Regional Reports: Headquarters

Kathryn B. Thomson
Sidley Austin Brown & Wood LLP
Washington, DC
kthomson@sidley.com

I. New Source Review

New Source Review (NSR) Reforms
EPA recently issued two significant new rules – one final rule and one proposed rule – addressing NSR reform. According to EPA, states will be free to adopt more stringent rules as long as they demonstrate that their state programs are at least as effective as EPA’s base NSR programs.

Finalization of Aspects of 1996 Proposed NSR Rule
On Nov. 22, 2002, EPA released a rule finalizing certain aspects of the Agency’s 1996 NSR proposed rule. (As of the date of this writing, the final rule has not been published in the Federal Register). The final rule contains five primary changes to the NSR programs.

Determination of Baseline Actual Emission Rates:
The rule establishes a new method of determining baseline emissions for purposes of making NSR applicability determinations and establishing plantwide applicability limits (PALs). Generally, the rule expands the period of time from which the pre-change actual emission baseline can be selected, thus increasing the likelihood that the baseline will be representative of actual business operations and cycles.

Pre-Change to Post-Change Emissions Comparisons:
The new rule expressly allows a source to compare actual emissions prior to a change to projected future actual emissions anticipated after a change. This is a significant change from the actual-to-potential comparison that EPA has advocated for most sources in recent years. According to the rule, pre-change emissions should be calculated using the approach outlined above; and projected future actual emissions must be based on historical operations and production projections. Notably, projected future actual emissions do not take into account demand growth. In addition, in order to apply the actual-to-projected future actuals comparison, a source must submit a report to the relevant permitting agency if actual emissions exceed baseline emissions by a significant amount (specified in the rules) anytime during the 5-10 year period following the change. The rule does not, however, address the consequences of exceeding the significance levels.

Plantwide Applicability Limits:
The new rule incorporates the PAL concept. This will allow a source to make changes, without obtaining a new NSR permit, provided that it does not exceed the PAL established for the facility. PAL permit limits will be issued on a pollutant-specific basis, and will likely impose additional monitoring requirements. PAL permits will have a 10-year life.

Clean Unit Exclusion:
The rule also finalizes the “clean unit exclusion” proposed in 1996. Under this exclusion, a unit that has undergone a valid best available technology/lowest achievable emission rate (BACT/LAER) process and installed the appropriate control technology in the past 10 years would be considered a “clean unit” for that time period and thus would not trigger NSR if the unit underwent a modification during this same period. There are some limitations to Clean Unit designations. For instance, emission decreases that occur at Clean Units cannot be used for netting purposes under the NSR programs.

Pollution Control Exclusion:
Finally, the rule finalizes the pollution control and prevention exclusion. The pollution control and prevention exclusion removes regulatory disincentives to companies seeking to develop and implement environmentally beneficial projects without fear of triggering cumbersome NSR requirements. The rule also lists a number of projects that presumptively qualify as pollution control and prevention projects. As with the Clean Unit exclusion, there are some limitations. For example, decreases achieved by pollution control projects cannot be used as offsets in nonattainment areas.

After EPA announced the final rule, a group of attorneys general from nine northeastern states, including New York, New Jersey and Connecticut, threatened to file suit once the regulation is published in the Federal Register. The suit will likely allege, inter alia, that EPA lacks the authority to enact the reforms.

New Proposed NSR Rule – Routine Maintenance, Repair and Replacement
On Nov. 22, 2002, EPA also announced proposed changes to the NSR exclusion governing “routine maintenance, repair and replacement” (RMRR). Because the existing rules do not explicitly define RMRR, EPA is proposing to provide a more detailed definition of RMRR. The proposed rule suggests some alternatives and seeks comment on those options. There are two primary options: 1) an annual maintenance, repair and replacement allowance; and 2) an equipment replacement approach.

Under the first option, the RMRR provision would establish a monetary “safe harbor” that would apply to certain activities that promote the safe, reliable and efficient operation of a unit as long as the total costs do not exceed a specified allowance. The proposal suggests that the specified allowances would be calculated on an industry-by-industry basis. If an activity is below the applicable allowance, it will presumptively be considered RMRR. If, however, a particular activity would exceed the allowance, it may still qualify as RMRR, but it must first undergo a case-specific review.

Under the second option, the “equipment replacement approach,” EPA is considering revising the RMRR provision to allow for the replacement of existing equipment with equipment that serves the same purpose and that does not alter the basic design of the equipment, provided that the cost of the replacement does not exceed a certain percentage of the cost of the entire process unit. The percentage used would allow the replacement of components that are typically replaced at sources within the relevant industrial category. Moreover, the proposed rule also reflects EPA’s intent to engage in subsequent rulemaking to address “debottlenecking” issues that frequently arise in applying the NSR rules.

As of the writing of this report, the proposal has not yet been published in the Federal Register.

II. Developments in NSR Litigation

Tennessee Valley Auth. v. EPA – Eleventh Circuit
On May 21, 2002, the Eleventh Circuit heard oral arguments on the merits of the dispute between Tennessee Valley Authority (TVA) and EPA regarding the Agency’s NSR enforcement actions against TVA. The principal issues involve whether the TVA projects before the court were excluded from NSR requirements as “routine maintenance, repair and replacement” activities and, if not, whether such projects resulted in regulatorily significant net increases of criteria pollutants. A decision is still pending.

