March 17, 2021

Thirteen Years Later, D.C. Circuit Says “Reasonable Possibility” Provision of NSR Rule Is Good Enough

Posted on March 17, 2021 by Chester R. Babst III

On March 5, the U.S. Court of Appeals for the D.C. Circuit denied a challenge to a more than decade-old EPA rule related to the records that source owners must keep in order to support claims that certain of their activities are not subject to EPA’s New Source Review (NSR) preconstruction permitting requirements.  The case, New Jersey v. EPA, for now appears to settle a long and tortuous battle brought by New Jersey against a regulatory provision – originally enacted in the 2002-vintage NSR rule – that excludes activities from certain permitting requirements if there is no “reasonable possibility” that the activities would result in significant emissions increases.

The background of the case is complex and jargon-filled, but essentially concerns the process that regulators are to use in order to determine if a change at an existing source will be considered a “major modification” that produces a “significant emissions increase,” thus triggering the need to subject that proposed change to the NSR preconstruction permitting process.  The 2002 NSR rulemaking – originally enacted under the George W. Bush administration – most notably amended the methodology used to calculate whether a proposed activity will result in a “significant emissions increase.”  The rule allows a source owner to compare its source’s “actual emissions” before a proposed change to the source’s “projected actual emissions” after the change.  When a source owner using this “actual-to-projected actual” emissions test predicts that a proposed activity would not produce a significant emissions increase (and thus not trigger the NSR permitting process), certain recordkeeping requirements are triggered.  Specifically, such a source owner would be required to maintain records and/or submit reports substantiating its emissions increase analysis for that activity except in certain, limited circumstances, including circumstances where the source owner determines that there is no “reasonable possibility” that the activity would result in a significant emissions increase under an actual-to-projected-actual test.  The phrase “reasonable possibility” was undefined in the 2002 rule.

The D.C. Circuit in 2005 upheld the use of the actual-to-projected-actual emissions increase test, but remanded the “reasonable possibility” standard as being arbitrary and capricious.  The court reasoned that if a source owner is not required to keep any records for a project that it has determined has “no reasonable possibility” of resulting in an emissions increase, then there would be no way for EPA and other permitting authorities to evaluate the accuracy of the source’s determination and thus no way to disprove or prove NSR violations.

In response, EPA amended the NSR rule in 2007 to establish a tiered recordkeeping and reporting system.  Under that system, no recordkeeping is required when calculated post-project emissions of a pollutant at a source do not exceed the source’s baseline emissions of that pollutant by more than 50% of the significance threshold level for that pollutant (regardless of what would cause the increased emissions).  Other, more complicated requirements – taking into account the demand growth exclusion and netting provisions of the NSR rule – apply when application of the actual-to-projected-actual emissions test indicates an emissions increase that exceeds the 50% significance threshold.

New Jersey challenged the 2007 rule, simultaneously filing suit against EPA in the D.C. Circuit and petitioning EPA to reconsider the rule.  The lawsuit was held in abeyance pending EPA’s decision on the reconsideration petition.  In 2009, EPA (under the Obama administration) accepted the reconsideration request but did not act on the reconsideration until November 2019, when EPA (under the Trump administration) stated it was not reconsidering the rule.  The DC Circuit then lifted the abeyance and reviewed New Jersey’s suit.

Earlier this month – thirteen years after New Jersey first filed its suit – the D.C. Circuit rejected New Jersey’s claim that the 2007 “reasonable possibility” amendment was arbitrary and capricious.  In particular, the court reasoned that the petitioner’s concerns of manipulation of data using the demand growth exclusion and netting provisions of the NSR rule were adequately addressed based on the rule’s addition of a second criterion for triggering recordkeeping.  Moreover, the court held that the 50% threshold was supported by a rational basis, namely, “the balance between ease of enforcement and avoidance of requirements that would be unnecessary or unduly burdensome on reviewing authorities or the regulated community.”  In addition, the court found merit in EPA’s explanation that enforcement authorities can still rely on several other records to assist their enforcement efforts, including records from the Title V permitting program, minor NSR permitting program, and state and federal emission inventories, and from other business records.

Although it is easy to dismiss the significance of the “reasonable possibility” provision given that it is merely a recordkeeping and reporting requirement, it’s important to keep in mind that notwithstanding the highly complex nature of the NSR rules, there is still much room for engineering and technical judgment to inform NSR determinations by sources. The decision may make such technical determinations more insulated from second-guessing by EPA.  On the other hand, NSR cases continue to be pursued by EPA and states, even though the “reasonable possibility” provision has remained in effect for some 13 years.  For now, the DC Circuit’s opinion seems to settle the legitimacy of the “reasonable possibility” NSR recordkeeping standard, but given that EPA’s acceptance of New Jersey’s petition to reconsider last occurred under the Obama administration, it is certainly within the realm of possibility that the Biden administration will have this provision in its crosshairs.