From: Lydia Wegman/RTP/USEPA/US

To: "Frey, Nathan J." <Nathan_J._Frey@omb.eop.gov>, "Mancini, Dominic J." 

<Dominic_J._Mancini@omb.eop.gov>

Cc: Joseph-J Dougherty/DC/USEPA/US@EPA, Michael Ling/RTP/USEPA/US@EPA, Anna 

Wood/RTP/USEPA/US@EPA

Date: 12/13/2012 04:22 PM

Subject: Portion of preamble related to PSD offsets issue and reg text related to grandfathering of PSD 

permit applications

Nathan and Dom, 

Please find attached preamble language related to the PSD offsets issue and reg text related to the PSD 

grandfathering issue. We continue to work on the preamble for the grandfathering issue and will send 

that to you later today. 

Please let us know if you have any questions. 

Lydia
e. Other PSD Transition Issues

Several industry commenters expressed concern that a permitting problem would result 

from the fact that, upon promulgation of the revised PM2.5 NAAQS, ambient air quality 

monitoring data would show that for some areas, PM2.5 concentrations exceed the revised 

NAAQS, although those areas would not be formally designated as “nonattainment” until a later 

date pursuant to the designation process provided by the CAA. The commenters noted that 

sources locating in such areas would be required to obtain a PSD permit in order to construct or 

modify, but could not do so because the requirement that the new or modified source must 

demonstrate that it will not cause or contribute to a NAAQS violation, even though the area 

would technically already be a nonattainment area. The commenters further noted that once the 

nonattainment designation is made, section 173 of the Act provides a nonattainment area permit 

program that specifies conditions under which a permit will be issued, including obtaining

offsetting reductions in emissions rather than demonstrating through modeling or other analysis 

that the source will not cause or contribute to a violation of the NAAQS as required in PSD. 

Thus, the commenters urged the EPA to offer an interim approach that would avoid the 

imposition of an effective construction ban on such areas until such time as the nonattainment 

area designations and the nonattainment NSR offset requirements are in place instead of the PSD 

requirements. Some of the commenters specifically requested that the EPA provide either a 

surrogacy approach based on showing compliance with the pre-existing annual PM2.5 NAAQS or 

a PSD offset approach to avoid a construction moratorium in such areas.

The commenters are correct in that areas already in violation of the revised annual PM2.5

NAAQS upon the effective date of such NAAQS may not be formally designated nonattainment 

for two years or potentially longer in accordance with the statutory procedures for promulgating 
such area designations. In addition, it is the EPA’s longstanding policy that new and revised 

NAAQS must be implemented through the permitting process as of the NAAQS effective date 

(except for earlier projects that would qualify for any EPA-authorized grandfathering). 

Accordingly, new major stationary sources and major modifications for which permits will be 

issued on or after the effective date of the revised annual PM2.5 NAAQS must comply with the 

PSD requirement to demonstrate compliance with that and any other applicable NAAQS. 

We disagree, however, with the commenters’ conclusion that such circumstances will 

result in “the imposition of an effective construction ban on such areas.” First, as already 

described, the EPA has promulgatedis promulgating a grandfather provision that allows certain 

proposed new and modified sources to proceed with the permit process based on the 

requirements that were in effect previously, provided the permitting authority either has 

determined on the date whenor before December 14, 2012 that the permit wasapplication is

complete or has proposed the permit (i.e., the date on which the draft permit or preliminary 

determination washas been noticed for public comment).) prior to the date the revised PM 

standards become effective, which is 60 days after publication in the Federal Register. . The 

grandfathering provision thus will enable some sources to avoid issues associated with violations 

of the revised annual PM2.5 NAAQS. 

Second, for those sources that are not eligible to be grandfathered under the new 

provision, existingpermitting authorities have the discretion to consider offsetting emissions 

reductions at other sources as part of a demonstration that an individual source seeking a permit 

will not cause or contribute to violation of the NAAQS. See, Page (2010c). The EPA has

historically recognized in regulations and through other actions that sources applying for PSD 

permit may utilize offsets as part of the required PSD demonstration, even though the PSD 

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provisions of the Clean Air Act do not expressly reference offsets in the same manner as the 

nonattainment NSR provisions of the Act. See, In re Interpower of New York, Inc., 5 E.A.D. 

