Washington Watch: Environmental managers must be prepared

In the last several years, the U.S. Environmental Protection Agency (EPA) has initiated enforcement actions against members of the automotive, diesel engine, oil and chemical, pulp and paper, and electric generating industries based on drastically altered interpretations of its "new source review" regulations. These cases uniformly have sought significant penalties against companies for actions the company had assumed were proper, based on the then-prevalent understanding of the rules. These recent events demonstrate the vital importance for environmental managers to stay on top of new regulatory interpretations, especially in the context of air pollution control.

The regulations of concern
These actions arise under a statutory provision of the Clean Air Act (CAA), which was passed to minimize degradation of air quality and maximize the industrial development that can be accommodated in an area. The act provides that whenever an air pollution "source" is "modified," it is subject to a permit requirement, elaborate air quality analysis, and requirements to install best available control technology (BACT). These provisions are known collectively as new source review (NSR).

The act defines a modification to mean "any physical change in, or change in the method of operation, which increases the amount of an air pollutant emitted from such source," (Section 111(a)(4), 42 U.S. Code (U.S.C.) 7411(a)(4)). This definition leaves a number of obvious questions of interpretation, including: (1) what constitutes a "physical change" sufficient to trigger NSR; (2) the degree of causal link necessary between a change and an increase in emissions; and (3) whether increases in the hours of operation of a plant, related to demand, trigger NSR.

Recently, EPA's enforcement division has begun aggressive enforcement of stricter interpretations of all three of these points, as well as others.

The revised definition of "routine maintenance"
EPA regulations provide that "routine maintenance, repair and replacement" do not constitute modification of a source (40 Code of Federal Regulations (CFR) 52.21(b)(2)(iii)). Relying on this exemption, which was promulgated in 1971, many industrial facilities have made major seldom-recurring capital investments without applying for a permit or undergoing NSR. An example is the replacement of boiler tubes, an event that may recur at most two or three times in a boiler's lifetime.

EPA has stated previously that the determination of whether an activity is routine is to be made on a case-by-case basis. In recent years, the agency has signaled - such as in a draft NSR revision circulated in 1994 - that it intends to narrow the reach of the exemption. EPA's Office of Enforcement has announced that it currently interprets the exclusion as limited to "frequent, traditional and comparatively inexpensive repairs to maintain existing equipment." Based on these new interpretations, the agency is now threatening enforcement actions seeking huge fines, on the grounds that sources that undertook modifications such as boiler tube replacements a decade or more ago should have undergone NSR.

What is a "causal link"?
Under the act, NSR applies when a change results in an increase in emissions. A causation requirement is implicit: An increase in emissions that is not caused by a change does not trigger NSR. Thus it was understood that a "de-bottlenecking" that resulted in increased emissions did not trigger NSR. (For example, increasing the capacity of machinery could increase demand for steam, resulting in greater emissions from a boiler.)

EPA's de-bottlenecking interpretations of the 1990s conflict in important respects with both the EPA rules and its own interpretations in the '80s. In 1998, the agency issued three decisions on de-bottlenecking. One held that BACT must be installed on an unmodified paper mill boiler when a batch digester is modified, on the grounds that the boiler is the pollution control device for the digester. A second finds that replacing turbine blades on an electric generating plant may trigger NSR on the associated boiler because the new blades will allow the boiler to operate at a higher capacity, increasing emissions. A third applies an "actual to potential" test to the unmodified de-bottlenecked unit to determine whether the change at the modified unit has resulted in emission increases, triggering NSR.

These new interpretations are now being used by the EPA's Enforcement Division as the basis of enforcement actions in the pulp and paper, oil and gas, and electric generating industries, again seeking penalties for actions that may have taken place more than a decade ago. Enforcement officials' approach is that if plant production and emissions have increased, and there has been significant de-bottlenecking activity, there must be a causal link that triggers the obligation to undergo NSR.

A new view of increase in hours of operation
Most emission control regulations are written as pounds of emissions per hour, rather than limits on the total annual or monthly emissions from the facility. Under this system, increases (or decreases) in the hours of operation are not regulated. Likewise, when determining whether a facility must undergo NSR, EPA has until recently consistently taken the position that emission increases caused by "increases in hours of operation or production rate" do not trigger NSR. This exemption has been relied upon by many industries with cyclic demand, such as electric generation, where hours of operation increase and decrease dramatically with the season.

Since the late 1980s, EPA has reversed course. In some cases where the exemption was apparently applicable, the agency has ignored it. In others, it has found that the changes in the plant and the increases in emissions are "inextricably intertwined," so that the emissions increases resulting from greater plant operations are considered, triggering NSR. In 1996, the agency proposed to eliminate the exemption, unless the increased hours of operation cannot have resulted from changes at the facility.

The lesson for managers
EPA's continuing reinterpretation of the CAA NSR requirements is a particularly striking illustration of a common source of risk for companies regulated under environmental laws. New regulations or statutory requirements are not the only - or even the principal - source of regulatory risk today. Enforcement of new interpretations of existing, sometimes obscure regulatory requirements, often many years after the actions complained of, can create large potential liabilities. It is said, for example, that the total cost to the diesel engine industry of the settlement its members reached recently with the EPA in such a series of cases, runs between nine and 10 figures.

The lesson: Environmental managers should be warned and stay alert.

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This article originally appeared in the December, 1999 issue of Environmental Protection magazine, Vol. 10, Number 12, pp. 46-47.

This article originally appeared in the 12/01/1999 issue of Environmental Protection.

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