before the administrator - earthjustice...67 fed. reg. 80186-80289. the last period for public...

BEFORE THE ADMINISTRATOR UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

__________________________________________ ) In the Matter of the Final Rule: ) )

Prevention of Significant Deterioration ) (PSD) and Nonattainment New Source ) Review (NSR); Baseline Emissions ) RIN 2060-AE11 Determination, Actual-to-Future ) Actual Methodology, Plantwide ) Applicability Limitations, Clean Units, ) Pollution Control Projects )

__________________________________________)

PETITION FOR RECONSIDERATION

Pursuant to Section 307(d)(7)(B) of the Clean Air Act, 42 U.S.C. § 7607(d)(7)(B),

the undersigned organizations1 petition the Administrator of the Environmental

Protection Agency (“the Administrator” or “EPA”) to reconsider the final rule captioned

above and published at 67 Fed. Reg. 80186-80289 (December 31, 2002). The grounds

for the objections raised in this petition arose after the period for public comment and are

of central relevance to the outcome of the rule. The Administrator must therefore

“convene a proceeding for reconsideration of the rule and provide the same procedural

rights as would have been afforded had the information been available at the time the rule

was proposed.” 42 U.S.C. § 7607(d)(7)(B). Petitioners request that the Administrator

stay the effectiveness of the rule during the reconsideration. See id.

1 Petitioners are: Alabama Environmental Council, Clean Air Council, Environmental Defense, Communities for a Better Environment, Group Against Smog and Pollution, Michigan Environmental Council, Natural Resources Defense Council, The Ohio Environmental Council, Scenic Hudson, Southern Alliance for Clean Energy.

TABLE OF CONTENTS

INTRODUCTION ………………………………………………………………………1 OBJECTIONS

I. GENERAL ……………………………………………………………….2

II. BASELINE EMISSIONS DETERMINATION ……………………….8 III. ACTUAL-TO-FUTURE-ACTUAL METHODOLOGY ……………27

IV. PLANTWIDE APPLICABILITY LIMITATIONS …………………45

V. CLEAN UNITS ………………………………………………………...92

VI. POLLUTION CONTROL PROJECTS …………………………….110

VII. MISCELLANEOUS ………………………………………………….136

CONCLUSION ……………………………………………………………………….144

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INTRODUCTION

This petition raises objections to the final rule captioned above. Each objection is

“of central relevance to the outcome of the rule,” 42 U.S.C. § 7607(d)(7)(B), in that it

demonstrates that the rule is “arbitrary, capricious, an abuse of discretion, or otherwise

not in accordance with law.” Id. § 7607(d)(9)(A). With respect to each objection,

moreover, the regulatory language and EPA interpretations that render the rule “arbitrary,

capricious, an abuse of discretion, or otherwise not in accordance with law” appeared for

the first time on December 31, 2002, in a notice published in the Federal Register. See

67 Fed. Reg. 80186-80289. The last period for public comment on the rule closed on

August 24, 1998. 63 Fed. Reg. 39857, 39857/1 (July 24, 1998). The grounds for the

objections raised in this petition thus “arose after the period for public comment.” 42

U.S.C. § 7607(d)(7)(B). Because judicial review of the rule is available “by the filing of

a petition for review . . . by March 3, 2003,” 67 Fed. Reg. at 80244/2, the grounds for the

objections arose “within the time specified for judicial review.” 42 U.S.C. §

7607(d)(7)(B). The Administrator is therefore required to “convene a proceeding for

reconsideration of the rule and provide the same procedural rights as would have been

afforded had the information been available at the time the rule was proposed.” Id.

Petitioners request that the Administrator stay the effectiveness of the rule during the

reconsideration. See id.

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OBJECTIONS

I. GENERAL

A. The Administrative Record is Stale. EPA’s reliance on materials and recommendations that were developed after the

1996 and 1998 comment periods is evidence that when the agency was crafting the final

rule, it viewed the existing administrative record as stale and inadequate. See 67 Fed.

Reg. at 80188-89. The enormous changes made to the rule further suggest that those

post-comment materials played a crucial role in the agency’s thinking. Although EPA

solicited comment in 2001 on the effect of NSR on energy markets and environmental

protection, that process did not provide an opportunity to consider those issues in the

context of the specific rule changes to emissions calculations, PALs, Clean Units, and

PCPs. See 66 Fed. Reg. 34183 (June 27, 2001).

Section 307(d) of the Clean Air Act requires that final EPA rules be based on a

record developed and subjected to public comment following a published notice of

proposed rulemaking. 42 U.S.C. § 7607(d)(2).2 The notice must include a summary of

the factual data on which the rule is based, the methodologies used to obtain and analyze

that data, and the major legal interpretations and policy considerations underlying the

proposed rule, all of which must be available to the public for comment. Id. 7607(d)(3).

A rulemaking record becomes stale and outdated, however, if too much time elapses

between the time of the close of the agency comment period and the issuance of a final

rule, particularly if significant changes occur during that time interval to the relevant facts

and circumstances on which the rule is based. See, e.g., Atchison, T. & S.F. Ry. v.

2 Accord, 5 U.S.C. § 553(b) (same requirement for rulemaking generally in Administrative Procedure Act).

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United States, 284 U.S. 248 (1932) (ordering agency to reopen rate case to take changed

economic circumstances into account); NRDC v. Herrington, 768 F.2d 1355 (D.C. Cir.

1985) (overturning efficiency regulations partly because they were issued five years after

the respondent agency compiled the underlying record, during which time significant

changes in market circumstances occurred); Oklahoma v. United States, 193 F. Supp. 261

(W.D. Okla. 1960) (remanding an order setting rates for the transportation of grain

because of changed market circumstances).

On the final day of 2002, EPA issued a final rule based on a record developed in

1996 and then supplemented on a limited basis in 1998.3 The vast majority of the record

and public comment underlying this rule is at least half a decade old. In 1998, EPA itself

recognized that in the two years since it had proposed changes to NSR rapid changes in

the market for electricity were sufficient to warrant supplemental comment on various

aspects of NSR reform. See 63 Fed. Reg. 39857, 39860/3 (July 24, 1998). Moreover, the

Agency has recognized that even more significant changes have occurred since 19984 –

sufficient to cause EPA to initiate a separate docket to consider and take comment on

3 It is the agency’s established practice to reopen rulemaking dockets to take additional comment where significant changes have occurred since the close of the previous comment period on an outstanding rulemaking proposal. See, e.g. 63 Fed. Reg. 46,952 (Sept. 3, 1998) (reopening for public comment the Agency’s 1997 proposed Regional Haze Rule, to take comment on a letter from the Western Governors’ Association, and legislation affecting the timing of the rule which was enacted subsequent to the original proposal). The facts supporting the Agency’s decision to reopen the NSR and Haze rule dockets in 1998 were “hardly more compelling than those raised . . . here.” Delta Airlines v. Civil Aeronautics Board, 561 F.2d 293, 308 (D.C. Cir.), cert. denied, 434 U.S. 1045 (1977). 4 For example, major shakeups in energy markets due to the California crisis and the Enron scandal. See Harlan S. Byrne, Too Much Power? BARRON’S, August 6, 2001, at 21. Major advances in pollution control technology and markets also have occurred. Industry Moves Forward Installing NOx Controls, AIRDAILY, January 4, 2002, at 3. Finally, and perhaps most significantly, there have been major developments in the fields of public health and environmental science related to the effects of air pollution since 1998. Annette Peters, et al., Increased Particulate Air Pollution and the Triggering of Myocardial Infarction, 103 CIRCULATION 2810 (June 12, 2001); Beate Ritz, et al., Ambient Air Pollution and Risk of Birth Defects in Southern California, 155 AM. J. EPIDEMIOL. 17 (January 1, 2002); ABT ASSOCIATES, INC., THE PARTICULATE-RELATED HEALTH BENEFITS OF REDUCING POWER PLANT EMISSIONS (October 2000); HUBBARD BROOK RESEARCH FOUNDATION, ACID RAIN REVISITED: ADVANCES IN SCIENTIFIC UNDERSTANDING SINCE THE PASSAGE OF THE 1970 AND 1990 CLEAN AIR AMENDMENTS (2001).

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NSR reform in 2001 – but not to reopen the NSR reform docket itself to public comment.

See 66 Fed. Reg. 34,183 (June 27, 2001); see also EPA, NSR 90-Day Review

Background Paper (June 22, 2001). The Agency in that 2001 process did not invite

public comment on any specific proposed rule or change to the program then in

existence. But this result is illegal – an agency simply may not “decline to consider new

evidence [in one record] while . . . conducting a fresh and separate proceeding in which

large amounts of new evidence on closely related new questions” is adduced.

Herrington, 768 F.2d at 1410.

Despite its apparent realization that significant changes have occurred since 1998,

EPA now has taken the illegal and patently unreasonable step of finalizing sweeping

changes to the NSR program, many of which were not proposed in 1996 or 1998, or even

foreshadowed in those proposals, without reopening the docket to include and take

comment on 6 years of significant new information. See id. at 1408 (holding it would be

“patently unreasonable” for an agency to finalize a rule where record is half a decade old

and changed market circumstances have occurred during that time period).

1. Major Changes Have Occurred in the Market for Electricity Since 1998.

The electric generating and distribution industries have undergone significant

structural changes since 1996 and 1998, as the process of deregulation of the wholesale

and retail markets for electricity continues to unfold. Assumptions made four or six years

earlier about investment conditions, reliability concerns, and market forces are simply no

longer meaningful. Whereas new capacity development was stagnant in 1996, that is no

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longer the case.5 The economics and technology of pollution control also have changed

dramatically. For example, recent court decisions validating the NOx SIP Call have led

many plants to purchase modern pollution control devices, which, as was the case with

sulfur controls in the past decade, is likely to yield reductions in the costs of these

technologies. These kinds of significant changes in the economic markets relevant to the

final rule are sufficient to require the Agency to reopen the proposed rule to a new round

of public comment on specific regulatory changes. See Atchison, 284 U.S. at 263;

Herrington, 768 F.2d at 1409-10; Oklahoma, 193 F. Supp. at 264.

2. Significant Advances Have Occurred Since 1998 in the Understanding of the Impact of Industrial Air Pollution on Public Health and the Environment.

The effects of air emissions on public health also are significantly better

understood now than in 1998. EPA, however, has not considered any of this evidence,

nor has the Agency reopened the rulemaking proceeding so that the public can comment

on it in the context of specific NSR rule changes. Several new and important studies

have linked pollutants from power plants and refineries to an increased incidence of heart

disease,6 birth defects,7 and premature death.8 Abt Associates has analyzed the health

implications of fine particulate matter emitted by electric generating units, finding that

hundreds of thousands of asthma attacks and over 30,000 deaths per year are attributable

to power plant air pollution. Abt Associates, Inc., “The Particulate-

5 Erin O’Neill/NorthBridge Group, Overview of Current Trends in Power Plant Development and Implication of Reliability of the Electric System, in CLEAN AIR TASK FORCE’S COMMENTS ON REVIEW OF INTERPRETATION, IMPLEMENTATION & ENFORCEMENT OF CLEAN AIR ACT NEW SOURCE REVIEW PROGRAMS J-1 (July 24, 2001). 6 Annette Peters, et al., Increased Particulate Air Pollution and the Triggering of Myocardial Infarction, 103 CIRCULATION 2810 (June 12, 2001). 7 Beate Ritz, et al., Ambient Air Pollution and Risk of Birth Defects in Southern California, 155 AM. J. EPIDEMIOL. 17 (January 1, 2002).

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Related Health Benefits of Reducing Power Plant Emissions (Oct. 2000); Clean Air Task

Force, “Power to Kill” (July 2001). These instances of illness and death furthermore

would be ameliorated by enforcing the NSR rules as they were constituted prior to the

December 2002 final rule. “Power to Kill,” at 10-12.

Environmental scientists have demonstrated that pollution-related ecological

problems such as acid rain are more persistent than was generally believed in 1996.9

Indeed, even evidence concerning the environmental and public health implications of

specific changes to the NSR rules, developed by others, has been ignored by EPA. See

Abt Associates, Inc., “Analysis of the Effect of Alternate Baselines for CAA Prevention

of Significant Deterioration New Source Review: Mobil-Joilet, Illinois” at 1, 3 (Oct. 21,

2002) (concluding that using the highest 24 month period in the past ten years to

calculate baseline emissions would have allowed the facility to avoid NSR and increase

NOx emissions by 66.7 tons/year, PM emissions by 15 tons/year and SO2 by 204

tons/year); see also Abt Associates, Inc., “Analysis of the Effect of Alternate Baselines

for Clean Air Source Review: Nucor Steel – Crawforsville, Indiana” at 3, 5 (Oct. 21,

2002) (using the more generous baselines would have allowed the project to avoid NSR

and increase NOx emissions by up to 59 tons/year).

3. The NSR Enforcement Cases Yield Evidence, Which EPA Has Not Considered, of the Public Health Benefits of the Pre-Existing Regulatory Program.

Enforcement actions taken against dozens of power plants and refineries accused

of violating the previous NSR regulations have shed additional light on the illegal

8 ABT ASSOCIATES, INC., THE PARTICULATE-RELATED HEALTH BENEFITS OF REDUCING POWER PLANT EMISSIONS (October 2000). 9 HUBBARD BROOK RESEARCH FOUNDATION, ACID RAIN REVISITED: ADVANCES IN SCIENTIFIC UNDERSTANDING SINCE THE PASSAGE OF THE 1970 AND 1990 CLEAN AIR AMENDMENTS (2001).

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conduct of many plant operators, and the public health benefits of retaining the old rules

and properly enforcing them. For example, as the states have pointed out, the outcomes

in just a few of the enforcement cases which have settled to date are estimated to yield

hundreds of thousands of tons of pollution reductions, and correspondingly significantly

lowered incidence of illness and death. See State of New York, et al., In Re Petition for

Reconsideration of the Prevention of Significant Deterioration and Non-Attainment New

Source Review Regulations (January 30, 2003), at 28-29. As a result of these cases – all

of which the Department of Justice initiated after 1996 – EPA and the public are better

informed about the nature and the scope of a problem that previously could only be

guessed at. The extent to which power plants and refineries have been characterizing

massive life-extension projects as “routine maintenance” is now painfully evident.10

B. Final Rule Requirement That State and Local Authorities Adopt the Rule as a Mandatory Requirement of Their Programs

Petitioners hereby incorporate the following by reference: (1) State of New York,

et al., In re Petition for Reconsideration of the Prevention of Significant Deterioration and

Non-Attainment New Source Review Regulations (January 30, 2003), Sections I.D and

IV; (2) South Coast Air Quality Management District, Petition for Reconsideration of the

Prevention of Significant Deterioration and Non-Attainment New Source Review

Regulations (February 19, 2003), Sections III and IV.

Petitioners note the document bearing EPA Air Docket No. IV-H-59, at 10-11.

The document bears edits made by a Department of Energy official on a draft of the final

rule. The official has placed the word, “each”, before “state implementation plan.”

10 See, e.g., TVA v. US EPA, No. 00-12310 and consolidated cases (11th Cir.) (reviewing an EPA Administrative Compliance Order and a decision of the Environmental Appeals Board, both of which determined that TVA violated NSR).

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These edits reveal that the Department of Energy was instrumental in changing the rule

from a “menu of options” to a mandatory change for state and local authorities.

II. BASELINE EMISSIONS DETERMINATION

A. Allowing an Owner to Pad a Source’s Baseline With Fugitive Emissions and Emissions from Startups, Shutdowns, and Malfunctions

The final rule declares that the baseline used in determining whether a proposed

change will cause an emissions increase “shall include fugitive emissions to the extent

quantifiable, and emissions associated with startups, shutdowns, and malfunctions.” 67

Fed. Reg. at 80247/2-3, 80263/2-3, 80278/1-2 (40 C.F.R. §§ 51.165(a)(1)(xxxv)(A)(1),

(B)(1)); 51.166(b)(47)(i)(a), (ii)(a); 52.21(b)(48)(i)(a), (ii)(a)). Neither the 1996 notice

nor the 1998 notice gave any indication that EPA was considering a rule that would allow

a source to include fugitive emissions, and emissions from startups, shutdowns, and

malfunctions, in the baseline. The grounds for the objections set forth below thus “arose

after the period for public comment.” 42 U.S.C. § 7607(d)(7)(B).

Since long before EPA finalized the baselines rule, the agency has possessed

information demonstrating that emissions from fugitive releases, startups, shutdowns, and

malfunctions comprise a significant percentage of total yearly emissions at many types of

sources.11 The agency has also long possessed information demonstrating that such

emissions are rarely measured and recorded.12 While the final rule allows fugitive

11 Much of this information is cited in two reports that were made public before EPA published its final rules. See “Accidents Will Happen: Pollution from Plant Malfunctions, Startups, and Shutdowns in Port Arthur, Texas,” Environmental Integrity Project, October 2002; “Bright Lines or Loopholes? How Industrial Accidents Can Help Increase Pollution Under the Bush Administration’s Clean Air Act ‘Reforms’,” Environmental Integrity Project, December 2002. Petitioners hereby incorporate both reports by reference. Both reports are attached as exhibits to this petition. 12 See id. See also P.R. Newswire, “EPA Investigation Could Cost U.S. Refiners Billions in Fines and Upgrades, AIR Daily Reports,” December 2, 2002.

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emissions to be added to the baseline only to the extent they are “quantifiable,” there is

no such qualification with respect to emissions from startups, shutdowns, and

malfunctions, 67 Fed. Reg. at 80247/2-3, 80263/2-3, 80278/1-2 (40 C.F.R. §§

51.165(a)(1)(xxxv)(A)(1), (B)(1)); 51.166(b)(47)(i)(a), (ii)(a); 52.21(b)(48)(i)(a), (ii)(a)).

Moreover, the rule places no limits on the discretion of a permitting authority to accept an

owner’s quantification of fugitive emissions. While the rule declares that the projection

of post-change emissions “[s]hall include fugitive emissions to the extent quantifiable,

and emission associated with startups, shutdowns, and malfunctions,” id. at 80246/3,

80262/3, 80277/3 (40 C.F.R. §§ 51.165(a)(xxviii)(B)(2), 51.166(b)(40)(ii)(b);

52.21(b)(41)(ii)(b)), its clear language permits an owner to project emissions (associated

with startups, shutdowns, and malfunctions) that are not quantifiable and thus not subject

to verification. The rule thus allows an owner to, on the one hand, pad the baseline with

a high level of emissions from fugitive releases, startups, shutdowns, and malfunctions,

and, on the other, underestimate post-change emissions associated with the same events.

The result is to shield from the pre-construction requirements changes that actually

increase emissions. In this respect, the provision conflicts with the plain meaning and

purpose of Section 111(a)(4) of the Clean Air Act.13

The final rule states that the baseline “shall be adjusted downward to exclude any

non-compliant emissions that occurred while the source was operating above an emission

limitation that was legally enforceable during the consecutive 24-month period.” 67 Fed.

Reg. at 80247/3, 80263/3, 80278/2, (40 C.F.R. §§ 51.165(a)(1)(xxxv)(B)(2),

13 Section 111(a)(4) defines “modification” as “any physical change in, or change in the method of operation of, a stationary source which increases the amount of any air pollutant emitted by such source or which results in the emission of any air pollutant not previously emitted.” 42 U.S.C. § 7411(a)(4).

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51.166(b)(47)(ii)(B), 52.21(b)(48)(ii)(b)). This provision fails to cure the legal infirmity

identified above.

First, the provision does not require a downward adjustment for non-compliant

emissions that occurred while the source was not operating above a legally enforceable

emissions limitation. Second, the rule fails to define the term, “non-compliant.” Owners

will of course take the position that “non-compliant” means “adjudged unlawful by a

court,” or at the least, “subject to a notice of violation issued by a government authority.”

As EPA knows, the percentage of the enormous volume of unlawful emissions caused

every year by fugitive releases, startups, shutdowns, and malfunctions that are made the

subject of noncompliance orders is miniscule. The percentage that is adjudged unlawful

is virtually zero.

Third, the rule does not identify the party that is to determine which emissions

from fugitive releases, startups, shutdowns, or malfunctions are “non-compliant,” and

which are compliant. In the absence of clear regulatory language to the contrary, owners

will assume that they are authorized to make that determination, at least where there is

neither a noncompliance order nor a judicial judgment (i.e., in virtually every case).

EPA’s final administrative record includes no evidence supporting why it is not arbitrary

to allow source operators to judge their own “non-compliance,” a legal judgment. EPA’s

record fails to identify a single source operator that has ever stepped forward and

confessed “non-compliance.”

Therefore, far from staving off a conflict with Section 111(a)(4) of the Clean Air

Act, the provision that requires a downward adjustment for “non-compliant” emissions

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during periods in which the source is exceeding its legally-enforceable limits only makes

the rule more arbitrary.

In the preamble to the final rule, EPA claims that the any-two-in-ten baseline

calculation method yields a baseline that accurately reflects the utilization of the source

when it is responding to high market demand for its product:

Generally, a source’s operations over a business cycle cover a range of operating (and emissions) levels – not simply a single level of utilization. The new procedure recognizes that market fluctuations are a normal occurrence in most industries, and that a source’s operating level (and emissions) does not remain constant throughout a source’s business cycle. . . . [T]he new procedure ensures that a source seeking to make changes at its facility at a time when utilization may not be at its highest can use a normal business cycle baseline by allowing the source to identify capacity actually used in order to determine an average annual emissions rate from which to calculate any projected actual emissions resulting from the change.

Id. at 80199/3. This passage attempts to justify drawing the utilization rate from a two-

year period selected by the owner from the decade preceding the proposed change. It

does not even attempt to explain, however, why the baseline should include that period’s

fugitive emissions, and emissions associated with startups, shutdowns, and malfunctions.

EPA has not offered any information that could support a claim that a source’s

“compliant” emissions from fugitive releases, malfunctions, etc., during periods when it

is responding to high market demand accurately reflect the source’s emissions from

fugitive releases, malfunctions, etc., in the absence of the proposed change.14 In order to

14 In fact, EPA’s own rule reflects the belief that while a two-year period selected from the decade preceding a proposed change might accurately reflect the source’s utilization rate during periods of high market demand, it is not to be trusted as a proxy for the emissions rate that would exist at the plant under healthy market conditions in the absence of the proposed change. For the latter, the rule turns to the emissions limitation that applies at the source immediately before the proposed change. See 67 Fed. Reg. at 80195/1 (“The new requirements prohibit you from counting as part of the baseline actual emissions any pollution levels that are not allowed under any legally enforceable limitations and that apply at the time of

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support such a claim, the agency would have to explain why a source operating in

response to high market demand could not generate abnormally high fugitive emissions

or experience abnormally frequent malfunctions of a type that cause emissions spikes

without affecting utilization. The agency would also have to demonstrate that frequent

shutdowns have a substantial negative affect on utilization at most types of facilities.

Finally, the agency would need to address the fact that a two-year period containing just

one short-lived shutdown and one very dirty startup could exhibit both a high average

utilization rate and abnormally high emissions.

It is not surprising, then, that EPA has not tried to use the reason offered for the

ten-year look back to explain its decision to allow an owner to pad the source’s baseline

with emissions from fugitive releases, startups, shutdowns, and malfunctions during the

owner-selected two-year period. The absence of any explanation for this reversal from

EPA’s preexisting regulations and proposed rule is conspicuous in light of the agency’s

repeated acknowledgment that malfunctions do not constitute part of a source’s normal

operations. See, e.g., 61 Fed. Reg. 41838, 41853 (August 12, 1996) (“Malfunctions

which may result in excess emissions are not considered to be a normal operating

condition.”); 58 Fed. Reg. 38816, 38835 (July 20, 1993) (same).

For the reasons stated above, EPA’s promulgation of this provision is “arbitrary,

capricious, an abuse of discretion, [and] otherwise not in accordance with law.” 42

U.S.C. § 7607(d)(9)(A). Petitioners’ objection to the provision is “of central relevance to

the project.”). See also id. at 80193/1 (noting that the obligation to “take into account any legally enforceable constraints imposed on the facility since the selected [] time frame, and currently in effect” requires the owner or operator of a facility to “calculate the modified emissions unit’s baseline actual emissions by using the appropriate utilization level from the selected [] period, in combination with the emissions unit’s current enforceable emission factors”).

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the outcome of the rule,” in that the provision’s invalidity renders unlawful the final

rule’s method of calculating emissions increases. Id. § 7607(d)(7)(B).

B. Allowing an Owner to Use the Source’s Highest Emissions Level Over the Course of a Ten-Year Business Cycle to Establish Baseline Emissions Prior to a Physical or Operational Change

1. Background

To determine whether a physical or operational change will result in an increase

in emissions, it is necessary to compare a source’s emissions before the change (its

baseline emissions) with its emissions after the change. The final rules allow a source to

determine its baseline emissions “by calculating an average annual rate, in tons/year,

using any consecutive twenty-four months during the ten-year period immediately

preceding the change.” 67 Fed. Reg. at 80194/1. The final rule offers new rationales for

this approach that differ from those set forth in the 1996 proposal.

Under EPA’s former NSR rules, baseline actual emissions were defined as “the

average rate, in tpy, at which the unit actually emitted the pollutant during a two-year

period which precedes the particular date and which is representative of normal source

operation.” 61 Fed. Reg. at 38258/2 (quoting former 40 C.F.R. § 52.21(b)(21)(ii)). The

former NSR rules allowed a different two-year period to be used to calculate baseline

actual emissions, but only “upon a determination that it is more representative of normal

source operation.” Id. When EPA proposed revisions to the rules in 1996, EPA explained

that some industry representatives were concerned that if a source experiences a lengthy

period of low utilization, its baseline emissions will drop, increasing the likelihood that a

physical or operational change at the source will be subject to NSR. 61 Fed. Reg. at

38258/2-3. Sources were dissatisfied with the provision under the former rules allowing

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the use of a different two-year period if demonstrated to be more representative of normal

operations because making such a demonstration could be time-consuming, and there

were disputes with permitting authorities over what time period was representative of

normal source operations. Id.

In 1996, EPA proposed to address industry concerns by revising the general

definition of “actual emissions” to state that “[a]ctual emissions shall be calculated using

the unit’s actual operating hours, production rates, and types of materials processed,

stored, or combusted during any 12 consecutive months during the 120 consecutive

months that precede the commencement of construction of a proposed physical or

operational change at the source.” Id. at 38338/1. This revised definition would have

applied not just to baseline determinations but also to other NSR requirements such as air

quality impact analyses and calculation of the required amount of emissions offsets. EPA

did not offer an explanation in the 1996 proposal for why ten years would be an

appropriate look-back period under the statute for establishing a source’s actual

emissions prior to a change.

After the public comment period on the proposed rules, EPA concluded that the

“actual-to-projected actual test should not be used when determining a source’s actual

emissions on a particular date as may be used for other NSR-related requirements. Such

requirements include, but are not limited to, air quality impacts analysis (for example,

compliance with NAAQS, PSD increments, and AQRVs) and computing the required

amount of emissions offsets.” 67 Fed. Reg. at 80191/3. Thus, EPA decided not to revise

the existing definition of “actual emissions” as it had proposed in 1996. Id.

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Despite concluding that a ten-year look-back period was inappropriate for many

NSR requirements, EPA proceeded with adopting a ten-year look-back period for

measuring a source’s baseline emissions to determine whether a physical or operational

change will trigger NSR. To achieve this, the final rules expanded the definitions section

of the rules to include a separate definition for “baseline actual emissions.” 67 Fed. Reg.

at 80247/2, 80263/2-3, 80278/2 (40 C.F.R. § 51.165(a)(1)(xxxv)(B), 51.166(b)(47)(ii),

52.21(b)(48)(ii)). Under the definition, baseline actual emissions are “the average rate,

in tons per year, at which the emissions unit actually emitted the pollutant during any

consecutive twenty-four-month period selected by the owner or operator within the 10-

year period” preceding the physical or operational change. Id.

EPA stated in the final preamble that once a source determines that it is subject to

NSR using the ten-year look-back methodology, the source “must revert to using the

existing definition of ‘actual emissions’ on a particular date to satisfy all other permitting

requirements.” Id. at 80196/1-2. EPA asserted that, “[i]t is important to understand the

difference between the purpose of the new procedure, which uses the 10-year look back,

and the existing procedure under the pre-existing definition of ‘actual emissions’ at §

52.21(b)(21)(ii), which generally requires the use of an average annual emissions rate

based on the 2-year period immediately preceding a particular date. The latter procedure

is designed to estimate a source’s actual emissions at a particular time and continues to be

appropriate for such things as estimating a source’s impact on air quality for PSD

increment consumption. On the other hand, the new baseline procedure is specifically

designed to allow a source to consider a full business cycle in determining whether there

will be an emissions increase from a physical or operational change.” Id. at 80199/3.

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EPA also offered a new rationale in the final rules in support of its position that

sources should be allowed to calculate emission increases using a ten-year look-back

period. Pointing to a 1997 study commissioned by the agency after the close of the

public comment period, EPA claimed that a 10-year look-back period is appropriate

because it captures the full business cycle of all affected sources. Id. at 80199/3.

The study relied upon by EPA reports that “[s]pecific business cycles vary greatly

in duration and intensity . . . Due to inconsistencies of business cycles, there is much

difficulty in drawing conclusions about past business cycles or making predictions about

future business cycles based on any one business cycle—either for the national economy

or individual industries.” Business Cycles in Major Emitting Source Industries, Eastern

Research Group, Sept. 25, 1997, at 1. The study analyzed nine industries and determined

that business cycles for those industries ranged from three to eight years. Id. at 16. No

industry was found to have a business cycle as long as 10 years. Id.

Another change between the 1996 proposal and the final rules is that while the

1996 proposal would have required a source to select the period of highest utilization as

its baseline period, the final rules enable a source to select “a different period if another

period yields a higher level of annual emissions.” TSD, Ch. 2, p. 10. EPA states that the

final rules are intended to “preserve a unit’s historical operating levels and associated

emissions.” Final Rule TSD, Chapter 2, at 2 (emphasis added). See also id. at 3 (stating

that “the calculation should provide a true relationship with actual past emissions). This

is a significant departure from EPA’s intent at the time of the 1996 proposal “to allow

sources to determine applicability based on their highest level of utilization and not

necessarily their highest emissions rate.” 61 Fed. Reg. at 38258/3.