130, 141 (EAB 1994) (describing an EPA Region 2 PSD permit that relied in part on offsets to 

demonstrate the source would not cause or contribute to a violation of the NAAQS).

Existing EPA regulations provide a procedure by which major stationary sources and 

major modifications locating in an area designated as attainment or unclassifiable for any 

NAAQS, and found to cause or contribute to a NAAQS violation in any area, may utilize offsets 

to address such adverse impacts and ultimately be issued a permit. See 40 CFR 51.165(b). 

Specifically, paragraph (b)(3) of those regulations provides that the required permit program may 

include a provision allowing a proposed major source or major modification to reduce the impact 

of its emissions on air quality by obtaining sufficient emissions reductions to, at a minimum, 

compensate for its adverse ambient impact where the source or modification would otherwise 

cause or contribute to a violation of any NAAQS. On October 20, 2010, the EPA amended the 

requirements at 40 CFR 51.165(b) to define a significant impact with regard to the PM2.5

NAAQS. See 75 FR 64864 at 64902. 

As noted by some of the commenters, the EPA addressed this same issue in 1987 when it 

promulgated a new set of NAAQS for PM10 and revised 40 CFR 51.165(b) of the regulations. 

See 52 FR 24672 (July 1, 1987) at 24684, 24686-87, 24698. For PM10, the EPA made it clear 

that when a proposed PSD source was found to cause or contribute to violation of the PM10

NAAQS, the source would be required satisfy the requirements of 40 CFR 51.165(b) “to obtain, 

at a minimum, sufficient PM10 emission offsets to compensate for the source’s ambient impact in 

the area of the violation.” Such offsets were considered to satisfy the “cause or contribute to” 
language under section 165(a)(3)(B) of the CAA. Id. at 24698.1

In response to comments 

concerning the appropriate criteria for applying this offset requirement for PSD purposes, the 

EPA also stated that any emissions offsets used for PSD purposes must meet applicability 

criteria that are at least as stringent as the offset criteria set forth in the nonattainment NSR 

requirements for offsets under 40 CFR 51.165(a)(3). Id. at 24684. We continue to believe that 

reliance on the 40 CFR 51.165(a)(3) criteria is appropriate and necessary for determining the 

creditability of PSD offsets, including any offsets obtained to satisfy the PSD requirements for 

the revised PM2.5 NAAQS prior to any anticipated designation of any area as nonattainment with 

that NAAQS.

We continue to believe that the 40 CFR 51.165(a)(3) criteria provide the most 

appropriate guide for determining the creditability of PSD offsets, including any offsets obtained 

to satisfy the PSD requirements for the revised PM2.5 NAAQS prior to any anticipated 

designation of any area as nonattainment with that NAAQS. Since the purpose for using offsets 

in PSD is to show that additional emissions from the proposed construction will not cause or 

contribute to a violation, the EPA has not codified a requirement thatsuch offsets necessarily

must meet the same criteria that apply to offsets under the nonattainment NSR program. In fact, 

the EPA has previously observed that, in the context of PSD, it may not be necessary for a permit 

 

1

In 1980, the EPA had determined that statutory requirement under CAA section 165(a)(3)(B), 

providing that a proposed new or modified PSD source must demonstrate that it will not cause or 

contribute to a violation of any NAAQS, taken together with the requirements of section 

110(a)(2)(D) of the CAA required all major stationary sources locating outside a nonattainment 

area but causing or contributing to a NAAQS violation to reduce the impact on air quality so as 

to assure attainment and maintenance of the NAAQS. In a footnote, the EPA further indicated 

that this offset requirement must apply to sources causing or contributing to a newly discovered 

