Clean Air Act: Key Stakeholders' Views on Revisions to the New Source Review Program
Published: 2004-02-02T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Environmental Protection Agency (EPA) revisions to the New Source Review (NSR) program to control industrial emissions have drawn attention from state and local agencies that implement the program, as well as industry and environmental and health groups. Under the revisions, companies may not have to install pollution controls when making some facility changes. GAO was asked to obtain the opinions of state air quality officials and other stakeholders on the impact of both the final and proposed revisions EPA issued in December 2002. GAO obtained survey responses from NSR program managers in 44 states and certain localities and contacted six environmental and health groups, and eight industry groups active in the NSR debate. Survey details are available in GAO-04-337SP .
section_title: What GAO Found
paragraphs: A majority (29 of 44) of the state officials responding to GAO's survey expected the rule EPA finalized in December 2002 to provide industry with greater flexibility to make some facility changes without having to obtain NSR permits or, in some cases, install pollution controls. However, in their opinion, 27 officials expected the rule to increase emissions of harmful air pollutants, thereby hindering areas' efforts to meet air quality standards and potentially creating or exacerbating public health risks. This concern\ contrasts with EPA's assessment that the rule will decrease emissions and maintain the current level of environmental protection. Furthermore, 30 of the officials expected their agency's workload would increase as they adopt and implement the rule into their own programs. Almost all of the 44 officials would like EPA assistance with implementation. Similarly, 28 of the 42 officials responding expected the two NSR revisions as proposed in December 2002--intended to provide more certainty about when facility changes are considered routine maintenance, repair, and replacement activities and can be excluded from NSR requirements--to decrease the number of permits companies would have to obtain, thereby giving them the flexibility to make some changes without installing controls. However, 21 and 26 officials, respectively, thought that the two exclusions would increase emissions; only relatively few thought the exclusions would decrease emissions as EPA's analysis had predicted. About a third of the officials thought the exclusions would exacerbate air quality problems in areas that do not meet standards, but fewer officials thought the exclusions would cause problems in areas that currently meet standards. Finally, 27 thought that implementing the two exclusions would increase states' administrative burden. The other stakeholder groups GAO contacted agreed that the final rule and two exclusions would decrease the regulatory burden on companies that modify their facilities, but disagreed about the impact on emissions and air quality agencies' workload. The six environmental and public health officials expected that because companies would not have to obtain as many NSR permits or install as many controls when modifying facilities, emissions would rise and state and local agencies' workloads increase as agencies sought alternative ways to meet standards. In contrast, the eight industry officials expected the revisions to encourage companies to invest in energy-efficient projects they had avoided under the prior program, which the officials believed would lower fuel use and emissions. The officials also expected that fewer permits would lead to decreases in agencies' workloads. Determining the revisions' likely impacts is difficult because, as discussed in GAO's August 2003 report on EPA's analytical basis for the final rule (GAO-03-947), little data exist to confirm stakeholders' opinions. In that report, GAO recommended that EPA work with state and local agencies to obtain data to assess the rule's emissions impact and correct any adverse effects.

section_title: Letter
paragraphs: The Environmental Protection Agency’s (EPA) revisions to the Clean Air  Act’s New Source Review (NSR) Program—one of the act’s mechanisms  for maintaining air quality to protect public health—have provoked  controversy. These revisions are contained in rules that the agency issued  in December 2002 and October 2003, respectively. In general, these rules  provide companies with regulatory flexibilities to modify their industrial  facilities without triggering NSR requirements to install potentially costly  pollution controls, if certain conditions are met. According to EPA, the  December 2002 rule will provide incentives for facilities to reduce  emissions, remove barriers to energy efficiency and pollution control  projects, and offer facilities greater regulatory flexibility, while the  October 2003 rule will allow companies to modernize facility operations in  ways that will maintain and improve safety, reliability, and efficiency. EPA  also anticipates that the rules will enhance the NSR program’s  environmental benefits.
Reactions to the rules have differed considerably. A number of industry  groups agree with EPA’s position, and some states have filed legal  documents in court expressing support for the rules. Other states and  some localities, including a coalition of states and various localities  primarily located in the mid-Atlantic and northeast regions of the country,  as well as certain environmental groups, have filed lawsuits challenging  the legality of the two rules in court.
The NSR program—established in 1977—seeks to protect public health,  maintain compliance with air quality standards, and enhance air quality in  national parks and scenic areas. The NSR program applies to nearly 17,000  industrial facilities, including fossil-fueled power plants, petroleum  refineries, and facilities that manufacture automobiles, chemicals,  pharmaceuticals, and paper. The program requires companies, when they  are constructing facilities, to obtain NSR permits that limit the amount of  pollution that facilities may emit and to install pollution controls when  necessary. The program imposes similar requirements when a company  makes a physical or operational change to an existing facility—such as  adding new production equipment—if the change would result in a  significant net increase in emissions. The Congress allowed existing  facilities to defer installation of pollution controls until a major  modification was made with the expectation that, over time, all facilities  would install such equipment, and this would lead to lower overall  emissions.
Responsibility for implementing NSR, as well as other air quality  regulations, generally rests with state and local air quality agencies.  However, the stringency of the air quality regulations they set varies. The  Clean Air Act generally requires more stringent control measures for  industries located in areas that fail to meet at least one of the air quality  standards than for those located in areas that meet the standards.
Because of the NSR program’s complexity and the administrative burden it  imposes, EPA has long recognized a need to revise it. In 1992, EPA began a  reform process that resulted in proposed changes to the program in 1996  and 1998. But the agency did not finalize the proposals as rules during the  previous administration. The current administration acted on certain of  the prior reform proposals by issuing a final rule in December 2002. This  rule contained five provisions—including a new method for determining  whether a facility change will significantly increase net emissions—that  reduced the likelihood that certain of these changes would require an NSR  permit or, in some cases, the installation of pollution controls. In assessing  the potential costs and benefits of the rule to determine whether to pursue  it, EPA anticipated that this rule will provide incentives for facilities to  reduce emissions, remove barriers to investments in energy efficiency and  pollution control projects, and offer facilities greater regulatory flexibility.  In addition, at the time the agency issued the rule, it released an analysis of  the rule’s anticipated environmental effects that concluded the rule would  lead to an overall environmental benefit. EPA estimated it will cost state  and local agencies about $6.5 million annually to incorporate the rule into  their air pollution control plans. However, the agency expects that the rule  will ultimately decrease agencies’ NSR costs after the first 3 years of  implementation.
Also in December 2002, EPA issued a proposed rule, with two provisions,  that would define certain activities as routine maintenance, repair, or  replacement and, therefore, exempt from NSR requirements. In its  assessment of the rule, the agency asserted that the two provisions would  provide greater certainty to industry about when facility changes can be  exempt from NSR and encourage facilities to perform energy-efficiency  projects that were being hindered by the existing program’s requirements  for permits and costly controls. The cost of installing controls varies but,  in extreme cases, costs can reach hundreds of millions of dollars,  according to EPA.
One of the provisions that EPA proposed would exclude activities from  NSR requirements considered “routine equipment replacements”— replacements of worn-out or broken machinery with identical parts or  those that perform the same function as the existing part. EPA proposed  several thresholds below which expenditures for such equipment  replacement could be considered routine and exempt from NSR  requirements and solicited public comment on them. After reviewing the  comments it received, EPA issued this exclusion as a final rule in October  2003. EPA established 20 percent of the cost to replace the entire process  unit—for example, a steam-generating unit in a power plant—as the cost  threshold companies could use to replace parts within that unit without  being subject to NSR, and concluded that the rule would have insignificant  environmental effects. EPA also estimated that the rule would impose  one-time costs of $8.7 million on industry and $1.7 million on state and  local agencies that adopt the rule, while saving the electric utility industry  hundreds of millions of dollars.
The other provision that EPA proposed would create an “annual  maintenance allowance” exclusion that would enable companies to avoid  NSR if the cost of all routine maintenance and repair activities did not  exceed a certain percentage of the cost to replace the entire facility. The  agency has not determined whether it will finalize this portion of the  proposal or pursue other options to address routine maintenance and  repair activities.