16

2. Allowing an Owner to Use the Source’s Highest Emissions Level Over the Course of a Ten-Year Business Cycle to Establish Baseline Emissions Prior to a Physical or Operational Change

EPA’s reliance on a source’s highest emissions over a ten-year business cycle to

establish its baseline emissions violates the Act's requirement that NSR apply to any

physical or operational change that increases emissions. See 42 U.S.C. §§ 7411(a)(4),

7475, 7501, 7502(c)(5). Under EPA's approach, physical or operational changes that

increase emissions unlawfully escape review, on the basis of comparison with what

emissions used to be long ago. Indeed, the D.C. Circuit has cautioned that emissions

changes for NSR purposes must be contemporaneous. Alabama Power v. Costle, 636

F.2d 323, 402 (D.C. Cir. 1979).

EPA itself recognizes that contemporaneous calculation is needed, applying such

calculation to determining whether NAAQS and increments are met. 67 Fed. Reg. at

80199/3. For the same reasons why long-ago emissions data is unlawful for those

purposes, it is unlawful for calculating whether there has been an increase triggering

NSR. Indeed, a key role of NSR is to make sure that emissions "increases" do not

interfere with the Act's ambient requirements (NAAQS and increments). See, e.g.,

§§ 7475(a)(3), 7503(a)(1). EPA's approach would unlawfully and anomalously allow

emissions increases—increases that heighten people's exposure to harmful pollution in

the present, and which EPA admits must count towards NAAQS and increment

analysis—to escape NSR review, and consequent NAAQS and increment protection,

based simply on an analysis of historical emissions patterns. Indeed, under EPA's

extreme approach NSR applicability could even be defeated by pointing to historical

emission levels prevalent before an area was even designated nonattainment, or before

17

the PSD baseline was triggered. See, e.g., 42 U.S.C. § 7407(d) (providing for designation

of areas as nonattainment); id. § 7473(a) and (b) (setting limits on increases over baseline

concentrations).15

EPA's ten-year look-back provision likewise ignores Congress’ clear intent that

the Act produce results—including attainment of the NAAQS themselves—in far less

than ten years. For example, the 1967 Act’s failure to produce results in only three years

led Congress to step in with major corrective amendments, Train v. Natural Resources

Defense Council, 421 U.S. 60, 64 (1975)—amendments that included a requirement for

attainment of health-based NAAQS in three years. See 42 U.S.C. § 110(a)(2)(A). Section

110(a)(2)(A)'s timeframe was retained in the 1977 amendments. See also Pub. L. 95-95,

§ 129(b), 91 Stat. 746 (Aug. 7, 1977) (adding Section 172(a)(1)) (providing for three-year

extension -- from 1979 to 1982); 42 U.S.C. § 7502(a)(2) (for certain pollutants, areas

could seek additional five-year extension). Likewise, in the 1990 amendments Congress

established a graduated series of deadlines, which were likewise at intervals far shorter

than ten years. Id. § 7511(a)(1) (marginal, moderate, and serious ozone areas must attain

by 1993, 1996, and 1999, respectively); id. § 7512(a)(1) (five-year intervals for carbon

monoxide), 188(c) (four-year, then seven-year interval for PM10).

Indeed, given these ultimate attainment deadlines, emission control measures

would need to be producing results in substantially less time, in light of the Act's mandate

15 Under the final rules, a source that escapes NSR by calculating its baseline using the ten-year business cycle approach does not undergo review for increment consumption and offsets. Thus, EPA’s assertion that “[t]he new rule does not affect the way in which a source’s ambient air quality impacts are evaluated” is plainly incorrect. 67 Fed. Reg. at 80202/1-2.

18

for attainment as expeditiously as practicable,16 and for reasonable further progress in the

period prior to the ultimate attainment deadline. Pub. L. 95-95, § 129(b), 91 Stat. 746

(Aug. 7, 1977) (§ 171(1)) (RFP provision enacted by Congress in 1977 provided for RFP

“in the early years following approval or promulgation of plan provisions under this part

and Section 110(a)(2)(I) and regular reductions thereafter”); 42 U.S.C. § 7502(c)(2)

(current version of Act likewise requires RFP). EPA's ten-year look back is

fundamentally out of kilter with these timeframes.

In short, the ten-year look back violates the Act. Indeed, because the provision

diverges from any realistic meaning of the Act, and because EPA has not offered any

reasoned explanation for the anomalies and contradictions inherent in its approach, this

violation exists even if the issue were subject to evaluation under Chevron Step Two.

Finally, the absence of a reasoned explanation renders the agency's approach arbitrary.

Even if a business cycle approach were allowed under the Act, which it is not,

EPA’s final rules would be unlawful and arbitrary because they fail to provide for NSR

compliance by a source that makes a physical or operational change that significantly

increases emissions above the highest level ever reached during its business cycle. See

id. §§ 7411(a)(4), 7475, 7501, 7501(c)(5). As revealed by EPA’s own study, the business

cycle for many sources is much shorter than ten years. The final rules unlawfully and

arbitrarily allow these sources to evade NSR by using historical emission levels that

occurred well outside of their actual business cycle to calculate whether a physical or

operational change will result in an emissions increase. See Environmental Integrity

16 1970 Act § 110(a)(2)(A). The 1977 Amendments left this provision in place, and indeed reinforced it. Pub. L. 95-95, § 129(b), 91 Stat. 746 (Aug. 7, 1977) (§ 172(a)(1)). Likewise, the 1990 Amendments retained the mandate for attainment as expeditiously as practicable. 42 U.S.C. §§ 7511(a)(1), 7512(a)(1), 7513(c).

19

Project charts attached as exhibits to this petition (demonstrating that for many sources a

ten-year look back will inflate baseline emissions substantially above actual emissions

from the most recent two years). At a minimum, EPA’s business cycle approach to

calculating NSR applicability is arbitrary and capricious because EPA did not provide a

reasoned explanation based on record evidence demonstrating that the final rules will

implement statutory requirements.

Finally, EPA’s decision to allow a source to select a period that represents its

highest emissions rate instead of its highest utilization rate is also unsupported by a

reasoned explanation and is therefore arbitrary and capricious. EPA’s primary

justification for adopting the ten-year business-cycle approach was that a source should

be allowed to return to historical utilization levels achieved under more favorable market

conditions without being required to expend the time and resources necessary to comply

with NSR. EPA has not offered, and could not offer, a reasoned explanation for why the

final rules allow a source to calculate its baseline emissions based on its highest historical

emission level—regardless of whether that emission level occurred when the source was

operating at its highest historical utilization level.

The above objections warrant EPA’s reconsideration of the final rules under 42

U.S.C. § 7607(d)(7)(B) because they arose “after the close of the comment period” when

EPA promulgated the final rules. The proposed rules released for public comment did

not contain the business cycle rationale or supporting documentation, did not distinguish

between how emissions increases are to be evaluated under various NSR requirements,

and did not allow sources to preserve historical emissions levels instead of historical

utilization rates. These objections are of central relevance to the outcome of the final

20

rules because they impact on whether the final rules will implement the Clean Air Act

requirement that major sources comply with NSR whenever they make a physical or

operational change that increases emissions.

C. Allowing an Owner to Calculate the Amount of an Emission Decrease for Netting Purposes Using the Ten-Year Business Cycle Approach

1. Background

The final rules authorize a source to use the ten-year look-back approach to

calculate the magnitude of any contemporaneous emissions decrease that the source

wishes to rely upon for netting purposes—i.e., to demonstrate that the net emissions

increase at the source following the change will not exceed NSR significance levels. 67

Fed. Reg. at 80245/1-2, 80261/1, 80275/3-76/1 (40 C.F.R. §§ 51.165(a)(1)(vi),

51.166(b)(3)(i), 52.21(b)(3)(i)). See also id. at 80191/3, 80196/1, 80202/3 (preamble).

Since the final rules also allow a source to look back five years to identify the change that

locks in this emission reduction, the actual emissions reduction that the final rules allow a

source to take into account for netting purposes could have actually occurred almost 15

years prior to the planned physical or operational change. Neither the 1996 proposal nor

the 1998 notice gave any indication that EPA was considering allowing use of the ten-

year look-back period to calculate the magnitude of contemporaneous decreases. To the

contrary, EPA assured stakeholders that the ten-year look back “would not apply when

determining an emission level (i.e., increase or decrease) for use in a netting analysis.”

63 Fed. Reg. at 39862/1.

21

2. Objection to the Use of the 10-Year Look-Back Period to Establish the Magnitude of an Emission Decrease for Netting Purposes

The Clean Air Act requires NSR for any physical or operational change that

increases emissions, and creates no exemption for situations where an emissions

reduction occurred long ago (indeed, almost fifteen years ago) and was not even part of

the physical or operational change at issue. 42 U.S.C. §§ 7411(a)(4), 7475, 7501,

7501(c)(5). The D.C. Circuit has cautioned that, if a physical or operational change will

increase emissions, a source must comply with NSR unless it demonstrates that “the

increases are offset by contemporaneous decreases.” Alabama Power, 636 F.2d at 400.

Decreases that occurred more than a decade earlier are plainly not “contemporaneous”

with a physical or operational change. Finally, in addition to conflicting with the Act,

EPA's approach is arbitrary because the agency has offered no reasoned explanation for

it.


U.S.C. § 7607(d)(7)(B) because it arose “after the close of the comment period.” Prior to

issuance of the final rules, EPA gave no notice that it would be allowing sources to

calculate the magnitude of “contemporaneous” emission decreases using the 10-year

look-back methodology. The above objections are of central relevance to the outcome of

the final rules because they relate to whether the rules implement the Clean Air Act

requirement that a major source comply with NSR whenever it makes a physical or

operational change that increases emissions.

22

D. For a Single Change at a Single Unit, Allowing the Use of Different Two-Year Calculation Periods for Each Affected Pollutant

The final rule provides that, in employing the any-two-in-ten baseline selection

method for determining whether a proposed change will cause an increase in the

emissions of any air pollutant from a single unit, “[a] different consecutive 24-month

period can be used for each regulated NSR pollutant.” 67 Fed. Reg. at 80247/1-2,

80263/2-3, 80278/2-3 (40 C.F.R. §§ 51.165(a)(1)(xxxv)(A)(3), (B)(4);

51.166(b)(47)(i)(c), (ii)(c); 52.21(b)(48)(i)(c), (ii)(d)). There is nothing in the pre-

existing regulations permitting an owner to select a different baseline selection period for

each of the pollutants affected by a single change proposed for a unit. Neither the 1996

notice nor the 1998 notice gave any indication that EPA was considering promulgating a

rule that would allow an owner proposing a single change to a single unit to calculate the

baseline of each pollutant emitted by that unit based on a different period of the unit’s

operational history. The grounds for the objections set forth below thus “arose after the

period for public comment.” 42 U.S.C. § 7607(d)(7)(B).

As EPA knows, it is common for a unit to emit certain pollutants at a higher rate

during startup (say, before pollution control equipment has reached peak efficiency or

been turned on) than during periods when the unit is operating near its capacity. The

agency also knows that a sudden spike in the emissions rate of one pollutant from a unit

can signal a malfunction that causes the owner to shut the unit down for a time. With

respect to a unit meeting the first description, the provision identified above enables the

owner to select a two-year period that includes the startup, for the purpose of calculating

the baseline of the pollutant that the unit emits at a higher rate during startup; and a two-

year period that excludes the startup, for the purpose of calculating the baselines of those

23

pollutants whose emissions rates are proportional to capacity utilization. With respect to

a unit meeting the second description, the provision enables the owner to select a two-

year period that includes the malfunction, for the purpose of calculating the baseline of

the pollutant whose emissions rate spiked as a result of the malfunction; and a two-year

period that excludes the subsequent shutdown period for the purpose of calculating the

baselines of the other pollutants emitted when the unit is operating. The effect of the

provision is thus to allow owners to evade pre-construction review by selecting, for each

pollutant, whichever two-year period witnessed the highest average yearly emissions for

that pollutant. EPA offers no reason for altering the rules to give owners this freedom.

As noted above, EPA’s stated reason for permitting an owner to select any two-

year period from the decade preceding the proposed change is that it enables the owner to

select a period from the source’s business cycle in which the source was responding to

high market demand. 67 Fed. Reg. at 80199/3. The agency never claims that a single

unit can be subject to a number of simultaneous yet independent business cycles, one for

each pollutant that the unit emits. Indeed, such a claim would be preposterous. The

agency does not even make any allowance for the possibility of different units at the

same facility being subject to independent business cycles, for the final rule provides that

“when a project involves multiple emissions units, only one consecutive 24-month period

must be used to determine the baseline actual emissions for the emissions units being

changed.” Id. at 80247/1-2, 80263/2-3, 80278/2-3 (40 C.F.R. §§

51.165(a)(1)(xxxv)(A)(3), (B)(4); 51.166(b)(47)(i)(c), (ii)(c); 52.21(b)(48)(i)(c), (ii)(d)).

Thus, allowing an owner to select different baseline calculation periods for the different

pollutants whose emissions are affected by a single change to a single unit finds no

24

justification in – and indeed runs counter to – the purpose that EPA ascribes to the any-

two-in-ten baseline calculation method.






E. For a Unit That Has Been Operating For Less Than Two Years, Calculating the Baseline Using Potential to Emit Rather Than Actual Emissions

The pre-existing regulations provided that “[f]or any emissions unit that has not

begun normal operations on the particular date, actual emissions shall equal the potential

to emit of the unit on that date.” 40 C.F.R. §§ 51.165(a)(1)(xxi)(D), 51.166(b)(21)(iv),

52.21(b)(21)(iv).17 While retaining this provision, the final rule declares that it “shall not

apply for calculating whether a significant emissions increase has occurred.” 67 Fed.

Reg. at 80245/3, 80261/3, 802786/2-3 (40 C.F.R. §§ 51.165(a)(1)(xxi)(A),

51.166(b)(21)(i), 52.21(b)(21)(i)). The portion of the final rule that does apply to

calculating whether a significant emissions increase has occurred provides that until a

unit has been operating for two years, its “baseline actual emissions . . . shall equal the

unit’s potential to emit.” Id. at 80247/3, 80263/3, 80278/3 (40 C.F.R. §§

17 “Before today’s changes, the regulations provided that when your emissions unit, other than an electric utility steam generating unit (EUSGU), ‘has not begun normal operations,’ actual emissions equal to PTE of the unit.” 67 Fed. Reg. at 80188/2.

25

51.165(a)(1)(xxxv)(C), 51.166(b)(47)(iii), 52.21(b)(48)(iii)). See also id. at 80245/3,

80261/2, 80276/2 (40 C.F.R. §§ 51.165(a)(1)(vii)(A), 51.166(b)(7)(i), 52.21(b)(7)(i)).18

Neither the 1996 notice nor the 1998 notice gave any indication that EPA might

require that the baseline be set at potential to emit, rather than actual emissions, any time

an owner proposes to make a change to a unit that has been operating for less than two

years. The grounds for the objections set forth below thus “arose after the period for

public comment.” 42 U.S.C. § 7607(d)(7)(B).

The agency does not assert that units never begin normal operations before they

have been operating for at least two years. It does not even assert that most units take

two years to begin operating normally. In fact, EPA offers no reason whatsoever for

requiring a reviewing (or allowing) authority to set a unit’s baseline at its potential to

emit until the unit has been operating for two years.

Suppose that a new unit is constructed on January 1, 2010 and that, within two

months, it is operating normally and emitting a pollutant at 100 tons/year, or half of its

potential to do so. Suppose that the owner proposes to make a physical change at the unit

on December 1, 2011, and that the change will cause the unit’s emissions rate to double.

Because the change will not cause the unit’s emissions to increase above its potential to

emit, the reviewing authority is prohibited, under the final rule, from subjecting the

proposed change to pre-construction review even though it will cause emissions to

increase by 100 tons/year. The result of the provision is thus to shield from the pre-

construction requirements changes that actually increase emissions. In this respect, the

18 “For new emissions units (a unit that has existed for less than 2 years) that will be changed by the project, the baseline actual emissions rate is zero if you have not yet begun operation of the unit, and is equal to the unit’s PTE once it has begun to operate.” 67 Fed. Reg. at 80196/1.

26

provision conflicts with the plain meaning and purpose of Section 111(a)(4) of the Clean

Air Act.






III. ACTUAL-TO-FUTURE-ACTUAL METHODOLOGY

A. Reconsideration of the Demand Growth Exclusion

1. Background

The Clean Air Act requires a source to undergo NSR when it makes a

modification, which is defined as “any physical change in, or change in the method of

operation of, a stationary source which increases the amount of any air pollutant emitted

by such source or which results in the emission of any air pollutant not previously

emitted.” 42 U.S.C. § 7411(a)(4) (incorporated by reference in 42 U.S.C. § 7501(4) and

by 42 U.S.C. § 7479(2)(C)). The final rules allow a source to “exclude emissions

resulting from increased utilization due to demand growth that the unit could have

accommodated before the change” when it calculates the projected increase in emissions

that will result from a physical or operational change. 67 Fed Reg. at 80192/1-2.

EPA’s decision to include a demand growth exclusion in the final rule stands in

stark contrast to the position that EPA took in the 1998 Notice of Availability, where

EPA asserted that “there is no plausible distinction between emissions increases due

solely to demand growth as an independent factor and those changes at a source that

27

respond to, or create new, demand growth which then results in increased capacity

utilization.”19 63 Fed. Reg. at 39861/3. Based on this conclusion, EPA proposed not

only to omit the demand growth exclusion from the final rules governing non-utilities,

but also to eliminate the demand growth exclusion from the special rules for utilities that

EPA promulgated in 1992 (“the WEPCO Rule.”). Id. at 39860/2.

EPA also explained in the 1998 NOA that any potential emission increases due to

market variability should already be accounted for in the ten-year look back period used

to calculate baseline emissions prior to the change. According to EPA, if a source

“projects utilization in excess of its historical high in the preceding ten years, such

utilization is likely not attributable to market variability . . . but rather results from the

change itself.” Id. at 3986/1-2.

Another important factor that EPA identified in 1998 as weighing heavily against

adoption of the demand growth exclusion is that there is no reliable mechanism in place

for permitting authorities to detect when a source improperly excludes emissions

increases from its NSR applicability determination. EPA pointed out that a demand

growth exclusion would be “self-implementing” and “self-policing” and “[w]ith minimal,

if any, explanation, a source may merely deduct the emissions increases it believes are

attributable to demand growth from the total emissions data it supplies to the permitting

authority demonstrating that it is below projected future actuals.” Id. at 39861/1.

EPA offered no explanation whatsoever in the preamble to the final rules for why

it ultimately adopted the demand growth exclusion despite the substantial arguments

19 EPA further explained in the 1998 notice: “In a market economy, all changes in utilization—an hence, emissions—might be characterized as a response to market demand. Accordingly, a conclusion that emissions increase at a plan in response to market demand does little to determine whether the increase

28

against adopting such an exclusion as described by EPA in its 1998 notice. EPA failed

even to respond to its own arguments. Moreover, the final rules are arbitrarily silent

regarding how a source is to distinguish between emissions increases due to demand

growth and those resulting from a physical or operational change.

2. Grounds for Objection to the Demand Growth Exclusion

EPA’s failure to provide a reasoned explanation for its decision to include a

demand growth exclusion in the final rules renders the final rules arbitrary and

capricious. See Motor Vehicle Manufacturer’s Assn. v. State Farm Mutual Auto. Insur.

Co., 463 U.S. 29, 43 (1983) (an “agency must articulate a satisfactory explanation for its

action.”); Transactive Corp. v. U.S., 91 F.3d 232, 236 (D.C. Cir. 1996) (“In order to

ensure that an agency’s decision is not arbitrary, we require the agency to have identified

and explained a reasoned basis for its decision.”). EPA’s burden to explain its decision is

particularly heavy because of the agency’s 1998 proposal to omit the demand growth

exclusion from the final rules. EPA must offer a reasoned explanation for the reversal of

its position on this issue. See 42 U.S.C. § 7607(d)(6)(A) (“The promulgated rule shall be

accompanied by . . . an explanation of the reasons for any major changes in the

promulgated rule from the proposed rule.”). See also Fox Television Stations v. FCC, 280

F.3d 1027, 1044-1045 (D.C. Cir. 2002) (“The Commission may, of course, change its

mind, but it must explain why it is reasonable to do so.”); Radio-Television News

Directors Assn. v. FCC, 184 F.3d 872, 881 (D.C. Cir. 1999) (“[H]aving initiated a

rulemaking premised on the conclusion that the rules may not be in the public interest

results from a change at the plan; an affirmative answer to the first question is consistent with an affirmative answer to the latter.” 63 Fed. Reg. at 39860/3.

29

and then rejected its own proposal to abrogate the rules, the FCC bears a burden of

explanation.”).

Similarly, EPA’s inclusion of the demand growth exclusion in the final rules is

arbitrary and capricious because though EPA’s 1996 and 1998 proposals identified a

number of important factors that needed to be taken into consideration, EPA entirely

failed to consider these factors when it adopted the final rule. See Citizens to Preserve

Overton Park, Inc., v. Volpe, 401 U.S. 402, 416 (1971) (an agency decision must be

“based on a consideration of the relevant factors.”). Key factors identified by EPA in its

proposals but not taken into consideration in the final rules include (1) whether it is

possible to differentiate between emissions increases attributable to demand growth and

those attributable to the change, (2) whether it is reasonable to rely on sources to

independently assess whether emission increases can be attributed solely to demand

growth, and (3) whether the demand growth exclusion would result in the application of

NSR after a modification rather than before a modification as envisioned under the Act.

Finally, EPA’s inclusion of the demand growth exclusion in the final rules

violates the Clean Air Act. If there is “no plausible distinction” between emission

increases from demand growth and increases resulting from a change, then emissions that

a source attributes to demand growth are emissions resulting from the change. A rule

that allows sources to evade NSR by attributing emissions increases resulting from a

physical or operational change to demand growth violates the Act.



EPA promulgated the final rules without offering a reasoned explanation and without

30

consideration of important aspects of the problem. These objections are of central

relevance to the outcome of the final rules because they impact on whether the rules will

implement the statutory requirement that a source comply with NSR prior to making a

physical or operational change that increases emissions.

B. Reconsideration of the Omission of Compliance Assurance Requirements Under the Actual-to-Future-Actual Methodology

1. Allowing Non-Utility Sources to Proceed With Physical or

Operational Changes Without Obtaining Approval From the Permitting Authority or Even Notifying the Permitting Authority

a. Background

The final rules allow a non-utility source to proceed with construction without

providing any kind of notice to the permitting authority. See 40 C.F.R. § 52.21(r)(5)(ii).20

EUSGUs are also not required to obtain pre-construction approval, but are required to

submit documentation of their NSR non-applicability determination to the permitting

authority. The lack of a pre-construction approval requirement for EUSGUs and the

complete lack of either a pre-construction approval or notification requirement for non-

utility sources is a sharp departure from the position taken by EPA in the 1998 notice. At

that time, EPA asserted that because the NSR program is a pre-construction program, it

“requires an applicability determination prior to commencing construction to avoid

equity-in-the-ground issues and retroactive control technology costs.” Id. at 39862/1. To

address compliance assurance an enforcement concerns, the 1998 NOA proposed not just

20 40 C.F.R. § 52.21(r)(6)(ii) states: “If the emissions unit is an existing electric utility steam generating unit, before beginning actual construction, the owner or operator shall provide a copy of the information set out in paragraph (r)(6)(i) of this section to the Administrator. Nothing in this paragraph (r)(6)(ii) shall be construed to require the owner or operator of such unit to obtain any determination from the Administrator before beginning actual construction.”

31

pre-construction notification, but also that the source be made subject to a temporary

enforceable emissions limit for 10 years. 63 Fed. Reg. at 39861/2-3.

EPA offers two justifications for its decision to allow non-utility sources to

proceed with construction without even notifying their permitting authority of the

planned change. First, EPA claims that pre-construction notification would sometimes

duplicate notification requirements under state minor NSR permitting procedures. See 67

Fed. Reg. at 80204 (“We anticipate that a large majority of the projects that are not major

modifications may nonetheless be required to undergo a permit action through a State’s

minor NSR permit programs. In such cases, the minor NSR permitting procedures could

provide an opportunity to ensure that your reviewing authority agrees with your emission

projections. Requiring a separate notification would not provide the reviewing authority

with additional information in such circumstances. Accordingly, we believe today’s

requirements provide reviewing agencies with the ability to obtain all the information

necessary to ensure compliance.”).

Second, EPA asserts that it is more important for permitting authorities to monitor

EUSGUs than other sources because EUSGUs are responsible for the majority of

nitrogen oxide and sulfur dioxide emissions in the country. See id. at 80204/3 (“In 2000,

boilers and turbines with greater than 25 Mwe or 250 mmBTU/hr of generating capacity

represented 76 percent of this nation’s emissions of nitrogen oxides and 85% of sulfur

dioxides from stationary sources.”). EPA claims that by only requiring EUSGUs to

submit information to the permitting authority prior to making a change, “it focuses the

limited resources of both sources and agencies on the source that matter most.” Id. at

80204/3. Along the same line, EPA claims that “submittals by all modified emissions

32

units would have resulted in a large burden on reviewing authorities to review

information.” Final Rule TSD, Chapter 2, at 23.

b. Objections to the Omission of a Pre-Construction Approval or Notification Requirement From the Final Rules

EPA’s failure to include a pre-construction approval or notification requirement

for non-utility sources in the final rules is arbitrary and capricious because EPA did not

provide a reasoned explanation for its decision, did not support its determination with

substantial evidence, and failed to consider relevant factors in reaching its decision.

First, EPA’s decision to exempt non-utility sources from pre-construction

approval or notification requirements conflicts with statements made by EPA in the

preambles accompanying the proposed rules expressing doubt that sources could

accurately project post-change emissions. See, e.g., 61 Fed. Reg. at 38268 (“[I]t is clear

for . . . source categories [other than EUSGUs] that predictions of future demand and its

impact on individual emissions units are far more complicated and uncertain. For

consumer-driven industries, for instance, demand varies and presumptions regarding size

and source would be more speculative than in the utility industry.”). Because these

statements indicate that a non-utility source is less likely to accurately project its future

emissions than a utility, one would expect that EPA would require more reporting by

non-utility sources, not less. EPA’s failure to explain this discrepancy renders the final

rules arbitrary and capricious.

EPA also offers no evidence to support its claim that pre-construction notification

would be duplicative of other existing notification requirements because “a large majority

of the projects that are not major modifications may nonetheless be required to undergo a

33

permit action through a State’s minor NSR permit program.” 67 Fed. Reg. at 80204/3.

Minor NSR programs vary considerably from state-to-state.21 It is arbitrary and

capricious for EPA to rely on minor NSR programs to ensure proper implementation of

major NSR requirements without first documenting that the notification requirements

under these programs are adequate. See Cement Kiln Recycling Coalition v. EPA, 255

F.3d 855, 866 (D.C. Cir. 2001) (agency must demonstrate relevant point with “substantial

evidence—not mere assertions.”). EPA’s failure to survey state minor NSR programs to

assess the adequacy of their notification requirements is clear from the agency’s assertion

that most projects “may” be required to undergo minor NSR. 67 Fed. Reg. at 80204.

Moreover, even if EPA were able to demonstrate that most non-utility sources will be

required to comply with minor NSR notification procedures, such a demonstration would

not support a rule that omits pre-construction reporting requirements for all non-utility

sources. In a similar circumstance under the Clean Air Act Title V program, EPA

regulations allow a state to avoid duplication of procedures by streamlining its minor

NSR permit procedures with Title V permit procedures. See 40 C.F.R. § 70.7(d)(1)(v).

Specifically, a state can rely on the public comment procedures in its minor NSR

program to fulfill certain Title V requirements so long as the state’s minor NSR

procedures meet minimum standards set forth in EPA’s Title V regulations. Id. EPA

must explain why the final NSR rules, instead of allowing streamlined procedures,

establish a blanket exemption from pre-construction notification requirements for all non-

21 The minimum requirements for a state minor NSR program are set forth at 40 C.F.R. § 51.160-51.164. These general requirements give states broad discretion to define the “types and sizes of facilities, buildings, structures, or installations” subject to the state minor NSR program and cannot be relied upon to require all major sources to notify permitting authorities prior to making a physical or operational change. See 40 C.F.R. § 51.160(e).

34

utility sources regardless of whether a source will be subject to minor NSR notification

procedures.

EPA’s reliance on statistics pertaining to “boilers and turbines with greater than

25 Mwe or 250 mmBTU/hr of generating capacity” to support the agency’s decision to

limit pre-construction notification requirements to EUSGUs is arbitrary and capricious

because such units are also located at other types of sources. For example, Con Edison’s

Hudson Avenue Generating Station in Brooklyn, NY operates five boilers with greater

than 250 mmBTU/hr of generating capacity that are not classified as EUSGUs.22

Nonetheless, the Hudson Avenue Generating Station is one of New York’s City’s largest

stationary source polluters.23 The facility is located in the center of a highly urbanized

area, with day-care centers, schools, and senior centers located only a few blocks away.

EPA cannot rationally argue that it is a waste of resources for the New York Department

of Environmental Conservation to carefully scrutinize any change at this facility that

could result in a significant increase in emissions.

EPA’s decision to limit pre-construction notification to EUSGUs is also arbitrary

and capricious because even if EUSGUs are the largest stationary sources of NOx and

SO2 emissions, these are not the only NSR pollutants that threaten public health.