NAAQS violation until the area is designated nonattainment. See 45 FR 31307 (May 13, 1980) at 

31310. In this 1980 rule, EPA adopted section 51.18(k), which was later renumbered section 

51.165(b). EPA revised 51.165(b) in 1987 to expressly authorize an offset program to meet the 

requirements of section 110(a)(2)(D)(i), but this provision may also be interpreted to apply to 

section 165(a)(3)(B) of the CAA, consistent with EPA's reading of section 51.18(k) in 1980. 
applicant to fully offset the proposed emissions increase if an emissions reduction of lesser 

quantity will be sufficient to mitigate the proposed source’s adverse air quality impact on a 

modeled violation. Page (2010c); 44 FR 3274, January 16, 1979, at 3278. (“Although full 

emission offsets are not required, such a source must obtain emission offsets sufficient to 

compensate for its air quality impact where the violation occurs.”). This may be particularly true 

where anticipated reductions from existing air quality regulations may mitigate the impacts of a 

proposed source’s emissoins by the time the source begins operating in an area that is expected 

to be designated nonattainment. This would need to be evaluated on a case by case basis. To the 

extent that any permit applicants may experience difficulties making the NAAQS compliance 

showing required to obtain a PSD permit in areas and as set forth in the Memorandum noted 

above, the EPA is committedto working with permitting authorities and applicants to identify 

ways to apply offsets under the PSD program as necessary to meet PSD requirement. 

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Part 51—[AMENDED]

1. The authority citation for part 51 continues to read as follows:

Authority: 23 U.S.C. 101; 42 U.S.C. 7401-7671q.

Subpart I – [Amended]

2. In §51.166, add paragraph (i)(10) to read as follows:

§51.166 Prevention of significant deterioration of air quality

* * * * *

(i) Exemptions. (1) * * *

* * * * *

(10) The plan may provide that the requirements of paragraph (k)(1) of this section shall not 

apply to a stationary source or modification with respect to the national ambient air quality 

standards for PM2.5 in effect on [INSERT DATE 60 DAYS AFTER DATE OF 

PUBLICATION IN THE FEDERAL REGISTER] if:

(i) The reviewing authority has determined a permit application subject to this section to 

be complete on or before December 14, 2012. Instead, the requirements in paragraph 

(k)(1) shall apply with respect to the national ambient air quality standards for PM2.5 in 

effect at the time the reviewing authority determined the permit application to be 

complete; or

(ii) The reviewing authority has first published before [INSERT DATE 60 DAYS 

AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER] a public 

notice of a preliminary determination for the permit application subject to this section.

Instead, the requirements in paragraph (k)(1) shall apply with respect to the national 

ambient air quality standards for PM2.5 in effect at the time of first publication of a public 
notice on the preliminary determination. 

* * * * *

PART 52—AMENDED

3. The authority citation for part 52 continues to read as follows:

Authority: 42 U.S.C. 7401, et seq.

4. In §52.21, add paragraph (i)(11) to read as follows:

§52.21 Prevention of significant deterioration of air quality.

* * * * *

(i) * * *

(11) The requirements of paragraph (k)(1) of this section shall not apply to a stationary source or 

modification with respect to the national ambient air quality standards for PM2.5 in effect on 

[INSERT DATE 60 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL 

REGISTER] if:

(i) The Administrator has determined a permit application subject to this section to be 

complete on or before December 14, 2012. Instead, the requirements in paragraph (k)(1) 

shall apply with respect to the national ambient air quality standards for PM2.5 in effect at 

the time the reviewing authority determined the permit application to be complete; or

(ii) The Administrator has first published before [INSERT DATE 60 DAYS AFTER 

DATE OF PUBLICATION IN THE FEDERAL REGISTER] a public notice that a 

draft permit subject to this section has been prepared. 

Instead, the requirements in paragraph (k)(1) shall apply with respect to the national 

ambient air quality standards for PM2.5 in effect on the date the Administrator first

published a public notice that a draft permit has been prepared.
* * * * *