UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

WASHINGTON D.C. 20460

JAN 22 1996

MEMORANDUM 

SUBJECT: Release of interim Policy an Federal Enforceability 

of Limitations on Potential to Emit

FROM: John S. Seitz, Director

Office of Air Quality Planning and Standards (MD-10)

Office of Air and Radiation

Robert I Van Heuvelen, Director

Office of Regulatory Enforcement (2241A)

Office of Enforcement and Compliance Assurance

TO: Regional Office Addressees (see below):

The purpose of this memorandum is to notify you that the Agency

is today releasing detailed guidance (referred to below as the

"Interim Policy") clarifying the immediate impacts of two recent

decisions by the U.S. Court of Appeals for the D.C. Circuit regarding

EPA regulations requiring federal enforceability of limitations on a

source's potential to emit ("PTE") under certain CAA programs. This

cover memorandum briefly summarizes the court decisions, and briefly

summarizes the immediate impacts of the decisions on current

regulations. A more detailed discussion of the impacts of the two

court decisions is attached. The policy will remain in place until

January 1997, but may be extended if necessary to coincide with the

promulgation of revised regulations.

The Court Decisions

In National Mining Association v. EPA, 59 F.3d 1351 (D.C. Cir.

1995), the court addressed hazardous air pollutant programs under

section 112. The court found that EPA had not adequately explained why

only federally enforceable measures should be considered as limits on

a source's potential to emit. Accordingly, the court remanded the

section 112 General Provisions regulation to EPA for further

proceedings. EPA must either provide a better explanation as to why

federal enforceability promotes the effectiveness of state controls,

or remove the exclusive federal enforceability requirement. The court

did not vacate the section 112 regulations, that is, the court did not

declare the regulations null and void. The regulations remain in

effect pending completion of new rulemaking.
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In Chemical Manufacturers Ass'n v. EPA, No. 89-1514 (D.C. Cir.

Sept. 150 1995), the court, in light of National Mining, remanded the

PTE definition in the PSD and NSR regulations to EPA. The court also

vacated the federal enforceability requirement of the PTE definitions

in the PSD and NSR regulations.

Summary of Immediate Impacts of the Court Decisions

EPA plans to propose rulemaking amendments in spring 1996 that

would address the federal enforceability issue as it relates to

section 112, title V, and Prevention of Significant Deterioration &

New Source Review ("PSD/NSR") regulations. Pending this rulemakinq,

the immediate impacts are as follows:

Effects on Section 112. Because the court did not vacate the

rule, the current part 63 regulations, requiring federal

enforceability, remain in effect.

Effects on title V. Although neither court case addressed the

title V regulations, industry challenges to the part 70 requirements

are pending. Because the federal enforceability provision of the title

V regulations are closely related to the regulations addressed in the

two decided cases, EPA will ask the court to leave part 70 in place as

the rulemaking amendments are being developed.

Effects an PSD/NSR. Because the court vacated the rules,

the requirements in the nationwide rules for PSD and major source

NSR concerning federal enforceability are not in effect. In many

cases, however, individual State rules implementing these

programs have been individually approved in the State

Implementation Plan (SIP). The court did not vacate any

requirements for federal enforceability in these individual State

rules, and these requirements remain in place. As discussed in

detail in the Interim Policy, the immediate practical impacts an

the PSD/NSR programs are not substantial for newly constructed

major sources. Greater impacts may exist for existing major

sources seeking to avoid review by demonstrating a net emissions

decrease.

Effects on January 25, 1995 Transition Policy. The transition

policy remains in effect with one change. For sources emitting more

than 50% of the major source threshold, and holding State-enforceable

limits, EPA is no longer requiring that the source submit a

certification to EPA.
Distribution/Further Information

The Regional offices should send this memorandum to States within

their jurisdiction. Questions concerning specific issues and cases

should be directed to the appropriate Regional office. Regional Office

staff may contact Tim Smith of the Integrated Implementation Group at

919-541-4718, Adam Schwartz of the Office of General Counsel at

202-260-7632, or Julie Domike of the Office of Enforcement and

Compliance Assurance at 202-564-6577. The document is also available

on the technology transfer network (TTN) bulletin board, under "Clean

Air Act, Title V, Policy Guidance Memos." (Readers unfamiliar with

this bulletin board may obtain access by calling the TTN help line at

919-541-5384).