Volatile organic compounds (“VOCs”), for example, can cause increases in ground-level

22 EPA’s regulations define an EUSGU as any steam electric generating unit that is constructed for the purpose of supplying more than one-third of its potential electric output capacity and more than 25 megawatts (MW) of electric output to any utility power distribution system for sale. See, e.g., 40 C.F.R. § 51.166(b)(30). Because the Hudson Avenue Station is used primarily to produce steam rather than electricity, it does not qualify as an EUSGU. See Title V Permit Review Report for Con Edison Hudson Ave. Station, p. 25, www.dec.state.ny.us/website/dar/boss/afs/permits/prr_261010004200011.pdf. (explaining that Hudson Ave. does not have EUSGUs subject to the CAA Acid Rain program because “the heat input for the electrical generating unit at the facility (Boiler 100) has been capped such that the unit could not produce a quantity of electricity that would cause the station to be subject to Title IV.”). 23 See www.scorecard.org (ranking largest polluters in Kings County, NY).

35

http://www.dec.state.ny.us/website/dar/boss/afs/permits/prr_261010004200011.pdf

http://www.scorecard.org/

ozone concentrations, which are linked to serious human health impacts such as increased

frequency and severity of asthma attacks and damage to lung tissue. Non-utility sources

such as oil refineries emit large amounts of VOCs, as well as NOx, SO2, and particulate

matter. See EPA 3/21/01 Press Release, attached as an exhibit to this petition. In fact, as

of 1998 EPA considered NSR violations at refineries to be so significant that it

commenced a series of high-profile NSR enforcement actions against these sources based

on allegations that they had made modifications without complying with NSR. Id. EPA’s

determination that permitting authorities need not carefully scrutinize emission increases

from sources such as refineries plainly does not represent a “rational connection between

the facts found and the choices made.” Motor Vehicle Manfacturer’s Assn., 463 U.S. at

29.

Even if EUSGUs were responsible for most pollution from stationary sources on a

national scale, EPA’s conclusion that all agencies should be focusing on EUSGUs

regardless of local circumstances ignores the context and purpose of the NSR program.

First, the Clean Air Act’s state implementation plan provisions sometimes require states

to regulate pollution sources that are responsible for less than a fraction of a ton. Second,

in contrast to Clean Air Act programs such as the Title IV acid rain program that focus on

nationwide emission reductions, the NSR program largely focuses on local air quality.

See, e.g., CAA § 165, 42 U.S.C. § 7475(a) (prohibiting construction of a major emitting

facility unless, inter alia, “there has been an analysis of any air quality impacts projected

for the area as a result of growth associated with such facility,” and “the source “agrees

to conduct such monitoring as may be necessary to determine the effect which emissions

from any such facility may have, or is having, on air quality in any area which may be

36

affected by emissions from such source.” (emphasis added)). A source that is responsible

for only a small percentage of emissions nationwide could still have a large impact on the

health of children that attend day care only a few blocks away. EPA’s decision to limit

pre-construction notification to EUSGUs seriously undermines efforts by local agencies

to monitor NSR compliance by such sources.

Finally, EPA has not stated or shown that requiring sources to submit pre-

construction documentation of NSR inapplicability would place an unduly large burden

on permitting authorities. EPA offers no evidence that would support a conclusion that

the submittal of documentation by sources, by itself, requires substantial agency

resources. To the contrary, absent pre-change notification, a permitting authority must

expend resources simply to identify those sources that might have undertaken a physical

or operational change in violation of NSR. With respect to the burden that pre-

construction notification would place on sources, EPA has not identified any evidence in

the record to support a conclusion that submitting this documentation to the permitting

authority would be a significant burden.





relevance to the outcome of the final rules because they impact on whether permitting

authorities and members of the public can assure that sources comply with NSR prior to

making a physical or operational change that increases emissions.

37

2. Omission of (1) Annual Emissions Reporting for Non-Utility Sources and (2) On-Site Recordkeeping by Non-Utility Sources Based on Their Opinion That There is Not a Reasonable Possibility That Post-Change Emissions Will Exceed the NSR Significance Level

a. Background

Not only do the final rules fail to require sources to obtain enforceable emission

limits, to seek pre-construction approval, or even to notify their permitting authority prior

to construction, but the final rules also fail to require these sources to submit annual

reports to the permitting authority documenting that actual emissions following a change

fall remain below their pre-change projections. See 40 C.F.R. § 52.21(r)(6)(v).24 Instead,

non-utility sources are only required to submit a report to the permitting authority if post-

change emissions increase by a significant amount and are in excess of the source’s pre-

change projection. Id.

In its 1996 proposal, EPA described the annual reporting requirement as a

“safeguard” that would “guard against the possibility that significant unreviewed

increases in actual emissions would occur” by “guarantee[ing] the accuracy of the

projection for at least 5 years.” 61 Fed. Reg. at 38267-38268. By 1998, EPA lacked

confidence that even mandatory annual reporting would be adequate to assure source

compliance. EPA explained that “since the issuance of the WEPCO rules, it appears that

although there are a substantial number of changes to existing units, as well as an

increase in the amount of electricity being generated for use outside of the local service

24 According to 40 C.F.R. § 52.21(r)(6)(v), “If the unit is an existing unit other than an electric utility steam generating unit, the owner or operator shall submit a report to the Administrator if the annual emissions, in tons per year, from the project identified in paragraph (r)(6)(i) of this section, exceed the baseline actual emissions (as documented and maintained pursuant to paragraph (r)(6)(i)(c) of this section), by a significant amount (as defined in paragraph (b)(23) of this section) for that regulated NSR pollutant,

38

district, change to utility units as well as post-change emissions estimates are not being

reported to permitting agencies.” 63 Fed. Reg. at 39860/1. Thus, EPA proposed “to

make enforceable for a 10-year period emissions levels used by the source in projecting

future actual emissions for all source categories.” Id. at 39861.

In the final rules, EPA abandoned both enforceable limits and annual reporting.

EPA offered no explanation for its change of position other than an unsupported assertion

that the remaining recordkeeping and reporting obligations in the final rules are “an

equally effective way to ensure that a reviewing authority can receive the information

necessary to enforce the major NSR requirements.” 67 Fed. Reg. at 80204/2. These so-

called “equally effective” requirements consist of (1) the source preparing records and

maintaining them on site, and (2) the source reporting to the permitting authority if it

determines that the post-change emissions increase exceeds its projections. Id.

Remarkably, the final rules omit even the on-site recordkeeping requirement for

those sources that believe that there is not a “reasonable possibility” that a physical or

operational change will result in a significant increase in emissions. See 40 C.F.R. §

52.12(r)(6).25 See also 67 Fed. Reg. at 80197. EPA makes no attempt to define the term,

or to explain the basis for the agency’s claim that this source-driven determination will

meet the purposes of the NSR provisions and result in accurate forecasts of emissions

increases. Id.

and if such emissions differ from the preconstruction projection as documented and maintained pursuant to paragraph (r)(6)(i)(c) of this section.” 25 Under 40 C.F.R. § 52.12(r)(6), “The provisions of this paragraph (r)(6) apply to projects at an existing emissions unit at a major stationary source . . . in circumstances where there is a reasonable possibility that a project that is not a part of a major modification may result in a significant emissions increase and the owner or operator elects to use the method specified in paragraphs (b)(41)(ii)(a) through (c) of this section for calculating projected actual emissions.”

39

b. Grounds for Objection to Omission of (1) Annual Emissions Reporting for Non-Utility Sources and (2) On-Site Recordkeeping by Non-Utility Sources Based on Their Opinion That There is Not a Reasonable Possibility That Post-Change Emissions Will Exceed the NSR Significance Level

EPA’s omission of the annual reporting requirement from the final rule—after

characterizing such reports in its 1996 proposal as a “safeguard” that would “guarantee

the accuracy of source projections”—is not supported by a reasoned explanation and is

therefore arbitrary and capricious. See Motor Vehicle Manuf. Assn., 463 U.S. at 43. As

discussed in detail below, EPA’s claim that other recordkeeping and reporting

requirements in the final rules are “an equally effective way to ensure that a reviewing

authority can receive the information necessary to enforce the major NSR requirements”

does not constitute a reasoned explanation because it is not supported by substantial

evidence, conflicts with evidence that is already before the agency.

As discussed above, in the 1998 NOA EPA expressed concern that utilities

operating under the agency’s 1992 WEPCO rule were not submitting the required annual

emissions reports following a physical or operational change. 63 Fed. Reg. at 39860/1.

Given the evidence before the agency, EPA must explain why a requirement that a source

submit a report only when its emissions exceed projections is sufficient to allow a

permitting authority to detect unreviewed emissions increases. Specifically, EPA must

address why non-utility sources are any more likely than utilities to submit the required

reports. Since non-utility sources also are not required by the final rules to notify the

permitting authority prior to construction, the permitting authority may have no idea that

the source even made a physical or operational change and thus will not notice when the

source fails to submit a report following a significant emissions increase. Moreover,

40

especially following EPA’s statements in the 1998 NOA indicating that annual reports

under the WEPCO rule were insufficient to assure NSR compliance, EPA must consider

not just whether the reporting requirements in the final rules are “equally effective,” but

must consider whether the reporting requirements in the final rules are actually sufficient

to allow permitting authorities to ensure compliance with the Act.

EPA also fails to provide the required reasoned explanation in support of its

decision to excuse a non-utility source from the requirement that it maintain on-site

documentation of its post-change emissions if the source believes that it is not

“reasonably possible” that its post-change emissions will exceed the NSR significance

threshold. Since EPA stated in its proposals that emission projections by non-utility

sources are likely to be unreliable,26 EPA must explain why the final rules are sufficient

to ensure NSR compliance even though they allow a source to independently calculate its

projected emissions, construct without notifying the permitting authority, and keep no

records of its post-change emissions.





relevance to the outcome of the final rules because they impact on whether permitting

26 See 61 Fed. Reg. at 38268/2 (“[I]t is clear for other source categories that predictions of future demand and its impact on individual units are far more complicated and uncertain.”). See also 61 Fed. Reg. at 38268/1(“[U]tilities remain the only source category where projections of demand and facility utilization are typically assessed by an independent regulatory agency. . . Because this kind of information is typically not available for other source categories, EPA is concerned about the basis permitting authorities would have to review projections for other source categories.”).

41

authorities and members of the public can assure that sources comply with NSR prior to

making a physical or operational change that increases emissions.

C. Reconsideration of Allowing Sources to Use the Actual-to-Future-Actual Methodology for Replacement Units

Unlike the 1992 WEPCO rule, the final rules allow sources to apply the actual-to-

future-actual methodology to determine whether NSR applies to replacement units. 67

Fed. Reg. at 80194/2. The only explanation EPA gave for this change is that “upon

reflection we have decided that this exception to the availability of the actual-to-

projected-actual applicability test is also unnecessary. When EPA proposed the WEPCO

rule in 1991, however, EPA stated: “Since there is no relevant operating history for

wholly new units and replaced units, it is not possible to reasonably project post-change

utilization for these units, and hence, their future level of ‘representative annual actual

emissions.’” 56 Fed. Reg. 27630, 27636/2 (June 14, 1991). EPA’s decision to apply the

methodology to replacement units is arbitrary and capricious because the agency’s

assertion that it has changed its position “upon reflection” does not suffice as a reasoned

explanation for its action.

This objection warrants EPA’s reconsideration of the final rules under 42 U.S.C.

§ 7607(d)(7)(B) because it arose “after the close of the comment period.” EPA gave no

indication in the 1996 proposal or the 1998 NOA that is planned to apply the actual-to-

future-actual methodology to replacement units. This objection is of central relevance to

the outcome of the final rules because it addresses whether EPA can legally apply the

actual-to-future-actual methodology to replacement units.

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D. Reconsideration of Entire Framework for Determining NSR Applicability Under the Actual-to-Future-Actual Methodology

The synergistic effect of the assorted changes made to the rules by EPA following

the close of the public comment period results in a methodology for determining NSR

applicability that violates the plain language, structure, and purpose of the Clean Air Act.

This objection to the final rules is appropriate for a petition for reconsideration under 42

U.S.C. § 7607(d)(7)(B) because it arose after the period for public comment when EPA

promulgated final rules that eliminate key safeguards designed to protect the public from

unreviewed, significant emission increases. Moreover, this objection plainly is of central

relevance to the outcome of the final rules because it addresses whether EPA possesses

statutory authority to adopt the NSR applicability methodology set forth in those rules.

The final rules will impede state efforts to assure compliance with the NSR

program by: (1) allowing sources to commence construction without obtaining an

enforceable emissions limit, government approval of their calculations demonstrating

NSR inapplicability, or even notification to their permitting authority, (2) failing to

require sources to submit annual emissions reports that would allow the permitting

authority to confirm source compliance, and (3) exempting sources from recordkeeping

requirements based on their own, unevaluated determination that post-change emissions

will not exceed NSR significance levels. Under the final rules, even if a permitting

authority determines that a source has miscalculated (and thereby underestimated) its

projected post-change emissions, the permitting authority cannot require the source to

comply with NSR prior to making the change. Instead, the permitting authority must

wait until after the source makes the modification and commences operation to bring an

enforcement action requiring the source to comply with NSR.

43

Under the final rules, the inability of permitting authorities to require NSR

compliance before an emissions increase occurs is particularly troubling because of

EPA’s indication in the 1996 proposal and 1998 NOA that it will be difficult to project

post-change emissions accurately for many sources, even without taking into account the

demand growth exclusion. Moreover, despite EPA’s 1998 assertion that there is “no

plausible distinction” between increased emissions due to demand growth and increased

emissions resulting from a change, EPA’s final rules direct sources to make exactly that

distinction when projecting post-change emissions. EPA offers no explanation for why it

would be reasonable to expect a source to accurately predict emissions due solely to

demand growth when EPA’s latest statement on the matter was that it may be impossible

to make such a determination.

By limiting a permitting authority’s power to require compliance with NSR to

only bringing an enforcement action after a significant emissions increase occurs, the

actual-to-future-actual methodology set forth in the final rules conflicts with Congress’

clear intent to establish a “pre-construction” program. 42 U.S.C. § 7475. Moreover, the

limitations on the ability of permitting authorities to monitor compliance with the

program run afoul of Congress’ declaration of the purpose of the Act, including, inter

alia, “to protect public health and welfare from any actual or potential adverse effect

which . . . may reasonably be anticipate[d] to occur from air pollution,” and “to assure

that any decision to permit increases in air pollution in any area to which this section

applies is made only after careful evaluation of all the consequences of such a decision

and after adequate procedural opportunities for informed public participation in the

decisionmaking process.” 42 U.S.C. § 7470 (emphasis added).

44

Given the clear evidence of congressional intent to establish a pre-construction

permit program that only allows emission increases after careful consideration by the

permitting authority and ample opportunity for public participation, EPA’s methodology

for assessing NSR applicability set forth in the final rules is unlawful. See Chevron, USA

v. NRDC, 467 U.S. 837, 842 (1984). Alternatively, EPA’s methodology for assessing

NSR applicability is impermissible under the statute because “the accommodation is not

one that Congress would have sanctioned.” Chevron, 467 U.S. at 845 (quoting United

States v. Shimer, 367 U.S. 374, 382-383 (1961)).

IV. PLANTIWIDE APPLICABILITY LIMITATIONS

A. Padding the Baseline Used to Set the PAL With Fugitive Emissions and Emissions From Startups, Shutdowns, and Malfunctions

The final rule provides that the emissions baseline used to set the level of the PAL

shall “include emissions associated not only with operation of the unit, but also emissions

associated with startup, shutdown, and malfunction.” 67 Fed. Reg. 80185, 80255/3,

80270/3, 80285/2 (December 31, 2002) (40 C.F.R. §§ 51.165(f)(3)(ii), 51.166(w)(3)(ii),

52.21(aa)(3)(ii)). The rule also states that the “baseline actual emissions” used to set the

PAL level shall be “as defined in” the portion of the rule that establishes the general

method for calculating emissions baselines. Id. at 80256/2, 80271/1, 80285/3 (40 C.F.R.

§§ 51.165(f)(6), 51.166(w)(6), 52.21(aa)(6)).27 That portion of the rule, in turn, provides

that the average emissions rate for the two-year period selected for the purpose of

calculating a baseline “shall include fugitive emissions to the extent quantifiable, and

emissions associated with startups, shutdowns, and malfunctions.” Id. at 80247/3,

27 See also 67 Fed. Reg. at 80248/1, 80263/3-64/1, 80278/3, (40 C.F.R. §§ 51.165(a)(1)(xxxv)(D), 51.166(b)(47)(iv), 52.21(b)(48)(iv)).

45

80263/3, 80278/2 (40 C.F.R. §§ 51.165(a)(1)(xxxv)(B)(1), 51.166(b)(47)(ii)(a),

52.21(b)(48)(ii)(a)).

Neither the 1996 notice nor the 1998 notice provided any indication that EPA was

considering a rule that would allow a source to include fugitive emissions, and emissions

from startups, shutdowns, and malfunctions, in the baseline used to set the PAL. The

grounds for the objections set forth below thus “arose after the period for public

comment.” 42 U.S.C. § 7607(d)(7)(B).

For the reasons set forth in Section II.A of this petition, this provision of the final

rule is “arbitrary, capricious, an abuse of discretion, [and] otherwise not in accordance

with law.” 42 U.S.C. § 7607(d)(9)(A). The invalidity of the provision renders the final

rule’s method of setting PALs unlawful. Petitioners’ objection to the provision is

therefore “of central relevance to the outcome of the rule.” 42. U.S.C. § 7607(d)(7)(B).

B. Claim That the Contemporaneity Requirement Does Not Apply

The preamble to the final rule announces EPA’s belief that “the concept of

contemporaneity, as articulated in Alabama Power and as set forth in the regulations

governing the major NSR program, does not apply to PALs.” 67 Fed. Reg. at 80215/3.

Neither the 1996 notice nor the 1998 notice gave any indication that EPA espoused – or

even was considering – a legal interpretation under which PALs would not be subject to

the contemporaneity requirement. In fact, EPA solicited comment in 1998 on the

maximum number of years that a PAL set using a ten-year look-back could remain in

effect before running afoul of the requirement that offsets be substantially

contemporaneous:

Having again reviewed Alabama Power and the Agency’s subsequent interpretations of the case, the Agency is

46

concerned that, because PAL’s may be characterized as a form of netting and result in the avoidance of major NSR, the contemporaneity requirement for netting set forth in Alabama Power may also need to be applied to PAL’s. Therefore, EPA is soliciting comment on whether and when to provide for subsequent adjustment of PAL’s to address contemporaneity issues associated with Alabama Power.

63 Fed. Reg. 39857, 39863/2 (July 24, 1998). Far from alerting the public that EPA

might read the Act to exempt PALs from the contemporaneity requirement, the agency’s

1998 solicitation was premised on an assumption that PALs were a form of the source-

wide NSR applicability analysis described in Alabama Power v. Costle, 636 F.2d 323,

401-02 (D.C. Cir. 1980). The grounds for the objections set forth below thus “arose after

the period for public comment.” 42 U.S.C. § 7607(d)(7)(B).

Section 111(a)(4) of the Clean Air Act defines “modification” as

any physical change in, or change in the method of operation of, a stationary source which increases the amount of any air pollutant emitted by such source or which results in the emission of any air pollutant not previously emitted.

42 U.S.C. § 7411(a)(4).

In Alabama Power, the court found that there were two possible ways to construe

Section 111(a)(4), and that only one of them conformed to the intent of Congress. 636

F.2d at 401. Pursuant to the one permissible construction, the owner or operator “look[s]

at any change proposed for a plant, and decide[s] whether the net effect of all the steps

involved in that change is to increase the emission of any air pollutant.” Id. (emphasis

added). In PSD areas, the court held that sources must be allowed to take credit for

reductions at the facility in assessing whether a change caused an NSR-triggering

47

increase, with the result that the permit process would be applied to facility modifications

that caused a net increase in pollution in the area.

The court in Alabama Power referred to the sole permissible application of

“increases,” described above, as the “‘bubble’ concept.” Id. The court allowed that

“[t]he Agency retains substantial discretion in applying the bubble concept.” Id. at 402.

It cautioned, however, that “any offset changes claimed by industry must be substantially

contemporaneous.” Id. This comports with the purposes of the modification provision,

as taking current credit for emissions reductions that happened in the distant past is not

really ensuring insignificant emissions increases from the change.28 While the court

believed EPA had discretion “to define which changes are substantially

contemporaneous,” it noted that the agency’s definition must remain “within reason.” Id.

at 402.

EPA’s approach for establishing a PAL, its 10-year duration for a PAL, and its

PAL renewal approach, separately and in conjunction with one another, are arbitrary and

an abuse of the agency’s discretion in applying the bubble concept and defining

substantial contemporaneity. EPA’s PAL runs afoul of the purposes of the PSD program

discussed in the Alabama Power decision. The court quoted some of these purposes,

which seek to “to assure that any decision to permit increased air pollution in any area to

which this section applies is made only after careful evaluation of all the consequences of

such a decision and after adequate procedural opportunities for informed public

participation in the decisionmaking process." Id. at 401 (citation omitted).

28 Cf. 40 CFR § 51.165(a)(3)(ii)(C)(1) (limiting creditability of emissions reductions that pre-date the most recent emissions inventory).

48

It is irrational and arbitrary to hold, as EPA does implicitly, that a PAL with a 10-

year period (and 17-year period and beyond, as discussed below) requires, or even

permits, “careful evaluation of all the consequences” of a decision to allow increased air

pollution in any PSD (or nonattainment NSR) area. Id. Any evaluation, much less

careful evaluation, of the actual air quality consequences in the air shed is not possible

where EPA’s PAL rests on the pretense and fiction that there has not even been a

pollution increase in the area from industrial changes. The design features of EPA’s PAL

allow industry to deny the reality of present pollution increases by claiming offsetting

changes that are not remotely contemporaneous with the pollution increase (applying any

ordinary and accepted use of the concept of contemporaneity), thereby denying the

possibility of the PSD program’s evaluation of pollution consequences.

Moreover, it is irrational and arbitrary to hold that such a PAL requires, or even

permits, “adequate procedural opportunities for informed public participation in the

decisionmaking process.” Id. Under EPA’s PAL, the public is not even being told that

establishment of a PAL is a decision to permit increased air pollution in the area;

throughout this rulemaking, EPA falsely holds out a PAL as an environmentally

beneficial instrument and a cap on pollution, not a decision to allow increases in actual

emissions above significance thresholds with the pollution control and air quality impacts

analysis called for by the statute. At any rate, it is perfectly possible as a practical matter

that following establishment of a PAL there may not even be increases in actual pollution

in the area immediately or even for several years.

As far as the offsetting changes claimed by industry are concerned, the public is

also denied the opportunity for informed participation in that decisionmaking, because

49

the relevant period for consideration may be as long ago as 10 years previously when

concerned members of the public were not present (were not even of age), were not

aware of any need to scrutinize emissions decreases at a plant, and likely had no

opportunity to do so anyway. Moreover, as discussed, below, the very concepts of

informed public participation and decisionmaking are irrational when applied to periods

of time spanning 10 and 17 and 27 years. The concept of an opportunity for public

participation in PSD decisionmaking, as intended by the purposes of the PSD program

and as understood in Alabama Power, is rendered meaningless by EPA’s PAL.

EPA’s 10-year concept of contemporaneity ignores and tramples upon both of the

statutory purposes of the PSD program discussed in the Alabama Power decision.

Indeed, EPA’s defense of the contemporaneity of its PAL does not even discuss or credit

these purposes. 67 FR at 80216. EPA invokes two altogether new and different policy

rationales that have no grounding in the statute and that conflict with and override the

statutory purposes discussed above.

First, EPA asserts that a 10-year period for a PAL is “practical and reasonable

both for you [meaning industry source operators] and the reviewing authority.” Calling

this reasonable is no reason; and “practicality” is no reason either to call a decade and

longer a “substantially contemporaneous” period. No doubt in the eyes of some in

industry, a 30-year period over which to deny the public the opportunity to participate in

decisionmaking concerning pollution increases in their community would be quite

practical. But EPA itself identifies a time period that is in fact more “practical,” to the

extent this has relevance, that corresponds to the 5-year period for a title V operating

permit, the very permit that EPA recommends that operators and reviewing authorities

50

issue or renew at the same time that a PAL is established. 67 FR at 80214/2. EPA

dismisses this period out of hand, on the grounds that a 5-year period is “too short,”

without explaining why it is not contemporaneous -- the relevant consideration.

Next, EPA invokes a second justification for considering a 10-year period

contemporaneous, this one also a reason with no grounding in the statute or the purposes

of the PSD and NSR programs: a “normal business cycle” that EPA contends stretches 10

years.29 As explained elsewhere in this petition, taking this study even on the terms

relied upon by EPA does not support the selection of a 10-year business cycle across all

industrial sectors covered by the PSD and NSR programs. The study itself refutes any

such claim. EPA’s language even hints at how the agency is playing fast and loose with

this report, noting that the “normal business cycle would be captured generally for any

industry.” Indeed; any industry with a business cycle less than 10 years would be

“captured” by this overly generous window, perhaps 2-4 times over. The report fails to

identify any industry with a business cycle greater than 10 years, a failure that is also true

for business cycles of 20 and 50 years.

What this justification reveals is that EPA has substituted for the concept of

substantial contemporaneity, and the statutory purposes of the PSD and NSR programs, a

policy rationale that is absent from the statute, overrides and undermines statutory

purposes, but is even unsupported by EPA’s own bare evidence.

Lost in these testaments to practicality and reasonableness for industry and

reviewing authorities, and solicitude for business cycles above all, are the public, air

29 See 67 FR at 80216/2 (citing Eastern Research Group, Inc., report on “Business Cycles in Major Emitting Source Industries”).

51

quality protections against actual pollution increases, impacts on Class I areas, adoption

of BACT and LAER, and the purposes of the PSD and NSR programs.

EPA’s PAL is also drastically at odds with the Alabama Power decision’s

illustration of permissible, contemporaneous bubbling. The example the court offered of

a project that comprised steps, or constituent changes, whose emissions impacts could be

“netted out” was the replacement of a unit at a plant. The permissible construction of

Section 111(a)(4) allowed the source owner to offset the emissions increase caused by

activating the replacement unit with the decrease caused by deactivating the replaced

unit. The only alternative way to construe Section 111(a)(4) was “never intended by

Congress,” in the court’s view, because it would prohibit a plant owner from offsetting

the emissions increase caused by activating the new unit with the identical emissions

decrease caused by the “abandonment of the old unit.” Id. In the court’s discussion, the

“netting” allowed concerned the multiple steps involved in a single project at a plant – all

performed contemporaneously.

In the preamble to the final rule, EPA characterizes a PAL as “a different means

of calculating an emissions increase.” 67 Fed. Reg. at 80216/1.30 The only “difference”

between EPA’s PAL and the source-wide applicability NSR analysis in Alabama Power –

the bubble concept governed by the contemporaneity requirement – is a difference

30 “[U]nder today’s PAL regulations, the inquiry begins and ends with the source. Your PAL represents source-wide baseline actual emissions. As such, it is the reference point for calculating increases in baseline actual emissions. If your source’s emissions will equal or exceed the PAL, then there will be an emissions increase at your source. There is no need to calculate increases and decreases at individual units. . . . While we believe that the principle of contemporaneity continues to be important for purposes of major NSR netting calculations, we do not believe that it is a necessary concept for purposes of PALs. This is because if your source has a PAL, you have accepted a different means of calculating an emissions increase for the PAL pollutant. The only relevant question is whether your source has reached or exceeded the PAL level.” 67 Fed. Reg. at 80216/1.

52

imagined and asserted by EPA in order to avoid being bound by the decision’s

contemporaneity limitation; that is, there is no difference.

If this “different means of calculating an emissions increase” is to accord with the

plain language of Section 111(a)(4) and the D.C. Circuit’s interpretation of that language

in Alabama Power, then EPA’s rule must allow nothing more than netting the emissions

impacts of all substantially contemporaneous steps involved in a change proposed for a

plant. See 636 F.2d at 401-02. EPA’s PAL rule allows much more, however.

By its terms, EPA’s rule effectively allows a pollution increase that would result

from a proposed change at a plant to be offset with a decrease that resulted from a drop in

utilization at some point after the two-year period selected by the plant owner for baseline

calculation purposes. The “look-back” period for baseline calculation spans ten years.

The term of the PALs authorized by EPA’s rule is also ten years. If the source owner

selects a two-year period from the beginning of the look-back period, and if the proposed

change occurs in the tenth year of the PAL, then the increase from that change is being

offset with a decrease that occurred as long as seventeen years earlier. If the PAL is

renewed at the same level without a re-calculation of the baseline,31 then the gulf between

the proposed change and the offsetting decrease could be twenty-seven years. If the PAL

is renewed in the same way again, the gulf could be thirty-seven years.

By allowing netting across such expanses of time, the final rule stretches the term

“substantially contemporaneous” past the breaking point.32 Moreover, EPA has provided

no factual support for the notion that a single plant project can span seventeen years or

31 See infra, Sections D, E. 32 An internal EPA document contained in the administrative record records the conclusion, by EPA’s own Office of the General Counsel, that “PAL must be based on reasonably contemporaneous period, which is more consistent with a 5-yr period.”

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more. EPA’s rule thus purports to authorize PALs that contravene the Clean Air Act’s

clear language and the D.C. Circuit’s holding in Alabama Power. The agency’s

promulgation of the rule therefore “arbitrary, capricious, an abuse of discretion, [and]

otherwise not in accordance with law.” 42 U.S.C. § 7607(d)(9)(A).33

Following the issuance of the final NSR rules, with their independent and

mutually contradictory theories for the lawfulness of the PAL advanced by EPA, the

agency abandoned the first unfounded theory – that PALs need not abide by the principle

of contemporaneity in Alabama Power. In “EPA’S Response to Emergency Motion for

Stay of the New Source Review Rule,” EPA admitted that “[a]nother aspect of the new

Rule, Plantwide Applicability Limits (“PALs”), is based on the “bubble” concept, which

has been approved by both this Court and the Supreme Court.” Docket No. 02-1387,

State of New York et al. v. U.S. EPA (D.C. Cir.) (Feb. 21, 2003), at 2. Later in this

filing, EPA points to the very passages in the Alabama Power decision that both identify

the bubble concept and make clear that this concept is governed by the substantial

contemporaneity requirement:

The Agency retains substantial discretion in applying the bubble concept. First, any offset changes claimed by industry must be substantially contemporaneous. The agency has discretion, within reason, to define which changes are substantially contemporaneous. Second, the offsetting changes must be within the same source, as defined by EPA.