You asked us to address a number of questions about the basis of the  revisions and their potential impacts. In two previous reports on the  revisions, we reviewed (1) EPA’s assessment of the economic and  environmental impact resulting from the December 2002 final rule, and (2)  the potential impact of the NSR revisions on the enforcement actions that  EPA had filed against coal-fired power plants for allegedly violating NSR  requirements and on public access to information on emissions. We  presented our findings on these reviews in reports issued on August 22,  2003, and October 21, 2003, respectively. In the August report, we  determined that data limitations precluded EPA from performing a  quantitative analysis of the effects of the December 2002 final rule. In the  October report, we determined that the revisions could affect the ongoing  cases and the public’s access to emissions information, although EPA  program managers did not agree that the rule would affect access to  emissions information.
You also asked us to obtain the views of a number of key stakeholders  about a broader range of the revisions’ potential impacts. More  specifically, you asked us to obtain (1) state air quality agency officials’  views about the impacts of the December 2002 final NSR rule on industry,  emissions, and agencies’ workloads; (2) state air quality agency officials’  views about the impacts of the two December 2002 proposed NSR  exclusions on industry, emissions, and agencies workloads; and (3)  environmental, health, and industry organizations’ views on the impacts of  all the NSR revisions. In addition, we determined selected local air quality  agencies’ views on the revisions’ potential effects.
To address the first two objectives, we administered a detailed survey to  the NSR program managers in 50 states and the District of Columbia using  the Internet. We surveyed program managers to ensure that we obtained  information from those most involved in the day-to-day administration of  the NSR program. In addition, we sent this survey to 71 local agencies,  primarily those with their own authority to issue NSR permits. To identify  the NSR program manager for each state or local agency, we worked with  the 10 EPA regional offices and obtained some information from the State  and Territorial Air Pollution Program Administrators (STAPPA) and the  Association of Local Air Pollution Control Officials (ALAPCO) Internet  site. We pretested the survey with selected state and local program  managers to ensure the questions were clear, understandable, accurate,  and comprehensive. In addition, to ensure that the questions were neutral  and objective, we pretested the survey with states that were supportive of  the revisions, as well as states that were not. We received complete  responses from 44 state program managers and 60 local agency officials  (each state or local agency could only provide one response). The  managers in four states said they declined to respond so as not to disclose  information related to their state’s ongoing NSR-related litigation. We have  provided a copy of our survey and detailed tables showing the state and  local officials’ responses to the questions in a separate report, Survey of  State and Local Air Quality Officials Opinions on the Impacts of the  Environmental Protection Agency’s Revisions to the Clean Air Act’s New  Source Review Program (GAO-04-337SP), available on the Internet at  http://www.gao.gov/special.pubs/gao-04-337sp. We have also summarized  the main results of our survey of select local air quality agencies in  appendix I.
It is important to note that we asked the program mangers for their  opinions about the potential impacts, both positive and negative, of the  NSR revisions. Based on our prior work, we had established, and EPA  program managers told us, that very little data existed—either on the  impact of the NSR program before the revisions, or on the number of  facilities that might use any or all of the revisions—to try to assess the  revisions’ impacts. In addition, at the time we asked the state and local  officials for their opinions about the exclusion of certain activities as  routine equipment replacement, EPA had not defined a specific cost  threshold for this exclusion as it did in the October 2003 rule. As a result,  we wanted to confirm that the opinions the officials stated about the  exclusion in response to our survey were still accurate. Therefore, we  provided a summary of our survey results regarding this provision to  STAPPA/ALAPCO. Working with its members, the association confirmed  that states and localities continue to have the same views about this  exclusion as they did at the time of our survey. Furthermore, we  confirmed with the EPA NSR program manager that he did not think the  opinions of the state and local officials had changed as a result of EPA  finalizing the exclusion in its October 2003 rule.
To address the third objective, we identified key stakeholders involved in  NSR policy decisions at the national level—including representatives of  industry, environmental, and public health interests—and sent them a  more general list of questions via electronic mail that solicited their  responses about the revisions’ potential effects. For a more detailed  discussion of our scope and methodology, see appendix II.
subsections: section_title: Background
paragraphs: Under the Clean Air Act, EPA establishes health-based air quality  standards that the states must meet and regulates air pollutant emissions  from various sources. These include industrial facilities and mobile  sources, such as automobiles and other transportation. EPA has issued air  quality standards for six primary pollutants—carbon monoxide, lead,  nitrogen oxides, ozone, particulate matter, and sulfur dioxide—that have  been linked to a variety of health problems. For example, ozone can  inflame lung tissue and increase susceptibility to bronchitis and  pneumonia. In addition, nitrogen oxides and sulfur dioxide contribute to  the formation of fine particles that have been linked to aggravated asthma,  chronic bronchitis, and premature death. In 2002, the most recent year for  which data were available, 146 million Americans lived in areas that failed  to meet at least one air quality standard, according to EPA.
Subject to EPA’s oversight, state and local air quality agencies generally  administer the NSR program and operate under one of two arrangements.  First, some agencies located in areas that meet air quality standards have  “delegation” agreements with EPA under which they implement the NSR  program contained in EPA’s regulations. Under the second arrangement,  agencies design their own programs by incorporating all of their air quality  regulations, including federal requirements, into overall air quality plans,  known as state implementation plans. They update these plans  periodically and submit them to EPA for approval.
In addition, the Clean Air Act requires those agencies that implement their  own air quality programs to ensure their requirements are at least as  stringent as EPA’s regulations. State and local agencies may also  supplement the federal NSR program with additional requirements.  However, some jurisdictions have laws or policies that prevent agencies  from implementing more stringent regulations.
Throughout its history, the NSR program has been characterized by  complexity and controversy, involving disputes between EPA and industry  about, among other things, whether certain facility changes qualified for  the routine maintenance, repair, and replacement exclusion. In recent  years, EPA has taken enforcement action against companies in several  industries, including some electricity producers, forest product  manufacturers, and petroleum refineries, alleging noncompliance with the  program.
In addition to concerns about enforcement related issues, some industry  representatives have also raised concerns that the time required to obtain  a NSR permit and the cost of installing controls have prevented facilities  from making changes that enhance energy efficiency and reduce air  emissions, such as modifying a boiler so that it produces the same amount  of energy with less fuel. In May 2001, the Vice President’s National Energy  Policy Development Group recommended, among other things, that the  Administrator of the EPA, in consultation with the Secretary of Energy  and other federal agencies, examine the impact of the NSR program on  investments in new utility and refinery generation capacity, on energy  efficiency, and on environmental protection. In its June 2002 NSR Report  to the President, EPA concluded, among other things, that the program  had not affected investments in new power plants and refineries but had  discouraged some energy efficiency projects at existing facilities,  including some that would have reduced air emissions. This report also  contained recommendations for revising the program.
Subsequently, EPA issued a final rule on December 31, 2002, which  contained five provisions, identified in table 1, which exempt certain  facility changes from requirements to obtain NSR permits.
These revisions have been the subject of congressional debate. For  example, in 2002, the Congress held hearings during which members of the  Congress, EPA officials, and a number of stakeholders—including  industry, states, and environmental groups—presented their positions on  the revisions. Also, legislation has been introduced in the Congress that  seeks to further regulate emissions from industrial facilities.
In addition, a number of environmental and public health groups, as well  as a group of states primarily from the Mid-Atlantic and Northeast, claimed  that the December 2002 final rule violated the Clean Air Act and asked  EPA to reconsider several aspects of the rule. In July 2003, EPA agreed to  do so and then solicited public comment on the areas under  reconsideration. Based on this input, EPA announced at the end of  October 2003 that it would make several technical changes to the rule.  State and local agencies that operate under delegation agreements were  required to have implemented the December 2002 rule by March 2003 or  return responsibility for implementing the rule to EPA, while those  operating under state implementation plans have until January 2006 to  revise their regulations accordingly.
