Attention NSR Geeks #2: EPA Flips Position on “Project Netting”

Legal Alert

03.13.2018

On March 13, 2018, EPA issued another new NSR interpretation. This one allows a source to take into account emissions decreases when performing the first step in determining NSR applicability, effectively rewriting the long standing policy against “project netting.” EPA’s two-step applicability analysis for NSR begins with evaluation of project emissions, Step 1. If emissions from this step exceed SERs, then the source moves on to Step 2 an evaluation of contemporaneous emissions changes or netting.

One of the most frustrating things about NSR applicability analyses was EPA’s historical prohibition against any adjustment for emissions decreases associated with the project in Step 1. The banned practice was referred to as “project netting” and forced many projects into Step 2 and into major source permitting. Projects were often stalled or aborted even though the changes resulted in actual decreases in emissions. But wait, if the agency’s agenda were to obtain tighter emissions controls, then EPA’s old position proved quite effective.

The latest in a series of EPA NSR guidance memos from the Pruitt Administration changes all that. Based on a new interpretation of old regulatory language, EPA is now allowing sources to account for decreases in emissions at the project analysis Step 1, so long as there is “a causal link between the physical or operational change at issue--i.e., the ‘project’--and any change in the emissions that may ensue.” This is the case even if the project involves both new and existing emission units (referred to as “hybrid” projects). EPA even gave it a new name “project emissions accounting.” And EPA distinguished this Step 1 accounting from Step 2 netting -- that more properly describes looking at other projects undertaken during the contemporaneous period.

EPA recognizes that it is “necessary to account for the full and direct effect of the proposed change itself,” including emissions increases and decreases that occur as part of the project. It’s as if the memo’s authors know the exasperation of telling a source that project decreases, no matter how significant, are not relevant until Step 2 and only then in combination with other contemporaneous changes.

Bonus news. Sources need not take a limit on an existing unit in order to account for emissions decreases in Step 1. EPA underscored that the source defines the scope of the project-- important for emissions decreases from changes that are part of a project.

Applicants beware. EPA indicated that it intends to address this interpretation exclusively through guidance. That’s great because the guidance takes effect immediately. That’s unsettling because future administrations can easily change this position. EPA does not control how States react to the guidance memo. That’s great because in some States the new position can be immediately adopted. That’s unsettling because some States, allowed to be more stringent, may continue to apply the old methodology. Reach out to the local permitting authority or your favorite NSR Geek for guidance on implementation.

Spoiler. EPA promised another NSR memo on project aggregation soon. NSR Geeks will be watching for that one.