33 Because it allows netting to occur over such long periods of time, the final rule is also not in accordance with Section 182(c)(6) of the Clean Air Act. That section requires than an increase in volatile organic compounds emissions be found “unless the increase in net emissions of such air pollutant from such source does not exceed 25 tons when aggregated with all other net increases in emissions from the source over any period of 5 consecutive calendar years which includes the calendar year in which such increase occurred.” 42 U.S.C. 7511a(c)(6). An internal EPA document contained in the administrative record memorializes the acknowledgment, of the agency’s own Office of the General Counsel, that the final PAL rule conflicts with Section 182(c)(6): “PAL in conflict with section 182(c)(6)? . . . OGC: Yes, is in conflict. Statute requires a 5-yr rolling aggregation of net increases.”

54

Alabama Power, 636 F.2d at 402; see “EPA’S Response to Emergency Motion for Stay

of the New Source Review Rule,” at 16. The only bubble concept approved In the

Alabama Power decision cited by EPA is one governed by the substantial

contemporaneity requirement. EPA does not and cannot claim otherwise in its recent

filing.

Petitioners’ objection to EPA’s misinterpretation of the Clean Air Act is “of

central relevance to the outcome of the rule,” 42. U.S.C. § 7607(d)(7)(B), in that a correct

reading of the Act reveals that the ten-year term of the PAL, the ten-year look-back used

in calculating the PAL, and the PAL renewal provisions, independently and in

combination, render the rule unlawful.

C. Allowing the Permitting Authority to Increase the PAL Before Expiration Without Requiring BACT at All Units

The final rule provides that if, during the term of a PAL, the owner wishes to add

new emissions units, or change existing ones, in a way that will cause the facility’s

emissions to equal or exceed its PAL, the owner may apply to raise the PAL to a level

that accommodates the emissions increase. 67 Fed. Reg. at 80257/3-58/1, 80272/3,

80287/2 (40 C.F.R. §§ 51.165(f)(11)(i)(A), 51.166(w)(11)(i)(a), 52.21(aa)(11)(i)(a)).

The rule allows the permitting authority to grant the application, and raise the PAL,

provided that the existing major emissions units not contributing to the increase are

“currently required to comply with a BACT or LAER requirement that was established

within the preceding 10 years.” Id. at 80258/1, 80272/3, 80287/2 (40 C.F.R. §§

51.165(f)(11)(i)(B), 51.166(w)(11)(i)(b), 52.21(aa)(11)(i)(b)).

Neither the 1996 notice nor the 1998 notice gave any indication that EPA was

considering including in the final rule a provision that would allow a facility, during the

55

term of a PAL, to emit the pollutant covered by the PAL at a level equal to or higher than

the PAL without performing a new BACT/LAER demonstration with respect to all major

units emitting that pollutant at the facility. The grounds for the objections set forth below

thus “arose after the period for public comment.” 42 U.S.C. § 7607(d)(7)(B).

As noted in Section B, above, the Clean Air Act defines “modification” as

any physical change in, or change in the method of operation of, a stationary source which increases the amount of any air pollutant emitted by such source or which results in the emission of any air pollutant not previously emitted.

42 U.S.C. § 7411(a)(4). In the preamble to the final rule, EPA asserts that once a PAL is

established, all of the equipment subject to the PAL becomes, collectively, the “source”

for the purposes of determining whether there is a “modification.” See 67 Fed. Reg. at

80216/1 (“Your PAL represents source-wide baseline actual emissions.”). According to

EPA, there is a “modification” (an emissions-increasing change) to the source if the PAL

level is met or exceeded. See id. at 80216/1 (“If your source’s emissions will equal or

exceed the PAL, then there will be an emissions increase at your source.”).

The portion of the final rule entitled, “Increasing a PAL during the PAL effective

period,” addresses a situation in which the owner plans to make a change that will “cause

the major stationary source’s emissions to equal or exceed its PAL.” Id. at 80258/1,

80272/3, 80287/2 (40 C.F.R. §§ 51.165(f)(11)(i)(A), 51.166(w)(11)(i)(a),

52.21(aa)(11)(i)(a)). According to the formulation EPA sets forth in the preamble, that

change will qualify as a modification of the source under Section 111(a)(4) of the Clean

Air Act. See id. at 80216/1. By virtue of Section 169(2)(C) of the Act, any change

meeting the definition of “modification” in Section 111(a)(4) qualifies as “construction,”

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as that term is used in Section 165(a). 42 U.S.C. § 7479(2)(C). Section 165(a), in turn,

requires a BACT demonstration for a source prior to its “construction.” 42 U.S.C. §

7475(a). EPA’s own description of the PAL rule’s legal basis leads to the conclusion,

then, that if an owner wants to change a source subject to a PAL in a way that will cause

the source’s emissions to meet or exceed the PAL, the owner must first demonstrate that

the modified source (i.e., all of the equipment subject to the PAL) will be subject to

BACT/LAER for the pollutant that is the subject of the PAL.

That is not, however, what EPA’s rule requires. The rule requires that the owner

obtain a “major NSR permit for all emissions unit(s)” contributing to the increase in

emissions of the PAL pollutant. 67 Fed. Reg. at 80258/1, 80273/1, 80287/2-3 (40 C.F.R.

§§ 51.165(f)(11)(i)(C), 51.166(w)(11)(i)(c), 52.21(aa)(11)(i)(c)). With respect to each

remaining major unit emitting the PAL pollutant at the source, the rule does not require a

new BACT analysis at the time the application is submitted as long as the unit is

“required to comply with a BACT or LAER requirement that was established within the

preceding 10 years.” Id. at 80258/1, 80272/3, 80287/2 (40 C.F.R. §§ 51.165(f)(11)(i)(B),

51.166(w)(11)(i)(b), 52.21(aa)(11)(i)(b)). In many instances, the emissions rates

associated with BACT and LAER at the source for the PAL pollutant will be

substantially lower at the time the owner submits an application for a PAL increase than

they were ten years earlier. Therefore, the effect of the rule is to require less than

BACT/LAER at the “source,” as EPA defines it, when the “source” is modified.

In attempting (unsuccessfully) to evade the contemporaneity requirement, the

agency insists that once a PAL is established, every unit at a plant becomes part of a

single “source,” as that term is used in Section 111(a)(4). But when the owner wants to

57

undertake a change at the plant that will cause an emissions increase over the PAL, EPA

insists, in effect, that the “source” comprises only those individual units contributing to

the increase. EPA cannot have it both ways. If the establishment of a PAL means that all

units subject to the PAL constitute part of a single “source,” then a change that will cause

a significant increase in emissions from the “source” subjects the “source” (i.e., all of its

constituent major units) to full pre-construction review.

In an unexplained departure from its prior regulations and proposed rule, EPA has

promulgated a rule that purports to allow less than a new BACT/LAER analysis for a

source when, according to the agency’s own logic, the source undergoes a

“modification,” as that term is defined in Section 111(a)(4) of the Clean Air Act. This

action is “arbitrary, capricious, an abuse of discretion, [and] otherwise not in accordance

with law.” 42 U.S.C. § 7607(d)(9)(A). Petitioners’ objection is “of central relevance to

the outcome of the rule,” 42 U.S.C. § 7607(d)(7)(B), in that the final rule will remain

unlawful as long as it purports to allow an owner to undergo a modification at a source

without conducting a new BACT/LAER analysis for the entire source.

D. Allowing the Permitting Authority to Renew the PAL at the Same Level, Without Regard for Other Factors, as Long as the Any-Two-in-Ten Baseline Calculation Method Yields a Number That is at Least Eighty Percent as High as the PAL

In the preamble to the 1996 proposed rule, EPA stated that the “need for

adjustments” to a PAL would arise in several situations, including “during periodic

review, consistent with the title V permit renewal process[,] of the appropriateness of

emissions levels set in the PAL.” 61 Fed. Reg. 38249, 38266/1 (July 23, 1996).34 In the

Notice of Availability published two years later, the agency proposed that PALs expire

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after ten years, 63 Fed. Reg. at 39863/3-64/1, and that, “[i]f the renewal option is chosen

by the source, the PAL baseline would be adjusted to reflect actual operating conditions

and emissions for the 10 years prior to renewal, consistent with the procedures for setting

a PAL.” Id. at 39865/1.

The final rule authorizes a permitting authority, when presented with an

application for PAL renewal, to renew the PAL at the same level without regard for air

quality needs, advances in control technology, or virtually any other factors35 as long as

the sum of the “baseline actual emissions” and the significant level is at least eighty

percent as high as the level of the PAL prior to renewal. 67 Fed. Reg. at 80209/3

(preamble); id. at 80257/3, 80272/2, 80287/1 (40 C.F.R. §§ 51.165(f)(10)(iv)(A),

51.166(w)(10)(iv)(a), 52.21(aa)(10)(iv)(a)). In other words, as long as the EPA-

prescribed baseline calculation method yields a figure at least eighty percent as high as

the pre-renewal PAL, the permitting authority may renew the PAL at the same level

without regard for “actual operating conditions and emissions for the 10 years prior to

renewal.” 63 Fed. Reg. at 34865/1.

The 1998 notice suggested that EPA might institute an “operating cushion” as a

means of tempering a proposed provision (absent from the final rule) that would have

mandated a downward adjustment where “long-term underutilization of capacity” had

caused a facility to emit at levels consistently lower than its PAL. 63 Fed. Reg. at

34 See also 61 Fed. Reg. at 38327/3, 38336/1, 38343/2 (40 C.F.R. §§ 51.165(a)(9)(v)(A), 51.166(u)(5)(i), 52.21(x)(5)(i)). 35 There are only two factors that the permitting authority must still consider: First, “[i]f the potential to emit of the major stationary source is less than the PAL, the reviewing authority shall adjust the PAL to a level no greater than the potential to emit of the source.” 67 Fed. Reg. at 80257/3, 80272/3, 80287/2 (40 C.F.R. §§ 51.165(f)(10)(iv)(C)(1), 51.166(w)(10)(iv)(c)(1), 52.21(aa)(10)(iv)(c)(1)). Second, “[i]f the compliance date for a State or Federal requirement that applies to the PAL source occurs during the PAL effective period, and if the reviewing authority has not already adjusted for such requirement, the

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39864/2-3. Neither the 1996 nor the 1998 notice gave any indication, however, that the

final rule would add such a cushion to a provision that merely allows a permitting

authority to consider factors, such as air quality needs and advances in control

technology, before renewing a PAL at the same level. See infra, Section E. The grounds

for the objections set forth below thus “arose after the period for public comment.” 42

U.S.C. § 7607(d)(7)(B).

The practical effect of this particular provision is to exacerbate the conflict

between the final PAL rule and Section 111(a)(4) of the Clean Air Act. Suppose that in

2010, a facility receives a PAL whose level is set at 1,000 tons/year, based on the

facility’s average utilization rate (and emissions from malfunctions, etc.) over the period,

2001-2002. Since 2002, the facility’s yearly emissions of the pollutant have dropped to

800 tons. Over the first two years of the PAL, the facility continues to emit the pollutant

at an average of 800 tons/year. In the third year, pressure from the surrounding

community induces the owner to reduce the incidence of malfunctions at the facility by

imposing improved work practices. As a result, the facility emits the pollutant at the

reduced rate of 700 tons/year in each of the six remaining years of the PAL. In the tenth

year of the PAL, the owner of the facility applies for a renewal. The owner selects the

period, 2011-2012 (the first two years of the PAL), as the basis for calculating the

facility’s emissions level during the term of the PAL. That calculation yields an

emissions level of 800 tons/year. Pursuant to the final rule provision described in the

preceding paragraphs, the permitting authority renews the PAL without lowering it, i.e.,

at the level of 1,000 tons/year. In 2029 – the final year of the renewed PAL – the owner

PAL shall be adjusted at the time of PAL permit renewal or title V permit renewal, whichever occurs first.” Id. at 80257/3, 80272/3, 80287/2 (40 C.F.R. §§ 51.165(f)(10)(v), 51.166(w)(10)(v), 52.21(aa)(10)(v)).

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decides to make a physical change at one of the facility’s units. Even if that change to a

single unit will cause the facility’s total yearly emissions to jump from 700 tons to 999

tons, the facility owner will not need to treat the change as a “modification” requiring a

pre-construction permit, because the change will not cause the facility to hit its renewed

PAL.

The final rule thus enables an owner to offset a large emissions increase (299

tons/year in the example above) that occurs late in the renewed PAL term (2029 in the

example) with two decreases that occurred, respectively, seventeen years and as much as

twenty-seven years earlier. EPA does not even attempt to explain how the prolonged

netting periods permitted by this particular provision in the renewal portion of the final

PAL rule comport with the definition of “modification” in Section 111(a)(4) of the Clean

Air Act or satisfy the contemporaneity requirement articulated in Alabama Power. The

agency’s silence is not surprising, for changes separated in time by twenty-seven years

cannot possibly be deemed substantially contemporaneous steps in a single plant project.

This provision of the final PAL rule grates against the purposes of the Clean Air

in a particularly jarring way. As EPA acknowledges in its response to comments, one of

the primary purposes of the Act’s prevention of significant deterioration and new source

review provisions is “to ensure that air quality is not significantly degraded in areas

attaining the NAAQS and to ensure that new emissions do not interfere with a State’s

ability to meet the NAAQS in nonattainment areas.” Final Rule TSD, Chapter 4, “Late

Comments on PALs,” Section 4. The final PAL rule subverts this purpose by enabling a

permitting authority to renew a PAL at the same level irrespective of whether the

emissions that the renewed PAL permits above the facility’s actual emissions (as much as

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twenty percent above actual emissions, according to EPA’s calculation method) will

significantly degrade air quality in an attainment area or interfere with a state’s ability to

meet the NAAQS in a nonattainment area.

EPA claims that “mandating an adjustment at renewal, based solely on current

operations and emissions levels, would discourage the voluntary emissions reductions the

PAL is specifically designed to encourage.” Final Rule TSD, Chapter 8, “1998 PAL

Comments,” Section 11. This assertion fails to explain why EPA allows a permitting

authority to renew a PAL at the same level without regard for air quality needs, advances

in control technology, and the facility’s actual emissions, as long as the EPA-prescribed

baseline calculation method yields a figure at least eighty percent as high as the pre-

renewal PAL. After all, other provisions of the final rule already enable the owner of a

facility to ensure that voluntary emissions reductions will not preclude renewal of the

PAL at the same level. If the owner voluntarily reduces the facility’s emissions in the

third year of a PAL, it can prevent that reduction from necessitating a PAL reduction at

renewal by selecting the first two years of the original PAL as the period to be used in

calculating “actual” emissions. If the voluntary emissions reduction occurred during the

first two years of the PAL, and the facility’s emissions have remained at the reduced level

for the remainder of the PAL’s term, then according to the calculation method EPA has

selected, the reduced level represents the facility’s “actual” emissions level, and the PAL

should only be renewed at that level. Far from encouraging voluntary emissions

reductions, EPA’s rule actually encourages an owner to maintain the facility’s emissions

at a level that is at least eighty percent as high as the PAL in order to facilitate renewal at

the same level. In essence, EPA has created a dirtier version of the disincentive that the

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agency accuses the traditional NSR process of presenting, allowing a dirtier outcome than

would be allowed if EPA’s PAL were contemporaneous and renewed appropriately.

Finally, EPA has offered no reason for promulgating an “operating cushion” of

this particular magnitude. Nothing in the preamble or response to comments explains

why EPA selected eighty as the cut-off percentage, rather than eighty-five, ninety, or

ninety-five. The administrative record contains no basis whatsoever for EPA’s selection.

For the reasons stated above, this particular provision of the final PAL rule is

“arbitrary, capricious, an abuse of discretion, [and] otherwise not in accordance with

law.” 42 U.S.C. § 7607(d)(9)(A).36 Petitioners’ objection to the provision is “of central

relevance to the outcome of the rule,” 42 U.S.C. § 7607(d)(7)(B), in that the final rule

will remain unlawful as long as it contains the provision.

E. Allowing the Permitting Authority to Renew the PAL Without Lowering it to Reflect Air Quality Needs, Advances in Control Technology, or the Facility’s Actual Emissions.

In the preamble to the final rule, EPA declares that “allow[ing] a PAL to be

renewed without any evaluation of the appropriateness of the current PAL level . . .

would be contrary to the Act, and contrary to the court’s decision in WEPCO v. Reilly,

893 F.2d 901, 908 (7th Cir. 1990).” 67 Fed. Reg. at 80219/3. EPA goes on to place

particular emphasis on the WEPCO decision’s recognition that Congress intended the

new source review provisions of the Clean Air Act to be “technology-forcing”:

The legislative history suggests and courts have recognized that in passing the Clean Air Act Amendments, Congress

36 In terms of the volume of air pollution released into the atmosphere, the impact of EPA’s departure from its prior regulations is dramatic. EPA’s own Office of the General Counsel said as much in an internal agency discussion, which is memorialized in a document contained in the administrative record: “A PAL with no adjustments [is] not comparable to current system, citing industry study showing that current system results in loss of 32% of allowable emissions every 10 yrs.”

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intended to stimulate the advancement of pollution control technology.

WEPCO v. Reilly, 893 F.2d at 909. See 67 Fed. Reg. at 80219/3-20/1.

EPA’s declaration in the preamble stands in stark contrast to the text of the final

rule, which allows a permitting authority to renew a PAL without adjusting it to account

for advances in control technology. While the rule provides that a permitting authority

may adjust a PAL at renewal to reflect advances in control technology and other factors,

it does not require a permitting authority to do so:

The reviewing authority may set the PAL at a level that it determines to be more representative of the source’s baseline actual emissions, or that it determines to be appropriate considering air quality needs, advances in control technology, anticipated economic growth in the area, desire to reward or encourage the source’s voluntary emissions reductions, or other factors as specifically identified by the reviewing authority in its written rationale.

Id. at 80257/3, 80272/2, 80287/1 (40 C.F.R. §§ 51.165(f)(10)(iv)(B),

51.166(w)(10)(iv)(b), 52.21(aa)(10)(iv)(b)).37

Neither the 1996 notice nor the 1998 notice gave any indication that EPA might

embrace the WEPCO decision at the same time that it promulgated a provision allowing a

permitting authority to renew a PAL without adjusting it to account for advances in

control technology, etc. Nor did EPA propose or seek comment on the specific factors

repeated in the passage above.

As late as January 2001, in fact, EPA assured stakeholders of the agency’s belief

that “facility owners that use PALs must commit to install best controls over time to gain

37 As noted in Section D, above, the rule requires a downward adjustment of the PAL at renewal in only two situations: (1) where the facility’s potential to emit is lower than the PAL and (2) where the authority has not already adjusted the PAL to comport with state or federal emissions requirements

64

this flexibility and certainty.” Assistant EPA Administrator Robert Perciasepe, “Status of

the New Source Review Improvement Rulemaking,” January 19, 2001, at 2. From a

review of the interagency communications contained in the administrative record, it

appears that, as late as October 2002, the draft rule required permitting authorities to

consider advances in control technology, etc., before renewing a PAL at the same level.

On October 16, however, the provision in question took on its present form when an

official at the White House’s Office of Management and Budget changed the word

“shall” to “may.” See Document No. IV-H-9, EPA Air Docket No. A-90-37. On

October 29, 2002, the same White House official changed the preamble of the rule to

reflect the new, permissive character of the provision. See Document No. IV-H-30, EPA

Air Docket No. A-90-37, at 24. The grounds for the objections set forth below thus

“arose after the period for public comment.” 42 U.S.C. § 7607(d)(7)(B).

Like the provision discussed in Section D, above, the provision at issue here

exacerbates the conflict between the final PAL rule and the contemporaneity requirement

articulated in Alabama Power. Suppose that in 2010, a facility receives a PAL whose

level is set at 1,000 tons/year, based on the facility’s average utilization rate (and

emissions from malfunctions, etc.) over the period, 2001-2002. Since 2002, the facility’s

yearly emissions of the pollutant have dropped to 600 tons. During the term of the PAL,

a vendor begins offering new add-on emissions control equipment that would control the

pollutant in question much more effectively than the equipment currently in use at the

facility. Also during the term of the PAL, EPA changes the status of the area containing

the facility from “attainment” to “nonattainment” of the national ambient air quality

imposed since the PAL was set. 67 Fed. Reg. at 80257/3, 80272/3, 80287/2 (40 C.F.R. §§ 51.165(f)(10)(iv)(C)(1), (v); 51.166(w)(10)(iv)(c)(1), (v); 52.21(aa)(10)(iv)(c)(1), (v)).

65

standard for the pollutant in question. In the tenth year of the PAL, the owner of the

facility applies for a renewal. The final rule permits the permitting authority to renew the

PAL at the same level (1,000 tons/year) even though (1) the facility’s actual yearly

emissions have been 600 tons for well over a decade, (2) the market now offers more

effective control technology for the pollutant in question, and (3) the air quality of the

area containing the facility has fallen into nonattainment of the national standard since

the PAL was first set. The owner of this facility then decides in 2029 – the final year of

the renewed PAL – to make a physical change at one of the facility’s units. Even if that

change to a single unit will cause the facility’s total yearly emissions to jump from 600

tons to 999 tons, the facility owner will not need to treat the change as a “modification”

requiring a pre-construction permit, because the change will not cause the facility to hit

its renewed PAL.

The final rule thus enables an owner to offset a large emissions increase (399

tons/year in the example above) that occurs in the renewed PAL term (2029 in the

example) with a decrease that occurred as much as twenty-seven years earlier. Nowhere

in the preamble or the response to public comments does EPA even attempt to explain

how the prolonged netting periods permitted by this particular provision in the PAL

renewal portion of the final PAL rule comports with the clear language of Section

111(a)(4) of the Clean Air Act or the statutory interpretation that EPA itself embraces in

the preamble’s discussion of the WEPCO decision.38 The agency’s silence is not

surprising, for changes separated in time by twenty-seven years cannot possibly be

deemed substantially contemporaneous steps in a single plant project, and “allow[ing] a

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PAL to be renewed without any evaluation of the appropriateness of the current PAL

level” is, as EPA acknowledges in the preamble, “contrary to the Act, and contrary to the

court’s decision in WEPCO v. Reilly, 893 F.2d 901, 908 (7th Cir. 1990).” 67 Fed. Reg. at

80219/3.39 Therefore, this particular provision of the final rule is not only arbitrary,

capricious, and otherwise in conflict with the law as an unexplained departure from

EPA’s prior regulations and proposed rule, but also arbitrary as an unexplained

contravention of a legal interpretation that appears in the preamble to the final rule itself.

See 42 U.S.C. §7607(d)(9)(A). Because it conflicts with the WEPCO holding that EPA

purports to embrace, and because it fails to restrain a permitting authority from renewing

a PAL at the same level where doing so will cause a violation of the Clean Air Act, the

provision is also an abuse of the agency’s discretion to interpret the Act. See id.

Petitioners’ objection to the provision is “of central relevance to the outcome of the rule,”

42 U.S.C. § 7607(d)(7)(B), in that the final rule will remain unlawful as long as it allows

a permitting authority to renew a PAL without adjusting its level downward to reflect air

quality needs, advances in control technology, and the facility’s actual emissions in the

decade prior to renewal.

F. Padding the PAL With Emissions From Units on Which Actual Construction Did Not Begin Until After the End of the Two-Year Period Selected for Calculating the Baseline

The PAL portion of the final rule provides that, in calculating the level of the

PAL, “[e]missions from units on which actual construction began after the 24-month

38 The “Flexible Implementation Review Initiative Report” cited by EPA does not even assert that the adsvancement of more effective control technology occurred at any of the examined facilities as a result of their PAL-like permits. 39 An internal EPA document contained in the administrative record records the acknowledgment, by the agency’s own Office of the General Counsel, that the renewal provisions in the final PAL rule are legally infirm: “OGC: Concerned that current factors have no relationship with air quality and are hard to justify from a legal perspective.”

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period must be added to the PAL level in an amount equal to the potential to emit of the

units.” 67 Fed. Reg. at 80218/2 (preamble); id. at 80256/2, 80271/2, 80285/3 (40 C.F.R.

§§ 51.165(f)(6), 51.166(w)(6), 52.21(aa)(6)). Neither the 1996 notice nor the 1998 notice

gave any indication that the final PAL rule might include such a provision. The grounds

for the objections set forth below thus “arose after the period for public comment.” 42

U.S.C. § 7607(d)(7)(B).

EPA has offered no reason for promulgating this particular provision. It cannot

be explained as a necessary means of enabling the owner to ensure that the PAL reflects

normal emissions from all of the facility’s units, for other provisions of the final rule give

the owner complete discretion, in calculating the facility’s baseline actual emissions for

PAL-setting purposes, to select any two-year period from the decade preceding

establishment of the PAL. If an owner applying for a PAL wants its level to reflect the

operation of units recently constructed at the facility, the owner can accomplish that

result by selecting the two years immediately preceding PAL establishment as the

baseline calculation period.

Supplementing this discretion with the provision in question simply hands the

owner a windfall. Specifically, it enables the owner to select the two-year period of

highest facility utilization, even if that period is not representative of normal source

operations (in that it ended before the construction of new units currently in operation),

and then add the potential to emit of each of the new units. The provision thus makes it

easier for an owner to evade pre-construction review in circumstances where Section

111(a)(4) of the Clean Air Act requires it.

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EPA has also failed to offer any reason for requiring that the potential to emit of a

facility’s new units, rather than the actual emissions of those units, be added to the

baseline. The scope of the provision is not limited to a unit that began operating only a

very short time before establishment of the PAL. Rather, it applies to a unit that began

operating any time after the close of the two-year baseline calculation period selected by

the owner. If a new unit was constructed seven years prior to PAL establishment, and the

owner selects a two-year baseline calculation period that ended eight years previously,

the owner will be able to pad the PAL with the unit’s emissions potential even if the

unit’s actual yearly emissions over the previous seven years were consistently and

substantially lower than that potential. Thus, the “potential to emit” language of this

particular provision of the final PAL rule facilitates the calculation of baselines that

exceed facilities’ actual emissions. This is an additional respect, then, in which the

provision in question contravenes Section 111(a)(4).

Finally, allowing a PAL to be based even in part on potential to emit allows a

source to net out actual emissions increases with fictitious (non-actual) emissions

reductions, in contravention of the principle – underlying the Alabama Power decision

and stated explicitly by EPA in the preamble to its 1980 PSD regulations – that NSR

applicability is based on actual emissions. Moreover, this would allow a source to create

offsets by reducing only its potential to emit, in violation of Clean Air Act requirements

specifying that offsets must be actual emissions. CAA § 173(c).

This unexplained provision added to the rule after the public comment period is

thus “arbitrary, capricious, an abuse of discretion, [and] otherwise not in accordance with

law.” 42 U.S.C. § 7607(d)(9)(A). The final rule will be unlawful as long as it contains

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this provision. Petitioners’ objection to the provision is therefore “of central relevance to

the outcome of the rule.” 42 U.S.C. § 7607(d)(7)(B).

G. Monitoring, Record Keeping, and Reporting Requirements

Nearly one third of the text of the final PAL rule is comprised of monitoring,

record keeping, and reporting requirements purportedly intended “to ensure that the PAL

limits are enforceable as a practical matter.” 67 Fed. Reg. at 80221/2. See id. at

80258/2-59/3, 80273/1-74/2, 80287/3-89/3 (40 C.F.R. §§ 51.165(f)(12)-(14),

51.166(w)(12)-(14), 52.21(v)(12)-(14)). Neither the 1996 notice nor the 1998 notice set

forth any of those provisions in proposed form. In fact, neither notice contained any

language soliciting comment on, or even discussing, measures that might be required in

order to ensure that a facility’s emissions remained below the level of its PAL. The


comment.” 42 U.S.C. § 7607(d)(7)(B).

In the preamble to the final rule, EPA writes that in the absence of a PAL, the

owner need not measure the actual emissions level of each unit. Rather, it need only

monitor emissions from the units that are subject to limits. Moreover, the monitoring of

those units need not determine their actual emissions. For each such unit, the monitoring

need only determine whether emissions are in excess of the unit’s limit. 67 Fed. Reg. at

80211/1-2. Under a PAL, by contrast, the monitoring must be precise enough to

determine the actual level of each unit’s emissions, for each month the owner must

accurately determine whether the sum of all of the units’ emissions has hit or exceeded

the plant’s PAL. Id. In the preamble, EPA acknowledges that, for a PAL to be

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enforceable as a practical matter, monitoring must be superior to that which is generally

required in the absence of a PAL:

[I]t becomes necessary to require monitoring that quantifies the emissions from each emissions unit to ensure that the annual limit is enforceable as a practical matter. As a result, the monitoring requirements for emissions units under a PAL may be more stringent than for those emissions units not under a PAL. In many instances, your emissions units may have monitoring suitable for determining compliance with a unit-specific emission limitation on a periodic basis, in accordance with title V requirements, but that monitoring frequency of data collection may not be appropriate for ongoing emissions quantification for a 12-month rolling total. Thus, even if your emissions unit’s monitoring meets the title V requirements in §§ 70.6(a)(3)(i)(B) or 70.6(c)(1), you must upgrade that monitoring if you request a PAL and the existing monitoring does not meet the minimum requirements of the PAL regulations.

Id. at 80211/2.

Despite EPA’s acknowledgment in the preamble that a PAL necessitates superior

monitoring, the final rule does nothing to ensure that monitoring under a PAL will be

more precise than monitoring generally is in the absence of a PAL. Paragraph

(f)(12)(i)(B) of the PAL rule’s monitoring section declares that a facility’s PAL

monitoring system must employ one or more of the following approaches: (1) mass

balance calculations (for activities using coatings or solvents), (2) CEMS, (3) CPMS or

PEMS, or (4) emissions factors. 67 Fed. Reg. at 80258/2, 80273/1-2, 80287/3-88/1 (40

C.F.R. §§ 51.165(f)(12)(i)(B), 51.166(w)(12)(i)(b), 52.21(aa)((12)(i)(b)). The

immediately following paragraph provides, however, that “[n]otwithstanding paragraph

(f)(12)(i)(B) of this section, you may also employ an alternative monitoring approach that

meets paragraph (f)(12)(i)(A) of this section, if approved by the reviewing authority.” Id.

