November 01, 2013

PM2.5 increment: Winners and losers

Donald R. van der Vaart and John C. Evans

On October 20, 2010, the U.S. Environmental Protection Agency (EPA) published the final rule establishing an “increment” for fine particulate matter (PM2.5) under the Clean Air Act’s (CAA) Prevention of Significant Deterioration (PSD) air quality permitting program. 75 Fed. Reg. 64,864 (Oct. 20, 2010). The PSD program is a preconstruction permitting program designed to manage industrial growth in clean air areas (i.e., attainment areas). Under the PSD program emission increases are managed through the use of the increment system. Throughout all attainment areas in the country, increased concentrations of a pollutant are restricted to the same “increment” regardless of the area’s current air quality. In the 2010 final rule establishing the increment for PM2.5, EPA selected an increment that has the effect of further restricting economic growth as compared to prior increments for PM (i.e., particulate matter exceeding 2.5 micrometers in diameter). While the numerical increment value is the same throughout the country, because of the complex manner in which increment is calculated, the economic playing field was tilted in favor of some states allowing them more room for economic expansion. This article will explain the reason for this competitive advantage and which states stand to gain from EPA’s increment rule. Finally, the article will explore whether a January 2013 D.C. Circuit Court decision will require EPA to revise the PM2.5 increment and level the economic playing field among the states.

PSD increment

Congress established the increment system as part of the 1977 CAA Amendments to serve as a mechanism to control growth associated with industrial development by limiting the degradation of air quality in clean air areas. Increments act as localized ceilings that cannot be exceeded—think of a National Ambient Air Quality Standard for any given criteria pollutant but much lower. The ceiling is established by adding the increment—a numeric ambient concentration—to the actual ambient concentration in a specific local area on a specific date. The latter value—the actual ambient concentration as of a specific date—is referred to as the baseline concentration and reflects emissions from major sources in existence on the specific date. The increment, once defined by either Congress or EPA, is invariant, and the baseline concentration is also constant. This means that the sum of the increment and the baseline concentration, which constitutes this new ceiling, is also invariant. The PSD program then limits the degradation of air quality to this new ceiling. The specific date on which this ceiling is established is the baseline date.

The grandfathered, or legacy, sources that existed on the baseline date will eventually reduce their emissions either through shutdowns or increased controls imposed when the sources are modified. The key to understanding why the increment can be more stringent in one state versus another state is the selection of the baseline date. While the ceiling is set on the baseline date, the baseline concentration—think of it as the floor—can be reduced if sources existing prior to the baseline date reduce emissions by shutting down or installing controls. When a source that is part of the baseline reduces emissions, the increment is said to expand. The ceiling stays the same, but because the baseline—or floor—is lowered (as a result of the shutdown or emissions controls), the increment has in effect expanded, thereby increasing the room available for future emissions associated with further industrial development or economic growth.

When EPA established the increment for PM2.5 in 2010, it confirmed that it had considered both (1) leaving the baseline date of 1975, which was the baseline date for PM that was established by Congress as part of the CAA Amendments of 1977, and (2) resetting the baseline date to 2010. While EPA acknowledged that the new baseline date would restrict economic growth as compared to the congressional 1975 baseline date, EPA justified the 2010 baseline date because it believed that PM2.5 was a “new pollutant” and therefore it was not bound to the 1975 baseline date.

. . . any emissions reductions occurring prior to the effective date of this rule would lower the baseline concentration rather than be used for expanding the PM2.5 increment. If a retroactive baseline date [1975] were to apply, emissions reductions occurring prior to the effective date of this rule would serve to expand the available increments, enabling more new pollution than would otherwise be allowed to occur.

75 Fed. Reg. at 64,886–7.

The resetting of the baseline date has an economically absurd result. States that had stepped forward and required grandfathered sources in their states to reduce emissions prior to 2010 had thereby expanded PM10 increment. Imposition of a new baseline date applicable to PM2.5 essentially eviscerates that expanded room for growth. In contrast, states that had delayed requiring emission reductions until after 2010 are rewarded for that delay because the tardy reductions would serve to expand the increment in those states.

The state of North Carolina and its neighboring states illustrate this absurdity. In 2003 North Carolina enacted the Clean Smokestacks Act (CSA) which required coal-fired utilities in the state to reduce emissions by over 70 percent by 2012. Most of these reductions occurred prior to 2010, and if the 1975 baseline date had been retained by EPA, all of these reductions would have served to expand the increment and allow for industrial recruitment and growth. Instead, by resetting the baseline to 2010 for PM2.5, all of these reductions—because they occurred prior to the 2010 baseline date—do nothing to expand the increment. In contrast, the Tennessee Valley Authority (TVA) signed a settlement agreement in 2009 requiring emission reductions similar to North Carolina’s CSA at most of their coal-fired utility plants. Because most of these reductions will occur after the 2010 PM2.5 baseline date they will serve to expand the increment and provide Tennessee, Alabama, and Kentucky, where the TVA plants are located, with considerable room for economic development. North Carolina, having required similar emission reductions well before those states, will be at a disadvantage in economic development and recruitment.