As for the December 2002 proposed provisions—that would further  specify what facility changes are exempt from NSR requirements under  the routine maintenance, repair, or replacement exclusions—a coalition of  primarily Mid-Atlantic and Northeastern states and environmental and  public health groups challenged the legality of the equipment replacement  rule in court after it was finalized in October 2003. State and local agencies  that operate under delegation agreements were required to implement this  rule by December 26, 2003 or have EPA implement it for them, while those  operating under state implementation plans have until October 2006 to  revise their regulations accordingly. However, on December 24, 2003, the  U.S. Court of Appeals for the District of Columbia Circuit stayed the  equipment replacement rule pending further review, preventing the rule  from going into effect while the court considers the legal challenges. EPA  has not determined what additional action, if any, it will take regarding  establishing an annual maintenance allowance below which facility  changes would be considered exempt from NSR requirements.
section_title: A Majority of the State Officials Expect the December 2002 Rule Will Provide Industry with Greater Operating Flexibility but Also Increase Emissions and Agencies’ Workload
paragraphs: A majority of the state officials expect that the December 2002 final rule  will provide industry with greater flexibility to make facility changes  without triggering NSR requirements for permits. However, a majority of  the officials also expect that the rule will lead to an overall increase in  emissions of harmful air pollutants and hinder efforts to meet air quality  standards, potentially creating or exacerbating risk to public health. Most  of the officials also expect that the rule will increase their agencies’  workload.
subsections: section_title: More than Half of the State Officials Expect Most of the Rule’s Provisions to Decrease the Number of NSR Permits Issued and Provide Flexibility for Companies to Modify Their Facilities
paragraphs: In pursuing the December 2002 final rule, EPA, among other things, sought  to offer facilities greater flexibility to improve and modernize their  operations. Similarly, the state air quality agency officials (29 of 44) said  that in their professional opinion, obtaining fewer permits and more  flexibility to modify facilities are the rule’s two primary positive effects for  industry. For example, more than half of the state officials believe that  four of the five provisions of the rule—including the revised test for  determining whether a facility modification significantly increases net  emissions and is, therefore, subject to NSR—will decrease the number of  permits state air quality agencies issue.
For perspective, the state officials reported that their agencies had issued  a total of 600 NSR permits during the 3 years prior to the final rule to  companies that were modifying existing facilities. The officials expect the  number of such permits issued to decrease under the final rule because it  expands the range of activities that companies may pursue without a  permit and, in some cases, controls. Forty of the state officials identified  the requirements to install pollution controls as one of the best features of  the NSR program prior to the final rule. According to EPA, however,  several provisions of the rule require companies to make certain  commitments, such as accepting an overall limit on their emissions, in  exchange for avoiding permitting. Therefore, EPA believes the rule will  encourage investments that decrease emissions.
As we reported in our August 2003 report, EPA found that the December  2002 final rule would lead to overall benefits by encouraging energy  efficiency projects, reducing emissions and related health risks, and  providing economic benefits to companies affected by the program. For  example, EPA’s analysis found that the rule would encourage companies  to implement energy efficiency projects that would reduce emissions, such  as upgrades to boilers used to generate power. However, only 9 of the 44  officials we surveyed anticipated that the rule would provide the impetus  for companies to increase these projects.
section_title: A Majority of the State Officials Expect the Rule to Increase Emissions and Hinder Efforts to Meet Health-based Air Quality Standards
paragraphs: A majority of the state officials expect emissions to increase as a result of  the final rule—in contrast to EPA’s conclusion, in the agency’s analysis of  the rule’s environmental effects, that it will reduce emissions from  industrial facilities. More specifically, 27 of the 44 officials we surveyed  expect that overall, the December 2002 rule will increase emissions; 8  officials believe emissions will decrease or remain the same (the  remaining 9 officials could not judge the emissions impact). At least half of  the officials thought the rule would increase emissions of carbon  monoxide, nitrogen dioxide, ozone, particulate matter, or sulfur dioxide— all of which have been linked to health problems and are controlled by a  variety of Clean Air Act programs.
When asked about the emissions impact of each specific provision in the  final rule, a majority of the state officials identified two of the rule’s  provisions as most likely to cause emissions increases, as table 2  illustrates. These include the revised methods for determining (1) a  facility’s historical or “baseline” emissions and (2) whether a change will  result in a significant net emissions increase.
For example, a majority of the officials believe the “baseline” provision  will increase emissions. This provision allows industrial facilities to use  any consecutive 24-month period in the previous decade as a baseline.  EPA changed this emissions calculation method to, among other things,  account for variations in business cycles. The agency concluded that this  provision would have negligible emissions consequences because it would  not alter the baseline for most facilities, including coal-fired power plants  (the largest emitting group of facilities). In addition, companies must  adjust their baselines downward to reflect any other emissions limitations  that have become effective since the period of time they selected for  establishing their baseline, according to EPA. EPA program managers,  therefore, maintain that emissions baselines will not significantly increase  as a result of this provision.
Nevertheless, some officials provided written responses to our survey  describing their concerns over this provision. Several such officials  asserted that it allows companies to select the 24-month period within the  previous 10 years in which their emissions were highest.
In addition, 24 officials thought that the provision for plantwide emissions  limits, whereby facilities accept a cap on their overall emissions to avoid  undergoing NSR, would nevertheless increase emissions. For example,  several officials said that the rule enables facilities to establish their  emissions cap based on their highest 2 years of emissions in the previous  10 years, thereby enabling them to create a cap that exceeds their current  emissions. On the other hand, 10 officials said this provision would  decrease emissions, and several asserted that it creates incentives for  facilities to reduce or limit their emissions. EPA program managers  maintain that this provision will decrease emissions.
In addition to these overall effects, 24 of the state officials anticipate that  the rule will particularly allow facilities built prior to the establishment of  the NSR program in 1977 to increase their emissions. At the time, the  Congress decided to allow existing facilities to defer installation of  pollution controls until a major modification was made with the  expectation that, over time, all facilities would install such equipment, and  this would lead to lower overall emissions. However, as we concluded in  our June 2002 report on emissions from older power plants, taken as a  whole, such plants still emit more air pollution for each unit of electricity  generated than newer plants. For example, we found that for each  megawatt of electricity produced, the older facilities emitted about 100  percent more sulfur dioxide and 25 percent more nitrogen oxides than  newer facilities.
State officials that believe emissions increases will occur under the rule  gave various opinions as to how they would manage such increases. For  example, 7 officials said that the rule would not impede their ability to  meet or maintain air quality standards. Another 14 expect they will offset  the anticipated increases using other air quality regulations, such as those  used to control emissions from mobile sources (automobiles and other  transportation). However, 13 others expect the rule to impede their ability  to meet or maintain standards—despite these other regulations. (Nine said  they could not judge the rule’s effects.) This could create challenges for  agencies that expect the rule to interfere with efforts to meet air quality  standards, but that said they were prohibited from adopting more stringent  regulations, such as the District of Columbia, Kentucky, New Jersey, New  Mexico, Oklahoma, Pennsylvania, and Wisconsin. On the other hand, 28  state officials said that state law or policy does not prohibit them from  adopting more stringent rules than federal requirements.
section_title: Most State Officials Believe the Rule Will Not Resolve Uncertainty About When NSR Applies to a Modification
paragraphs: A majority of the state officials’ responses contrasted with EPA’s  statement that the final rule would provide greater certainty than in the  past for companies and regulators when determining when NSR  requirements apply. Officials identified this uncertainty as one of the  program’s main problems before the rule, and 30 officials identified  continued uncertainty as the rule’s greatest negative impact on state  agencies and industry.
More specifically, one official explained that the rule is too vague to be  implemented with certainty or enforced. Another state official said that  the rule’s new method for determining whether a facility modification  would significantly increase its emissions is by far the most complicated  process yet devised for making such determinations. Furthermore, the  official stated that a company trying to do the right thing could easily be  confused when attempting to determine its future levels of emissions. This  confusion could increase both the burden that the rule imposes on state  agencies to implement and enforce it and the costs for companies that  want to use its provisions.
In addition, 30 of the state officials said that the final rule did not resolve  any of the other significant problems with the program, including difficulty  in determining the stringency of pollution controls that facilities should  install when required to do so.
section_title: A Majority of State Officials Expect the Rule Will Increase Agencies’ Workloads and Would Like EPA’s Assistance in Understanding and Implementing the Rule
paragraphs: The state officials’ survey responses showed that many expect the final  rule to impose demands on their agencies, including increased workloads.  This comes at a time when many states face budget deficits. Nevertheless,  many of the state officials said their agencies plan to adopt all or most of  the rule’s provisions as written (see table 3).
In revising state programs to incorporate the rule, 31 of the officials said  that it would take between one and four staff to adopt the rule’s provisions  and obtain EPA’s approval of their proposed implementation plans.  Seventeen of the 36 officials that were able to anticipate the staff needed  said that their agency had a plan for obtaining the necessary staff time, but  15 others did not (4 said they did not know if their agency had a plan).