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at 80258/2, 80273/1-2, 80287/3-88/1 (40 C.F.R. §§ 51.165(f)(12)(i)(C), (D);

51.166(w)(12)(i)(c), (d); 52.21(aa)((12)(i)(c)). For its part, paragraph (f)(12)(i)(A) states

that “[e]ach PAL permit must contain enforceable requirements for the monitoring

system that accurately determines plantwide emissions of the PAL pollutant in terms of

mass per unit of time,” and that “[a]ny monitoring system authorized for use in the PAL

permit must be based on sound science and meet generally acceptable scientific

procedures for data quality and manipulation.” Id. at 80258/2, 80273/1-2, 80287/3-88/1

(40 C.F.R. §§ 51.165(f)(12)(i)(A), 51.166(w)(12)(i)(a), 52.21(aa)((12)(i)(a)). Taken

together, these provisions have the affect of allowing a permitting authority to approve

any PAL monitoring approach that the authority deems accurate and scientifically sound.

None of the language in the final rule places any limits on the discretion of a permitting

authority to find that a monitoring system proposed by an owner meets the requirements

of paragraph (f)(12)(i)(A).

The preamble states that “[i]n lieu of the permit requiring maximum potential

emissions during periods when there is no monitoring data, you may propose another

alternate monitoring approach as a backup.” Id. at 80213/2. In other words, an owner

can continue to enjoy the benefits of a PAL during periods in which it has no monitoring

data for any of the equipment subject to the PAL, as long as the owner and the permitting

authority have agreed upon some “alternate monitoring approach.” EPA does not explain

how any monitoring system can exist in the absence of any monitoring data. The agency

does caution that “[t]his backup monitoring . . . must still meet the minimum

requirements for the monitoring approaches prescribed in the regulation.” Id. Since the

rule places no check on a permitting authority’s discretion to find those requirements

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satisfied, however, EPA’s caution does nothing to ensure that sources will not spend

substantial periods of time operating at unknown emissions levels while enjoying an

exemption from the requirements of pre-construction review.

EPA’s response to public comment announces to plant owners that the agency is

“allowing you to propose other types of emissions monitoring quantification systems,

depending upon such factors as the size category of the emissions unit and its margin of

compliance.” Final Rule TSD, Chapter 7, “1996 PALs,” Section 12. This statement can

only be interpreted as a signal to permitting authorities that they should feel free to allow

owners to institute less precise and accurate monitoring systems on smaller units and on

those with wider compliance margins. As discussed below, this arbitrary view is

imported directly into the rule language. See, e.g., Section I.G.1 (Emissions Factors).

EPA offers no reason for allowing the monitoring standard to vary with the size

and compliance margins of the monitored units. Nor are there sound or defensible

reasons. Emissions from small units need to be quantified just as accurately and reliably

as emissions from larger units to ensure the proper and lawful operation of the PAL that

EPA allows. Obviously these emissions are critical to the ongoing plantwide calculation

of emissions as much as emissions from larger units. The emissions from small units in

the aggregate can equal or exceed emissions from one or more of what EPA calls

“significant” or “major” units. Indeed it is arbitrary even within the terms of EPA’s own

logic to fail to require accurate “emissions monitoring quantification systems” for

aggregated emissions from smaller units, while requiring such accuracy for larger units

whose emissions may be equaled or exceeded by the aggregated emissions.

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The allowance for less accurate or inaccurate emissions quantification systems

depending upon a unit’s “margin of compliance” suffers from similar failings. First, as

with the size of a unit, EPA never proposed to allow a unit’s margin of compliance to be

a controlling – or even relevant – consideration in the fact or accuracy of monitoring

capable of quantifying emissions. EPA never even defines or explains the important

concept of a “margin of compliance,” which is to say the final rules fail to explain what

degree of margin between compliance and noncompliance is relevant; how this is to be

known; how it is to be applied once it is known; what the process is in case of

fundamental disagreement between a source operator or regulator or member of the

public. These unknowns abound, of course, because EPA introduces a mere concept in

the final rules for the first time, without having provided the public an opportunity to

comment on one of the two essential considerations that allows operators and a state or

local agency to accept something less than the reliable data provided by a CEMS, for

example.

The fundamental flaw here lies in the lack of any reasonable or logical nexus

between a unit’s margin of compliance and what EPA recognizes to be the critical and

necessary function of PAL monitoring -- accurate emissions quantification, the ability to

measure “actual unit emissions. . . to provide a 12-month rolling total,” and to compare

those emissions against the PAL. 67 FR at 80221/3. In fact, a unit’s margin of

compliance really only has any reasonable bearing on the non-quantified, compliance

margin-based approach of EPA’s compliance assurance monitoring rule at 40 CFR part

64. This approach, as EPA has recognized, is rooted in indicator ranges, “reasonable

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assurance of compliance,” and a mere “credible relationship between parameter

monitoring and actual emissions” –- all concerns directed at margin of compliance.40

These approaches stand in stark contrast to the monitoring methods required to

achieve accurate emissions quantification for a PAL.41 Indeed, EPA contrasts monitoring

required to quantify emissions for a PAL with the compliance margin-based monitoring

approaches of CAM and part 70, which do not necessarily quantify emissions or even

directly determine continuous compliance with applicable requirements. See 67 FR at

80221/3. This demonstrates that not only is “margin of compliance” an arbitrary and

improper basis for allowing “other types of monitoring systems to be used,” id., EPA’s

own statements and experience demonstrate that this is the case.

H. Emissions Factors

EPA’s final rules arbitrarily and unlawfully allow emissions factors to be

employed as monitoring requirements for PALs. See, e.g., § 52.21(aa)(12)(vi). EPA

failed to propose allowance of emissions factors for PAL monitoring requirements. EPA

failed to propose rule language or even concepts for the specific requirements that

emissions factors must meet in order to be used for PAL monitoring. Finally, the rule

provisions and justifications that EPA offers to allow such use are unsupported in the

40 See, e.g., 62 FR 54900, 54902 (Oct. 22, 1997) (describing CAM as “monitoring for the purpose of: (1) Documenting continued operation of the control measures within ranges of specified indicators of performance (such as emissions, control device parameters and process parameters) that are designed to provide a reasonable assurance of compliance with applicable requirements; (2) indicating any excursions from these ranges; and (3) responding to the data so that excursions are corrected.”); id. at 54925 (“State and local agency commenters noted that a demonstration of a credible relationship between parameter monitoring and actual emissions was primary in determining a reasonable assurance of compliance. These agency commenters also listed reliability of monitoring, margin of compliance, and potential emissions variability as elements to consider in such a demonstration.”) 41 See, e.g., 67 FR at 80221/3 (“In fact, we find that not only monitoring, recordkeeping, and reporting requirements, but also emissions testing requirements, for emissions units subject to a PAL differ from other MRRT in one important aspect: actual unit emissions must be measured to provide a 12-month rolling total, and compared against a limit. Currently, many emissions units are required only to have MRRT suitable for initial or spot checks on emissions concentrations, not emissions quantification.”).

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administrative record, contrary to law, and arbitrary in light of the agency’s own previous

statements and experience.

EPA’s own publications demonstrate that emissions factors are not remotely up to

this task of quantifying emissions accurately in an ongoing manner for perhaps of

monitoring the emissions under a PAL. In fact, EPA recommends against the very usage

allowed by the final NSR rules:

Use of these factors as source-specific permit limits and/or as emission regulation compliance determinations is not recommended by EPA. Because emission factors essentially represent an average of a range of emission rates, approximately half of the subject sources will have emission rates greater than the emission factor and the other half will have emission rates less than the factor. As such, a permit limit using an AP-42 emission factor would result in half of the sources being in noncompliance.42

This recognition by EPA is echoed in numerous other Agency materials.43

These materials make clear that use of emissions factors in the manner allowed by

EPA Emissions factors cannot accurately, consistently and reliably quantify and

determine pollutants in terms of mass per unit of time at the multitude of emissions units

and source categories for which EPA categorically allows their use.; and demonstrates

42 Compilation of Air Pollutant Emission Factors, AP-42, Fifth Edition, Volume I: Stationary Point and Area Sources, Introduction, at 2 (“AP-42”). See http://www.epa.gov/ttn/chief/ap42/index.html, 43 As EPA is aware, the Office of Inspector General has designated the Office of Air and Radiation’s emission factor development program “a significant weakness that impedes achievement of major air program goals and is, therefore, a material weakness under the Federal Managers' Financial Integrity Act (FMFIA).” Emission Factor Development, EPA OIG Report No. 6100318 (Sept. 30, 1996); see also The Effectiveness and Efficiency of EPA’s Air Program, EPA OIG Report No. E1KAE4-05-0246-8100057, at 6, 33-35 (Feb. 27, 1998). This latter report has noted that emissions factors are unavailable for many sources of air pollution, and those that are available are often unreliable. Id. at 34. The report notes further that without reliable emission factors, OAR and the states cannot be sure that proper emission limits are established and that air permitting programs are effective, in which case “the nation’s air quality could be adversely affected and people could be subjected to the health hazards associated with excessive exposure to air pollutants.” Id. at 35; see also “Emission Factor Development,” EPA Office of Inspector General, Southern Audit Division, Report No. 6100318 (09/30/96). We hereby incorporate by reference the criticisms and discussions concerning emissions factors from the reports identified above.

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http://www.epa.gov/ttn/chief/ap42/index.html

that usage of emissions factors in the manner allowed by the final rules is arbitrary. EPA

does not even bother attempting the showing that would be necessary to justify such use,

perhaps out of recognition of the complexity and difficulty of making a defensible

showing. Indeed, EPA did not even propose or seek comment on such use, propose to

make this showing, or provide justification and supportive materials in the final

administrative record even if the agency had taken these actions. EPA fails to provide

any evidence in the administrative record supporting validity or accuracy of any of its

emissions factors for the identified purposes; it is arbitrary to allow this use for any and

all emissions factors.

EPA’s allowance of emissions factors for PAL monitoring in the manner

authorized by the final rules contradicts its own consistent prior statements against such

use. Some of the reasons for this are reinforced by AP-42 itself:

An emission factor is a representative value that attempts to relate the quantity of a pollutant released to the atmosphere with an activity associated with the release of that pollutant. These factors are usually expressed as the weight of pollutant divided by a unit weight, volume, distance, or duration of the activity emitting the pollutant (e. g., kilograms of particulate emitted per megagram of coal burned). Such factors facilitate estimation of emissions from various sources of air pollution. In most cases, these factors are simply averages of all available data of acceptable quality, and are generally assumed to be representative of long-term averages for all facilities in the source category (i. e., a population average). . . . .

The extent of completeness and detail of the emissions information in AP-42 is determined by the information available from published references. Emissions from some processes are better documented than others. For example, several emission factors may be listed for the production of one substance: one factor for each of a number of steps in the production process such as neutralization, drying, distillation, and other operations.

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However, because of less extensive information, only one emission factor may be given for production facility releases for another substance, though emissions are probably produced during several intermediate steps. There may be more than one emission factor for the production of a certain substance because differing production processes may exist, or because different control devices may be used. Therefore, it is necessary to look at more than just the emission factor for a particular application and to observe details in the text and in table footnotes.

AP-42, Introduction at 1-2. As noted earlier, EPA’s Inspector General reports amplify

upon similar warnings, and even more fundamental flaws, at considerable length. See

supra, note 42. EPA fails to explain or justify its departure from earlier positions, and

fails to explain or even raise the multitude of problems with emissions factors for direct

emissions quantification purposes.

The final NSR rules set forth three requirements that emissions factors must meet

in order to qualify as acceptable PAL monitoring. First, “[a]ll emission factors shall be

adjusted, if appropriate, to account for the degree of uncertainty or limitations in the

factors' development.” 40 C.F.R. § 51.166(w)(12)(vi). EPA’s rule arbitrarily fails to

indicate how operators, reviewing authorities or the public are supposed to “adjust”

emissions factors “to account for the degree of uncertainty or limitations in the factors’

development.” Id. Moreover, EPA’s rule arbitrarily fails to define when it is

“appropriate” – or inappropriate and unnecessary – to adjust an emissions factor. Nor

does EPA indicate or define what it means by “uncertainty or limitations in the factors'

development,” or point out that it is EPA that develops the uncertain factors.

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An earlier draft guidance document issued by EPA in August of 2000 previously

had suggested adjustment by a factor of two for all emissions factors,44 providing a very

revealing justification for such adjustment: “to avoid future compliance issues.” Draft

Guidance at 39. Equally revealingly, the EPA warned that “By using emission factors,

the source assumes the risk that the factors may be erroneous.” Adjustment by a factor of

two is a startling statement by EPA about the significant room for error in the

methodology that this document – and now the final NSR rules -- would allow to

quantify emissions “accurately” under a PAL. Of course, such an adjustment does not

render emissions factors any more capable of quantifying emissions accurately; it simply

reflects an implicit acknowledgment of the arbitrariness of allowing such averages

without site-specific information, and a shifting – but not correction – of the inherent

error of such use.

In discussing the euphemism of “compliance issues,” what EPA was suggesting

and implicitly acknowledging is that the use of emissions factors, which the final NSR

rules accept as an accurate quantification method, will result in significant error and

serious risk of noncompliance by sources. For those that recognize emissions factors to

be nothing more than averages, this outcome is perhaps unsurprising. But it is no less

arbitrary for the final NSR rules to allow their use in light of this longstanding,

unrebutted awareness. What EPA referred to euphemistically as “compliance issues” –

and what the final NSR rules would allow -- is excess air pollution for the public.

The final NSR rules establish the second requirement for emissions factors:

44 See “Draft Guidance on Design of Flexible Air Permits” (White Paper 3 or Draft Guidance), noticed in the Federal Register on August 15, 2000. (65 FR 49803). As far as we are aware, EPA has abandoned this ill-fated guidance effort, following strong protest from the public.

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If technically practicable, the owner or operator of a significant emissions unit that relies on an emission factor to calculate PAL pollutant emissions shall conduct validation testing to determine a site-specific emission factor within 6 months of PAL permit issuance, unless the reviewing authority determines that testing is not required.

40 C.F.R. § 51.166(w)(12)(vi)(C). Again, EPA failed to propose any of this language or

even the specific concepts. Moreover, it is arbitrary and unfounded to allow significant

emissions unit to escape validation testing of emissions factors if technically

“impracticable”; technical impracticability is not a reasonable or lawful basis for

allowing inaccurate quantification methods. For the reasons noted above, emissions

factors are just as likely to be inaccurate as accurate, and allowing emissions factors at

specific units to escape validation testing will only ensure inaccurate results. EPA offers

no justification for foregoing validation if not technically practicable; the only reasonable

and logical consequence is to deny the source the ability to establish a PAL, which even

EPA admits is not a right conferred anywhere by law.45

Again, EPA itself has explained previously why it is essential to conduct site-

specific testing in order to validate otherwise error-prone emissions factors:

A significant number of facilities are regulated based on emission factors, which are an estimate of the amount of pollution being emitted at a facility. The states and EPA use emission factors when a facility does not have more reliable information. . . . .

45 Cf. 67 FR at 80211 (“For example, a source owner or operator with five units must be able, at any time, to quantify the baseline actual emissions for the past 12 months for each of the five units. That source should, in advance, outline how it plans to monitor each of the units in order to quantify the emissions. If one of the five units cannot accommodate one of the monitoring options provided in the rule in order to quantify the emissions, then the source owner or operator would be incapable of demonstrating ongoing compliance with the source's PAL.”) While this outcome is correct, it is arbitrary to adopt a “monitoring option” in the final rules, discussed in text above, that fails to require any units with emissions contributing to the PAL levels to quantify the baseline actual emissions, at any time, for the past 12 months for each of the five units.

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There are two reasons why stack tests should be conducted at facilities regulated by limits based on emission factors. First, emission factors are rated for reliability based on the quantity and quality of the test data used to calculate the factor. A 1996 OIG audit report entitled Emission Factor Development concluded that many of the emission factors used in estimating pollution are unreliable and outdated. If the emission factors are inaccurate, the facility may be emitting more pollution than appropriate, resulting in harm to the environment. The more stack test data used to develop the emission factors, the more reliable the estimates. Second, as one New Jersey air inspector explained, stack test results at times differ significantly from the estimate used to develop the emission factor. Because the estimates are inaccurate, the facility is polluting more than the emission limit set in the facility’s permit. This excess pollution may go undetected unless the state requires the facility to perform a stack test. When a stack test discloses that the facility is exceeding its permit limit or polluting more than it is allowed, the facility may need to lower production or install pollution control equipment in order to comply with the CAA.

“Report of EPA’s Oversight of State Stack Testing Programs,” EPA Office of Inspector

General, Audit Report No. 2000-P-00019 (Sept. 11, 2000), at 4 (see

http://www.epa.gov/oigearth/ereading_room/list900/stack.pdf).

Next, considering this second requirement, it is arbitrary for EPA to have failed to

define what is meant by “technically practicable,” according to whom, and governed by

what standards. The term itself poses considerable problems of basic enforceability.

Moreover, it is arbitrary and unfounded to limit this essential safeguard

(validation testing) to “significant emissions units.” For a regulatory device that relies

upon a plantwide aggregation of units and emissions, it is equally important and

necessary to quantify emissions accurately from each emissions unit, whether

“significant” or not, since all emissions count toward the PAL. EPA fails to justify the

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limitation of validation testing to significant emissions units, and provides no legal or

factual basis in its administrative record for doing so. Indeed, doing so runs counter to

numerous other statements in the record for EPA’s final rule making clear the need for

accurately quantified emissions at the entire source.

The Inspector General’s stack testing report discusses the reasons that stack tests

are necessary, providing additional insights into the arbitrariness of EPA’s final

emissions factor provisions:

According to Agency personnel, there are many factors which would indicate the need for a stack test. For example, there would be a greater need for stack testing if a facility:

• Emits pollutants that are commonly measured by a stack test, or where the only method of determining compliance is by conducting a stack test;

• Does not have a Continuous Emission Monitoring System (CEMS) or other monitors which indicate compliance;

• Is not subject to some of the recent federal regulations which require stack tests;

• Has never stack tested or has not tested for a long time; or • Has other indications of noncompliance, such as visible

emissions, odor, or poor maintenance. Currently, EPA has no procedures to readily identify those facilities which have a greater need for stack testing.

“Report of EPA’s Oversight of State Stack Testing Programs,” at 19. Nowhere does this

list identify the factors that the final NSR rules make determination of the need for a

stack test (technical practicability and significant emissions units). And the factors

identified reinforce our criticisms of EPA’s factors, since EPA ignores the factors that

their own experts have identified.

It is arbitrary and unfounded for EPA to allow determination of site-specific

emission factors and validation testing to occur up to 6 months after a PAL has been

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issued. This arbitrarily allows a period of 6 months – a period essential to determining

compliance for the first 18 months of the PAL (because of the 12-month rolling basis

compliance approach) – in which the operator will lack accurately quantified emissions

data to assure compliance with the PAL. This approach ensures that the first semi-annual

report for Title V monitoring purposes is completely devoid of accurate information for

those units, and also ensures that the first annual compliance report under Title V lacks

monitoring data sufficient to assure and certify compliance. This approach undermines

enforcement of the PAL for the period in which data are unavailable.

Moreover, it is arbitrary to deny the public the opportunity to comment on an

issue as important as the operator’s development of site-specific emissions factors that

are critical to compliance assurance, especially unfounded in light of EPA’s own

recognition of the importance of developing the PAL with public input. This approach

contrasts sharply with the issuance of Title V permits and compliance assurance

monitoring plans, where public review and comment opportunities are available for

reviewing important monitoring, testing, and compliance assurance methods. EPA’s

rules allow development of site-specific emissions factors up to six months after issuance

of PAL without public input or review opportunity. The rules fail to indicate even

whether reviewing authorities will be allowed or required to review and approve these

site-specific emissions factors, or whether the source’s title V permit will be amended to

incorporate this importance compliance assurance information.46

46 See 40 CFR §§ 70.7(f)(iv) and § 71.6(f)(iv) (requiring a title V permit to be reopened for cause and revised to “assure compliance with the applicable requirements.”) In addition, 40 CFR §§ 70.7(e)(4)(i) and 71.7(e)(4)(i) require a significant permit modification for “every significant change in existing monitoring permit terms or conditions.” Clearly, development of a site-specific emissions factor through source testing that converts an emissions factor previously incapable of quantifying emissions accurately into one that is, represents a “significant change in existing monitoring permit terms or conditions.”

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Finally, as allowed by § 51.166(w)(12)(vi)(C) and parallel provisions, it is

arbitrary and unfounded for EPA’s final rules to allow reviewing authorities to authorize

operators to dispense with testing in their unbounded discretion, without any legal criteria

to govern that discretion. EPA fails to justify or explain how accurate quantification

methods and data will be provided from emissions factors in instances in which

reviewing authorities fail to require testing;

It is no answer to say, as EPA sometimes has in the past, that the multitude of

problems we have identified above could be said to exist under the traditional NSR

program as well. First, of course, that is no excuse, and has led EPA’s Office of

Inspector General to identify these problems as materials weaknesses and to issue several

reports on these failings. Reliance on emissions actors with such an inaccurate and

unreliable history would in and of itself for ordinary compliance ore regulatory purposes

would be arbitrary. But more important, EPA’s final NSR rules make clear that PAL

monitoring must meet a far higher standard of integrity, accountability and accuracy – the

consistent and ongoing ability to quantify emissions accurately in order to assure

compliance with the PAL.47

47 See, e.g., 67 FR at 80211/2 (“All units operating under a PAL must have sufficient monitoring to accurately determine plantwide emissions for a 12-month rolling total. For example, a source owner or operator with five units must be able, at any time, to quantify the baseline actual emissions for the past 12 months for each of the five units. That source should, in advance, outline how it plans to monitor each of the units in order to quantify the emissions. If one of the five units cannot accommodate one of the monitoring options provided in the rule in order to quantify the emissions, then the source owner or operator would be incapable of demonstrating ongoing compliance with the source's PAL.”); id. at 80221/3 (“In fact, we find that not only monitoring, recordkeeping, and reporting requirements, but also emissions testing requirements, for emissions units subject to a PAL differ from other MRRT in one important aspect: actual unit emissions must be measured to provide a 12-month rolling total, and compared against a limit. Currently, many emissions units are required only to have MRRT suitable for initial or spot checks on emissions concentrations, not emissions quantification. Even emissions units whose MRRT meets the title V requirements in Sec. Sec. 70.6(a)(3)(i)(B) or 70.6(c)(1), including those imposed by part 64 (the CAM rule), may need to be upgraded when those units are proposed to become subject to a PAL, because the approved title V MRRT may not be able to count emissions against a cap.”)

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Turning to the subsequent provision in the PAL monitoring section:

A source owner or operator must record and report maximum potential emissions without considering enforceable emission limitations or operational restrictions for an emissions unit during any period of time that there is no monitoring data, unless another method for determining emissions during such periods is specified in the PAL permit.

40 CFR § 51.166(w)(12)(vii) (emphasis added). EPA failed to propose any of this

language or specific concepts. The italicized language, an 11th hour addition to EPA’s

final rule language (see IV-H-6, at 12), is arbitrary and unfounded because it is written in

such a way to circumvent the entire PAL monitoring provisions, and the need for

accurately monitoring and quantified emissions, in the situation where it is least

excusable – during periods of time when there is “no monitoring data.” By using the

language, the rules effectively allow any other monitoring or testing provision in the title

V permit to substitute either for “maximum potential emissions without considering

enforceable emission limitations or operational restrictions,” or the other monitoring

provisions of the PAL rule (e.g., CEMS), when there is “no monitoring data.” As EPA

well knows, and acknowledges in this very rulemaking, see, e.g., 67 FR at 80221/3, these

other monitoring determination methods in a title V permit (e.g., periodic monitoring or

CAM) are entirely incapable of quantifying emissions accurately in a manner needed to

assure compliance with a PAL. Again, EPA admits this, yet at the same time establishes a

provision here that results in precisely that arbitrary outcome. If by saying “another

method for determining emissions during such periods,” the final rules mean some

monitoring other than part 70 or CAM monitoring, the rules fail to indicate that, and fails

to require that such monitoring quantify emissions accurately on an ongoing basis.

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H. Allowing a Source With a PAL to Generate Emissions Reduction Credits for Sale to Other Sources

EPA’s response to public comments declares that “[a] PAL does not preclude you

from taking part in emissions trading programs established under your State SIP.” Final

Rule TSD, Chapter 8, “1998 PAL Comments,” Section 6. Neither the 1996 nor the 1998

notice gave any indication that EPA would proclaim that “emissions reductions under a

PAL should be available to [the source] for sale as credits to other sources.” Id. The


comment.” 42 U.S.C. § 7607(d)(7)(B).

The only cautionary note that EPA appends to its proclamation about PALs and

emissions credits is that the source generating the credits “must make such emissions

reductions federally enforceable and also reduce the PAL level by the amount of the

emissions reductions.” Id. This caveat fails to ensure that the credits EPA is making

available will satisfy legal requirements that the agency itself has enunciated.

Suppose that on January 1, 2010, a source receives a PAL set at 1,050 tons/year

based on the source’s average yearly emissions over the period, 2000-2001. The source’s

average yearly emissions in each of the years, 2002-2009, have been 900 tons. The

month after the source receives the PAL, it lowers emissions from one of its units by 50

tons/year of the pollutant, accepts a federally enforceable emissions limitation reflecting

the reduction at the particular unit, and sells the credit to another source, which uses the

credit to avoid an obligation to decrease its emissions by 50 tons/year.

According to EPA, “[t]he federally enforceable emissions limitations associated

with creating [] credits fall into the category of new applicable requirements that have

become effective during the term of [the] PAL.” Id. The final PAL rule does not require

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the permitting authority to adjust the PAL downward to reflect new requirements that

become effective during the term of the PAL until the “time of PAL permit renewal or

title v permit renewal, whichever occurs first.” 67 Fed. Reg. at 80257/3, 80272/3,

80287/2 (40 C.F.R. §§ 51.165(f)(10)(v), 51.166(w)(10)(v), 52.21(aa)(10)(v)). In the

example presented above, then, the PAL will remain at 1,050 tons/year until 2015, when

Title V renewal occurs. Suppose that, immediately after selling the 50 tons/year credit

from one of its units, the owner makes physical changes at two other units at the facility,

increasing combined emissions from those units by 199 tons/year. Just before Title V

renewal, the owner reduces the combined emissions from those units by 50 tons/year.

It is striking to contrast what the owner in this example gets over the period 2010-

2020, with what the atmosphere gets over the same period. The owner gets (1) payment

for a 50 tons/year emissions credit; (2) the ability to pollute at 199 tons/year over 2010

levels until 2015; (3) the ability to pollute at 149 tons/year over 2010 levels for the

period, 2015-2020; and (4) avoidance of the obligation to conduct pre-construction

review at the two changed units. The atmosphere gets (from the purchaser of the

emissions credit) 500 tons of pollution that it would not have received in the absence of

the sale, and (from the facility with the PAL) a minimum of 1,740 tons more pollution

than if the facility had not been subject to the PAL. In sum, the owner of the facility gets

the proceeds of the emissions credit sale, the freedom to increase pollution dramatically,

and the avoidance of pre-construction review, while the atmosphere gets a minimum of

2,240 tons of additional pollution.

A September 2002 report issued by EPA’s Inspector General reviews the

fundamental principles to which an emissions trading program must adhere in order to

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comply with the Clean Air Act. Office of the EPA Inspector General Evaluation Report,

“Open Market Trading Program for Air Emissions Needs Strengthening,” Report No.

2002-P-00019 (September 30, 2002), at 4. The example above demonstrates that any

emissions trading program that permits the purchase of credits from sources subject to

PALs established under the final PAL rule will violate at least two of the fundamental

principles identified in the Inspector General’s report. The report describes the

“Permanent” principle as “Source achieves extra emissions reductions over a period of

time and the state ensures that no emission increases occurred over the same period of

time.” Id. The example demonstrates that where the credits come from a source that is

subject to a PAL established pursuant to the final PAL rule, the state will have no way of

ensuring that emissions increases did not occur at that source over the same period of

time. The Inspector General’s report describes the “Demonstrated Improvement”

principle as “O[pen ]M[arket ]T[rading] programs must result in emissions reductions at

least 10 percent lower than would have been achieved if the source complied directly

with emissions standards.” Id. The example demonstrates that any emissions trading

program that permits the purchase of credits from sources subject to a PAL established

pursuant to the final PAL rule will likely result in higher overall emissions than if the

sources participating in the program simply complied directly with emissions standards.

EPA’s declaration regarding its PAL rule and emissions trading is thus an

unexplained reversal of the agency’s own application of the Clean Air Act to emissions

trading programs. For that reason, and because it cannot be squared with the

requirements of the Act, the agency’s proclamation is “arbitrary, capricious, an abuse of

discretion, [and] otherwise not in accordance with law.” 42 U.S.C. § 7607(d)(9)(A).

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Petitioners’ objection is “of central relevance to the outcome of the rule,” 42 U.S.C. §

7607(d)(7)(B), in that it demonstrates that a consequence EPA itself ascribes to the rule

would be unlawful.