In short, EPA’s resetting of the baseline date for PM2.5 aggrandizes the economic power of states that delayed making emission reductions and diminishes that same power for states that made reasonable and timely emission reductions. The disparity in economic power will only grow larger over time because EPA has already announced plans to change the way compliance with the PM2.5 increment is determined. Currently, the air dispersion model EPA requires to be used for demonstrating increment compliance only includes direct (primary) emissions of PM2.5. It is anticipated that EPA will soon update its guidance and require the models to include not only direct emissions of particulates, but also secondary pollutants such as sulfur dioxide (SO2) and nitrogen oxides in the model. SO2 and nitrogen dioxide (NO2) both chemically transform to form and contribute to ambient PM2.5 concentrations. When both primary and secondary pollutants are included in the model, more PM2.5 is predicted to form—a result that will further increase the stringency of the increment requirement. This will exacerbate the already unequal playing field created by the resetting of the PM2.5 increment baseline.

A reversal of fortune?

On January 4, 2013, the D.C. Circuit Court of Appeals remanded one of EPA’s PM2.5 Implementation Rules that were separate but companion rules to the 2010 PM2.5 Increment Rule. Natural Res. Def. Council v. EPA, 706 F.3d 428 (2013). The basis for the court’s remand is directly relevant to the PM2.5 Increment Rule because the fundamental premise underpinning both rules was EPA’s belief that PM2.5 was a “new” pollutant.

In 2007 and 2008, EPA issued a PM2.5 “Implementation Rule,” 72 Fed. Reg. 20,586 (Apr. 25, 2007), and a PM2.5 “NSR Implementation Rule,” 73 Fed. Reg. 28,321 (May 16, 2008), respectively. The Natural Resources Defense Council (NRDC) and the Sierra Club challenged those rules in the D.C. Circuit Court of Appeals. The court’s decision was issued on January 4, 2013, holding that “PM10” as that term is defined in 42 U.S.C. § 7602 and used in Title I, Part D, Subpart 4 of the CAA, expressly includes PM2.5. The court therefore found that EPA had erred by addressing PM2.5 as a wholly new pollutant solely under the general nonattainment provisions of Subpart 1 of the CAA when promulgating its 2007 and 2008 PM2.5 Implementation Rules, rather than under the act’s Subpart 4 provisions specifically addressing PM10.

This court’s rather obvious conclusion that PM2.5 falls within the statutory definition of PM10 is not only of central relevance to the 2010 PM2.5 Increment Rule, it may be fatal. In that rulemaking EPA believed it had two statutory options authorizing the establishment of the PM2.5 increment. The first option was under CAA section 166(f)—a provision authorizing EPA to establish increments for PM10. The second option was under CAA section 166(a)—a provision authorizing EPA to issue increments for new pollutants. EPA decided that PM2.5 was not part of PM10, instead declaring PM2.5 as a new pollutant and therefore issuing the increment under section 166(a). By using section 166(a), EPA was free to establish a new baseline date—a decision that, as discussed above, tilted the economic playing field among states. Now that the D.C. Circuit Court has clarified for EPA that PM10 includes PM2.5, EPA should be foreclosed from treating PM2.5 as a new pollutant and promulgating the increment using the authority of section 166(a). Rather, the baseline date under any increment established under section 166(f) should be the original 1975 date established by Congress.

Possible reconsideration

If the recent D.C. Circuit Court decision applies more broadly to other aspects of the CAA’s PSD program as well, EPA’s new baseline date could be vacated in favor of the existing statutory baseline date of 1975. While this is a seemingly technical point, the impact can be significant depending on where your client is situated. If your client is located in a state that has experienced large reductions in PM2.5, SO2, and NOx emissions from sources prior to October 20, 2010, less incremental margin for growth would be available under EPA’s new baseline date. If, however, your client’s emission sources are located in a state where emissions reductions were made (or planned) after October 20, 2010, a competitive advantage could be afforded your state in terms of attracting new industry.

Whether EPA revises the PM2.5 Increment Rule on its own accord, or whether they are challenged by a state or applicant, a revised increment under the authority of section 166(f) will include the original baseline date of 1975. Such a change would return states to a level economic playing field, or at least such as it was when the PSD program was first implemented.

Donald R. van der Vaart and John C. Evans

Donald R. van der Vaart and John C. Evans work with the North Carolina Air Quality Permits Section of the North Carolina Department of Environment and Natural Resources. The views expressed here are exclusively those of the authors and are not necessarily those of the North Carolina Division of Air Quality.