Olivia Starr
The U.S. Environmental Protection Agency’s New Source Review (NSR) program is ripe for change. Since the late 1970s, when the United States began regulating air quality, NSR has been one of the EPA’s key tools to enforce emission standards. It requires new or significantly upgraded stationary sources, a fixed-site producer of pollution, such as a factory, to adhere to stricter emission standards than existing stationary sources. At the inception of the program, policy makers argued that NSR was the most cost-effective method of imposing air quality regulations; significant long-term air quality improvements would come due to the “inevitable” retirement of old polluters (Edison Electric Institute, 2001).
These policy makers did not account for the fact that NSR increases economic incentives to delay upgrading technology and to extend the use of old stationary polluters beyond their expected life span. These new economic incentives are implicated in other problems with NSR: vague defi nitions of which upgrades trigger stricter emissions standards, delayed application processing times, and inconsistent permitting practices. In nonattainment areas, geographic regions defined by the EPA that do not comply with national ambient air quality standards (Callan and Thomas, 2007), NSR enforces lower technology standards (Edison Electric Institute, 2001). During the Bush administration, new rules created even more loopholes allowing polluters to avoid NSR, sparking a legal battle between multiple states and the EPA (Chemical Week, 2009).
Although many critics of NSR would like to see a move toward a national cap and trade market–based system, such as the Acid Rain Program, some powerful states and regions are pushing for individual trading programs for a variety of reasons. Some state regulators are not convinced the federal government will go far enough in restricting emissions; others insist that the revenue from pollution permits go straight into the states’ coffers. For a variety of reasons, we cannot expect widespread support for a national trading program in the near future. What is critical is that the EPA embrace immediate changes to NSR that will serve to dramatically improve the quality of life for the more than 150 million Americans currently living in nonattainment areas (U.S. EPA, 2008).
To make an immediate improvement to NSR, the EPA can provide local and state officials a larger role in determining community-based approaches to mitigating the environmental impacts of stationary polluters, especially in nonattainment areas. By incorporating best practices from the “Smart Growth” program into an emissions review process, states and local governments could come up with environmental improvement plans; NSR would become part of a holistic program that does not include simply technology, but other mitigation techniques such as creating “green” jobs, providing employees with free passes for public transportation, and dedicating open space. Cities and states could sign off on a fi rm’s mitigation plan before NSR even begins.
If the package of technology, mitigation techniques, and emission standards for NSR were more fl exible, this would encourage fi rms to fi le for NSR more readily (if fi rms also have faith in the consistency and timeliness of the permitting process). This policy would help states and cities that are struggling to reach air quality attainment standards to work with fi rms and find mutually beneficial solutions that are less costly than higher technology standards. Firms would be motivated to participate in the creation of these mitigation plans not only for permitting, but also to reap the public relations benefits at a relatively low cost. Moreover, states are less likely to begin lawsuits over NSR if the states themselves have signed off on the emission mitigation plan.
How good ideas became bad policy
As part of the 1977 Clean Air Act Amendments, Congress first established the federal NSR program as an administrative mechanism to regulate emission of carbon monoxide, nitrogen oxides, volatile organic compounds, particulate matter, and sulfur dioxide. The premise of the program is that it is more cost-effective to phase in stricter emission standards by starting with new or significantly upgraded stationary sources rather than existing stationary sources. To implement the higher standards, EPA reviews proposals for construction and approves plans that employ certain technology. Technological thresholds are not constant for all permits; a proposal for a new or modified source located in an attainment area must meet the highest standards (Best Available Control Technology) to get a Prevention of Serious Deterioration permit, while in a nonattainment area, a new or modified source must use technology that results in lowest achievable emission rate, as defined by the State Implementation Plan (SIP) to get a nonattainment NSR permit (U.S. EPA, 2007; Callan and Thomas, 2007).
The reason NSR has survived now more than thirty years is not that the program has proven to be a clear success. The logic of NSR efficiency reducing pollution is intuitively appealing—and some proponents claim that it is a market-based approach—but the program only holds up if one makes the following assumptions: 1) existing polluters will have the same economic life span that they have had in the absence of NSR; 2) the permitting process does not create inordinate barriers to entry or disincentives to upgrade existing technology; and 3) there is an objective, straightforward process for determining what modifi cations require NSR. Unfortunately, as evidenced by the slew of legal challenges to NSR, these assumptions do not hold true. The permitting process is inconsistent, time-consuming, and costly. It has created substantial barriers to entry and disincentives to upgrade currently in-use technology, while at the same time creating substantial incentives to extend the useful lives of existing polluters (Stavins, 2004).
The true advantage of NSR is its political viability. By enforcing more lenient standards on existing polluters, federal legislators avoid upsetting potential campaign supporters. Another important aspect of the program is the degree of control left to the states. If the EPA decided to implement a nationwide cap and trade program for emissions, individual states would have little say in how the program was enforced. But with NSR, states have been some of the key litigants in cases against companies that have violated NSR, such as in the recent American Electric Power settlement that resulted in the utility paying a $15 million penalty and spending $4.6 billion upgrading pollution controls in its plants (Cusick, 2007). In February 2009, New Jersey sued the EPA because of a perceived lack of oversight in its new federal reporting monitoring requirements (Boyle, 2008). States are clearly determined to maintain their power in emission regulatory enforcement.