I. Allowing PAL Sources to Ignore Permit Limits That They Accepted Previously to Avoid Pre-Construction Review

Under the final rule, the establishment of a PAL eliminates any emissions or

operational limits that the owner may have accepted earlier in exchange for a

determination that a change at a unit within the PAL source did not result in an emissions

increase:

An actuals PAL may eliminate enforceable permit limits you may have previously taken to avoid the applicability of major NSR to new or modified emissions units. Under the major NSR regulations at §§ 52.21(r)(4), 51.166(r)(2), and 51.165(a)(5)(ii), if you relax these limits, the units become subject to major NSR as if construction had not yet commenced on the source or modification. Should you request a PAL, today’s revised regulations allow the PAL to eliminate annual emissions or operational limits that you previously took at your stationary source to avoid major NSR for the PAL pollutant. This means that you may relax or remove these limits without triggering major NSR when the PAL becomes effective.

67 Fed. Reg. at 80210/3. See also id. at 80255/1, 80270/1, 80284/3 (40 C.F.R. §§

51.165(f)(1)(iii)(C), 51.166(w)(1)(ii)(C), 52.21(aa)(1)(ii)(c)). Furthermore, the rule

provides that when the PAL expires, none of the limits originally established pursuant to

§§ 51.165(a)(5)(ii), 51.166(r)(2), or 52.21(r)(4) become effective again. Id. at 80257/2,

80272/1-2, 80286/3 (40 C.F.R. §§ 51.165(f)(9)(v), 51.166(w)(9)(v), 52.21(aa)(9)(v)).

See also id. at 80209/2. Neither the 1996 notice nor the 1998 notice gave any indication

that EPA was considering including in the final PAL rule provisions whereby (1) the

establishment of a PAL would eliminate limits previously accepted to avoid the pre-

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construction requirements, and (2) those limits would not become effective again upon

expiration of the PAL. The grounds for the objections set forth below thus “arose after

the period for public comment.” 42 U.S.C. § 7607(d)(7)(B).

Suppose that an owner proposes to make a physical change at a unit in January

2010. In exchange for a determination that the change will not cause an emissions

increase such to trigger the pre-construction requirements, the owner accepts an

emissions limit of 100 tons/year, even though the change has doubled the unit’s capacity

to emit. In February 2002, one month after making the change, the owner receives a PAL

for the facility that includes the changed unit. Using the any-two-in-ten baseline

calculation method (and the potential to emit of the recently changed unit), the owner is

able to have the PAL level set at 1,200 tons/year, which is 200 tons/year more than the

facility has emitted in any of the eight previous years. The next month, the owner begins

operating the recently changed unit at its full capacity, with the result that the unit’s

yearly emissions double, from 100 tons to 200 tons. The increase pushes the entire

facility’s yearly emissions up to 1,100 tons, a level which is still below the PAL.48 Under

the final rule, the pre-construction requirements are not triggered even though the unit in

question has exceeded its emissions limit by an amount that is quadruple the limit. Under

the final rule, moreover, the owner will not have to reduce the unit’s emissions to the

limit accepted in 2000 even when the PAL expires.

The provisions cited above thus enable an owner to prevent a change that causes a

significant emissions increase from ever necessitating pre-construction review, as long as

48 Even if the PAL were set at 1,000 tons/year – a level equal to the facility’s emissions in each of the eight years preceding the establishment of the PAL – the owner could still double emissions from the unit in question without hitting the PAL as long as the owner achieved a commensurate aggregate reduction by means of emissions reductions at one or more of the other units at the facility.

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the owner puts off using all of the new capacity resulting from the change long enough to

receive a PAL. In this respect, the provisions conflict with the plain meaning and

purpose of Section 111(a)(4) of the Clean Air Act.49

EPA offers only one sentence by way of explanation for these provisions: “The

PAL effectively stands in the shoes of the (r)(4) limits as an enforceable limitation that

avoids major NSR applicability.” Final Rule TSD, Chapter 7, “1996 PALs,” Section 14.

This is not a reason, but rather a partial description. Yes, the rule does allow the PAL to

stand in the shoes of the “(r)(4)” limits, and yes, the PAL does allow the owner to avoid

the application of the pre-construction requirements.50 But why is EPA allowing an

owner to use a PAL to violate the commitment (no emissions increase) that was

exchanged for a determination that the change to a unit did not meet the definition of

“modification” in Section 111(a)(4)? Even if EPA’s laconic statement did provide an

answer to that question, to say that the PAL “effectively stands in the shoes of the (r)(4)

limits” does not explain why the (r)(4) permit does not reclaim its shoes when the PAL

goes away. EPA offers no reason whatsoever for either of these operative provisions of

the final rule. Indeed, there can be no reason that is consistent with the plain meaning

and purpose of Section 111(a)(4). Together, the provisions are nothing but a gift to

polluters that subverts the Clean Air Act and makes the air dirtier.

EPA’s promulgation of these two provisions is, for the reasons stated above,

“arbitrary, capricious, an abuse of discretion, [and] otherwise not in accordance with

law.” 42 U.S.C. § 7607(d)(9)(A). Because the final rule will remain unlawful as long as

49 Section 111(a)(4) defines “modification” as “any physical change in, or change in the method of operation of, a stationary source which increases the amount of any air pollutant emitted by such source or which results in the emission of any air pollutant not previously emitted.” 42 U.S.C. § 7411(a)(4).

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it contains these provisions, petitioners’ objections to them are “of central relevance to

the outcome of the rule.” Id. § 7607(d)(7)(B).

V. CLEAN UNITS

The final rule makes key changes in the clean unit provisions, which compound

the already egregious illegality of the approach proposed. Moreover, those provisions

contravene, without reasoned explanation, core principles previously enunciated by EPA.

These core principles included the critical concern, held by virtually all interests, that

modified units must apply state-of-the-art controls. 61 Fed. Reg. at 38,255 (“Almost all

stakeholders identified the goal of ensuring that modified units apply state-of-the-art

controls as being of paramount importance.”). And, EPA’s proposal emphasized that the

exemption must be rigorous and well-designed so as not to erode the basic air quality

protections of NSR:

For this exclusion to function, it is necessary to distinguish a well-controlled unit from a poorly controlled unit. In other words, what criteria distinguish a unit eligible for this exclusion from one which is not? Criteria which allow a broad range of units to qualify could largely transform the existing applicability system into one based solely on assessing a unit’s potential emissions, with the possibility of a dramatic increase in a unit’s actual annual emissions without undergoing NSR.

61 Fed. Reg. at 38,256.

The expanded clean unit loopholes in the final rule arose after the period for

public comment. Moreover, these aspects of the final rule relate to the key issue of

whether there is a physical or operational change that increases emissions, and thus are of

central relevance. CAA §307(d)(7)(B), 42 U.S.C. §7607(d)(7)(B).

50 For reasons stated elsewhere in this petition, however, PALs established pursuant to the final rule

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A. EPA Has Offered an Unlawful and Arbitrary Legal Rationale for the

Clean Unit Exclusion.

In an attempt to muster a legal rationale to bolster its unlawful action, EPA’s final

rule advances an entirely new legal theory as the basis for the clean unit exclusion. EPA

asserts that the new legal rationale is not based on exclusions from NSR “but whether

using a more appropriate emissions test you trigger major NSR review.” 67 Fed. Reg. at

80,223. EPA elaborates that “the Clean Unit applicability test would provide an

alternative emissions test for determining if a significant increase in emissions has

occurred after a physical change or change in the method of operation at units that are

designated as ‘clean.’ We believe that we have the authority to allow these specific types

of units to use a different applicability test.” 67 Fed. Reg. at 80,228.

EPA may not create an entirely new legal rationale for its final action that is not

subject to public notice and comment. Indeed, section 307(d)(3)(C) of the CAA requires

that the proposal contain a statement of its basis and purpose that expressly includes “the

major legal interpretations and policy considerations underling the proposed rule.” These

major legal interpretations may not be altered without ensuring that the public has

meaningful notice and opportunity to comment.

In any event, EPA lacks statutory authority to create new applicability tests for

units that it deems “clean.” The statutory definition of what constitutes a modification

for purposes of nonattainment NSR and PSD is broad:

The term `modification’ means any physical change in, or change in the method of operation of, a stationary source which increases the amount of any air pollutant emitted by such source or which results in the emission of any air pollution not previously emitted.

will not be enforceable as a practical matter.

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CAA §111(a)(4), 42 U.S.C. §7411(a)(4). The definition applies to any “stationary

source” -- that is, “any building, structure, facility, or installation which emits or may

emit any air pollutant.” CAA §111(a)(3), 42 U.S.C. §7411(a)(3). So any stationary

source whose physical or operational change increases emissions – whether EPA

considers that source to be clean, dirty or indifferent – is subject to the statutory

requirements for modifications. EPA lacks a legal basis -- whether by exclusion or by a

purported alternate rationale -- for excluding sources that fall within these provisions'

scope.

B. Likewise, EPA Has Unlawfully and Arbitrarily Changed the Clean Unit Exemption so as to De-Couple it From the Core Statutory Requirement That “Modifications” be Governed by Changes That Result in Emissions Increases.

EPA proposed to allow the clean unit exemption to apply so long as the emission

unit’s maximum hourly potential emissions did not increase: “[C]hanges which do not

increase the units hourly potential emissions would not be considered a physical or

operational change and thus would not trigger major NSR.” 61 Fed. Reg. at 38,255-56,

38,329 (proposed §51.166(b)(2)(iii)(L)(1)), & 38,337 (proposed §52.21(b)(2)(iii)(L)(1)).

In the final rule, however, even the flawed hourly emission rate limitation is

abandoned, and thus a source can be considered a clean unit based solely on having made

an investment, however meager, in pollution control technology. 67 Fed. Reg. at 80,230.

This flatly contravenes the statutory requirement, described immediately above, that a

modification be determined based on changes that increase emissions. Moreover, EPA

has offered no reasoned basis why units should be treated as clean notwithstanding

increases in their hourly rate.

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C. EPA Unlawfully and Arbitrarily Abandoned Limitations on the Temporal Duration of Clean Unit Status.

EPA’s final rules have dramatically expanded the duration of the clean unit

exemption by establishing provisions, that were not subject to public notice and

comment, to allow units to re-qualify for the exemption. See 67 Fed. Reg. at 80,226-27,

80,252 (§51.165(d)(3)), 80,265 (§51.166(t)(3)), 80,267 (§51.166(u)(3)), 80,279-80

(§52.21(x)(3)) & 80,281 (§52.21(y)(3)). Indeed, EPA asserts in its final rule, without any

supporting factual record, that “[w]e expect that in many cases the controls used to

initially establish Clean Unit status will still be operating efficiently and the Clean Unit

status can be reestablished for an additional 10 years based on those controls.” 67 Fed.

Reg. at 80,227. In sharp contrast, EPA’s proposal questioned the merits of allowing an

exemption as long as 10 years and suggested that, if anything, the agency would shorten

the length of the exemption:

At least some members of the Subcommittee expressed concern that the 10-year period is too long given the improvement in control technology that can occur in some source categories. For this reason, EPA solicits comment on using a shorter period such as 5 years as the length of the Clean Unit presumption derived from a NSR permit.

61 Fed. Reg. at 38,256.

In the final rule, however, EPA moved in exactly the opposite direction and

established an entirely new set of provisions that allow sources to re-qualify for the clean

unit exemption. And, EPA has expressly indicated that sources need not make new

investments in pollution control technology to re-qualify for the exemption. 67 Fed. Reg.

at 80,226. These changes clear the way for sources to unlawfully take action that

increases pollution for 20 years. Moreover, taken together with other changes described

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above, the rules allow sources to do so without making any new investments in pollution

control technology. EPA has offered no reasoned explanation for this change, nor has it --

or could it -- reconcile these exemptions with the statutory requirement that NSR apply to

any physical or operational change that increases emissions.

D. The Threshold Tests for Determining Whether a Source Initially Qualifies as a Clean Unit Have Been so Fundamentally Revamped in the Final Rule That the Changes Undermine any Plausible Argument That a Clean Unit is in Fact Achieving an Emission Limitation Consistent With BACT or LAER.

EPA’s final rule revamps the threshold tests for determining whether a stationary

source qualifies for a clean unit exemption. EPA has promulgated weak, solicitous

qualifying tests to demonstrate that controls are “comparable” to BACT or LAER based

on a showing that (1) compares the units’ control with the RBLC, or (2) based on a case-

by-case determination that the emissions control is “substantially as effective” as BACT

or LAER. 67 Fed. Reg. at 80,224. Both of these tests materially depart from the

proposed rule and are contrary to law.

Under the first test, EPA has veered far afield from the proposal in advancing the

RBLC as the basis for determining whether units quality for the clean unit exemption and

administratively rewriting the statutory definitions of BACT and LAER. The final rule

provides that for nonattainment areas a unit is comparable to LAER if the control

technology “is at least as stringent as any one of the 5 best-performing units” in the

RBLC for which a LAER determination has been made within the preceding 5 years. 67

Fed. Reg. at 80,224 & 80,252 (40 C.F.R. § 51.165(d)(4)). For attainment areas, a unit

qualifies if the level of control is equal to the average BACT and LAER determinations

entered into the RBLC over the past 5 years. See, e.g., 67 Fed. Reg. at 80,224 & 80,267

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(§51.166(u)(4)(i)). The proposal, by contrast, contemplated that the clean unit

exemption apply only for units that in fact had BACT or LAER limits established within

the last 10 years and then only on a presumptive basis. 61 Fed. Reg. at 38,256. EPA also

proposed to apply the exclusion if limits were established under a state technology review

program determined by EPA through a formal certification process to be comparable to

the federal programs for BACT or LAER. Id. The formal certification process has now

been abandoned.

The promulgated approach further compounds the statutory illegality of the clean

unit program and further weakens the applicable substantive and procedural provisions.

The statute plainly requires implementation of BACT and LAER. These terms are

carefully defined in law. Section 169(3) of the Clean Air Act, 42 U.S.C. §7479(3)

contains an elaborate definition of BACT that means “an emission limitation based on the

maximum degree of reduction of each pollutant subject to regulation under this chapter

emitted from or which results from any major emitting facility, which the permitting

authority, on a case-by-case basis, taking into account energy, environmental, and

economic impacts and other costs, determines is achievable for such facility through the

application of production processes and available methods, systems, and techniques,

including fuel cleaning, clean fuels, or treatment or innovative fuel combustion

techniques for control of each such pollutant.” BACT thus requires an analysis of the

best or maximum degree of emission reduction, and an alternative that relies on average

performance without in fact thoroughly considering the available maximum best

emissions reductions performance is contrary to law.

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The statutory requirements and long-standing EPA interpretive statements require

that a determination whether BACT is satisfied include a reasoned examination of all

available control technologies. EPA has repeatedly explained that the first step in the

BACT determination process is the identification of all available control options for the

emissions unit in question. New Source Review Workshop Manual, “Prevention of

Significant Deterioration and Nonattainment Area Permitting,” EPA, October 1990, at

B.5 - B.7. “Available control options” are “those air pollution control technologies or

techniques with a practical potential for application to the emissions unit and the

regulated pollutant under evaluation.” Id. at B.5. “The term ‘available’ is used…to refer

to whether the technology ‘can be obtained by the applicant through commercial channels

or is otherwise available within the common sense meaning of the term.’” In re: Maui

Electric Company, PSD Appeal No. 98-2 (EAB September 10, 1998), at 29-30 (quoting

NSR Manual at B.17). In keeping with the rigorous nature of the BACT requirement,

EPA has emphasized that “available”

is used in the broadest sense under the first step and refers to control options with a “practical potential for application to the emissions unit” under evaluation. . . . The goal of this step is to develop a comprehensive list of control options.

In re: Knauf Fiber Glass, PSD Appeal Nos. 98-3 – 98-20 (EAB February 4, 1999), at 12-

13 (quoting NSR Manual at B.5) (emphasis added by EAB); see also In re: Steel

Dynamics, Inc., PSD Appeal Nos. 99-4 and 99-5 (EAB June 22, 2000), at 29 n.24 (citing

Knauf with approval); NSR Manual at B.10 (“The objective in step 1 is to identify all

control options with potential application to the source and pollutant under evaluation.”);

id. at B.6 (emphasizing that a proper Step 1 list is “comprehensive”). The broad reading

of “available” is intended to ensure that “prior to the selection of a proposed BACT, all

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potential sources of information have been reviewed by the source to ensure that the list

of potentially applicable control alternatives is complete (most importantly as it relates to

any more effective control options than the one chosen) and that all considerations

relating to economic, energy and environmental impacts have been addressed.” Id. at

B.55. These technologies include those employed outside of the United States and in

some circumstances include inherently lower-polluting processes as available control

alternatives. Id. at B.5.

EPA’s NSR Workshop Manual provides that though “in the course of the BACT

analysis, one or more of the options may be eliminated from consideration because they

are demonstrated to be technically infeasible or have unacceptable energy, economic, or

environmental impacts on a case-by-case basis…at the outset, applicants should initially

identify all control options with potential application to the emissions unit under review.”

NSR Manual, at B.5 to B.7. Indeed, EPA and federal courts have consistently

interpreted the statutory BACT provisions as requiring the permit authority to either

implement the most effective available means for minimizing air pollution or justify its

selection of less effective means on grounds consistent with the purposes of the Act. Id.

The Ninth Circuit held in Citizens for Clean Air v. EPA, 959 F.2d 839, 845 (1992), that

“initially the burden rests with the PSD applicant to identify the best available control.”

EPA has consistently explained that “regardless of the specific methodology used for

determining BACT, be it ‘top-down,’ ‘bottom-up,’ or otherwise, the same core criteria

apply to any BACT analysis: the applicant must consider all available alternatives, and

[either select the most stringent of them or] demonstrate why the most stringent should

not be adopted.” Memorandum from John Calcagni, Director of EPA Air Quality

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Management Division, to EPA regional air directors (June 13, 1989), at 4. Thus, the

BACT requirement dictates that all available technologies, including the most stringent,

be identified and examined in the permit proceeding and that there be reasoned

justification for dismissing any of the technologies that is fully explicated as part of the

administrative record. EPA's assertion that an average level of stringency can supplant

BACT violates the Act and departs without reasoned explanation from the agency's own

prior statements.

Likewise, LAER is defined precisely by statute as the more rigorous of either “the

most stringent emission limitation which is contained in the implementation plan of any

State for such class or category of source” or “the most stringent emission limitation

which is achieved in practice by such class or category of source.” CAA §171(3), 42

U.S.C. §7501(3). The provisions in EPA’s final rule that would supplant LAER with a

control technology based on any one of the 5 best performing units in the RBLC

contravene the plain statutory requirement that LAER be the “most stringent” of emission

limits contained in any SIP or achieved in practice. By comparison, other technology-

based provisions of the Clean Air Act contain language that demonstrate congressional

intent, when it was so desired, to establish standards that are based on something less

than the most stringent. Compare CAA §112(d)(3)(A), 42 U.S.C. §7412(d)(3)(A)

(standards must at least reflect “the average emission limitation achieved by the best

performing 12 percent of the existing sources”). Simply put, EPA may not redefine the

rigorous BACT and LAER provisions of the statute to suit its whims.

EPA’s invented approaches to BACT and LAER in the final clean unit exemption

provisions also rely on the RBLC in a way never contemplated in the proposal. The

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RBLC was the subject of extensive and spirited discussion during the multiyear NSR

Reform Subcommittee deliberations. The outcome of these discussions was reflected in

EPA’s proposed rule. EPA proposed to substantially improve the rigor of the RBLC to

enhance NSR control technology determinations. See 61 Fed. Reg. at 38,274. Even if

these enhancements were made, and there was a serious concern that EPA would not in

fact invest the substantial resources that would be necessary to improve the rigor of the

RBLC, EPA expressly rejected making RBLC determinations presumptive for BACT or

LAER because it would contravene the evolutionary nature of these requirements: “Due

to the case-by-case and evolutionary nature of BACT, as well as limited Agency

resources, EPA does not intend to implement a recommendation that the EPA prepare

written guidance indicating demonstrated technology that presumptively should be

considered BACT or LAER for certain industries.” Id. EPA instead proposed a

dynamic, encompassing definition of technology that was demonstrated in practice. This

definition would have required consideration of control technology from vibrant

information sources well beyond the limited RBLC. See, e.g., 61 Fed. Reg. at 38,332

(proposed §51.166(b)(42)). Without any reasoned explanation, the clean unit exemption

provisions of the final rule rely on the RBLC in a manner that EPA specifically

repudiated in its proposal.

There is no evidence in the administrative record to support EPA’s reliance on the

RBLC in the final rule. To the contrary, a contemporary search of the RBLC

demonstrates the serious flaws with EPA’s reliance on this database. For example, the

final rules’ reliance on the RBLC in lieu of BACT or LAER would not lead to results that

are “comparable” by any reasonable meaning of that term. BACT would not include

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SCR for large industrial boilers, rather BACT would constitute low NOx burners. In fact,

for emission sources located at refineries, process heaters had some low NOx burners and

FGR but, on average, BACT for process heaters at refineries would be no control.

Further, for other sources at refineries, BACT, according to the RBLC is no control.

Three examples of recent RBLC searches demonstrate that EPA’s clean unit

exemption is contrary to law, arbitrary and capricious and an abuse of the agency’s

discretion:

SEARCH EXAMPLE NO. 1: NOx control search criteria from 01/01/1998 to 12/17/2002 was entered for Utility and Large Industrial size boilers/furnaces >250 MMBTU/hr RESULTS: Total 77 Facilities in database out of which 27 facilities are controlled by low NOx burners, oxidation catalyst 50 facilities. No SCR but some have dry low NOx combustor and good combustion. The average of BACT will be no SCR or may be no control at all. SEARCH EXAMPLE NO. 2: NOx control search from 01/01/1998 to 12/17/2002; Petroleum/Natural Gas Production and Refineries. RESULTS: Total 32 Facilities in database out of which 10 facilities controlled by Ultra low NOx burners and/or nonselective catalytic reduction systems, and 22 facilities have no controls. The average of BACT will be no control at all. SEARCH EXAMPLE NO. 3: There are no New Jersey refinery determinations in the clearinghouse.

In sum, EPA’s alternative approach to establish a “comparable” BACT and LAER

under the clean unit exemption will in fact not reflect the maximum degree of emission

reduction as required by BACT or the most stringent controls as required by LAER but

will in a number of critical examples lead to no control or controls well below these

statutory standards.

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The second “substantially as effective” test for determining whether a unit

qualifies for the clean unit exemption diverges from the proposal in key ways. While

EPA did propose a case-by-case methodology for determining whether a unit could

qualify for the clean unit exemption, EPA specifically indicated that any such exemption

would be limited to 5 years. See, e.g., 61 Fed. Reg. at 38,257 & 38,330 (proposed

§51.166(b)(2)(iii)(L)(2)(iii). The final rule allows has dramatically expanded the

eligibility and extended the exclusion to ten years -- without a reasoned explanation for

the change. See, e.g., 80,279, 80,268(§51.166(u)(6)) & 80,282 (§52.21(y)(6)).

And EPA’s proposal indicated that to qualify on a case-by-case basis a source

must have controls “comparable” to BACT or LAER. EPA in turn specifically

interpreted the requirement for comparability to mean that “a current BACT or LAER

determination for the unit would not be expected to result in any lower level of emissions

from the unit for the pollutant in question.” 61 Fed. Reg. at 38,257. Without any

reasoned explanation, the final rule weakens the proposal by requiring merely that the

controls be “substantially as effective” and wholesale abandons any requirements or

criteria that the states must consider in making this judgment. 67 Fed. Reg. at 80,224

(“We are not promulgating specific requirements or performance criteria for satisfying

the `substantially as effective’ test, because we believe reviewing authorities are in the

best position to determine whether in fact a particular air pollution control technology . . .

is `substantially as effective’ as the BACT/LAER technology for a specific source.” ).

EPA’s undefined inchoate regulatory requirement for stationary sources to meet control

requirements “substantially as effective” as BACT or LAER is contrary to the plain

meaning of the statute. As noted, sections 169(3) and 171(2) of the Clean Air Act

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precisely define the terms BACT and LAER and EPA may not invent an alternative

regulatory definition or delegate to the states such authority. Moreover, EPA has failed

even to offer a reasoned explanation for its approach, and for its abandonment of the

previous statements referenced above.

E. The Final Rule Adopts Other Provisions Governing “Clean Units” That Are Unfounded, Arbitrary, and That Contravene the Purposes of the PSD and NSR Programs.

The final rule states:

(iii) The Clean Unit must continue to control emissions using

the specific air pollution control technology that was the basis for its Clean Unit designation. If the emissions unit or control technology is replaced, then the Clean Unit designation ends.

67 Fed. Reg. at 80251/2, 80253/3, & 80266/2. EPA arbitrarily fails to account for

situations in which the emissions unit or control technology is not replaced in its entirety,

but is altered in such a manner that the justification or the benefits of the Clean Unit

designation are perverted or weakened. In such circumstances, it is arbitrary not to end

the Clean Unit designation as well. EPA’s exemption is so poorly structured that it fails

to account for this obvious possibility. The agency recognizes that replacement of the

emissions unit or control technology would render retention of the Clean Unit designation

unjustified, but the agency fails to account for the far more likely, and equally harmful

circumstances, in which alternation of these units, their purposes, and benefits would

render the designation just as unjustified.

During the interagency review process, the White House OMB edited the

following passage in the manner identified:

More specifically, our new rules also require sources to make an investment (which includes expenses to research

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the application of a P2 technique to the emission units unit or to retool the unit to apply a P2 technique) to qualify initially as a Clean Unit.

See Docket No. IV-H-62, at 3 (OMB additions of November 22 underlined); Final Rule

TSD, Chapter 9, at 23. EPA did not propose to allow P2 to qualify for the Clean Unit

designation. Nor did EPA suggest that these absurdly broad types of investments --

inserted by OMB at the 11th hour -- could qualify for the designation. The OMB gloss on

qualifying investments for P2 is an arbitrary, unjustified, and ultimately meaningless

element of EPA’s final NSR rules. By its very terms, any expenditure by a source

operator would qualify as “an investment” to “research the application of a P2 technique

to the emission units unit.” Nothing in this statement would prevent a source operator

from meeting this investment test with “research” pursued through a $20 LEXIS-NEXIS

search, a $10 paperback purchase, or even a 35¢ phone call.

Elsewhere, inter-agency review documents reveal the following:

More specifically, today's rules also require you to make an investment capital expenditure to qualify initially as a Clean Unit. An investment includes any cost which would ordinarily qualify as a capital expense under the Internal Revenue Service's filing guidelines whether or not you actually choose to capitalize that cost. An investment also includes any cost you incur to We also believe that application of add-on controls or a change your emissions unit or process to implement a pollution prevention approach, including will require research expenses, or costs to followed by a retooling or reformulateion of your emissions unit or process to accommodate an add-on control, pollution prevention approach, or work practice will require you to have at least some capital expenditure.

Docket No. IV-H-7 (10-8-02) (OMB edits identified); 67 Fed. Reg. at 80225.

These White House OMB edits show the 11th hour when this arbitrary change

crept into the final rules. EPA identified no statutory authority for these criteria or these

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principles generally, and there is none. The word “include” in the second line above

makes clear that EPA has not even provided a meaningful legal test – other than the bare

word “investment,” which as noted above is so broad and easily met that it fails to

represent any meaningful (i.e., non-arbitrary) test at all. Even for the IRS example, EPA

fails to explain why this is relevant or justified to carry out the objectives of the NSR

program, which turn not on whether one has undergone NSR before or whether an

investment was or was not involved. EPA’s manufactured policy preferences here

swallow the NSR provisions and the statutory objectives of requiring significant pollution

increases to be controlled with up-to-date pollution control measures, along with air

quality and Class I analysis.

E. The Final Rule Unlawfully and Arbitrarily Contravenes the Suite of Statutory Requirements Under the Non-Attainment NSR Program by Summarily Allowing “Clean Units” in Attainment Areas to Qualify as “Clean Units” in Non-Attainment Areas.

Without prior notice, the final rule contravenes core protections under the

nonattainment NSR provisions of the statute. The nonattainment NSR program goes

beyond the PSD program by requiring the implementation of a more rigorous control

technology standard and emission offset requirements. See, e.g., CAA §§171-173, 42

U.S.C. §§7501-03. The final rule summarily dispenses with these more rigorous

protections by allowing clean units in attainment areas to automatically qualify for clean

unit status in nonattainment areas:

If your emissions unit received Clean Unit status while the unit was located in an attainment area and the area’s attainment status subsequently changes to nonattainment, your emissions unit retains clean unit status until expiration.

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See, e.g., 67 Fed. Reg. at 80,186, 80,223, 80,251 (§51.165(c)(9)), & 80,254

(§51.165(d)(11)). Thus, under EPA’s final rules a meager technology determination that

does not even comply with BACT becomes the basis for satisfying the LAER

requirement in nonattainment areas and excluding the core statutory requirement for

emission offsets. Inter-agency review materials disclose that the arbitrary and offensive

notions crept into the rules very later during White House OMB review:

As we discuss in detail in section V.C.3 of this preamble, the ``substantially as effective'' test for sources in nonattainment areas must consider only LAER determinations, except that emissions units in nonattainment areas that went through major NSR permitting while the area was designated an attainment area for that regulated NSR pollutant, and that received a permit based on a qualifying air pollution control technology, automatically qualify as Clean Units.

Docket No. IV-H-30, at 16 (underlining in original, denoting additions); see also 67 Fed.

Reg. at 80223. This approach violates the express statutory requirements governing NSR

(including LAER) for any physical or operational change in a nonattainment area that

increases emissions -- and moreover is unaccompanied by any reasoned explanation.

F. The Final Rule Also Unlawfully and Arbitrarily Violates the Core Emissions Offset Requirement Under the Non-Attainment NSR Program and Clears the Way for Clean Units to Generate Paper Emission Reduction Credits.

Without any prior notice or opportunity for public comment, EPA inserted

provisions into the final rule allowing clean units to satisfy the emission offset

requirement under the nonattainment NSR program so long as the source demonstrates

that the emissions “have been previously offset, or the reviewing authority will have to

show that these emissions will not interfere with the State’s ability to achieve

attainment.” See, e.g., 67 Fed. Reg. at 80,228. These provisions are contrary to law.

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Offsets are mandatory under the statute, not optional. CAA §173, 42 U.S.C. §7503.