In addition, 30 state officials expect that having to administer the rule after  it is adopted will increase their workload at least to some extent—despite  the fact that most expect a decrease in the number of permits issued in the  future. Another 6 expect a decrease in their workload, and 1 expected no  change. As noted above, most officials expected continued uncertainty for  state agencies as a negative impact of the rule. One official explained that  the state agency was spending considerable time learning the regulations  and training agency staff and companies, while also developing record  keeping, tracking, and other administrative processes. Another official  expected a dramatic increase in the agency’s administrative workload,  including time spent reviewing information associated with the rule’s  provisions for plantwide limits, among other things. Similarly, another  official expected a high demand among companies for plantwide limits  and that developing them would be very resource intensive. However,  another official said that the workload would increase initially because of  the learning curve with the new program but then decrease over time. The  remaining 7 officials did not know or had not assessed the rule’s workload  impact. EPA program managers maintain that, over time, the rule will  decrease the workload for agencies.
To better understand and implement the rule, all but one of the agency  officials said that they would benefit from some type of assistance from  EPA, including updated guidance or workshops.
section_title: At Least Half of the State Officials Expected the Proposed Revisions Defining NSR Exclusions to Provide Industry Greater Flexibility but Also Increase Emissions and the Administrative Workload for State Agencies
paragraphs: Similar to their opinions on the final rule, a majority (28 of 42) of the state  officials expected EPA’s two NSR revisions—as proposed in December  2002—to provide companies the flexibility to perform maintenance and  replacement activities without obtaining permits and installing pollution  controls. However, at least half of the officials also expected that, as a  result, emissions would increase, and a third expected the exclusions  would exacerbate existing air quality problems and health risks in areas  that already do not meet standards. A majority also expected a greater  administrative burden and uncertainty for agencies in determining when a  facility’s activities can be excluded.
subsections: section_title: A Majority of State Officials Expected the Two Exclusions to Provide Industry the Flexibility to Undertake More Facility Modifications without a NSR Permit and Pollution Controls
paragraphs: Twenty-eight state officials expected the two exclusions would exempt  facility changes from requirements for permits and controls, decreasing  the number of permits they issue over the next 5 years. This would provide  industry with greater flexibility to perform routine maintenance, repair,  and replacement activities without incurring the costs and delays of the  NSR program. EPA previously determined which activities were  considered routine maintenance, repair, and replacement, and thus  excluded from NSR, on a case-by-case basis. In December 2002, EPA  proposed that, in addition to the case-by-case determination, exclusions  could also be determined according to a cost threshold mechanism, below  which activities could be exempted from NSR, rather than an emissions  threshold. Although, at the time of our survey, the 20 percent cost  threshold for replacing equipment had not been established, one official  said that this exclusion would exempt most facility modifications from  NSR.
The state officials identified fewer permits and increased flexibility as the  exclusions’ most positive benefits for companies. In addition, 19 of the  officials expected that the exclusions would have a positive effect on  companies’ efforts to pursue energy efficiency projects. These officials’  opinions are, therefore, consistent with EPA’s finding that the exclusions  would remove barriers to energy efficiency investments.
section_title: About Half of the State Officials Opposed the Equipment Replacement Exclusion and a Majority Opposed the Annual Maintenance Allowance
paragraphs: Overall, 21 of the 44 officials said they opposed the equipment  replacement exclusion. Another 12 said they supported this provision, and  the others said they neither supported nor opposed it, or had no opinion.  One of the officials who expressed concerns about the proposal said that  implementing the equipment replacement exclusion would reduce or  eliminate incentives for companies to install well-controlled equipment.  Another official expressed the concern that the exclusion did not include  the necessary provisions to ensure that a company does not replace an  entire emissions unit over a period of just a few years without installing  controls.
In addition, 32 of the 44 officials said they opposed the annual  maintenance allowance exclusion. Another 3 officials said they supported  this provision, and the others said they neither supported nor opposed it,  or had no opinion. Specifically, some states were concerned that the  financial analysis to evaluate the cost data to determine exclusions is too  complex. One official asserted that the annual maintenance allowance  would enable companies to conduct projects that are not routine, thereby  extending the life of equipment that should have been upgraded with more  efficient equipment. According to EPA, the agency received a mixture of  positive and negative comments on the annual maintenance allowance  approach from key stakeholders, including industry, state and local  agencies, and environmental groups. The agency has not determined  whether it will finalize this portion of the proposal or pursue other options  to address routine maintenance activities.
section_title: At Least Half of the State Officials Expected the Proposals Would Increase Emissions, Potentially Worsening Air Quality
paragraphs: At least half of the state officials believed that the exclusions would result  in increased emissions of harmful air pollutants. For example, half  expected that the equipment replacement exclusion would increase  emissions, and several believe the cost threshold mechanism will allow  older facilities to avoid installing pollution controls. Only 2 officials  thought that this exclusion would decrease emissions, while the others  expected no change (7) or could not judge (12).
Similarly, 26 of 42 officials who responded said they expected the  proposed annual maintenance allowance exclusion would increase  emissions. For example, one official explained that because the exclusion  is based solely on the amount of money spent without regard to emissions  increases, facilities could make changes that increase emissions and be  exempt from NSR. Only 1 official expected this exclusion would decrease  emissions, while the others expected no change (1) or could not judge  (14).
Overall, 21 of the 44 state officials believed the two exclusions would  enable older facilities, built prior to 1977, to increase emissions. Another 8  expected emissions to decrease or remain the same, and 15 were unable to  judge. As discussed earlier, older power plants emit more pounds of  pollutants per unit of energy generated than newer plants. One official said  that older facilities would continue to be modified without going through  NSR and upgrading their pollution controls. Another official said that  enabling older power plants to avoid installing pollution controls violated  the intent of the Clean Air Act.
While at least half of the officials expected the exclusions to increase  emissions, fewer expected them to exacerbate existing air quality  problems or create new ones. For example, of the 30 officials located in  states with areas that currently do not meet air quality standards, about a  third expect the equipment replacement exclusion to interfere with areas’  efforts to meet standards, while another third did not expect it to interfere,  and the final third could not judge. In addition, 13 of these officials  expected the annual maintenance allowance exclusion to interfere, while 5  did not, and 12 could not judge. In terms of creating new air quality  problems in areas that currently meet standards, only 5 of 44 officials  expected the equipment replacement exclusion to have this impact, while  20 did not, and 19 could not judge. Furthermore, only 7 of these officials  expected the annual maintenance allowance exclusion to have this impact,  while 16 did not, and 21 could not judge.
The opinions of officials that expect emissions increases and adverse air  quality effects contrast with EPA’s conclusion that the exclusions would  enhance the environmental protection and benefit derived from the  program. In addition, EPA’s economic analysis of the exclusions found  that they would lead to health benefits and did not account for any  potential health-related costs. However, to the extent that either  exclusion would cause or exacerbate violations of health-based air quality  standards, EPA’s analysis would have underestimated the health effects  and costs of the exclusions.
section_title: A Majority of the State Officials Expected the Exclusions Would Create a Greater Administrative Workload
paragraphs: A majority of the officials said that implementing the exclusions would  increase their administrative burden (27 of 44) and create uncertainty for  agencies in determining when a facility’s activities can be excluded (28 of  44). These opinions contrast with EPA’s conclusion in the analysis noted  above that they would provide greater regulatory certainty. Several  officials expressed concerns about the complex accounting procedures  they would need to use to determine compliance with the cost threshold  mechanisms and whether modifications could be excluded from NSR  permitting. For example, one official said that the accounting procedures  were well beyond the expertise of the state agency, and another official  described how the agency would need to hire certified public accountants  to determine compliance with the exclusions.
section_title: Other Stakeholders Expected the Proposed and Final NSR Revisions to Benefit Industry but Disagreed on Their Effect on Emissions and Air Quality Agencies’ Workload
paragraphs: According to key stakeholders we contacted, the proposed and final  revisions to the NSR program would benefit industry by decreasing the  regulatory burden on companies that modify their industrial facilities, but  these stakeholders disagreed on the revisions’ impact on emissions and  other factors. Stakeholders representing environmental and public health  groups anticipated that the revisions would mean fewer modifications will  be subject to NSR’s permit and control requirements, but more work for  regulators as they look for alternative ways to control emissions. In  contrast, stakeholders representing the industry groups asserted that the  proposed and final changes clarified the NSR program, thereby making  permitting easier, and encouraging investment in energy efficient projects  that lower fuel consumption and emissions. As we concluded in our  August 2003 report, the overall economic and environmental effects of the  December 2002 rule are uncertain because of data limitations and  difficulty determining how individual companies will respond to the rule.