Attachment

Addressees:

Director, Office of Ecosystem Protection, Region I

Director, Air and Waste Management Division, Region II

Director, Air, Radiation, and Toxics Division, RegionIII

Director, Air, Pesticides, and Toxics Management Division, Region IV

Director, Air and Radiation Division, Region V

Director, Multimedia Planning and Permitting Division,Region VI

Director, Air, RCRA, and TSCA Division, Region VII

Assistant Regional Administrator, Office of Pollution

Prevention, State and Tribal Assistance, Region VIII

Director, Air and Toxics Division, Region IX

Director, Office of Air, Region X

Regional Counsels, Regions I-X

Director, Office of Environmental Stewardship, Region I

Director, Division of Enforcement and Compliance Assurance, Region II

Director, Enforcement Coordination Office, Region III

Director, Compliance Assurance and Enforcement Division, Region VI

Director, Enforcement Coordination Office, Region VII

Assistant Regional Administrator, Office of Enforcement, Compliance

and Environmental Justice, Region VIII

Enforcement Coordinator, office of Regional Enforcement Coordination,

Region IX
EPA INTERIM POLICY ON FEDERAL ENFORCEABILITY REQUIREMENT

FOR LIMITATIONS ON POTENTIAL TO EMIT

January 1996

This document provides guidance clarifying the immediate impacts

of recent court decisions related to federal enforceability of

limitations on a source's potential to emit ("PTE"). in brief, most

current regulatory requirements and policies regarding PTE, including

the interim policy recognizing state-enforceable limits under section

112 and Title V in some circumstances, remain in affect while EPA

conducts expedited rulemaking to address these issues in detail.

However, at present, certain netting transactions involving PTE limits

under new source review programs may now take place without federal

enforceability. Today's guidance will be superseded upon completion of

the new rulemaking.

Background

Several important Clean Air Act programs apply to only major

sources, i.e., those that "emit or have the potential to emit" amounts

exceeding major source thresholds listed in the Act. The EPA has

promulgated regulations defining the term "potential to emit” for most

of these programs. In particular, five sets of regulations are in

place implementing the major source prevention of significant

deterioration (PSD) and nonattainment area new source review (NSR)

permitting programs (40 CFR 51.166, 40 CFR 52.21, 40 CFR 51.165,

Appendix S of 40 CFR Part 51, and 40 CFR 52.24). Regulations governing

approvability of state operating permit programs under Title V of the

CAA are contained in 40 CFR Part 70, and EPA has proposed regulations

implementing a federal operating permits program that are to be

promulgated at 40 CFR Part 71. Regulations implementing the

requirements of section 112 of the Act related to major sources of

hazardous air pollutants are contained in 40 CFR Part 63, subpart A.

For each of the above Clean Air Act programs, the EPA regulations

provide that "controls" (i.e., both pollution control equipment and

operational restrictions) that limit a source's maximum capacity to

emit a pollutant may be considered in determining its potential to

exit. Historically, large numbers of new or modified sources that

otherwise would be subject to PSD and NSR permitting requirements have

limited their PTE in order to obtain "synthetic minor" status and

thereby avoid major source requirements. With the advent of operating

permit programs under Title V and the MACT program under section 112,

many sources that otherwise would be subject to these new requirements

under the Clean Air Act Amendments of 1990 also have obtained, or plan

to obtain, PTE limits to avoid coverage. For each of these programs,

EPA regulations have required that PTE limits be "federally 

enforceable" in order to be considered in determining PTE.
2

These federal enforceability requirements were the subject

of two recent decisions of the D.C. Circuit Court of Appeals.

The first decision, National Mining Association v. EPA, 59 F.3d

1351 (D.C. Cir. July 21, 1995). dealt with the potential to emit

definition under the hazardous-air pollutant programs promulgated

pursuant to CAA section 112. In this decision the Court

implicitly accepted EPA's argument that only "effective" state

issued controls should be cognizable in Limiting potential to emit. In

addition, the court did not question the validity of current federally

enforceable mechanisms in limiting PTE. However, the court found that

EPA had not adequately explained why only federally enforceable

measures should be considered in assessing the effectiveness of

state-issued controls. Accordingly, the Court remanded the section 112

General Provisions regulation to EPA for further proceedings. Thus,

EPA must either provide a better explanation as to why federal

enforceability promotes the effectiveness of state controls, or remove

the exclusive federal enforceability requirement. The court did not

vacate the section 112 regulations, and they remain in effect pending

completion of EPA rulemaking proceedings in response to the court's

remand.

The second decision, Chemical Manufacturers Ass'n v. EPA, No.