Further, the final rules violate the plain requirements under the nonattainment planning

provisions that offsets comply with specific ratios, that all total emissions from the source

be offset, and that offsets be sufficient to represent reasonable further progress. See CAA

§173(a)(1)(A), (c) & §§171-193.

The final rule also, without prior notice, allows clean units to generate emission

reduction credits for netting or offsets:

[I]f you reduce emissions from the Clean Unit below the level that qualified the unit as a Clean Unit, you may generate a credit for the difference between the level that qualified the unit as a Clean Unit and the new emission limitation, if such reductions are surplus, quantifiable, permanent, and federally enforceable. . . . Such credits may be used for netting or as offsets.

See, e.g., 67 Fed. Reg. 80,228, 80,251 (§51.165(c)(8)), and 80,253 (§51.165(d)(10)).

This approach violates the above requirements, and creates paper credits for emission

reductions that are not in fact surplus. As demonstrated, under EPA’s meager clean unit

test, sources may qualify for clean unit status without having met the rigorous emission

limits that otherwise would have been required to meet the statutory requirements for

BACT and LAER. To then allow those sources to generate offset and netting “credits”

for lowering emissions below the artificially deflated and unlawful benchmark

contravenes the Clean Air Act’s express prohibition on generating such credits. Section

173(c)(2) of the Act expressly bars generating offset credits for reductions otherwise

required under the statue. EPA cannot simultaneously weaken the statutory

requirements for BACT and LAER and then allow sources to take credits for reductions

that otherwise would have been required had the source complied with its statutory

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obligations. Such reductions are not in fact surplus and may not be used to satisfy core

Clean Air Act requirements such as offsets and netting. Indeed, EPA has not even

offered any reasoned explanation for this substantial new change.

Moreover, EPA’s Clean Unit exemption allows industry to generate paper credits

for offsets based on allowable emissions rather than “actual emissions,” in violation of

Clean Air Act section 173(c). EPA failed to propose to allow this unlawful approach, it

did not solicit comment on the approach, did not provide legal justification for the

approach and did not provide support in the administrative record for its rationality or

justification. Indeed, review of interagency review materials suggests that allowing

offsets based on non-actual emissions reductions crept into the final rules at the 11th hour.

The final rule allows a facility to generate a "credit for the difference between the level

that qualified the unit as a Clean unit and the new emissions limitation, if such reductions

are surplus, quantifiable, permanent, and federally enforceable . . . .” See, e.g., 67 Fed.

Reg. 80,228, 80,251 (§ 51.165(c)(8)) and 80,253 (§ 51.165(d)(10)). The "new emissions

limitation" is an allowable emission level not an actual emissions level, so the emissions

“reductions” are not reductions in actual emissions.

In addition to the fundamental legal infirmities, the air quality problems with this

approach are obvious. For areas that become nonattainment, for example for the new 8-

hour ozone or fine particle standards, sources previously permitted as PSD sources can

generate paper credits from their allowable PSD emissions levels to sell as offsets when

these new areas become nonattainment areas and otherwise would require greater levels

of emissions reductions. Emissions reductions required to prevent significant

deterioration, and which were insufficient to prevent an area from falling into

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nonattainment, would be permitted to contribute to the exacerbation of air quality by

allowing actual pollution increases in exchange for paper (non-existent) emissions

decreases. It defies all sense why EPA would actively seek to allow and even promote

this dirtier outcome, which violates the statute and worsens air quality in areas least able

to afford actual emissions increases.

EPA’s approach is an unfounded and unexplained departure from consistent

agency practice, in addition to being squarely contrary to § 173(c). In no way may EPA’s

final rules authorize offsets to be based on allowable emissions, potential emissions or

anything other than actual emissions as required by § 173(c).

VI. POLLUTION CONTROL PROJECTS

The language of EPA’s final rule concerning the exclusion of pollution control

projects (PCPs) from NSR would, as set forth in more detail herein, allow for the

replacement or reconstruction of an existing emissions unit at a major stationary source to

qualify for an exclusion from NSR analysis. This significantly expands the scope of the

exclusion in ways the Agency itself has previously recognized are contrary to law.

Furthermore, these changes represent a complete reversal from the positions adopted by

EPA in its 1996 proposal and its 1994 Agency memorandum and guidance making the

PCP exclusion available to other source categories.

EPA did not give fair notice – indeed the Agency gave no notice – of the change

in final scope of the PCP exclusion itself. The first indication that petitioners had that the

PCP exclusion would be expanded to allow unit replacement or reconstructions to qualify

was at the time of the publication of the final rule language. Indeed, even the preamble to

the published final rule does not clearly and transparently present the extent to which the

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final regulatory language expands the scope of the PCP exclusion. Moreover, nothing in

either the 1996 or 1998 proposals gave any indication that the Agency intended to expand

the exclusion to this extent. The inclusion of unit reconstructions and/or replacements as

candidates for the PCP exclusion therefore was not properly or adequately noticed by the

Agency, and petitioners did not have an opportunity to articulate our objections to this

portion of the rule prior to the rule’s publication.

The final rule furthermore allows the accrual of emissions reduction credits

(“ERCs”) by the owner or operator of a unit based on further emissions reductions

occurring after the unit qualifies for the PCP exclusion. These ERCs can be accrued for

either the pollutant directly targeted by the PCP or for collateral pollutants created by the

PCP. This represents a major change from the 1996 proposal, which would have allowed

the generation of ERCs only for the actual initial reductions of the targeted pollutant

achieved by the PCP, and only in the event that collateral emissions increases associated

with the PCP were not significant. The creation of ERCs based on reductions in

pollutants that have increased as a result of the PCP, and that exist, moreover, only on

paper, is a violation of the plain language of the Clean Air Act. The final rule also

represents a significant unannounced shift from the 1996 proposal, on which the

undersigned were given no opportunity to comment.

The final rule also requires facilities to control collateral emissions from a PCP

only to the extent that doing so would be possible within the physical configuration and

the operational standards usually associated with the PCP. In other words, a facility need

not take additional or separate measures to control collateral emissions when installing or

implementing a PCP. This new provision significantly reduces a facility owner’s

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responsibility to minimize collateral emissions. This new approach, however, plainly

contravenes the Clean Air Act. Fittingly, EPA has not even attempted to reconcile its

action with the language of the statute. Moreover, the agency failed to give notice of this

aspect of the rule, failed to provide an opportunity for public comment, and failed to offer

any explanation of its action and how it might further the purposes of the NSR program.

For these reasons, the Agency must reopen and reconsider the expanded scope of

the PCP exclusion.

A. Background

1. The Final Scope of the PCP Exclusion is Significantly Expanded Beyond that Which was Proposed.

The December 31, 2002 final rule language regarding PCPs excludes “the

addition, replacement, or use of a PCP . . . at an existing emissions unit meeting the

requirements of paragraph [51.165] (e)” from the definition of a “physical change or

change in the method of operation,” and therefore from the need to undergo NSR

analysis. 40 C.F.R. § 51.165(a)(v)(C)(8).51 The final rule defines a PCP as follows:

Pollution control project (PCP) means any activity, set of work practices or project (including pollution prevention as defined under paragraph (a)(1)(xxvi) of this section ) undertaken at an existing emissions unit that reduces emissions of air pollutants from such unit. Such qualifying activities or projects can include the replacement or upgrade of an existing emissions control technology with a more effective unit. Other changes that may occur at the sources are not considered part of the PCP if they are not necessary to reduce emissions through the PCP.

51 The same language is found in the final rules implementing the PSD requirements, see 40 C.F.R. § 51.166(b)(iii)(h).

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40 C.F.R. § 51.165(a)(1)(xxv)(emphasis added).52 The rule also lists projects that are

presumptively considered to be PCPs, but does not limit the definition of PCPs to that

list. Id. Indeed “any project” can qualify as a PCP under the final rule if it meets the

tests included in 40 C.F.R. § 51.165(e).53 That section requires that to qualify for

exclusion from NSR analysis, a project must have environmental benefits exceeding the

“environmental detriment” of any collateral emissions increases associated with it, which

may be significant and still allow the project to qualify. 40 C.F.R. § 51.165(e)(2); see 67

Fed. Reg. at 80235/2. Furthermore, the emissions increases from a project qualifying as a

PCP must not cause or contribute to a violation of any national ambient air quality

standard or PSD increment, or adversely impact an air quality related value (such as

visibility) that has been identified for a Federal Class I area . . . .” 40 C.F.R. §

51.165(e)(2)(ii). A qualifying PCP then need not meet BACT or LAER for any pollutant,

regardless of the air quality designation of the area in which it is located, or the amount of

the pollutant emitted, so long as it meets the “net environmental benefits” and “no

violation” standards. See 40 C.F.R. § 51.166(v)(2)(i), (ii) (PCP exclusion requires net

benefits analysis and air quality impacts analysis demonstrating no adverse impact); 40

C.F.R. § 51.166(v)(3)(v) (no air quality impact analysis required unless the collateral

pollutant increase is significant). Significant collateral increases of nonattainment

pollutants due to a PCP located in a nonattainment area are allowable, so long as they are

offset. 67 Fed. Reg. at 80237/2.

52 See also 40 C.F.R. § 51.166(b)(31). 53 See also 40 C.F.R. § 51.166(b)(31).

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These requirements, in combination with the expansive definition of “project”

included in the final rules,54 mean that the PCP exclusion, as finalized, potentially

encompasses the complete replacement or reconstruction of an existing emissions unit.

This result is well beyond (indeed directly contrary to) the proposed rule’s language and

the Agency’s statements of its intentions in the preamble to the proposed rule and in

documents subsequently released by the Agency concerning the NSR revisions.

The proposed rule language included the following definition: “Pollution control

project means: (A) Any activity or project undertaken at an existing emissions unit

which, as its primary purpose, reduces emissions of air pollutants from such unit. Such

activities or projects do not include the replacement of an existing emissions unit with a

newer or different unit, or the reconstruction of an existing emissions unit, and are

limited to any of the following: [list of presumptive PCPs].” 40 C.F.R. §

51.165(a)(1)(xxv) (proposed) (emphasis added), published at 61 Fed. Reg. 38250, 38323

(July 23, 1996). The proposed language therefore not only included a “primary purpose”

test for eligible PCPs, but explicitly excluded replacement and reconstruction projects at

existing emissions units from the PCP definition.

Moreover, the Agency in the preamble to the proposed rule declared:

“[c]onsistent with the WEPCO rule and EPA’s existing (1994) policy guidance the

replacement of an existing emissions unit with a newer or different one (albeit more

efficient and less polluting) or the reconstruction of an existing emissions unit would not

qualify as a pollution control project.” 61 Fed. Reg. at 38261. While the Agency did

solicit comments on extending the PCP exclusion to “new qualifying [control]

54 See 40 C.F.R. § 51.165(a)(1)(xxxix) (defining project as “a physical change in, or change in the method of operation of an existing major stationary source.”).

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technologies,” and on the question whether they should be “comparable in effectiveness

to the listed technologies,” the Agency was clear about the continued exclusion from the

PCP definition of replacements and reconstructions of existing units. Id. at 38261-38262.

EPA furthermore did not solicit comment in 1996 on the possibility of eliminating the

primary purpose test.

The proposed rule’s PCP provisions and preamble language explicitly tracked the

Agency’s July 1994 memorandum, entitled “Pollution Control Projects and New Source

Review Applicability,” in which EPA expanded the WEPCO rule’s PCP exclusion for

utility pollution control projects, to all industry PCPs, on a case-by-case basis.

Memorandum from John Seitz, Director Office of Air Quality Planning and Standards,

US EPA, to Air Directors Regions I –X, at 1-2 (July 1, 1994) (“1994 Memo”). In the

1994 Memo, EPA stated that “The replacement of an existing emissions unit with a

newer or different one (albeit more efficient and less polluting) or the reconstruction of

an existing emissions unit does not qualify as a pollution control project.” Id. at 2. The

detailed attachment providing guidance on the Agency’s policy further clarified that:

Virtually every modernization or upgrade project at an existing industrial facility which reduces inputs and lowers unit costs has the concurrent effect of lowering an emissions rate per unit of fuel, raw material or output. Nevertheless, it is clear that these major capital investments in industrial equipment are the very types of projects that Congress intended to address in the new source modification provisions (see Wisconsin Electric Power Co. v. Reilly, 893 F.2d 901, 907-10 (7th Cir. 1990) (rejecting contention that utility life extension project was not a physical or operational change); Puerto Rican Cement Co., Inc. v. EPA, 889 F.2d 292, 296-98 (1st Cir. 1989) (NSR applies to modernization project that decreases emissions per unit of output, but increases economic efficiency such that utilization may increase and result in net increase in actual emissions). Likewise, the replacement of an existing

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emissions unit with a newer or different one (albeit more efficient and less polluting) or the reconstruction of an existing emissions unit would not qualify as a pollution control project. Adopting a policy that automatically excludes from NSR any project that, while lowering operating costs or improving performance, coincidentally lowers a unit’s emissions rate, would improperly exclude almost all modifications to existing emissions units, including those that are likely to increase utilization and therefore result in overall higher levels of emissions.

1994 Memorandum, Attachment, “Guidance on Excluding Pollution Control Projects

From Major New Source Review (NSR)” at 11.

Similarly, the preamble to the final WEPCO rule, describing the exclusion for

utility industry PCPs, states: “[c]hanges that are intended primarily to restore original

capacity or to improve the operational efficiency of the facility are not considered to be

part of a pollution control project . . . .” WEPCO Rule, 57 Fed. Reg. 32314, 32319 (July

21, 1992).55

Subsequent to the comment period on the 1996 Proposal, the Agency reopened

the record, but did not include PCP-related issues as those on which it solicited additional

comments. See generally, “Notice of Availability; Alternatives for New Source Review

(NSR) Applicability for Major Modifications; Solicitation of Comment, 63 Fed. Reg.

39857 (July 24, 1998)(not discussing PCPs).

Furthermore, on January 19, 2000, then-EPA Assistant Administrator Robert

Perciasepe wrote a summary memorandum to NSR Stakeholders, describing the “Status

of the New Source Review Improvement Rulemaking” (Perciasepe Memo, OAR-2001-

55 The WEPCO Rule’s regulatory language concerning the PCP exclusion for utilities expressly included the primary purpose test and limited the list of activities or projects which qualified: “Pollution control project means any activity or project at an existing electric utlity steam generating unit for purposes of reducing emissions from such unit. Such activities or projects are limited to: [list of projects that qualify].” 57 Fed. Reg. 32334-335.

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0004-0194). That memorandum included this about the PCP exclusion: “This would

codify our existing policy that owners of facilities making changes to their plants that

primarily reduce one or more targeted air pollutants (but which collaterally increase other

pollutants) are excluded from NSR provided certain conditions are met.” Perciasepe

Memo at 2. This pronouncement continued to state the Agency’s intention to codify the

policy expressed in the 1994 Memorandum, as described above, including the express

exclusion of replacement and reconstruction projects from the PCP definition.

Most recently, in June 2002, several years after the close of the public comment

period on the 1996 or 1996 proposals, the Agency, in its “New Source Review

Recommendations” memorandum, did state its intention to remove the primary purpose

test from the PCP exclusion. New Source Review Recommendations at 2 (June

2002)(OAR-2001-0004-0196). At the same time, however, the Agency restated its

position that “the complete replacement or reconstruction of an existing emissions unit

will not qualify under this [PCP] exclusion.” Id.

Indeed, even the preamble to the 2002 final rule does not fully articulate the

extent to which the final rule language expands the PCP exclusion. The preamble merely

states that the Agency’s final rule language “draws largely from the recommendations of

the CAAAC Subcommittee on NSR Reform.” 67 Fed. Reg. at 80232/3. Furthermore,

the Agency “received comments on every key aspect of the proposed PCP Exclusion. . . .

Industry commenters generally desire maximum flexibility, and suggest . . . limiting the

‘environmentally beneficial’ and ‘primary purpose’ requirements, . . . and broadening

which pollution prevention projects qualified.” Id. at 80233/1. The Agency further

states that it has “eliminat[ed] the ‘primary purpose’ requirement,” enabl[ed] projects that

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otherwise are PCPs and result in utilization increases to qualify,” and “clarif[ied] that the

replacement, reconstruction, or modification of an existing emissions control technology

could qualify for the exclusion.” Id. (emphasis added). Nowhere in the preamble,

however, does EPA explain that the final rule’s language would potentially allow the

replacement or reconstruction of an existing emissions unit to qualify for the PCP

exclusion.56

2. Generation of ERCs From PCP Projects Undertaken Under the Exclusion

In the preamble to the 1996 proposal, EPA stated that ERCs could be generated

“for all or part of the emission reductions equal to the difference between the pre-

modification actual baseline emissions and post-modification [potential to emit] for the

decreased pollutant,” but only if the PCP did not generate significant collateral emissions

increases of any criteria pollutant, “the project is still environmentally beneficial” even

after allowing the credits, and the reductions are “quantifiable, surplus, permanent and

enforceable.” 61 Fed. Reg. 38,249 at 38,263. If, for example, a facility’s potential to

emit NOx after installing a PCP aimed at reducing NOx emissions was 101 tons per year

56 Nor does EPA directly address the expanded scope of the exclusion or quantitatively evaluate its environmental impact in its Supplemental Analysis of the Environmental Impact of the 2002 Final NSR Improvement Rules (“Supplemental Analysis”), dated November 21, 2002. Indeed, while the Supplemental Analysis predicts “an increase in the number of PCPs under NSR Improvement,” Supplemental Analysis at 12, and recognizes that quite significant collateral pollutant increases may result, see id. at Appendix E, E-3 to E-4, the Agency simply states that it cannot reliably estimate the overall magnitude of the environmental impacts that would ensue from the expanded scope of the exclusion. Id. at 13. Instead, the Agency engages in circular logic to support its decision to expand the scope of the rule, noting simply that it has confidence that there will be overall environmental benefits, because the permitting authority must determine that projects are environmentally beneficial. Supplemental Analysis at 12. Furthermore, the drafters of the Supplemental Analysis do not even seem to be aware that the expanded scope of the PCP exclusion is applicable to electric utility steam generating units as well as to other industrial categories: they state that they expect “no discernible impact from the rule changes for this source category.” Id. at 12 n.13. This despite the fact that life-extending reconstruction and replacement projects (similar in scope to those which are currently the subject of EPA enforcement actions against, e.g., the Tennessee Valley Authority), could come within the scope of the PCP exclusion as finalized, provided that the permitting authority were able to certify that overall the project would yield net benefits.

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less than its actual baseline emissions of NOx before it installed the PCP, the proposed

rule would have allowed the facility to accrue ERCs for the 101 ton difference. 61 Fed.

Reg. at 38263/3.

While EPA solicited comments on “alternative methods for calculating [ERCs],

especially if the NSR applicability rules are revised,” id., the agency did not include any

rule language concerning the generation of ERCs from PCPs in the proposed rule

language accompanying the preamble. Nor did the 1998 Notice of Availability seek

comment on or include rule language applicable to the generation of ERCs from the

application of PCPs.

In the final rule, EPA has taken a very different approach to the question whether

ERCs could be generated by pollution control projects. EPA scrapped its proposed plan

and came up with two new methods by which ERCs can be generated. First, actual

reductions in the targeted pollutant initially and directly attributable to the PCP are

creditable, but only with respect to the Title IV Acid Rain program. 67 Fed. Reg. at

80237/3.

Second, ERCs can be generated where a facility qualifies for the PCP exclusion

and then subsequently further limits the amounts by which it could otherwise emit either

targeted or collateral pollutants. Id. at 80238/1. For example, a NOx control project that

decreases annual emissions of NOx by 101 tons could collaterally increase annual VOC

emissions by 100 tons and still qualify as a PCP (assuming the permitting authority found

the project’s net impact on air quality to be “environmentally beneficial”).57 Under that

scenario, the 100 tpy of VOC would represent the maximum allowable emissions, or the

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“potential to emit,” for VOC from the new PCP. Any increase in VOC emissions up to

100 tpy would be excluded from NSR scrutiny. If the owner or operator of the facility

subsequently agreed to further limit its emissions of VOC from the PCP to 75 tpy, (by

taking, for example, an operational restriction), it could accrue 25 tpy in VOC ERCs that

could be used to offset emissions elsewhere. See id. Similarly, the owner or operator of

a facility can generate ERCs if, after installing a PCP, it makes an enforceable

commitment to further reduce emissions of the targeted pollutant. Id. See also EPA,

Technical Support Document for the Prevention of Significant Deterioration and

Nonattainment Area New Source Review Regulations (vol. 1) § 10.11 (restating the

language at 67 Fed. Reg. at 80238/3).

3. Minimizing Collateral Emissions

If the owners of a facility want a new process or device to be designated as a PCP,

they must, among other things, certify that “the project will be designed and operated in a

manner that is consistent proper industry and engineering practices, in a manner that is

consistent with the environmentally beneficial analysis and the air quality impact analysis

required by [40 C.F.R. § 51.165(e)(2)(i) and (ii)], with information submitted in the

notice or permit application, and in such a way as to minimize, within the physical

configuration and operational standards usually associated with the emissions control

device or strategy, emissions of collateral pollutants.” 40 C.F.R. § 51.165(e)(3)(iv)

(emphasis added). In effect, the italicized language purports scale back the requirement

that a facility install BACT or LAER if it is modified in such a way as to increase

57 Which is entirely possible under the final rule’s framework. See U.S. EPA, “Supplemental Analysis of the Environmental Impact of the 2002 Final NSR Improvement Rules” at Appendix E, E-3 to E-4 (Nov. 21, 2002).

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emissions (collateral or otherwise). EPA also failed to provide notice and an opportunity

to comment on this provision.

B. Argument

1. The Expansion of the PCP Exclusion to Include the Replacement or Reconstruction of Emissions Units Violates the Clean Air Act.

A stationary source must comply with NSR if it undergoes a “modification,”

defined in the CAA as “any physical change in, or change in the method of operation of,

a stationary source which increases the amount of any air pollutant emitted by such

source or which results in the emission of any air pollutant not previously emitted.” See

CAA § 111(a)(4), 42 U.S.C. § 7411(a)(4); CAA §§ 160-169, 42 U.S.C. §§ 7470-7479

(PSD); CAA §§ 172(c)(5), 173, 42 U.S.C. § 7502(c)(5), 7503 (NSR).

Any project that qualifies for PCP status will clearly meet the statutory definition

of a “modification,” see CAA § 111(a)(4), 42 U.S.C. § 7411(a)(4), and should therefore

be subject to NSR scrutiny. First, a PCP would undoubtedly involve as a “physical

change” or a “change in the method of operation.” Id. Second, if a project qualifies for

PCP status, it will as a matter of course “increase[] the amount of any air pollutant

emitted by such source or … result[] in the emission of any air pollutant not previously

emitted.”58 Id.

The PCP exclusion is therefore fundamentally illegal, and the substantial changes

made to the PCP exclusion in the final rule compound that illegality. By broadly

expanding the list of presumptive PCPs and enlarging the exclusion to encompass the

58 The PCP exclusion is designed to exclude significant collateral emissions from review. If a pollution control project does not result in significant collateral emissions, there would be no reason to resort to the PCP exclusion. Every PCP, therefore, will cause an increase in the emission of air pollutant[s].

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reconstruction and replacement of emissions units, EPA has exacerbated the unlawful

nature of the PCP exclusion.

This is particularly evident with respect to EPA’s decision – announced for the

first time in the final rule – to allow the replacement or reconstruction of an emissions

unit to qualify for the exclusion. In fact, as discussed above, EPA has previously

recognized that renovations that involve the replacement or reconstruction of an

emissions unit “are the very types of projects that Congress intended to address in the

new source modification provisions.” 61 Fed. Reg. at 38262/3.

Projects of this size quite obviously fit within the Act’s description of

modifications that trigger NSR analysis. See CAA § 111(a)(4), 42 U.S.C. § 7411(a)(4).

For example, the replacement of a boiler would clearly involve both a physical change

and (if it is seeking PCP status) an increase in the amount of an air pollutant emitted by a

facility.59 Moreover, courts have read the Section 111(a)(4) to mean that any

modification that increases emissions is subject to NSR, regardless of the project’s scope.

In Alabama Power Co. v. Costle, 636 F.2d 323, 400 (D.C. Cir 1979), D.C. Circuit Court

of Appeals court wrote that “the term ‘modification’” as used in CAA § 111(a)(4) “is

nowhere limited to physical changes exceeding a certain magnitude.” The Seventh

Circuit Court of Appeals reached a similar conclusion in WEPCO v. Reilly, citing

remarks by Senator Muskie that a source is subject to NSR “if it makes any physical

change which increases the amount of an air pollutant….” 893 F.2d 901, 908 (7th Cir.

59 Although the term “increases” is not qualified or limited in any way by language of the statute, cf. Johnson v. SEC, 87 F.3d 434, 487 (D.C. Cir. 1996) (absent indication to contrary, court assumes Congress intended words to have their ordinary, contemporary common meaning), the agency has limited the Act’s reach by constraining NSR to apply only to “major modifications.” 40 CFR § 52.21(a)(2)(ii). Accordingly, EPA rules define a modification as subject to NSR if it will result in a “significant” increase of a regulated NSR pollutant. However, even if one were to accept EPA’s interpretation of the word

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1990) (emphasis supplied by court). The Clean Air Act and relevant case law clearly

indicate that NSR applies to any modification that results in increased emissions.

The language of the Clean Air Act is dispositive evidence of Congress’s intent

when it crafted the statute, Sierra Club v. EPA, 294 F.3d 155, 161 (D.C. Cir 2002), and

the Act subjects any modification that results in increased emissions to NSR scrutiny.

CAA § 111(a)(4), 42 U.S.C. § 7411(a)(4). NSR is triggered only when there is an

emissions increase; thus, it is not anomalous for NSR to apply to the installation of

pollution control devices when – as is the case with PCPs – that project will in fact

increase emissions of a pollutant. Moreover, EPA originally excluded pollution control

projects from NSR because the agency felt that Congress could not have intended for

NSR to apply to a facility whose primary purpose for modifying was to reduce air

pollution. See WEPCo Rule, 57 Fed. Reg. 32314, 32319. The 2002 final rule, however,

eliminates the “primary purpose” test, and significantly expands the PCP exclusion, even

if the change would yield emissions increases above and beyond the significance

threshold. See 67 Fed. Reg. at 80232/2 (permitting “emissions increases that exceed the

significant level”). As a result, the final rule violates CAA § 111(a)(4).

EPA’s attempt to exclude the replacement or reconstruction of an emissions unit

from NSR contradicts the intent of Congress when it drafted the Clean Air Act’s NSR

provisions. As evidenced by the language of the Act, the interpretations of reviewing

courts, and the statements of the Act’s sponsors, Congress intended that any modification

that led to an increase in emissions be subject to NSR. See CAA § 111(a)(4); Alabama

Power Co, 636 F.2d at 400; 123 Cong. Rec. 26847 (1977) (statement of Senator Muskie)

“increase” to mean “significant increase,” a PCP would still qualify as a modification. All PCPs involve an increase in some regulated pollutant that is greater-than-significant.

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(“A source … is subject to all the nonattainment requirements as a modified source if it

makes any physical change which increases the amount of an air pollutant….”); see also

North Haven Bd. of Educ. v. Bell, 456 U.S. 512, 526-27 (1982) (“remarks of the sponsor

of the language ultimately enacted, are an authoritative guide to the statute’s

construction”); accord United States v. Barnes, 295 F.3d 1354, 1365 (D.C. Cir. 2002).

The final rules nevertheless allow facilities to replace or reconstruct their emissions units

without undergoing NSR, an attempt to accomplish administratively that which Congress

has refused to do legislatively.

As described above, EPA itself has recognized that this outcome is contrary to the

intentions of Congress. Prior to the issuance of the final rule, EPA had repeatedly and

specifically stated that a project which involved the replacement or reconstruction of an

emissions unit could not qualify for a PCP exclusion. According to the agency,

[S]pecial care must be taken in classifying a project as a pollution control project and in evaluating a project under the pollution control project exclusion. Virtually every modernization or upgrade project at an existing industrial facility which reduces inputs and lowers unit costs has the concurrent effect of lowering an emissions rate per unit of fuel, raw material or output. Nevertheless, it is clear that these major capital investments in industrial equipment are the very types of projects that Congress intended to address in the new source modification provisions.

61 Fed. Reg. at 38262/3 (emphasis supplied). Along these lines, EPA wrote that

“[c]onsistent with the WEPCO rule and EPA’s existing policy guidance the replacement

of an existing emissions unit with a newer or different one (albeit more efficient and less

polluting) or the reconstruction of an existing emissions unit would not qualify as a

pollution control project.” Id. at 38261/3.

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2. The Expansion of the PCP Exclusion to Include the Replacement or Reconstruction of Emissions Units is Arbitrary and Capricious Because EPA Failed To Give Notice of this Aspect of the Rule, Failed To Provide an Opportunity for Public Comment, and Failed to Offer Any Explanation of its Action.

The expansion of the PCP exclusion to include the replacement or reconstruction

of an emissions unit is arbitrary and capricious because the agency has not provided any

reasoned analysis in support of its action. Motor Vehicles Mfrs. Ass’n v. State Farm

Mut. Auto Ins. Co., 463 U.S. 29, 43 (1983) (requiring an agency to “articulate a

satisfactory explanation for its action”). Indeed, EPA has given no explanation

whatsoever, as it made no mention of the change in the preamble to the final rule, the

proposed rule, the technical support document, or in its various other pronouncements

pertaining to the PCP exclusion.

Unless an agency itself gives an adequate explanation for its regulatory actions,

those actions will be deemed arbitrary and capricious. Sierra Club v. EPA, 294 F.3d 155,

163 (D.C. Cir. 2002) (EPA’s failure explain to offer a reasoned explanation – “whether

the result of inadvertence or of an unexplained change of course – renders the EPA’s

decision arbitrary and capricious.”) EPA has failed to acknowledge, much less explain,

the aspect of the final rule that will allow facilities to replace or reconstruct their

emissions unit without undergoing NSR. The final rule, therefore, is arbitrary and

capricious.

