February 21, 2002 | Executive Summary on Energy and Environment
The Bush Administration is expected to introduce much-needed reforms of the New Source Review (NSR) program, the federal program that controls air emissions from industrial facilities. The Administration's ability to restructure the program and reform its perverse incentives will determine how rapidly the nation can meet its growing energy needs while controlling air pollution.
NSR was enacted in 1977 under the Clean Air Act to control air pollutants from newly built or reconstructed industrial facilities, including electric utilities, oil refineries, paper mills, and steel mills. The law requires new or reconstructed plants to go through extensive permitting requirements and install top-technological pollution control equipment. Because Congress recognized that applying these regulations to existing plants would be an extreme and unnecessary cost burden, the law was written to hold existing plants to NSR requirements at the time they underwent "major modifications"--defined under NSR as any change resulting in a "significant" increase in air emissions. Activities involving routine maintenance, repair, and replacement within the plant did not fall under the NSR requirements.
Under the Clinton Administration, however, the Environmental Protection Agency (EPA) adopted a new and extreme interpretation of the law, imposing NSR rules on modifications made by existing plants even if the changes actually decrease emissions, improve energy efficiency, or increase the safety of operations. Under this new application, companies would have little incentive to upgrade and modernize their plants or even make routine changes and repairs.
New Source Review.
The Bush Administration, working with Congress, should end the perverse NSR incentive structure that discourages efficiency, safety, and environmental improvements in industry. To ensure that facilities do not increase air pollution as they expand or rebuild, the government should require facilities to meet an overall emissions cap after a fixed amount of time, rather than at the time a modification is made. Other market incentives should be introduced over time, such as allowing facilities to trade credits on emissions. Such an incentive-based approach relies on flexibility and accountability, not punitive and costly measures, to promote clean air.
Dana Joel Gattuso is Washington liaison with the Bozeman, Montana-based Political Economy Research Center (PERC) and an adjunct scholar with the Washington, D.C.-based Competitive Enterprise Institute.