89-1514 (D.C. Cir. Sept. 15, 1995), dealt with the potential to emit

definition in the PSD and NSR programs. Specifically, this case

challenged the June 1989 rulemaking in which the EPA reaffirmed the

requirement for federal enforceability of PTE limits taken to avoid

major source permitting requirements in these programs. in a briefly

worded judgment, the court, in light of National Mining, remanded the

PSD and NSR regulations to EPA. In addition, in contrast to its

disposition of the section 112 regulations in National Mining, the

court in chemical Manufacturers vacated the federal enforceability

requirement of the PTE definitions in the PSD and NSR regulations.

In a third set of cases, industry challenges to the federal

enforceability requirements in Part 70 are pending before the D.C.

Circuit. The Title V cases have not been briefed. However, since the

federal enforceability provisions of these Title V regulations are

closely related to the regulations addressed in the two decided cases,

EPA plans to ask the court to remand the regulations to EPA for

further rulemaking, and to leave Part 70 in place during the new

rulemaking.

Plans for Rulemaking Amendments

EPA plans to hold discussions with stakeholders and propose

rulemaking amendments by spring 1996, and to issue final rules by

spring 1997, that would address the court decisions impacting
- 3 -

regulations promulgated pursuant to section 112 and the PSD/NSR

regulations. At the same time, EPA will propose a parallel approach to

cognizable PTE limits for major sources subject to title V. EPA

currently plans to address the following options, after discussions

with stakeholders:

(a) An approach that would recognize "effective" State-enforceable

limits as an alternative to federally enforceable limits on a

source's potential to emit. Under this option, a source whose

maximum capacity to emit without pollution controls or

operational limitations exceeds relevant major source thresholds

may take a State or local limit an its potential to emit. In such

circumstances, the source must be able to demonstrate that the

State-enforceable limits are (1) enforceable as a practical

matter, and (2) being regularly complied with by the facility.

(b) An approach under which the EPA would continue to require

federal enforceability of limits on a source's potential to

emit. Under this approach, in response to specific issues

raised by the court in National Mining, EPA would present

further explanation regarding why the federal enforceability

requirement promotes effective controls. Under this

approach, EPA would propose simplifying changes to the

administrat ive provisions of the current federal

enforceability regulations.

The remainder of this guidance memorandum addresses the immediate

impacts of the court decisions on each of the three programs, in light

of the upcoming rulemaking.

Effects on PSD/NSR

EPA interprets the court's decision to vacate the PSD/NSR federal

enforceability requirement in the Chemical Manufacturers case as

causing an immediate change in how EPA regulations should be read,

although EPA expects that the effect of this change will be limited.

Specifically, provisions of the definitions of "Potential to emit" and

related definitions requiring that physical or operational changes or

limitations be "federally enforceable" to be taken into account in

determining PSD/NSR applicability, the term "federally enforceable"

should now be read to mean "federally enforceable or legally and

practicably enforceable by a state or local air pollution control

agency."1

1Both National Mining and Chemical Manufacturers directly

addressed only the definition of potential to emit, and not related

definitions that also employ the federal enforceability requirement,

in particular, those related to netting. (See, e.g. , 40 CFR § 52.21

(b)(3)(vi)(b) providing that an emissions decrease is creditable only
- 4 -

For the reasons discussed below, however, the practical effects of the

vacatur will be limited during the period prior to completion of new

EPA rulemaking on this issue. During this. interim period, federal

enforceability is still required to create “synthetic minor" new and

modified sources in most circumstances pending completion of EPA's

rulemaking.

First, EPA interprets the order vacating certain provisions of

EPA regulations as not affecting the provisions of any current SIP, or

of any permit issued under any current SIP. Thus,. previously issued

federally enforceable permits, such as permits issued under federally

enforceable state-operating permit programs under Title I ("FESOPPs")

remain in effect. Likewise, EPA-approved state PSD and NSR SIP rules

requiring that all pollution controls or operational restrictions

limiting potential to emit be federally enforceable remain in place,

even though such provisions may have been based on the now-vacated

terms of EPA regulations.2

if it is "federally enforceable.") The court's concerns regarding the

adequacy of EPA's rationale, however, appear to extend to these

netting provisions; consequently, EPA interprets the vacatur as

extending to them as well. Conversely, EPA reads the vacatur as not

extending to aspects of the PTE definition other than the federal

enforceability provision. Such other aspects (e.g., determining a

source's "maximum capacity" to emit in the absence of controls) were

not at issue in the litigation and not addressed by the court

decisions. In addition, EPA interprets Chemical Manufacturers as not

addressing the regulatory requirements for federal enforceability of

offsets used to comply with NSR requirements. CAA §173(a) expressly

requires that any emissions reductions required as a precondition to

the issuance of a nonattainment NSR permit to be "federally

enforceable" before the permit may be issued. This requirement is not

affected by the court decisions.