EPA not only failed to describe why a reconstruction or replacement of an

emissions unit to should qualify for the PCP exclusion, it also neglected to “articulate a

satisfactory explanation” for why it abandoned its previously stated position that these

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“are the very types of projects that Congress intended to address in the new source

modification provisions.” 61 Fed. Reg. at 38262/3; 1994 Memorandum at 11. By failing

to offer any rationale for why it reversed itself on this issue, EPA violated the Clean Air

Act requirement that a final rule “be accompanied by … an explanation of the reasons for

any major changes in the promulgated rule from the proposed rule.” CAA §

307(d)(6)(A), 42 U.S.C. § 7607(d)(6)(A).

3. Petitioners Were Not Provided an Opportunity to Comment on the Expanded Scope of the PCP Exclusion, Because this Proposal Was Not Adequately or Fairly Noticed for Public Comment.

As set forth above, up to and until the date of the publication of the final rule’s

language, EPA had consistently and explicitly stated its intention that replacement or

reconstruction of an existing emissions unit could not qualify for the PCP exclusion.60

And yet the final rule language would permit such projects to qualify for the PCP

exclusion.

The Agency’s repeated statements confirming its intentions to continue to exclude

emissions unit replacement and reconstruction projects from the PCP definition, meant

that interested affected parties such as petitioners had no notice of the Agency’s actual

intentions (as documented in the language of the final regulation). Indeed, even the final

rule preamble does not fully articulate the extent to which the final rule language expands

the PCP exclusion, as described above.

60 Indeed, as recently as June 2002, when the Agency announced its recommendations for NSR changes to be included in the final rules, the Agency restated its intention that the final rule would not extend the PCP exclusion to emissions unit replacement or reconstruction projects.

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This complete lack of affirmative indication that EPA contemplated such an

extraordinary expansion of the PCP exclusion is sufficient grounds to justify

reconsideration of the final rule. See CAA § 307(d)(7)(b), 42 U.S.C. § 7607(d)(7)(B).

Petitioners object herein to the aspect of the rule that would allow the replacement or

reconstruction of an emissions unit to qualify for PCP status. Because “the grounds for

such objection arose after the period for public comment,” EPA is required by law to

convene a proceeding for reconsideration. Id. Moreover, it was impracticable (indeed

impossible) for interested parties to comment during the comment period, or in fact at

any time prior to the publication date. Id. Indeed, this kind of failure to timely notice

significant changes has been found under the APA to justify vacatur of the rule. See

American Water Works Ass’n v. EPA, 40 F.3d 1266, 1275 (D.C. Cir. 1994).

The final rule language furthermore is not a “logical outgrowth” of the proposal,

such that petitioners or other interested parties had actual notice of the Agency’s

intention, even though the Agency did not publish it in the proposed rule or preamble.

Rather all of the Agency’s pronouncements up to and until the publication of the final

rule indicated that the Agency intended the directly contrary result: namely that

emissions unit replacement and reconstruction projects would continue to be excluded

from the PCP definition.

Finally, although the Agency declares that its final rule on PCPs was developed

“largely from recommendations of the CAAAC Subcommittee on NSR Reform,” 67 Fed.

Reg. at 80232/3, petitioners cannot locate a copy of those recommendations in the docket

materials underlying the rule. Nor are those recommendations referenced in the proposed

rule or in any subsequent EPA pronouncement on the PCP exclusion up to and until the

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publication of the final rule language on Dec. 31, 2002. Petitioners and other interested

parties therefore had no opportunity to review and comment on these recommendations

prior to the publication of the final rule’s language, despite the fact that the Agency states

that they were among the major legal and policy considerations underlying the proposed

and final rule. See 67 Fed. Reg. at 80232; see also 42 USC § 3607 (d)(3)(C).

4. The Final Rule’s ERC Provision Violates the Clean Air Act

The final rule allows the creation of ERCs from reductions in allowable collateral

emissions, rather than reductions in actual emissions, and thereby violates Section 173 of

the Clean Air Act. Under Section 173, there must be a decrease “in the actual emissions”

of a pollutant for the reduction to be creditable. CAA § 173(c)(1), 42 U.S.C. §

7503(c)(1) (emphasis added). The final rule, however, would credit “paper” reductions, a

result directly contradictory to the directives in the plain language of the Act. See id.

The final rule language states that:

[e]mission reductions created by a PCP shall not . . . be used for generating offsets, unless the emissions unit further reduces emissions after qualifying for the PCP exclusion (e.g. taking an operational restriction on the hours of operation). The owner or operator may generate a credit for the difference between the level of reduction which was used to qualify for the PCP exclusion and the new emission limitation if such reductions are surplus, quantifiable, and permanent. For the purpose of generating offsets, the reductions must also be federally enforceable. For purposes of determining creditable net emissions increases and decreases, the reductions must also be enforceable as a practical matter.

40 C.F.R. 51.165(e)(iv); see also 67 Fed. Reg. at 80238/1.

Moreover, the method by which the new rule credits “reductions” in collateral

pollutants is particularly problematic. The baseline from which creditable reductions are

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measured is set according to a given facility’s potential for increased collateral pollutant

emissions, not the facility’s actual emissions after the PCP is completed. Put another

way, the rule does not require a demonstration that a facility in fact increases its

emissions of the collateral pollutant to the maximum potential amount of collateral

pollutants – instead, it is only necessary to show that the facility could emit that amount

and still retain its PCP status. Using the example from above, the facility could

demonstrate that the maximum amount of collateral VOC it could emit is 100 tpy, even if

its actual post-modification emissions of VOC are 75 tpy. By then agreeing to “limit” its

emissions of VOC to 75 tpy, the facility will have generated 25 tpy worth of ERCs. See

67 Fed. Reg. at 80238/1.

By allowing facilities to generate ERCs on the basis of these paper reductions,

EPA violates the statutory requirement that only credits based on “actual” emissions

reductions be used to offset pollution increases at other new or modified sources. A new

or modified source located in a nonattainment area must secure “sufficient offsetting

emissions reductions” before it can receive an operating permit. CAA § 173(a)(1)(A), 42

USC § 7503(a)(1)(A). According to the Act,

Such emission reductions shall be, by the time a new or modified source commences operation, in effect and enforceable and shall assure that the total tonnage of increased emissions of the air pollutant from the new or modified source shall be offset by an equal or greater reduction … in actual emissions of such air pollutant from the same or other sources in the area.

CAA § 173(c)(1), 42 U.S.C. § 7503(c)(1) (emphasis added). Thus, only those reductions

that result in actual decreases of emitted pollutants can be used to offset new emissions.

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The final rule, in comparison, allows facilities to accrue pollution credits on the

basis of paper reductions in the collateral emissions increases associated with a PCP. As

long as a facility agrees to limit its emissions of a collateral pollutant below the level that

would otherwise be allowable, the facility can generate ERCs that can be used to offset

emissions elsewhere. This remains true even if the facility’s actual emissions of the

collateral pollutant were significantly less than its potential to emit that pollutant. See 67

Fed. Reg. at 80238/1. EPA’s final rule thus provides facilities with an opportunity to

market credits that are based on pollution reductions that do not actually occur, as a result

of having actually increased emissions of the collateral pollutant over pre-PCP emissions.

Accordingly, the rule contravenes Section 173(c)(1)’s clearly stated requirement that

ERCs be based on actual reductions in emissions, in two ways: by allowing the

generation of paper credits, and by allowing the generation of ERCs at all as the result of

a series of activities yielding an actual increase in the pollutant in question.

5. The Final Rule’s ERC Provisions are Arbitrary and Capricious.

A regulatory action is arbitrary and capricious unless it is accompanied by an

adequate explanation from the appropriate agency. Sierra Club, 294 F.3d at 163. EPA

failed to provide a reasoned analysis for its decision to allow facilities to generate ERCs

from paper reductions in collateral pollutants. The agency’s lack of explanation renders

its action arbitrary and capricious.

In the proposed rule, the agency “solicit[ed] comment on alternative methods for

calculating emissions reduction credits, especially if the NSR applicability rules are

revised.” 61 Fed. Reg. at 38263. This sentence fails to give any notice of EPA’s

intention to allow the generation of ERCs from subsequent reductions of PCP-related

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collateral pollutant increases. Nor does the preamble to the final rule discuss or analyze

in any detail the legal interpretations or policy considerations underlying the Agency’s

significant decision to allow the creation of ERCs from subsequent reductions of

collateral pollutants initially increased as a result of the PCP. See 67 Fed.Reg. 80237/3-

238/1; see also 42 U.S.C. § 7607(d)(6)(A). The Agency therefore has not come close to

fulfilling its legal duty to “articulate a satisfactory explanation” for its eventual decision

to credit subsequent paper reductions of PCP-related, increases in collateral pollutants.

See State Farm, 463 U.S. at 43.

Moreover, the Agency presents no evidence in the record analyzing, supporting or

discussing the environmental impact of the Agency’s decision to allow the creation of

ERCs from subsequent reductions in emissions of collateral pollutants which have

increased initially as a result of the PCP. See U.S. EPA, Supplemental Analysis of the

Environmental Impact of the 2002 Final NSR Improvement Rules, 11-13 & Appendix E

(Nov. 21, 2002).

6. EPA Failed to Give Fair or Adequate Notice of its Decision to Grant ERCs for “Reductions” in Allowable Collateral Emissions Increases.

Given the chance, petitioners would have certainly opposed a measure that allows

the owner or operator of a facility to generate ERCs on the basis of paper reductions of

collateral pollutant increases resulting from the completion of a PCP. That opportunity

never materialized, however, as the “grounds for such an objection arose after the period

for public comment.” See CAA § 307(d)(7)(B), 42 U.S.C. § 7607(d)(7)(B). In addition,

EPA’s complete failure to provide notice of such a sweeping change to the NSR rules

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made it “impracticable to raise such objection[s]” during the comment period, thereby

necessitating this petition for reconsideration. Id.

7. The Provision of the PCP Exclusion Allowing Facilities to Disregard Separate or Additional Measures to Reduce Collateral Emissions Is Arbitrary and Capricious

If the owners of a facility want a new process or device to be designated as a PCP,

they must certify to permitting authorities that the project will be implemented or

installed in such a way as to minimize the emissions of collateral pollutants. However,

this requirement is subject to the following proviso: a facility must reduce the collateral

emissions only to the extent that doing so would be possible “within the physical

configuration and operational standards usually associated with the emissions control

device or strategy.” 40 C.F.R. § 51.165(e)(3)(iv). In effect, a facility owner need not

take any separate or additional measures to reduce collateral emissions associated with a

PCP.

The caveat dramatically alters the PCP exclusion by lessening the responsibility

of a plant owner or operator to minimize collateral emissions. Not surprisingly, it lacks

any support in the language of the Clean Air Act or in the relevant legislative history. In

addition, EPA failed to give notice of this aspect of the rule, failed to provide an

opportunity for public comment, and failed to offer any explanation of its action. The

lack of statutory authority and the various procedural defects render this aspect the PCP

exclusion arbitrary and capricious.

The Clean Air Act requires a stationary source to install modern pollution controls

whenever the facility makes a physical or operational change that increases emissions or

results in the emission of a new pollutant. CAA § 111(a)(4), 42 U.S.C. § 7411(a)(4). A

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pollution control project is a physical or operational change that increases the emissions

of a collateral pollutant. As such, the project is a “modification” subject to NSR.

According to the language of the statute, BACT or LAER must be installed to control the

increased emissions. CAA § 165(a)(4), 42 U.S.C. § 7475(a)(4) (PSD BACT); CAA §

173(a)(2), 42 U.S.C. § 7503(a)(2) (NSR LAER).

EPA has concocted the PCP exclusion to shield such projects from the statutory

mandate that they install BACT or LAER to address collateral the emissions increases.

In the final rule, EPA has gone a step further. A facility that installs or implements a PCP

now must minimize collateral emissions only when doing so would be possible “within

the physical configuration and operational standards usually associated with the

emissions control device or strategy.” 40 C.F.R. § 51.165(e)(3)(iv). This is a far cry

from the Clean Air Act’s requirement that the emissions be reduced to BACT/LAER

levels. Rather than require BACT/LAER, or even some lesser level of control based on

BACT/LAER,61 the agency has constructed its new legal test out of whole cloth. There is

nothing in the statute or in the relevant legislative history that justifies EPA’s decision to

limit the responsibility of facility owners to reduce increases in collateral emissions. See,

e.g., CAA § 111(a)(4), 42 U.S.C. § 7411(a)(4); CAA §§ 160-169, 42 U.S.C. §§ 7470-

7479 (PSD); CAA §§ 172(c)(5), 173, 42 U.S.C. § 7502(c)(5), 7503 (NSR). EPA, for its

part, provides no legal authority that might legitimize its approach. See, e.g.,61 Fed. Reg.

38250, 38260-263; EPA, Technical Support Document for the Prevention of Significant

Deterioration and Nonattainment Area New Source Review Regulations (vol. 1) § 10.9.1.

Nor can EPA mitigate the lack of any legal basis for its action by relying on the policy-

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based justifications it uses to support the PCP exclusion in general. “An agency may not

disregard ‘the Congressional intent clearly expressed in the text simply by asserting that

its preferred approach would be better policy.’” Sierra Club v. EPA, 294 F.3d 155, 161

(D.C. Cir 2002) (quoting Engine Mfrs. Ass’n v. EPA, 88 F.3d 1075, 1089 (DC Cir.

1996)); see also Sierra Club v. EPA, 311 F.3d 853, 862 (7th Cir 2002) (“[U]nder our

system of government, it is not our business or the EPA's business to rewrite a clear

statute so that it will better reflect ‘common sense and the public weal.’”) (quoting

Tennessee Valley Auth. v. Hill, 437 U.S. 153, 195 (1978)).

In addition to substantively violating the Clean Air Act, EPA disregard several

procedural requirements when it inserted the new caveat into the final rule. Having failed

to propose any limitation on a facility’s obligation to make additional efforts to reduce

collateral emissions, see 61 Fed. Reg. 38250, 38260-263, EPA also neglected to solicit

comment on that aspect of the final rule, see id. By not doing so, the Agency violated the

notice and comment guarantees of the Clean Air Act and the Administrative Procedure

Act. CAA § 307(d)(3), 42 U.S.C. § 7607(d)(3); 5 U.S.C. § 553.

Furthermore, EPA failed to offer any explanation for its decision to limit the

required measures for minimizing collateral emissions. A provision that frees facility

owners from having to consider separate or additional measures to reduce collateral

emissions is hardly self-explanatory. EPA is duty-bound to explain why facilities should

not be required to consider processes or controls that would reduce collateral pollution

from PCPs, even if those measures are readily available. That duty went unfulfilled.

61 This is not to suggest that something other than BACT/LAER is required, but even a less stringent control level that is based on BACT/LAER has the advantage of being somewhat connected to the Clean Air Act. EPA’s approach has no statutory justification whatsoever.

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Accordingly, the agency’s failure to provide any reasoned analysis in support of

the final rule’s limitation on the responsibility of a plant owner to minimize collateral

emissions renders that action arbitrary and capricious. State Farm, 463 U.S. at 43

(requiring an agency to “articulate a satisfactory explanation for its action”). In fact, EPA

has given no explanation for its action whatsoever. EPA writes in the preamble to the

final rule that it presumes a facility owner would “minimize increases in collateral

pollutants within the physical configuration and operation standards usually associate

with the emissions control device or strategy,” 67 Fed. Reg. at 80234/3 (emphasis added).

Despite its significance, the agency offers no explanation for the caveat. Similarly, in the

Technical Support Document, the agency again uses the caveat without making any

attempt to explain or justify its presence. EPA, Technical Support Document for the

Prevention of Significant Deterioration and Nonattainment Area New Source Review

Regulations (vol. 1) § 10.9.1. The absence of any explanation is a violation the Clean

Act’s requirement that EPA describe its reasons for any major changes in the final rule.

See CAA § 307(d)(6)(A), 42 U.S.C. 7607(d)(6)(A).

C. Conclusion

For the foregoing reasons, the Agency must reopen for public comment the

portions of the final rule related to the pollution control projects exclusion, and should

stay the effectiveness of those aspects of the final rule pending a full reconsideration.

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VII. MISCELLANEOUS

A. Arbitrary Re-Definition of Practical Enforceability

EPA’s final rule preamble arbitrarily, without explanation or justification, departs

from long-standing agency guidance concerning requirements for practical enforceability.

EPA states:

Practical enforceability for a source-specific permit will be achieved if the permit's provisions specify: (1) A technically-accurate limitation and the portions of the source subject to the limitation; (2) the time period for the limitation (hourly, daily, monthly, and annual limits such as rolling annual limits); and (3) the method to determine compliance, including appropriate monitoring, recordkeeping, and reporting.

67 FR at 80190-91. EPA’s previously governing guidance on practical enforceability is a

document entitled “Guidance on Limiting Potential to Emit in New Source Permitting,”

Terrel E. Hunt, Office of Enforcement and Compliance Monitoring, and John S. Seitz,

Office of Air Quality Planning and Standards (June 13, 1989) (June 1989 Guidance).

The June 1989 Guidance defines practical enforceability to require short-term

production or operational limitations, which must be enforceable independently of one

another, in addition to emission limitations. See June 1989 Guidance at 5-6 (discussing

United States v. Louisiana-Pacific Corp., 682 F. Supp. 1122 (D. Colo. 1987), and 682 F.

Supp. 1141 (D. Colo. 1988.)). The guidance further indicates that for “limitations to be

enforceable as a practical matter, the time over which they extend should be as short term

as possible and should generally not exceed one month.” June 1989 Guidance at 9. To

our knowledge, EPA has never before repudiated this guidance, or explained why

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departure from these principles would be proper in light of all the reasons for these

principles explained in the June 1989 Guidance and the Louisiana-Pacific decisions.62

Now, in the final NSR rules, without any explanation or justification, without any

advance notice or opportunity for comment in the earlier proposals, EPA arbitrarily

overturns the key short-term limitations feature of the June 1989 Guidance, by re-

defining practical enforceability to include not just hourly, daily or monthly time periods,

but “annual limits such as rolling annual limits.” Two aspects of this elongated time

period are arbitrary and insufficiently enforceable as a practical matter. First, the

extension of an appropriate time period from monthly limits to annual limits at all.

Second, the acceptance of not just “rolling annual limits” but any annual limits, made

clear by the words “such as,” which indicate that “rolling annual limits” are a mere

example of any acceptable annual limit.

While the June 1989 Guidance recognizes room for exceptions to the one-month

time period, it makes clear these are “rare situations,” in which a limit spanning a longer

time is appropriate “if it is a rolling limit. However, the limit should not exceed an

annual limit rolled on a monthly basis.” Id. EPA explained that “[h]owever, permits

where longer rolling limits are used to restrict production should be issued only to

sources with substantial and unpredictable annual variation in production, such as

emergency boilers. Rolling limits could be used as well for sources which shut down or

curtail operation during part of a year on a regular seasonal cycle, but the permitting

authority should first explore the possibility of imposing a month-by-month limit.” Id. at

62 For example, the guidance notes “[t]he requirement for a monthly limit prevents the enforcing agency from having to wait for long periods of time to establish a continuing violation before initiating an enforcement action.” EPA’s final rule fails to explain why it is remotely reasonable or enforceable to

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9-10. Finally, EPA notes “[u]nder no circumstances would a production or operation

limit expressed on a calendar year annual basis be considered capable of legally

restricting potential to emit.” Id. at 10 (emphasis added).

Not only do EPA’s final rules purport to make annual limits acceptable in all

instances, rather than “rare situations”; the rules do not even require annual limits to be

rolled on a monthly basis – apparently allowing any rolling period. EPA turns the

admonition on calendar annual basis limits being used in no circumstances on its head by

appearing to allow this practice in all circumstances. EPA’s final rules are arbitrary for

failing to explain or justify the practical enforceability approach in the final rules; by

failing to put the public on notice about this radical departure from agency practices,

policies and legal interpretations; by failing to explain the agency’s departure from its

longstanding, consistent guidance; and by failing to explain how appropriate practical

enforceability will be achieved with bare annual limits or annual limits rolled over any

period. Finally, EPA’s approach to practical enforceability runs afoul of the holdings in

the Louisiana-Pacific cases, the Alabama Power decision, and Congressional intent in

establishing the PSD program, as explained in the June 1989 Guidance itself. Id. at 3-5;

Louisiana-Pacific, 682 F.Supp. at 1133; Alabama Power v. Costle, 636 F. 2d 323 (D.C.

Circuit 1979). Again, EPA has failed to explain its departure from its own interpretations

and from these court decisions and Congressional intent.

B. Failure to Codify 1990 Amendments

While EPA has codified the deregulatory 1990 Amendments, see exemption of

listed HAPs, 67 FR at 80239, the agency appears to have gone out of its way to avoid

require enforcement officials or citizens to have to “to wait for long periods of time to establish a continuing violation before initiating an enforcement action.”

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codifying the 1990 Amendments that lower major source thresholds and adopt other

improving changes to the program, such as greater protections for national parks and

wilderness areas. It has been 13 years since EPA was required to codify these

amendments, and 9 years since EPA undertook a proposed rulemaking to do so. It is

inexcusable and arbitrary for EPA to adopt final NSR rules that fail to codify most of the

1990 amendments 13 years later, at the same time that EPA selectively codifies those

aspects of the amendments most beneficial to industry. Then at the same time, EPA

adopts NSR amendments that were not called for by the 1990 amendments, that are not

authorized by the 1990 amendments or Act, and that reveal an overarching deregulatory

agenda that takes obvious priority over the simple, basic responsibility of codifying

Congressional choices in federal rules.

EPA’s explanation for its failure is dumbfounding and arbitrary: “[w]e have not

decided what final action we will take on those issues.” 67 FR at 80189. There is no

“decision” that EPA has in this matter; Congress 13 years ago directed EPA to adopt

regulations to carry out the 1990 Amendments and EPA has abdicated, and continues to

abdicate, that responsibility.

C. Debottlenecking

As a result of 11th hour edits, EPA’s final rules arbitrarily allow emissions

increases that result from a modification to be ignored and excluded by a source operator

when post-change emissions are projected. The final rules are also not only an arbitrary

and unexplained departure from prior agency policies and interpretations; the final rule

preamble affirmatively misleads the public by suggesting that the departure is not a

change from current requirements and interpretations.

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In its final rule preamble, EPA states:

We are also modifying the way you may determine whether emissions at existing units (including EUSGUs) will increase, by allowing you to use projected actual emissions for purposes of this determination. Under this approach, in circumstances where there is a reasonable possibility that a project that is not part of a major modification may result in a significant increase of a regulated NSR pollutant, before beginning actual construction, you may choose to make and record a projection of post-change emissions of that pollutant from changed units.14

67 FR at 80192/1 (footnote omitted here; see below for discussion) (emphasis added). EPA’s prior interpretations concerning this issue are set forth, among other

places, in the 1990 New Source Review Workshop Manual. In a major modification

applicability example set forth in this manual, EPA discusses two units, A and B, that

will not be physically modified when a major modification at the plant is occurring, but

these two units nonetheless will experience emissions increases as a result of the major

modification:

The applicant's response indicates that units A and B will not be physically modified. However, the information does show that the modification will result in the removal of a bottleneck at the plant and that the proposed modification will result in an increase in the operation of these units.

1990 NSR Manual at A.52. EPA goes on to note in discussing this example:

Even though units A and B will not be modified, their emissions are expected to increase as a result of the modification and the anticipated increase must be included as part of the increase from the proposed modification.

Id. at A.53 (emphasis added). From this, it is clear that EPA’s consistent interpretation, practice and policy have

required anticipated emissions that are expected to increase as a result of a modification

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to be included as part of the increase from the proposed modification. The passage

excerpted above from the final preamble represent a radical break with this interpretation.

EPA now authorizes source operators not to include anticipated emissions that will result

from the proposed modification. By indicating that operators “may choose to make and

record a projection of post-change emissions of that pollutant from changed units,” EPA

makes equally clear that operators need not, and may choose not to, include these

projected post-change emissions. EPA nowhere attempts to explain, of course, why any

rational source operator would “choose” to increase its projection of post-change

emissions in this manner.

But more important, EPA utterly fails to explain, justify or support with any

reasoned decisionmaking or factual evidence the basis for this interpretative change.

EPA failed to put the public on notice in any respect that this fundamental overturning of

agency interpretation and policy would occur in this final rulemaking. Indeed, EPA

acknowledges that rulemaking would be necessary to accomplish such a change, and

commits to do so in the future. 67 FR at 80192, n.14.

EPA’s explanation in footnote 14 that the agency “does not intend” to change

current requirements related to debottlenecking does not overcome the fact that the text

discussed above does just that. EPA might be tempted to respond that we are reading too

much into the preamble text noted above, especially in light of footnote 14. But the

preamble text above, with its permissive language, speaks for itself. And more

troublingly, the administrative record for EPA’s final rulemaking makes abundantly clear

that EPA was acting consistently with its own interpretations and policies up until the

11th hour of this very rulemaking. In faxed edits to this section of the NSR preamble

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from DOE, sent at 5:40 am on November 21, 2002, we see the language EPA had used

for this preamble passage before the fateful, arbitrary edits were made (additions appear

underlined, deletions appear with strikethrough):

Under this approach, in circumstances where there is a reasonable possibility that a project that is not part of a major modification may result in a significant increase of a regulated NSR pollutant, before beginning actual construction, an owner or operator who uses this method must you may choose to make and record a projection of future post-change emissions of that pollutant from changed units.

IV-H-65, at 13. The prior draft’s recognition that operators “must” project post-change

emissions from projects not part of the major modification is in accord with EPA’s own

interpretations and policies. The final rules’ contrary permission is an arbitrary departure

from those interpretations and policies and cannot stand.

D. Unlawful Effective Date of Final NSR Rules

Concerning the effective date of the final NSR rules, the preamble states:

All of these changes will take effect in the Federal PSD program (codified at Sec. 52.21) on March 3, 2003. This means that these rules will apply on March 3, 2003, in any area without an approved PSD program, for which we are the reviewing authority, or for which we have delegated our authority to issue permits to a State or local reviewing authority.

67 Fed. Reg. at 80240/3. Due to arbitrary actions by EPA in its final rules, however, not

all of the rule changes will take effect on March 3, 2003. Other changes would appear to

take effect, including changes that would seem to interact with changes not taking effect,

creating regulatory confusion and an arbitrary legal system for reviewing authorities,

regulated entities and the public.

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This state of affairs and grounds for objection and comment plainly arose after the

period for public comment, and it is difficult to imagine an objection that is of greater

central relevance to the outcome of the rules. Accordingly, the Administrator must

consider these objections. Because the final rules are unlawful and cannot be

implemented on March 3, 2002 as EPA claims, we call upon EPA to undertake new

rulemaking. We believe that this new rulemaking should lead EPA to reconsider and

ultimately repeal the unfounded final NSR rules published on December 31, 2002 that are

the subject of this petition for reconsideration, separately filed petitions for

reconsideration, and multiple judicial petitions for review.

For states that do not have approved PSD programs, EPA specifically

incorporates the federal PSD program codified at 40 CFR § 52.21 into state

implementation plans (SIPs). The state plans, in turn, are compiled at the end of part 52.

See, e.g., 40 CFR § 52.1180(b) (incorporating the federal PSD rules into the Michigan

SIP). Taking this Michigan example, § 52.1180(b) cross-references §§ 52.21(b)-(w) of

the federal PSD program. These cross-references appear to be identical for other

similarly situated states.

The final NSR rules adopted by EPA added extensive new sections and

paragraphs to 40 CFR § 52.21 beyond (b)-(w). These rules contain major provisions in §

52.21(a) as well as §§ 52.21(x), (y), (z), and (aa). For example, the clean unit test for

emissions units subject to BACT and LAER is codified at § 52.21(x); the clean unit

provisions for emissions units that achieve an emission limitation comparable to BACT

are codified at § 52.21(y); the PCP exclusion procedural requirements are codified at §

52.21(z); and PALs are contained in a new paragraph (aa). Moreover, some of the rules’

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key applicability provisions, including the actual-to-projected actual applicability test, are

codified in paragraph (a). Finally, as noted above, EPA has crafted § 52.21(a) in a way

that is an entry into the program and sets up all of the rules’ other requirements, resulting

in serious interlocking provisions, confusion and arbitrary results.

We urge EPA to undertake new rulemaking with a public comment opportunity to

ensure public participation and, in turn, to ensure that EPA adopts final NSR rules this

next time that will in fact comply with the Clean Air Act and Administrative Procedures

Act.

CONCLUSION

For the reasons stated above, the Administrator must “convene a proceeding for

reconsideration of the rule and provide the same procedural rights as would have been

afforded had the information been available at the time the rule was proposed.” 42

U.S.C. § 7607(d)(7)(B). Petitioners request that the Administrator stay the effectiveness

of the rule during the reconsideration. See id.

Respectfully submitted, _________________________ Howard Fox Keri Powell Earthjustice 1625 Massachusetts Avenue, NW Suite 702 Washington, DC 20036 (202) 667-4500 Counsel for Petitioners NRDC,

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Environmental Defense, and Communities for a Better Environment _________________________ Ann Weeks Jonathan Lewis Clean Air Task Force 77 Summer Street 8th Floor Boston, MA 02110 (617) 292-0234 Counsel for Petitioners Alabama Environmental Council, Clean Air Council, Group Against Smog and Pollution, Michigan Environmental Council, The Ohio Environmental Council, Scenic Hudson, Southern Alliance for Clean Energy _________________________ John Walke David McIntosh Natural Resources Defense Council 1200 New York Avenue, NW Suite 400 Washington, DC 20005 (202) 289-6868

_________________________ Vickie Patton Janea Scott Environmental Defense 2334 North Broadway Street Boulder, CO (303) 440-4901

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_________________________ Scott Kuhn Communities for a Better Environment 1611 Telegraph Avenue Suite 450 Oakland, CA 94612 (510) 302-0430 Dated: February 28, 2003

before the administrator - earthjustice...67 fed. reg. 80186-80289. the last period for public...

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