subsections: section_title: Environmental and Public Health Group Stakeholders Expected the Proposed and Final Revisions to Decrease Industry’s Regulatory Burden but Increase Emissions and Air Quality Agencies’ Workload
paragraphs: According to the opinions of the six environmental and public health  group stakeholders we contacted, as well as an association representing  all of the state and local air quality agencies, the proposed and final  revisions would lessen the regulatory burden on companies because, as  discussed earlier, fewer modifications would trigger NSR. Under the prior  rules, to obtain a permit, a company would have to submit an application  and go through a public notice and comment period—a process that could  take 3 months to more than 1 year. The company would also have to  periodically report on their compliance with the permit. Furthermore, in  cases where the modification would significantly increase emissions, the  company would have to go through the time and expense of installing  emission controls. As a result of the NSR revisions, however,  environmental and public health stakeholders anticipate that companies  would forgo the emissions reductions that would have been achieved by  installing controls, thereby increasing emissions and public health risks.
As with a majority of the state air quality officials responding to our  survey, nearly all of the environmental and public health group  stakeholders asserted that the proposed and final revisions would create  more work for state and local air quality agencies. Several of them believe  that, because the revisions would result in fewer permits, they would also  result in fewer recordkeeping and reporting requirements for industry.  This, in turn, would make it harder for the agencies to track and monitor  changes at facilities that could influence emissions. For example,  according to the association representing these agencies, the revisions  would make it difficult for them because they would now have to identify  other sources of emissions information instead of relying on companies to  report this information, as companies were previously required to do  under the NSR program. We concluded in our October 2003 report that,  overall, as a result of the final rule, the public may have less assurance that  they will have notice of, and information about, company plans to modify  facilities in ways that affect emissions, as well as less opportunity to  provide input on these changes and verify they will not increase emissions.
Some of the environmental and public health stakeholders also pointed  out that the agencies will be forced to find programs other than the federal  NSR program to control emissions so that local air quality meets the  national standards. For example, areas not meeting at least one of the  standards must develop a state plan showing how they will reduce  emissions to comply with the standard. But with fewer modifications and  facilities subject to emission controls through NSR, air quality agencies  will have to look for other ways to reduce or control emissions. However,  according to some environmental and public health groups, these  alternative regulations and programs can be more difficult to implement  because, for example, they focus on smaller sources of emissions  compared with the sources subject to the federal NSR program. Therefore,  to achieve the same emissions savings as they would have under NSR, the  agencies will have to track emissions and pursue reductions from a greater  number of sources, requiring more staff time and resources for permitting  and enforcement.
section_title: Industry Stakeholders Asserted That the Proposed and Final Revisions Clarify When NSR Applies to a Modification, Thereby Encouraging Energy Efficiency Projects and Reducing Emissions and Air Quality Agencies’ Workload
paragraphs: Most industry stakeholders we contacted felt the proposed and final  revisions would lessen, or at least not increase, their regulatory burden,  similar to the opinions of the environmental and public health  stakeholders. Fewer modifications would be subject to the requirements  to obtain a permit and install controls. Furthermore, several industry  stakeholders said their regulatory burden would decrease because the  revisions clarified when NSR actually applied. Several industry  stakeholders explained that before the revisions, companies were  uncertain as to whether some of their modifications triggered NSR. For  example, one stakeholder said that the existing routine maintenance  exclusion was arbitrary and unclear. As a result, to avoid enforcement  actions and penalties, companies would opt not to make the  modifications.
On the other hand, the industry stakeholders disagreed with the  environmental and public health stakeholders on a number of other  potential impacts. First, all of the industry stakeholders believed the  changes will encourage companies to invest in energy efficiency projects  they avoided in the past because of NSR requirements. For example, as we  discussed in our October 2003 report, under the prior program, to  determine if a modification would increase emissions enough to trigger  NSR, companies generally had to assume that facilities would run at the  maximum capacity or the highest capacity allowed by the existing NSR  permit after making the modification. A company had to make this  assumption even if the facility had not run at this level in the past or was  not expected to in the future. Industry stakeholders argued that having to  assume this potential increase in emissions biased the test and overstated  the true emissions impact of a project. One industry representative gave  the example of a proposed modification that had the potential to save the  company an estimated $300,000 per year and reduce emissions, but that  the company did not pursue because the emissions test predicted it would  have triggered costly NSR controls.
In the December 2002 final rule, EPA revised the method of calculating the  expected emissions so a company can project the actual activity level—as  opposed to the maximum potential activity level—after the facility change  and estimate the resulting emissions accordingly. Therefore, according to  some of these stakeholders, such energy efficiency projects most likely  will not trigger NSR requirements under the revised rule and will be less  costly for companies to pursue. The industry stakeholders believed that,  with the increased energy efficiency investments, facilities would use less  fuel for the same levels of production.
However, as we discussed in our August 2003 report, industrial facilities’  future production levels and air pollutant emissions may fluctuate in  response to changing economic conditions and other factors. In that  report, we also noted that the executive director of one industry trade  association stated that it would make economic sense to increase  production at more efficient facilities. The representative “could not  imagine a utility spending money on extra capacity and then not utilizing  it.” As a result, some environmental groups that disagreed with industry  were concerned that, if facilities become more efficient, they will actually  cause a net increase in overall emissions and health risks. On the other  hand, according to an EPA program manager, the agency expected that, if  a company increased production at its more efficient facilities, it could  decrease production at its less efficient facilities, more than offsetting any  emissions impact. However, the manager said that the agency had not  analyzed the air pollution impacts of shifts in production that facilities  make after implementing energy efficiency projects to support the  agency’s viewpoint.
The industry stakeholders we contacted believed the increased projects  and lower emissions they anticipate will result more from the revisions  included in the December 2002 final rule rather than the October 2003 rule.  This is because, according to some stakeholders, the latter rule simply  reinforces how companies had already been interpreting NSR in the past  to determine if a modification was a routine replacement of equipment  and, therefore, exempt from NSR requirements. However, the October  2003 rule specifies a 20 percent cost threshold, below which a company  could make certain changes as routine replacement and exempt from NSR.
Also, in contrast with the environmental and public health groups, some of  the industry stakeholders argued that even with the NSR exemptions,  companies will still have to monitor facility emissions and install emission  control technologies because of other clean air regulations. For example,  under the acid rain program, some utilities have had to control their  facilities’ sulfur dioxide and nitrogen oxide emissions. Under the air toxics  program, some companies have had to install controls to reduce facility  emissions of hazardous air pollutants. In addition, the stakeholders  maintained that state and local air quality agencies will still have to  monitor any project that could increase emissions to ensure compliance  with these programs, and the agencies may have their own requirements  governing facility modifications. While this is true, we noted in our  October 2003 report that the scope of the state and local program  requirements varies widely.
Finally, most of the industry stakeholders, unlike the environmental and  health stakeholders, expected a decrease in the state and local air quality  agencies’ workload as a result of the proposed and final revisions. The  stakeholders claim the revisions will streamline agencies’ monitoring,  minimize the time they spend determining if companies have properly  complied with NSR, and ease the permitting process.
While the stakeholders based their views primarily on professional  opinion, one cited a DOE analysis and another cited an EPA analysis as  support for their views. The DOE analysis included an estimate of  emissions if all coal-fired power plants installed pollution controls while  the EPA analysis focused on the possible emissions consequences of the  equipment replacement exclusion. Neither analysis comprehensively  assessed the impacts of the NSR revisions.
One environmental representative compared the emissions levels in the  DOE analysis with those in the EPA analysis to support the assertion that  the exclusions would represent a rollback from the current program  because the levels in the DOE analysis were lower than EPA’s. However,  the DOE analysis is not useful as a benchmark for assessing the effects of  EPA’s revisions because, under the NSR program, facilities only have to  install the best available controls when making major modifications. In  addition, this analysis was not specifically related to EPA’s NSR revisions.