Why planners should get involved with NSR
Since NSR has not been an effective or efficiency cient method of emission regulation, despite numerous legal cases and revisions to the rules, it is time to rehaul the system. The lessons learned from NSR are that: 1) vintage-differentiated regulations—regulations that consider age as a primary criterion for eligibility—distort the “regulatory market”; 2) legislation needs to create specific guidelines for administrative decisions, such as precise criteria, timetables, and methods for administrative adjudication to avoid costly lawsuits; and 3) states need to have a degree of regulatory control. Although we now have a major shift in Washington’s political climate that can create momentum for the massive restructuring that needs to occur, the following discussion focuses on short-term solutions that broadly fit within the existing NSR structure and offers some reforms that boost local and state control in enforcement strategies.
First, there needs to be a reversal of the more lenient regulatory policies in nonattainment areas. The logic of applying less-burdensome standards to nonattainment areas is that it would be more costly for those areas to live up to the same standards as areas of attainment—similar to the logic of vintage differentiation. What makes the nonattainment distinction more worrisome is that there are no grounds for assuming that more high rates of emissions will naturally fall out of use. According to the EPA’s Web site, there are 150,861,931 people currently living in nonattainment areas throughout the United States. In 1997, that number was approximately 113 million, even though the number of nonattainment areas has actually decreased nationwide (U.S. EPA, 2008). More analysis of demographic trends in nonattainment areas is needed, but from these numbers one could assume that even as less space is designated nonattainment, the population density within these areas is increasing. Planners should work with policy makers to formulate a more aggressive approach to emissions regulation in nonattainment areas to protect these at-risk populations.
Stationary sources are not necessarily the most significant contributors to emissions in all nonattainment areas, but providing stationary sources in these areas with incentives for mitigating the impacts of their emissions will create greater short- and long-term benefits. This is also an opportunity to strengthen the role of state and local governments in setting and enforcing pollution regulations. Currently, if the EPA designates an area as nonattainment, the state must do an inventory of the excessive pollutant(s) in the area and integrate the findings into transportation plans, maintenance plans, and NSR regulations. The state must also submit reports to the EPA to demonstrate plans for reaching attainment. The penalties for prolonged periods of nonattainment can include denying the state its highway funding and higher standards for NSR; the federal government, in effect, punishes state and local governments, with little to no direct impact on the polluters themselves (U.S. EPA, 2007).
What is missing from the current model is the ability for state and local governments to incentivize environmental controls rather than simply suing the firms that do not meet nationally set emission standards, which is a reaction to the EPA’s determination of an area’s nonattainment. There are a few examples of local governments setting environmental criteria for granting tax breaks in economic development projects, which may help pass NSR, but this is not standard practice nationwide and does not provide comprehensive regulation.
If the EPA incorporates some of the best practices from its “Smart Growth” program into a more flexible review process involving state and local governments, the federal government could make NSR part of a more holistic program that targets the pollution sources directly. For example, new and existing stationary sources located within a nonattainment area could be required to submit mitigation plans to local or state authorities before submitting construction plans for NSR. Firms would determine the content of the mitigation plans based upon a locally determined set of preferred offsets detailed in an environmental improvement plan. These offsets would improve environmental standards for surrounding communities without significantly adding to the firm’s implementations costs. Offsets could be installing green roofs on facilities, providing transit passes for all of its employees, investing in stormwater retention pools, funding community gardens in low-income neighborhoods, locating new facilities in a vacant industrial complex, training inner-city residents for “green-collar” jobs, reducing chemical waste, et cetera.
It is naive to suggest that increasing requirements for cooperation between polluting firms, planners, and the EPA is a comprehensive or long-term solution to improving air quality, but it is crucial that planners assume a more proactive role in national policy-making; planning is not only a defensive or coping mechanism for local and state authorities, but an integrative tool that allows communities to improve overall quality of life. This must be done in cooperation with the lowest and highest levels of government.
OLIVIA STARR is completing her Master’s degrees in Community and Regional Planning and Public Affairs at The University of Texas at Austin. She has a B.A. in European History from Northwestern University. Her research interests include property rights and security.
Works Cited
Boyle, Katherine. N.J. Sues EPA Over Reporting Rule for Factories, Coal Plants. Greenwire. 20 February 2008. <http://www.eenews. net/Greenwire/nsr/2008/02/20/3> (26 March 2008).
Callan, Scott J., and Janet M. Thomas. Environmental Economics & Management. 4th ed.Mason, Ohio: Thomson South-Western, 2007.
Cusick, Daniel. AEP Settlement Ends Long Battle Over Power Plant Upgrades. Greenwire. 9 October 2007. <http://www. eenews.net/Greenwire/nsr/2007/10/09/1> (26 March 2008).
New Source Review: A History. Edison Electric Institute. July 2001. <www.eei.org> (26 March 2008).
EPA Changes New Source Review Rules. Chemical Week. 19 Jan 2009.<http://www.chemweek.com/envirotech/regulatory/16489.html> (26 March 2009).
Stavins, Robert N. Experience with Market-Based Environmental Policy Instruments. Vol. I, in Handbook of Environmental Economics, by Karl-Göran Mäler and Jeffrey Vincent, edited by Karl-Göran Mäler and Jeffrey Vincent, 355-435. Amsterdam: Elsevier Science, 2003.
Stavins, Robert N. Vintage-Differentiated Environmental Regulation. Resources. Nov 2005. <www.rff.org> (26 March 2008).
New Source Review: Basic Information. U.S. EPA. 11 May 2007. <http://www.epa.gov/NSR/info.html> (26 March 2008).
Number of People Living in Areas Designated ‘Nonattainment’ by State. U.S. EPA. 12 March 2008.<http://www.epa.gov/airprogm/ oar/oaqps/greenbk/stpop.html> (26 March 2008).
