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.
Among the adverse effects of the NSR
program are the following:
- Confusion and
complexity. New Source Review was mired in confusion and
complexity even before the Clinton Administration expanded its
reach. While the initial ruling is only 20 pages long, the EPA has
released over 4,000 pages of guidance documents and memos that
detail and revise the requirements. In many cases, the newer
documents contradict the agency's earlier guidance text,
compounding the confusion.
- Permitting
delays and disruption in operations. Facilities now wait
one to three years while the EPA and/or states process their
applications for construction permits, even though the EPA is
required by statute to issue a permit within a year of the
application. The new NSR interpretation would increase the number
of permit reviews by the thousands for every industry, creating a
permanent backlog. In the meantime, plants that need even the most
basic repairs could shut down or suffer disruptions, with
productivity and revenue losses rippling across industries that
depend on them.
- Adverse
environmental impact . Such a far-reaching program would
have devastating effects on the environment, as modifications that
improve energy efficiency and reduce industrial emissions would be
delayed or even avoided altogether.
- Diminished
innovation. Industries that otherwise would adopt
state-of-the-art technologies to improve the plant's operation and
reliability and consume less fuel would delay upgrades to avoid
NSR--putting them at a competitive disadvantage in the global
market.
- Threatened
energy supply. Utilities could be forced to choose between
avoiding modifications that improve operations--risking blackouts
and higher costs--or closing a facility for up to three years while
the permit is being processed and technology installed. Limited
sources of energy could have grave repercussions on the elderly,
for example, who face severe health problems should they lose or
try to conserve expensive heat in the winter or air conditioning in
the summer. Moreover, oil supplies could be jeopardized since
modifications to upgrade refineries also would be subject to
exhaustive NSR rules. No refineries have been built since the
1970s, and many aging refineries have shut down, placing an
enormous burden on remaining refineries to meet growing demands for
petroleum.
Restructuring
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.