2The situation is somewhat different in the several states

lacking approved PSD program , which are governed instead by the

federal PSD program at 40 CFR § 52.21. (In most instances, these

states have been delegated authority to issue PSD permits under the

federal program pursuant to § 52.21(u).) Since these states do not

have an EPA-approved PSD program, their SIPs presumably also lack

state rules containing a blanket requirement that new or modified

sources use only federally enforceable limits on PTE when seeking

synthetic minor status to avoid PSD. Rather, sources in these states

have been subject to the federal enforceability requirements of §

52.21. As noted above, Chemical Manufacturers vacated the requirements

in § 52.21 that physical or operational changes be "federally

enforceable" to be taken
5

Second, a new or modified source that seeks to lawfully

avoid compliance with the “major" source requirements of either

PSD or nonattainment NSR by limiting its potential to emit to

achieve synthetic minor status must still obtain a general or

"Minor" NSR preconstruction permit under section 110(a)(2)(C) of

the Act and 40 C.F.R. § 51.160-164. Every SIP contains a minor

NSR program that applies generally to new or modified sources of

air pollutants,, without regard to whether those sources are

"major." Permits under such programs are, like all other SIP

measures, federally enforceable. See CAA section 113(b)(1); 40

CFR §52.23.3 The requirement under section 110(a)(2)(C) to

obtain a federally enforceable minor NSR permit was not at issue

in the Chemical Manufacturers case, and is unaffected by the

court's ruling.

As noted above, the court's action does not affect FESOPPs that

many states have adopted as an additional mechanism for avoiding

PSD/NSR or for creating an emissions reduction credit that may be

tradeable to another source. Permits issued under such programs

continue to be valid for purposes of limiting PTE. States are free to

submit SIP revisions to remove such provisions in light of the

vacatur, and to substitute mechanisms that are legally and practicably

enforceable by the state for limiting potential to emit in some

circumstances under the PSD/NSR program. However, we expect few states

to do so pending the outcome of new EPA rulemaking on the broader

federal enforceability issue.

into account in determining the applicability of PSD to a proposed new

source or modification. Accordingly, in states governed by §52.21, a

limit that is either "federally enforceable or legally and practicably

enforceable by a state or local air pollution control agency" may now

be used in determining PSD applicability in some circumstances. The

effect of the vacatur in these states is limited, however, because as

discussed below, new and modified sources in these states are still

subject to the requirement to obtain federally enforceable minor

source permits.

3 Consider, for example, an existing source in a moderate ozone

nonattainment area that plans to add a new emissions unit that would

have the potential to emit 100 tons per year ("TPY") of VOC if

uncontrolled, and would therefore be considered a major modification

subject to major NSR requirements, including a requirement to install

pollution controls representing LAER that would reduce emissions in

this instance by 90%. The source may instead seek to avoid major NSR

by installing cheaper controls that reduce emissions by 61% and

thereby limit the emissions increase to 39 TPY -- just below the

"major" modification threshold. such a source would still need to

obtain a minor NSR permit to construct the-new unit, and that permit

would be federally enforceable.
6

Likewise, states conceivably might now seek to reduce the scope

of SIP-approved minor NSR programs where they are presently broader

than minimum federal requirements (e.g., to no longer cover changes at

existing emissions units that reduce emissions to create a netting

credit or tradeable emission reduction credit), and to substitute

state enforceable mechanisms. Here also, however, EPA does not expect

states to seek such changes pending the outcome of EPA rulemaking. In

addition, regarding the minimum scope of minor NSR programs, section

110(a)(2)(C) provides that state minor NSR programs must regulate all

new or modified sources was necessary" to insure consistency with air

quality planning goals. Given the central role of new and modified

synthetic minor sources in the overall PSD/NSR regulatory scheme, and

the adverse environmental consequences if controls were not effective

in limiting PTE, it is unlikely that states would have the legal

ability to exclude from such programs transactions that are intrinsic

to the avoidance of major NSR permitting requirements.

