For many years EPA has taken the position it could take enforcement action based on agency review and calculation of projected emissions in determining New Source Review (NSR) applicability for pre-construction permitting for modification of an existing source. Projects that trigger NSR must go through Prevention of Significant Deterioration (PSD) permitting review if the source is located in an attainment area for the National Ambient Air Quality Standards; if located in a non-attainment area, then a non-attainment NSR (NNSR) review must be performed. Both PSD and NNSR reviews are complex and resource intensive. Thus calculation of post construction emissions and NSR applicability is very important. The source is responsible for determining NSR applicability. Where a source has determined NSR was not applicable, EPA has traditionally taken the position it had authority to evaluate pre-construction potential emissions and if the source determination was incorrect take enforcement action for failure to obtain an NSR permit prior to construction, despite actual post construction emissions data showing that NSR requirements were not triggered.

On December 7, 2017, Pruitt issued a memorandum to regional administrators clarifying EPA’s current understanding regarding certain elements of the NSR regulations and communicating the intended application and enforcement of the NSR applicability provisions reversing the longstanding EPA approach. The memorandum stated its intent to cover certain specific topics: “1) consideration of post-project emissions management in determining NSR applicability; 2) the role of post-project actual emissions in major modification applicability; 3) the EPA oversight and enforcement of pre-project NSR applicability analyses involving the actual-to-projected-actual applicability test; and 4) the role of EPA-approved state and local NSR programs in implementing NSR requirements.”

The memorandum explains that NSR requirements are triggered if a project becomes a major modification. If “the project causes a significant emissions increase, the project is a major modification only if it also results in a significant net emissions increase” and significant increases are calculated for existing sources using the “actual-to-projected-actual” applicability test. The memorandum focuses on this test and discusses the applicability determination requirements placed on the source to: 1) consider all relevant information in making an emissions projection “including but not limited to, historical operational data, the company’s own representations, the company’s expected business activity and the company’s highest projections of business activity, the company’s filings with the State or Federal regulatory authorities, and compliance plans under the approved State Implementation Plan;” 2) exclude the portion of the unit’s emissions following the project that an existing unit could have accommodated during the consecutive 24-month period used to establish the baseline actual emissions that are unrelated to the project; and, 3) follow the objective calculation requirements in the regulations. Additionally, the memorandum discusses the specific regulatory recordkeeping, monitoring and reporting provisions that apply where there is a “reasonable possibility,” as defined in the regulations, that a project not expected to cause a significant emissions increase could do so. The memorandum further discusses the documentation that the source is required to maintain depending on the reasonable possibility criteria applicable to a project and the type of emission unit(s) involved.

The memorandum notes that “if an affected source complies with those requirements, it has satisfied the source obligations that are required under our NSR rules” and that the “NSR rules provide no mechanism for agency review of procedurally compliant emission projections. To infer the existence of such a mechanism would be tantamount to inferring agency authority to require pre-approval of emissions projections. Such an outcome is inconsistent with the text of the EPA rules and with the agency’s clearly stated intent in adopting those rules.”

The memorandum specifies EPA’s intent for application of the NSR rules:

• Application of the NSR rules in accordance with the provision to consider “all relevant information” in making a projection “such that the intent of an owner or operator to manage emissions from a unit in that manner after a project is completed represents relevant information in the context of projecting future actual emissions from that unit that could be considered along with other relevant information in making an emissions projection, as provided in the NSR regulations.”

• “The EPA intends to focus on the fact that it is the obligation of source owners or operators to perform pre-project NSR applicability analyses and document and maintain records of such analyses as required by the regulations. It also intends to focus on the fact that the post-project monitoring, recordkeeping and reporting requirement provide a means to evaluate a source’s pre-project conclusion that NSR does not apply and that the NSR applicability procedures make clear that post-project actual emissions can ultimately be used to determine major modification applicability.”

• “EPA intends to implement and exercise its authority under the NSR provisions to clarify that when a source owner or operator performs a pre-project NSR applicability in accordance with the calculation procedures in the regulations and follows the applicable recordkeeping and notification requirements in the regulations, that owner or operator has met the pre-project source obligations of the regulations, unless there is clear error (e.g. the source applies the wrong significance threshold). The EPA does not intend to substitute its judgment for that of the owner or operator by “second guessing” the owner or operator’s emissions projections.”

• “When an owner or operator projects that a project will result in an emission increase or a net emission increase less than the significant emissions rate in accordance with the NSR regulations, the EPA intends to focus on the level of actual emissions during the 5- or 10- year recordkeeping or reporting period after the project for purposes of determining whether to exercise its enforcement discretion and pursue an enforcement action. That is, the EPA does not presently intend to initiate enforcement in such future situations unless post-project actual emissions data indicate that a significant emissions increase or a significant net emissions increase did in fact occur.

While the memorandum specifies it does not constitute a final action, is not a rule or regulation and may not apply to every situation thus attempting to avoid litigation, the likelihood of a challenge to its implementation in a given situation is high. Further litigation could be bolstered by a December 11, 2017, United States Supreme Court order rejecting without comment a request from DTE Energy to hear an enforcement action wherein the Sixth Circuit Court of Appeals found that EPA could pursue enforcement based on a claim that the source had improperly projected emissions. See United States v. DTE Energy Co., 845 F.3d 735 (6th Cir. 2017). In the interim, however, the planned EPA approach discussed in the memorandum should be considered by sources wishing to expand existing facilities.