reduction
of
air
pollutants,
including
where
a
source
switches
to
a
cleaner
burning
fuel,
regardless
of
the
primary
purpose
of
the
project.
Specifically,
the
Agency
will
revise
its
PSD
and
nonattainment
regulations
to
exclude
from
NSR
the
addition,
replacement
or
use
at
an
existing
emissions
unit
of
any
system,
process,
control
or
device
whose
overall
net
impact
on
the
environment
is
beneficial,
subject
to
certain
conditions.
As
an
overarching
safeguard,
a
project
cannot
result
in
an
emissions
increase
that
will
cause
a
violation
of
a
National
Ambient
Air
Quality
Standards
(
NAAQS)
or
PSD
increment
or
result
in
an
adverse
impact
on
Class
I
areas.
Moreover,
the
complete
replacement
or
reconstruction
of
an
existing
emissions
unit
will
not
qualify
under
this
exclusion.
For
example,
replacement
of
a
pulverized
coal
boiler
with
an
atmospheric
fluidized
bed
combustion
unit,
with
inherent
NOx
and
SO2
reduction
technology,
would
not
be
treated
as
a
pollution
control
project
for
purposes
of
this
exclusion.
Projects
qualifying
for
this
exclusion
will
not
be
considered
to
be
a
"
physical
or
operational
change"
within
the
definition
of
major
modification
under
the
Act.
3
EPA
will
provide
a
list
of
environmentally
beneficial
technologies
that
will
be
presumptively
eligible
for
the
exclusion.
This
list
shall
include
those
technologies
identified
in
the
WEPCO
pollution
control
exclusion
(
40
CFR
Section
52.21(
b)(
32))
and
those
set
forth
in
EPA's
1996
proposed
NSR
reform
rulemaking
(
61
FR
38250,
38261
(
1996)).
Unless
covered
under
another
NSR
exclusion,
pollution
prevention
and
control
projects
that
are
not
on
this
list
must
be
determined
to
be
environmentally
beneficial
before
such
projects
can
qualify
to
be
excluded
from
NSR.
Furthermore,
new
pollution
control
and
prevention
technologies
that
are
not
on
the
list
also
can
qualify
for
case­
by­
case
approval
for
this
exclusion
if
their
effectiveness
in
reducing
emissions
is
demonstrated
in
practice,
they
are
determined
to
be
environmentally
beneficial
and
their
application
will
not
cause
a
violation
of
a
NAAQS
or
PSD
increment
or
result
in
an
adverse
impact
on
Class
I
areas.
EPA
will
establish
a
process
through
rulemaking
for
adding
pollution
control
and
prevention
technologies
to
the
list
of
projects
that
will
be
presumed
to
be
environmentally
beneficial.

A
source
may
qualify
for
the
exclusion
by
providing
prior
notice
to
the
permitting
authority
and
maintaining
records
supporting
the
source's
determination
on
site.
A
source
would
have
the
option
of
seeking
a
determination
from
its
permitting
authority
prior
to
implementing
the
exclusion.

(
4)
Actual
to
Projected
Future
Actual
Methodology
EPA
would
finalize
its
1996
NSR
reform
rulemaking
by
using
an
actual
to
projected
future
actual
methodology
for
calculating
emissions
increases
for
all
industrial
sectors.
Owners
and
operators
of
facilities
would
calculate
emissions
increases
for
a
physical
change
or
change
in
method
of
operation
at
an
existing
unit
by
comparing
representative
pre­
change
actual
emissions
with
projected
post­
change
actual
emissions.
The
"
actual
to
future
actual"
test
would
be
applied
to
all
physical
or
operational
changes
at
existing
sources,
except
those
that
are
an
addition
of
a
new
unit
or
constitute
a
complete
replacement
of
an
existing
unit.
Records
supporting
the
source's
determination
and
records
of
actual
emissions
for
the
following
five
years
must
be
maintained
on
site.

Causation:
Consistent
with
pre­
existing
statutory
and
regulatory
requirements,
only
emissions
increases
caused
by
a
given
change
are
considered
in
measuring
the
emissions
increase
associated
with
the
change.
In
particular,
as
part
of
the
actual
to
projected
future
actual
methodology,
EPA
will
continue
to
apply
the
causation
test
incorporated
into
the
WEPCO
rule.
EPA
will
exclude
from
the
emissions
increase
calculation
that
portion
of
the
post­
change
emissions
that
both:
(
1)
could
have
been
accommodated
before
the
change
within
the
representative
baseline
period;
and
(
2)
is
attributable
to
an
increase
in
projected
capacity
utilization
at
the
unit
that
is
unrelated
to
the
particular
change.

Actual
Emissions
Baseline:
For
sources
other
than
electric
utility
steam
generating
units,
the
actual
emissions
baseline
will
be
the
highest
consecutive
24
month
period
within
the
immediately
preceding
ten
years,
taking
into
account
the
current
emissions
factor
(
which
would
reflect
emissions
limitations,
other
required
emissions
reductions,
and
permanent
shutdowns
since
4
the
baseline
period)
in
combination
with
the
utilization
level
from
the
24­
month
time
period
selected.