An industry stakeholder cited the above-mentioned EPA analysis of the  equipment replacement rule to support the assertion that the exclusions  would decrease emissions. However, the EPA analysis was limited in  scope—it considered only power plants (the largest emitting category of  facilities) and only two pollutants, nitrogen oxides and sulfur dioxide.  Another related analysis performed by an EPA contractor included six  additional industries and was based on case studies.
Finally, as we concluded in our August 2003 report, the overall economic  and environmental effects of the December 2002 rule are uncertain  because of data limitations and difficulty determining how industrial  companies will respond to the rule.
section_title: Conclusions
paragraphs: EPA’s assessments of the December 2002 and October 2003 NSR revisions  concluded that the rules would provide industry with greater flexibility to  modify their facilities without having to obtain NSR permits or, in some  cases, install pollution controls, while enhancing the program’s  environmental benefits. The survey responses indicate that most state  program managers agreed with EPA’s conclusion that the revisions would  enhance flexibility for industry. However, a majority of state program  managers did not agree with EPA’s conclusion that the increased  flexibility would lead to less pollution, raising questions about the final  and proposed revisions’ environmental effects. Specifically, most of the  state officials believed that the December 2002 rule and the not-yet  finalized annual maintenance allowance exclusion would increase  emissions, and half believed the equipment replacement provision would  have this effect. Furthermore, of those that believe emissions increases  will occur, a number of the officials thought that these anticipated  increases would cause violations of health-based air quality standards or  delay the attainment of the standards in areas that already have poor air  quality, potentially creating or exacerbating health risks. Environmental  groups agreed with the state program managers who expressed concerns,  but other state officials and industry stakeholders maintained the revisions  would have positive environmental effects. Little data currently exist to  resolve these competing viewpoints. We therefore recommended in our  August 2003 report that EPA determine what data are available to monitor  the December 2002 rule’s effects and use the monitoring results to  determine what effects the rule has created. For the same reason, if the  equipment replacement rule eventually takes effect—pending the  resolution of legal challenges—it will be necessary to monitor its  implementation to determine its environmental and other effects. In  addition, more EPA assistance for states would help them implement the  new rules and lessen their administrative burden.
section_title: Recommendations for Executive Action
paragraphs: To ensure that state and local air quality agencies are adequately equipped  to implement the new NSR rules, as required by EPA, and that the rules do  not have unintended effects on emissions and public health, we  recommend that the EPA Administrator (1) provide state and local air  quality agencies with assistance in implementing the December 2002 rule,  (2) pending the court’s decision on the equipment replacement rule, work  with state and local air quality agencies to identify the data that the agency  would need to monitor the effects of this rule and use the monitoring  results to identify necessary changes, and (3) consider the state and  stakeholder concerns about emissions and workload impacts that we  identified before deciding whether to issue a final rule on the second  proposed exclusion, the annual maintenance allowance exclusion.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided EPA with a draft of this report for review. The Assistant  Administrator for Air and Radiation said that the agency has concerns  about our methodology and certain of our findings. Nevertheless, EPA said  that our recommendations, on their face, make sense, and that the agency  already has plans to take these actions.
Specifically, EPA asserted that GAO (1) in some instances, used the  opinions expressed in the survey responses—which EPA believes may not  have been grounded in a correct understanding of the revisions—as fact,  and to draw conclusions and make recommendations about the NSR  program, (2) did not carry out its work in a way that assured balance and  objectivity, (3) used a skewed survey sample, and (4) should have  evaluated whether the survey results were consistent with the facts cited  in EPA’s analyses of the revisions’ effects.
GAO disagrees with each of EPA’s assertions. First, as we previously  reported and EPA acknowledged, there are limited data available to assess  the effects of the NSR revisions. Therefore, consistent with the review’s  objectives, we solicited the opinions of key stakeholders on the revisions’  effects and clearly presented them as opinions in both the title and body of  the report. When, in this context of scarce data, many state program  managers responsible for program implementation express concerns  about the revisions’ adverse effects, we believe it would be prudent to take  these concerns seriously. As such, GAO makes a number of  recommendations to (1) collect data on and monitor the revisions’ actual  impacts, (2) consider stakeholders’ opinions before further revising the  NSR program, and (3) provide state and local agencies assistance in  implementing the revisions. Taking this latter action will help to address  EPA’s concerns that the respondents’ may not have fully understood the  revisions.
Second, we developed the survey using standard survey research  principles and took steps to minimize question bias, including conducting  several pretests, asking respondents about both the positive and negative  effects of the revisions, and subjecting the survey to a thorough review by  a GAO survey specialist not involved in its development. To ensure the  independence of our efforts, we do not routinely seek the subject agency’s  review of our survey instruments. Nonetheless, we worked with NSR  program managers within EPA to understand how the revisions would  work in practice as well as their potential effects and used this information  to design the survey questions.
Third, GAO surveyed the universe of state program managers because we  believe they are in the most informed position to determine the revisions’  impacts on their programs and workloads. Furthermore, in the survey’s  instructions we asked the managers, when answering the questions, to  coordinate with the officials within their agencies as they deemed  necessary and appropriate. As such, we relied on each state agency’s own  procedures for completing and reviewing the survey responses. In  addition, we surveyed select stakeholders representing environmental,  health, and industry interests. Because of the large number of other  affected stakeholders, it was not feasible to survey the universe. Instead,  we surveyed 30 organizations representing diverse perspectives and chose  them because they were involved in national NSR policy decisions. A  number of these groups represent the views of large numbers of industrial  companies or have a national membership base.
Finally, GAO believes EPA’s assertion that we should have evaluated  whether the opinions of state officials responsible for program  implementation were consistent with “facts” cited in EPA’s analyses is  disingenuous. As we point out in our previous and current work, these  “facts” are largely assertions based on EPA’s limited analysis of the  revisions’ effects. We therefore did not use the agency’s analysis as a  benchmark to evaluate the survey responses. We further believe that the  state program managers provided plausible explanations for why their  views disagreed with those asserted by EPA.
Appendix III contains the text of EPA’s letter along with our detailed  responses to the issues raised. EPA also provided a number of technical  comments, which we have incorporated as appropriate.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 10 days from the  report date. At that time, we will send copies of the report to the EPA  Administrator and other interested parties. We also will make copies  available to others upon request. In addition, the report will be available at  no charge on the GAO Web site at http://www.gao.gov.
If you have any questions about this report, please contact me at   (202) 512-3841 or stephensonJ@gao.gov. Key contributors to this report  are listed in appendix IV.
section_title: Appendix I: Summary of Local Agency Officials’ Responses
paragraphs: This summary provides an overview of survey responses completed by 45  local air quality agencies—those with independent authority to adopt rules  and write, review, or issue New Source Review (NSR) permits. Seventeen  of the 45 local air quality agencies are in California. The remainder are  scattered across the remaining 14 states that have local air quality  agencies. (See appendix II, table 3.) Detailed local survey results are  available at: http://www.gao.gov/special.pub/gao-04-337sp.
Similar to the state officials, more than half of the local officials expect  that the December 2002 rule will provide industry with greater flexibility  to make facility changes, but also believe that the rule will result in  increased emissions. However, in contrast to the state officials, fewer than  half of the local officials anticipate their workload to increase as a result  of the rule.
For some questions, the number of officials that provided answers varied.
subsections: section_title: Impacts on Industry
paragraphs: In terms of positive effects, 28 of 45 local officials believe the rule will  result in greater flexibility for industry to make facility changes, similar to  state officials. Also, 24 of the local officials believe that the rule will  benefit industry by enabling companies to avoid NSR permitting. In  addition, 10 of the officials identified greater opportunities for industry to  pursue energy efficiency projects as one of the positive effects of the rule.  On the other hand, only 2 of the local officials believe the rule will  positively affect industry by providing companies with greater certainty as  to when NSR applies to a facility modification. Twenty of the officials  believe that regulatory uncertainty is one of the rule’s primary negative  effects.
section_title: Emissions Impacts
paragraphs: As with the state officials, a majority (24 of 44) of local officials expect the  rule to increase emissions, while 10 expect no change and 9 were unable  to judge. More than half of the officials believe the revised methods for  calculating a facility’s historical “baseline” emissions (25 of 44) and  estimating emission changes from a modification (23 of 44) will lead to  increased emissions. Fewer than half expect the remaining provisions to  increase emissions. Twenty-two of the officials anticipate that the rule will  allow facilities built prior to 1977—which did not have to install controls  until they made a modification that significantly increased emissions—to  increase total emissions because they can continue to postpone installing  controls, while 11 anticipate no change in emissions from such facilities.  Only 6 officials do not believe the rule will affect their ability to meet or  continue to meet air quality standards. On the other hand, 16 expect that  they can use other clean air regulations to meet standards, and 11 believe  that taking into consideration the impacts of the final rule, these other  regulations will not help them meet or continue to meet the standards.
section_title: Impacts on Local Agencies
paragraphs: Although a greater percentage of local officials (21-24 percent) than state  officials (6-7 percent) anticipate adopting or maintaining more stringent  regulations than EPA, fewer local officials (22 of 45) than state officials  (30 of 44) expect the rule to increase their workload. In addition, 5 of 43  officials do not anticipate the need for additional staff to adopt the final  rule and obtain EPA approval in contrast to state officials. All of the local  officials said they would like some type of assistance from EPA, such as  implementation workbooks and training courses.