The principal immediate impact of the vacatur of the PSD/NSR

federal enforceability regulations likely will occur in cases

involving "netting" exercises at existing sources, where a source

seeks to internally offset an emissions increase at a new or modified

emissions unit by installing pollution controls or accepting

operational limitations at another unit within the plant. For the

reasons discussed above, in such cases the new or modified unit would

still need to obtain a federally enforceable minor NSR permit. In

contrast, the vacatur ordered by the court may allow the unit that is

limiting its emissions to rely in some circumstances on controls that

are legally and practicably ms enforceable by the state.4 Note,

however, that under the terms of many state minor NSR programs, the

unit undergoing an emissions reduction would still need

4Consider, for example, an existing source like the one addressed

above in Footnote 3, that also plans to install a new unit that would

have, the potential to emit 100 tons per year of VOC per year if

uncontrolled. In contrast to the earlier example, however, this source

plans to avoid major NSR not by controlling the new unit, but instead

by installing controls at another emissions unit at the plant whose

baseline emissions are 100 TPY that will reduce actual emissions by 61

TPY. The overall result of this netting transaction is the same as in

the earlier example: a net emissions increase of 39 TPY at the plant.

The new unit would still need to obtain a minor NSR permit, and that

permit would still be federally enforceable. In light of the vacatur

in Chemical Manufacturers however, the existing unit that is adding

controls now may be able to limit its PTE using a state-enforceable

permit.
7

to be included in the minor NSR permit. Also, if the state's SIP has a

general requirement that PTE limits be federally enforceable, the unit

reducing emissions would still need a federally enforceable limit.

Such programs would not be affected by the court's ruling. In sum, the

precise impact of the vacatur on PSD/NSR applicability in any state

can be definitively established only by reviewing the provisions of a

particular SIP.

Effects an Section 112 and Title V.

The National Mining decision did not vacate the current

definition of a major source under section 112 program in the General

Provisions to Part 63, and neither of the court decisions addressed

the definition of a major source for the title V program in 40 CFR

part 70. Both of these current definitions, therefore, remain in

effect. As discussed above, however, these regulations will be

affected by the rulemaking EPA is conducting in response to the court

decisions.

EPA today reiterates that independent from the decision in

National Mining, current EPA policy already recognizes Stateenforceable PTE limits under section 112 and Title V in many

circumstances under a transition policy intended to provide for

orderly implementation of these new programs under the Clean Air Act

Amendments of 1990. This policy is set forth in a memorandum, "Options

for Limiting the Potential to Emit (PTE) of a Stationary Source Under

Section 112 and Title V of the Clean Air Act" (January 25, 1995). The

transition policy is summarized below; as noted, EPA is now making one

significant change in that policy in light of National Mining.

In recognition of the absence in some states of suitable

federally enforceable mechanisms to limit PTE applicable to sources

that might otherwise be subject to section 112 or Title V, EPA's

policy provides for the consideration of State enforceable limits as a

gap-filling measure during a transition period that extends until

January 1997.5 Under this policy, for the 2-year transition period,

restrictions contained in state permits issued to sources that

actually emit more than 50 percent, but less than 100 percent, of a

relevant major source threshold are treated by EPA as acceptable

limits on potential to emit, provided: (a) the permit and the

restriction in particular are enforceable as a practical matter; (b)

the source owner submits a written certification to EPA accepting EPA

and citizen enforcement. In light of National Mining, EPA believes

that the certification requirement is no longer appropriate as part

5 Since PSD and nonattainment NSR are mature programs, minor NSR

permits to limit PTE were available in all states well prior to

enactment of the Clean Air Act Amendments of 1990. Hence, EPA's

transition policy does not extend to those programs.
8

of this policy. Accordingly, EPA hereby amends the January 1995

transition policy by deleting the certification requirement.

In addition, under the transition policy, sources with

consistently low levels of actual emissions relative to major

source thresholds can avoid major source requirements even absent any

permit or other enforceable limit an PTE. Specifically, the policy

provides that sources which maintain their emissions at levels that do

not exceed 50 percent of any applicable major source threshold are

not treated as major sources and do not need a permit to limit PTE, so

long as they maintain adequate records to demonstrate that the 50

percent level is not exceeded.

Under the terms of EPA's transition policy, the transition period

is to end in January 1997. In addition, completion of EPA's rulemaking

in response to the recent court decisions, which EPA anticipates will

occur by early 1997, may render the transition policy unnecessary

after that time. However, in conjunction with the rulemaking, EPA will

consider whether it is appropriate to extend the transition period

beyond January 1997.