(
5)
Routine
Maintenance,
Repair
and
Replacement
(
RMR&
R)

Safe
HarborTest:
Through
notice
and
comment
rulemaking,
EPA
will
set
forth
cost­
based
thresholds
using
well­
established
precedents
from
the
Agency's
longstanding
New
Source
Performance
Standard
(
NSPS)
regulations.
Projects
whose
aggregated
costs
are
below
the
threshold
would
automatically
be
given
RMR&
R
treatment.
Projects
whose
costs
exceed
the
threshold
would
remain
eligible
for
RMR&
R
treatment
if
they
otherwise
qualify,
without
any
presumption
that
they
did
not
qualify
by
virtue
of
their
being
outside
the
safe
harbor.

In
approaching
this
test,
we
have
considered
two
different
provisions
in
the
NSPS
standards.
First,
the
reconstruction
provisions
of
40
CFR
Section
60.15
clearly
provide
that
capital
replacement
value
of
an
affected
source
is
a
relevant
basis
for
determining
the
need
for
installing
modern
pollution
controls
when
a
project
is
implemented.
Second,
the
NSPS
excludes
projects
that
increase
utilization
at
an
affected
source
if
they
come
below
"
annual
asset
guideline
repair
allowance"
percentage
thresholds
(
defined
by
the
IRS
for
specific
industry
categories)
ranging
from
1.5
to
15
percent.

These
NSPS
provisions
would
be
adapted
to
operate
in
the
NSR
context.
For
example,
the
NSPS
limits
operate
on
specific
projects,
but
in
the
context
of
an
RMR&
R
safe
harbor,
annual
dollar
cost
thresholds,
averaged
on
a
rolling
basis
over
a
5­
year
period
(
except
where
maintenance
cycles
in
a
particular
industry
dictate
a
different
period)
established
for
entire
utility
stationary
sources
and
refinery
and
other
industry
processing
and
production
units,
might
be
more
appropriate.
These
thresholds
would
be
applied
so
that
if
the
aggregate
cost
of
maintenance
expenses
and
capital
repair
and
replacement
projects
for
the
relevant
unit
do
not
exceed
the
specified
dollar
threshold
then
the
activities
would
be
deemed
to
be
"
routine
maintenance"
and,
thus,
not
subject
to
NSR.

The
cost
threshold
for
the
relevant
source
or
unit
would
be
set
so
as
to
cover
RMR&
R
capital
and
non­
capital
costs
incurred
to
facilitate
the
safety,
efficiency,
and
reliability
of
the
operation
of
the
unit.
In
the
context
of
the
NSPS
increase
in
production
rate
exclusion,
these
are
set
by
reference
to
historical
invested
basis.
In
the
context
of
establishing
a
safe
harbor
for
routine
maintenance,
repair,
and
replacement,
however,
a
more
appropriate
comparison
point
might
be
capital
replacement
cost
or
another
measure
that
sets
a
consistent
threshold
for
all
facilities
in
a
given
industry.

As
noted
above,
under
the
NSPS
exclusion
for
increases
in
production
rate,
the
annual
cost
thresholds
are
set
on
an
industry­
by­
industry
basis,
with
an
"
annual
asset
guideline
repair
allowance"
percentage
assigned
to
each
industry.
These
percentages
range
from
1.5%
to
15%.
There
is
good
reason
to
think
that
the
industry­
specific
basis
and
the
specific
percentages
are
appropriate
in
the
RMR&
R
context
as
well.
EPA
would
also
entertain
comment,
however,
on
the
appropriateness
of
5
the
industry­
specific
approach
and
the
appropriateness
of
the
particular
thresholds
for
the
various
industries
in
this
context.

Excluded
Costs:
Costs
incurred
for
installing
and
maintaining
pollution
control
technology
would
not
be
included
in
calculating
costs
under
the
safe
harbor
threshold
test.
EPA
also
would
consider
excluding
certain
costs
associated
with
forced
outages
involving
the
unanticipated
failure
of
one
or
more
major
components.

Expenses
Beyond
the
Safe
Harbor:
If
aggregate
maintenance
costs
of
work
undertaken
exceed
the
applicable
cost
threshold,
that
work
would
not
thereby
be
presumed
to
be
non­
routine.