Similar to state officials, at least half of the local officials expected the two  exclusions for routine maintenance, repair, and replacement activities to  provide industry greater flexibility to make changes, but unlike state  officials, fewer than half expected the exclusions would increase  emissions or their administrative burden. Overall, 22 of 45 officials said  that they opposed the equipment replacement exclusion and 16 supported  it, while 28 opposed the annual maintenance allowance exclusion and 5  supported it.
section_title: Impacts on Industry
paragraphs: More than half (24 of 45) of the local officials believed the exclusions  would provide industry with greater flexibility to make facility changes, as  did half of the state officials. Twenty-seven believed that not having to  obtain a NSR permit would be one of the exclusions’ most positive  benefits for industry. Thirteen of 43 local officials expected the exclusions  to positively affect a company’s ability to pursue energy efficiency  projects, while 16 expected no change.
section_title: Emissions Impacts
paragraphs: Eighteen of 45 officials expected the equipment replacement exclusion to  increase emissions, while 14 expect no change, and 10 were unable to  judge. Twenty-one of 45 officials expected the annual maintenance  allowance exclusion to increase emissions, while 8 expected no change,  and 15 were unable to judge. In addition, 21 of the 45 officials anticipated  that facilities built prior to 1977 would increase emissions as a result of the  exclusions, while 11 expected no change and 10 were unable to judge.  These figures are similar to the state responses, however, compared with  state officials, fewer local officials expected the exclusions to result in  significant enough emissions changes to exacerbate air quality problems in  areas that do not meet standards or cause new problems in areas that  currently meet the standards.
section_title: Impacts on Agencies
paragraphs: Unlike state officials, fewer than half (22 of 45) of the local officials  believed the exclusions would increase their administrative burden.
section_title: Appendix II: Objectives, Scope, and Methodology
paragraphs: The Ranking Minority Member of the Senate Environment and Public  Works Committee and Senator Lieberman asked us to obtain the views of  a number of key stakeholders about the revisions’ potential impacts. More  specifically, they asked us to obtain (1) state air quality agency officials’  views about the impacts of the December 2002 final NSR rule on industry,  emissions, and agencies’ workloads; (2) state air quality agency officials’  views about the impacts of the two December 2002 proposed NSR  exclusions on industry, emissions, and agencies’ workloads; and (3)  environmental, health, and industry organizations’ views on the impacts of  all the NSR revisions. In addition, we determined selected local air quality  agencies’ views on the revisions’ potential effects.
To address the first two objectives and gather information from local  agencies, we conducted an Internet-based survey of 50 state air quality  agencies, the District of Columbia, and the 71 local air quality agencies  that have responsibility for implementing the New Source Review (NSR)  regulations and could potentially issue NSR permits. To ensure that we  obtained information from those that were most involved in the day-to-day  administration of the NSR program and therefore in the best position to  judge the revisions’ potential impacts, we worked with the 10 EPA  regional offices and obtained information from the Internet Web site of the  Association of State and Territorial Air Pollution Program Administrators  (STAPPA) and the Association of Local Air Pollution Control Officials  (ALAPCO) to identify the NSR program manager for each agency. The 15  states with local air quality agencies that issue NSR permits are listed in  table 4 below.
California is the only state with local agencies covering the entire state.  For the other states, the local agencies are typically located in larger  metropolitan areas with air quality problems. In order to present a national  perspective of the issues faced by air quality officials, we focused on the  responses from states and highlighted areas where local agencies had  differing points of view.
The state and local air quality officials survey was developed between  December 2002 and April 2003. It includes questions to determine  respondents’ views on the NSR program prior to the revisions, as well as  the anticipated effects the proposed and final revisions would likely have  on their programs.
Because we administered the survey to all of the state air quality agencies  and local agencies that have responsibility for implementing the NSR  regulations and could potentially issue NSR permits, our results are not  subject to sampling error. However, the practical difficulties of conducting  any survey may introduce other types of errors, commonly referred to as  nonsampling errors. For example, differences in how a particular question  is interpreted, the sources of information available to respondents in  answering a question, or the types of people who do not respond can  introduce unwanted variability into the survey results. We included steps  in the development of the survey, the collection of data, and the editing  and analysis of data for the purpose of minimizing such nonsampling  errors.
To reduce nonsampling error, we had cognizant officials from STAPPA  and ALAPCO review the survey to make sure that they could clearly  comprehend the questions and estimate the burden it would place on  them. We also pretested the survey with three states and one local agency  to ensure that (1) the questions were clear and unambiguous, (2)  terminology was used correctly, (3) the survey did not place an undue  burden on agency officials, and (4) the survey was comprehensive and  unbiased. In selecting the pretest sites, we sought to include agencies in  states that supported the rules as well as those that did not. We also  considered major subgroups such as states with and without local  permitting authorities and locations across a wide geographical area. To  determine what concerns, if any, those states involved in litigation against  the Environmental Protection Agency (EPA) regarding the NSR reforms  would have in completing the survey, we had an official from the New  York State Attorney General’s Office (who is involved in the litigation)  review the survey. We asked the official to identify those questions that  states might refuse to answer because of litigation concerns. In the end,  four states involved in the litigation did not respond to the survey. We  made changes to the content and format of the final questionnaire based  on the pretests.
We conducted the survey using self-administered electronic questionnaires  posted to GAO’s Web site on the Internet. We sent e-mail notifications to  alert the appropriate officials of the forthcoming questionnaire. These  were followed by another e-mail containing unique passwords and  usernames that enabled the officials to access and complete the survey  and notifying officials that the survey was activated. The questionnaire  was available on the Web until July 7, 2003. We received responses from 44  states and 60 local agencies (each agency could only provide one  response). In summarizing the survey data, the District of Columbia was  included in the state responses. However, 15 of the local agencies that  responded told us that they do not have the authority to adopt their own  NSR regulations, or they do not write or issue NSR permits. Therefore,  they were not eligible respondents and did not provide responses to our  more detailed questions. Thus, 45 local agencies provided complete  responses. The overall response rate was 83 percent. We edited all  completed surveys for consistency and, if necessary, contacted  respondents to clarify responses. Table 5 below lists the states that  responded, by EPA region, as well as those that did not respond (listed in  parentheses). It is important to note that four states in EPA Region 1  declined to respond so as not to disclose information about their ongoing  NSR-related litigation.
At the time we conducted our survey, we asked state and local officials  about the impacts of a proposed exclusion from NSR for equipment  replacement activities. Because EPA finalized this exclusion as a rule after  we completed our survey, we took steps to determine whether the  officials’ views on the proposal were also true for the final rule. For  example, in December 2003, the national association representing state  and local air pollution control officials told us that, based on their ongoing  dialogue with state and local officials, the survey responses on the  proposed exclusion were consistent with state and local officials’ views on  the final rule. In addition, an EPA manager for the NSR program said that  he does not anticipate that the officials who responded to our survey  would have changed their opinions on this exclusion in the time since they  responded to the survey, even though it was not yet in final form at the  time they commented.