NSR Trials
Two NSR lawsuits filed against coal-fired electric utilities – one against Ohio Edison Company (in the U.S. District Court for the Southern District of Ohio) and one against Southern Indiana Gas & Electric Company (SIGECO) in the U.S. District Court for the Southern District of Indiana – are scheduled to go to trial in the first part of 2003. The Ohio Edison trial is scheduled to begin in early February, and the SIGECO trial is scheduled to commence in late March.

Applicability Determinations
In a settlement reached in the Utility Air Regulatory Group v. EPA, D.C. Cir., No. 02-1023, EPA has agreed that certain postings to the Agency’s Applicability Determination Index cannot be used as precedent that companies nationwide must follow. Specifically, EPA agreed that the determinations identified in a November 2001 Federal Register Notice are not “nationally applicable” actions that are binding on other sources that were not the subject of such determinations. The proposed settlement was published in the Federal Register, 67 Fed. Reg. 68,863, on Nov. 13, 2002.

III. National Air Quality Issues, Generally

Designation of Ozone Nonattainment Areas
Under the terms of a consent decree reached in American Lung Ass’n v. Whitman, No. 02-2239 (D.D.C. Nov. 13, 2002), EPA has agreed to designate areas that do not meet the 1997 air quality standard for ozone by April 15, 2004. EPA estimates at present that approximately 290 counties across the United States currently fail to satisfy the more stringent ozone standard promulgated in 1997.

Air Trends and Acid Rain Reports
On Sept. 4, 2002, EPA issued its latest air trends report, “Latest Findings on National Air Quality: 2001 Status and Trends.” According to the report, aggregate emissions of the six criteria pollutants regulated by the Clean Air Act (i.e., nitrogen dioxide, ground-level ozone, sulfur dioxide, particulate matter, carbon monoxide, and lead) have been cut by 25 percent since 1970. The most significant reductions over the past 30 years have been in lead emissions (down by 98 percent), particulate matter (down by 76 percent) and sulfur dioxide (down by 44 percent, largely as a result of the Acid Rain Program). The report is available at www.epa.gov/airtrends.

More recently, EPA released its “Acid Rain Program 2001 Progress Report” on Nov. 14, 2002. The report indicates that in 2001 emissions of sulfur dioxides decreased to 10.6 million tons from the previous year (representing a 5 percent decrease from 2000 and a 33 percent decrease since 1990). The report also finds that emissions of nitrogen oxides have decreased substantially, noting that emissions declined to 4.1 million tons (representing a decrease of 8 percent from 2000 levels and 25 percent from 1990 levels). The reductions come principally from the electric utility sector. The report is available at www.epa.gov/airmarkets/cmprpt/arp01/index.html.

Emissions Standards for Diesel Engines
On Sept. 5, 2002, the U.S. District Court for the District of Columbia rejected requests from Caterpillar, Inc. and Detroit Diesel Corp. to postpone new, more stringent emissions standards for diesel engines scheduled to take effect on Oct. 1, 2002. United States v. Caterpillar, Inc., No. 98-2544. Caterpillar and Detroit Diesel also sought to delay the imposition of penalties for failure to satisfy the new standards. The court declined to extend the effective date of the rules, finding that EPA had the authority to penalize diesel manufacturers if they fail to reduce emissions of non-methane hydrocarbons and nitrogen oxides by Oct. 1, 2002.

Emissions Standards for Nonroad Engines
EPA signed a final rule on Sept. 13, 2002 that will require significant reductions in emissions of hydrocarbons, nitrogen oxides and carbon monoxide from a variety of nonroad engines beginning in 2006. The rule will apply to engines used in snowmobiles, forklifts and marine craft (with engines over 50 horsepower), among others. None of these sources are currently subject to EPA regulation. EPA estimates that, by the time the rule is fully implemented in 2030, hydrocarbon emissions will be reduced by 72 percent, nitrogen oxide emissions by 80 percent and carbon monoxide emissions by 57 percent.

NSPS Standards for Commercial Waste Incinerators
In 2000, EPA published a final rule establishing new source performance standards (NSPS) requirements for commercial and industrial incinerators burning nonhazardous wastes. 65 Fed. Reg. 75,338 (Dec. 4, 2000). EPA estimates that the rule will result in a 71 percent reduction of fine particulate emissions, a 62 percent reduction in lead emissions and a 34 percent reduction in mercury emissions.

Recently, EPA proposed a plan to implement those standards for sources constructed or modified after Nov. 30, 1999. 67 Fed. Reg. 70,639 (Nov. 25, 2002). EPA’s proposed plan would apply only in states and on tribal lands that do not already have their own approved plan implementing the 2000 rules. According to EPA, this is an interim measure to allow states time to obtain approval for their own plans. The proposed rule would require, inter alia, compliance with the standards within one year of the effective date of a final rule and the submission of annual progress reports to show how well the sources are implementing and achieving the standards.