Other
Considerations:
EPA
also
would
take
comment
on
particular
safe
harbor
implementation
issues.
For
example,
as
noted
above,
the
Agency
intends
to
set
thresholds
at
levels
that
will
cover
the
RMR&
R
costs
needed
to
facilitate
the
safety,
efficiency,
and
reliability
of
operations
at
industrial
facilities.
Because
expenditures
that
fall
below
these
thresholds
would
automatically
be
excluded
from
NSR,
the
Agency
is
concerned
that,
in
some
cases,
such
thresholds
might
allow
a
facility
to
undertake
relatively
low­
cost
projects
(
such
as
installation
of
new
burners
or
painting
equipment)
that
can
increase
emissions
significantly
and
should
not
automatically
be
excluded
from
NSR.
As
part
of
the
rulemaking
for
setting
cost­
based
thresholds,
EPA
could
identify
specific
types
of
projects
that
cannot
be
excluded
from
review
by
virtue
of
the
thresholds.
However,
for
some
types
of
sources,
such
as
electric
utilities
and
refineries,
the
better
approach
may
be
to
utilize
maximum
achievable
hourly
emissions
rate
as
the
mechanism
for
addressing
this
concern.

Definitional
Issues:
Through
notice
and
comment
rulemaking,
EPA
will
propose
that
the
replacement
of
existing
equipment
with
equipment
that
serves
the
same
function
and
that
does
not
alter
the
basic
design
parameters
of
the
unit
(
for
example
in
the
case
of
utilities
this
means
maximum
heat
input
and
fuel
consumption
specifications)
typically
would
be
considered
RMR&
R.
In
addition,
this
rulemaking
will
provide
clear
guidelines
for
RMR&
R
activities
undertaken
to
facilitate,
restore,
or
improve
efficiency,
reliability,
availability,
or
safety
within
normal
facility
operations.
EPA
also
will
consider
provisions
identifying
the
types
of
projects
that
are
undertaken
as
RMR&
R
activities
in
particular
industrial
sectors.
The
absence
of
a
project
from
such
a
list
would
not
disqualify
it
from
being
considered
RMR&
R
but
would
simply
result
in
its
being
evaluated
on
a
case­
by­
case
basis
as
to
whether
it
was
routine.

In
the
case
of
the
utility
sector,
equipment
that
is
maintained,
repaired
and
replaced
can
be
categorized
along
functional
lines
(
for
example,
boiler
tube
assemblies,
air
heaters,
coal
handling
equipment,
pumps,
fans,
etc.)
Using
these
categories,
EPA
could
identify
RMR&
R
activities
undertaken
to
facilitate
reliability,
availability,
efficiency,
or
safety
within
normal
facility
operations.
In
particular,
the
EPA
would
focus
on
projects
where
the
consequences
of
delaying
or
6
foregoing
the
work
could
lead
to
lower
availability
or
the
failure
of
the
generating
unit
and
create
or
add
to
safety
concerns.
For
example,
DOE
suggests
that
such
a
rule
could
be
informed
by
maintenance,
repair
and
replacement
activities
identified
as
common
practice
by
the
North
American
Electric
Reliability
Council.

Along
the
same
lines,
EPA
could
identify
routine
maintenance,
repair
and
replacement
undertaken
by
refineries
during
"
turnarounds."

Also
in
the
context
of
RMR&
R,
EPA
will
address
energy
efficiency
projects.
EPA
will
affirm
that
existing
NSR
rules
are
not
intended
to
discourage
activities
that
increase
efficiency.
The
Agency
will
propose
that
energy
efficiency
improvements
undertaken
through
routine
maintenance,
replacement
and
repair
activities
will
be
considered
to
be
RMR&
R.
In
this
context,
energy
efficiency
projects
will
be
considered
to
be
routine
if
the
improvement
results
from
the
replacement
of
existing
equipment
with
equipment
that
serves
the
same
function
and
that
does
not
alter
the
original
design
parameters
of
the
unit
(
for
example
in
the
case
of
utilities
this
means
maximum
heat
input
and
fuel
consumption
specifications).

EPA
will
also
take
steps
to
provide
additional
certainty
about
RMR&
R
activities
during
the
pendency
of
this
rulemaking.

(
6)
Debottlenecking
Through
notice
and
comment
rulemaking,
EPA
will
clarify
that,
when
calculating
actual
emissions
associated
with
a
physical
change
or
change
in
the
method
of
operation,
sources
generally
should
look
only
at
the
unit
undergoing
the
change.
Emissions
from
units
"
upstream"
or
"
downstream"
of
the
unit
being
changed
should
be
considered
only
when
the
permitted
emissions
limit
of
the
upstream
or
downstream
unit
would
be
exceeded
or
increased
as
a
result
of
the
change.

(
7)
Aggregation
Through
notice
and
comment
rulemaking,
EPA
would
clarify
its
nonaggregation
policy
as
follows.
For
purposes
of
determining
NSR
applicability,
a
project
would
be
considered
separate
and
independent
from
any
other
project
at
a
major
stationary
source
unless
(
1)
the
project
is
dependent
upon
another
project
to
be
economically
or
technically
viable
or
(
2)
the
project
is
intentionally
split
from
other
projects
to
avoid
NSR.
Also,
EPA
generally
would
defer
to
the
States
to
implement
the
Agency's
aggregation
rule.