IV. Title III – NESHAPS

MACT Hammer Permit Deadlines
On Dec. 4, 2002, EPA issued a proposed rule setting deadlines for approximately 80,000 industrial facilities across the United States to submit hazardous air emissions permits for the installation of maximum achievable control technology (MACT) over the next two and a half years. The proposal is intended to resolve a lawsuit filed by the Sierra Club that challenged EPA’s extension of the final MACT deadline for a variety of facilities. Sierra Club v. EPA, D.C. Cir. No. 02-1135. The suit challenged EPA’s authority to extend the MACT hammer deadline from May 15, 2002 until May 15, 2004. Under the terms of the agreement, EPA will set deadlines for facilities in 63 source categories to submit applications for permits between May 15, 2003 and Aug. 13, 2005. The settlement also requires EPA to issue a final rule establishing the agreed upon deadlines by no later than April 27, 2003. Moreover, the settlement provides that if EPA fails to set specific MACT standards for the source categories involved, facilities will still be required to submit permit applications and permit limits will be established by state regulators on a case-by-case basis.

Gasoline Distribution NESHAPs
EPA recently proposed revisions to the monitoring and recordkeeping requirements for hazardous air pollutant emission standards for gasoline distribution facilities. 67 Fed. Reg. 59,433 (Sept. 20, 2002). The proposed amendments will not change the applicable emission standards. Rather, the proposal would allow the use of alternative leak test procedures for railcars used for gasoline distribution and clarify the monitoring of flares and thermal oxidation systems used to comply with the NESHAPs. The proposal also includes an alternative recordkeeping scheme for tank trucks and railcars and incorporates new flare design standards. The comment period closed on Nov. 19, 2002.

Proposed Emission Limitations for Currently Unregulated Sources
On Nov. 22, 2002, EPA signed proposed air toxics emission MACT standards for 10 different source categories previously unregulated by the Agency. These include automobile and light duty truck surface coating; combustion turbines; industrial, commercial and institutional boilers and process heaters; iron and steel foundries; lime manufacturing; metal can surface coating; plywood and composite wood products manufacturing; primary magnesium refining; reciprocating internal combustion engines; and taconite iron ore processing. Of the 10 standards proposed, EPA is considering setting five of the emission requirements based on the health risk posed by the pollutants of concern.

Final Emission Standards for Protective and Decorative Surface Coating Operations
On Dec. 4, 2002, EPA finalized new hazardous air pollutant emissions standards for makers of photographic film, gift-wrap, wallpaper, and other products that have protective or decorative coatings. 67 Fed. Reg. 72,330. Under the rule, these sources will be required to collectively reduce emissions of hazardous air pollutants (i.e., toluene, xylene, ketones and other volatile organic air pollutants) by nearly 35,000 tons annually. EPA anticipates that most sources will likely comply with the new standards by installing thermal oxidizers, though some sources may choose to comply by changing the materials used in their processes. The rule applies to 203 existing major sources. The sources have three years to come into compliance with the new rule.

Proposed Emissions Limitations for Plastic Parts and Products Coating Operations
EPA, on Dec. 4, 2002, announced a proposed rule that would result in an estimated 80 percent reduction in hazardous air pollutants from plastic parts and products coating operations. The rule would apply to 202 major sources and would require reductions in methyl ethyl ketone, toluene, xylenes, and certain other volatile organic compounds. According to EPA, the proposed rule would result in emission reductions of 2,260 tons annually. The comment period closes Feb. 3, 2003.

Mercury Emissions
In 2000, EPA announced its intent to regulate mercury emissions from power plants. The Agency plans to issue a proposed rule by Dec. 15, 2003 and a final rule a year later. To that end, the Agency has been consulting with a number of different stakeholders as to how best to reduce mercury emissions. In late October 2002, the EPA advisory group considering the regulation of mercury presented a final report that sets out widely ranging views but reaches no consensus. The report was presented to EPA’s Clean Air Act Advisory Committee on Oct. 30, 2002 and is available at www.epa.gov/ttn.

V. Title V Permitting

On Sept. 17, 2002, EPA published an interim final rule that seeks to clarify the monitoring requirements of Title V operating permits. 67 Fed. Reg. 58,529. The interim rule specifies that all Title V permits must contain monitoring requirements “sufficient to assure compliance” with the terms of the permit in cases where periodic monitoring requirements do not apply. According to EPA, the interim final rule responds to a 1999 federal court decision in Appalachian Power Co. v. EPA, 208 F.3d 208 (D.C. Cir. 1999) that upheld the Agency’s general monitoring requirements but threw out agency guidance on periodic monitoring. The rule is intended to codify EPA’s position that the periodic monitoring and sufficiency provisions under Title V are separate regulatory standards.

Three lawsuits were subsequently filed in the D.C. Circuit challenging the rule – Air Permitting Forum v. EPA, No. 02-1303 (filed on Oct. 3, 2002); National Environmental Development Association’s Clean Air Regulatory Project v. EPA, No. 02-1304 (also filed on Oct. 3, 2002); and Alliance of Automobile Manufacturers v. EPA, No. 02-1325 (filed on Oct. 22, 2002).