To address the third objective, we identified key stakeholders involved in  national level NSR policy decisions and sent them a survey via e-mail  soliciting their responses to a number of questions about the proposed and  final NSR revisions’ potential impacts on emissions, industry investments,  and air quality agencies’ workloads. We distributed the survey to 30  organizations representing diverse industry and environmental interests.  We used several criteria to select stakeholders for comment. For example,  because of the large number of stakeholders involved in NSR issues at the  national, state, and local level, we focused exclusively on groups that have  a national perspective, including some law firms that represent several  large industries. The stakeholders we selected included the following:    groups identified by knowledgeable EPA officials as key stakeholders;    members of EPA’s Permits/NSR/Toxics Subcommittee within its Clean Air  Act Advisory Council (CAAAC) that have a national scope (CAAAC is a  senior level policy committee consisting of approximately 60 senior  managers and experts representing state and local government,  environmental and public interest groups, academic institutions, unions,  trade associations, utilities, industry, and other experts);   national level groups that have testified in Congress on NSR and Clean Air  Act issues over the last several years;   national level groups that commented on EPA’s NSR proposals; and  trade associations representing those industries identified by EPA as those  most affected by NSR.
We again took steps in the design, data collection, and analysis phases of  the survey to minimize nonsampling and data processing errors, including  pretesting of the survey questions, follow-up with those that did not  respond promptly, and independent verification of all survey responses  entered into an analysis database. We conducted two pretests of the  survey and made changes to the content and format of the final  questionnaire based on the pretests.
The survey was sent to the key stakeholders on July 2, 2003, and was  available until July 18, 2003. Of the 30 stakeholders contacted, the  following 14 responded to this survey:    American Forest & Paper Association;    Clean Air Task Force;    Council of Industrial Boiler Owners;    Energy and Innovation Center, Environmental Law Institute;    Hogan & Hartson LLP;    Morgan, Lewis & Bockius LLP;    National Environmental Development Association’s Clean Air Regulatory    National Petrochemical & Refiners Association;    National Resources Defense Council; and    STAPPA/ALAPCO.
We edited all completed surveys for consistency and, if necessary,  contacted respondents to clarify responses.
For all of these objectives, we worked with cognizant EPA officials,  including the agency’s NSR program manager.
Detailed survey results are available at:  http://www.gao.gov/special.pubs/gao-04-337sp.
We conducted our review from September 2002 through January 2004 in  accordance with generally accepted government auditing standards.
section_title: Appendix III: Comments from the Environmental Protection Agency
paragraphs: The following are GAO’s comments on the letter from the Environmental  Protection Agency dated January 23, 2004.
subsections: section_title: GAO Comments
paragraphs: 1.  GAO does not agree with EPA’s assertions that we, in some instances,  used the opinions expressed in the survey results as facts. Consistent  with the review’s objectives, this report carefully characterizes the  survey results as opinions. To this end, the report’s title clearly points  out that we are presenting stakeholders’ views. In addition, based on  our two earlier reports on the revisions, we determined that, at best,  limited data exist on the effects of the prior NSR program or the  potential effects of the revisions. In fact, as we found in our August  2003 report on the analytical basis for EPA’s December 2002 rule, EPA  itself relied primarily on the professional judgment of agency staff and  comments received on earlier NSR reform proposals, rather than a  comprehensive quantitative analysis of the rule’s possible effects, in  initially justifying the rule. That report also described limitations with  the agency’s subsequent analysis of the rule’s environmental effects.  Because of our earlier findings about data limitations, we believe it  useful and entirely appropriate to supplement the available  information with the informed opinions of those most involved in the  day-to-day administration of NSR programs.
GAO also disagrees with EPA’s characterization that we improperly  used stakeholder opinions to draw conclusions and make  recommendations about the NSR revisions. While recognizing that the  results were based on opinion, it is important to point out that these  were the opinions of those on the front lines of program  implementation. In this case, these informed opinions raise important  questions about the revisions’ effects. Because of these questions and,  in light of the limited hard analytical data on the revisions’ effects,  GAO recommends that EPA collect data on the revisions’ actual  impacts. We made this recommendation in our August 2003 report  regarding the December 2002 rule and again in this report regarding  the equipment replacement exclusion. We further recommend that  EPA consider these informed opinions before further revising the NSR  program. EPA also questioned whether the respondents’ opinions were  grounded in a correct understanding of the rules’ provisions. We  believe that our recommendation that EPA provide state and local air  quality agencies with assistance in implementing the revisions will help  to address this concern. Despite its concerns, EPA said these three  recommendations, on their face, makes sense and that the agency  plans to take these actions.  2.  GAO disagrees with EPA’s assertion that the way we carried out our  work did not assure balance and objectivity. We developed the survey  using standard survey research principles. This included taking steps  to minimize question bias, asking respondents about both the positive  and negative effects of the revisions, providing respondents with a  range of answers to each question (including “no change” or “no  effect”), and assessing each question for bias and problematic wording  during an extensive pretesting and review process. We also sought to  eliminate bias and problematic wording by subjecting the survey to a  thorough review by a GAO survey specialist who was not involved in  its development. Regarding the external review of our survey, we point  out in the objectives, scope, and methodology section that we asked  the trade association that represents state and local air quality control  agencies (i.e., the officials we surveyed) to help ensure that their  members could clearly comprehend the questions and estimate the  burden it would place on them. We also asked a representative of the  New York Attorney General’s Office to review the survey specifically  to gauge whether they thought those states involved in lawsuits with  EPA over the reforms would be concerned about completing the  survey. Finally, to ensure the independence of our efforts, we do not  routinely seek the subject agency’s review of our survey instruments.  Nonetheless, we held discussions with staff in EPA’s Office of Air  Quality Planning and Standards, Office of Enforcement, and regional  offices to make sure we understood the technical nature of the  revisions when developing the survey. In preparing our two prior NSR  reports, we also worked closely with EPA’s managers of the NSR  program to understand the agency’s assessment of how the revisions  would work in practice, as well as the potential effects. We used all of  this information to design the survey questions.   3.  GAO disagrees with EPA’s assertion that our survey sample was  skewed. GAO surveyed various stakeholders including state and local  officials, as well as industry and environmental groups, and this report  presents a range of views on the possible effects of the NSR revisions.  We describe our methodology for selecting these stakeholders in the  report’s objectives, scope, and methodology section. More specifically,  with respect to our survey of state agency officials, we point out that  we did not survey a sample, but the universe of state NSR program  managers.  We sent the survey to the manager of each state’s NSR  program within the state environmental agency (instead of the agency  head) because these program managers are responsible for day-to-day  program implementation and hence are in the most informed position  to determine the revisions’ impacts on their programs and workloads.  Furthermore, in the survey’s instructions we asked the managers,  when answering the questions, to coordinate with the officials within  their agencies as they deemed necessary and appropriate. As such, we  relied on each state agency’s own procedures for completing and  reviewing the survey responses. In several cases, in fact, the program  managers told us the reason they needed additional time to submit  their responses to us was because the responses were under review by  others within their agencies.
EPA also questioned why we surveyed every state and local agency but  only a handful of environmental groups and industry trade  associations, and no individual industry officials. GAO gathered more  detailed information from state and local agencies than from other  stakeholders because these agencies generally implement the  regulations and we were asked to obtain information on how this  implementation would affect agencies’ programs and workload.  Because of the large number of other affected stakeholders, it was not  feasible to survey the universe. Instead, we surveyed key stakeholders  that had been involved in national NSR policy decisions, which  included 30 organizations, in order to obtain diverse industry and  environmental perspectives. Of the 30 organizations we surveyed, 14  responded, and 8 of the respondents represented industry. A number  of the organizations that responded represent large numbers of  industrial companies, including the American Forest & Paper  Association and the American Petroleum Institute. Likewise several of  the environmental and health groups represent a national membership  base, including the American Lung Association and the Natural  Resources Defense Council.
GAO also disagrees with EPA’s assertion that we focused  disproportionately on the state officials’ unfavorable opinions of the  rule. In presenting the state survey results, we generally listed the total  number of officials responding to a question and information on the  distribution of their responses. We then provided more detailed  information about the majority’s opinion for each question, consistent  with standard survey principles. In most cases, it turned out that the  majority of respondents to our questions held the view that the  revisions would have an adverse impact on emissions and their  workload, contrary to EPA’s conclusions about the revisions’ impacts.
We were very careful, however, to also discuss the number of  respondents who held the minority view on a particular topic.  4.  EPA’s letter suggests that GAO should have evaluated whether the  survey results were consistent with the “facts,” asserts that many of  the survey responses are not, and cites its own analysis of the  revisions’ emissions impacts as factual support for its position. EPA  also cites two examples of cases in which the agency believes  respondents’ opinions conflict with fact. EPA’s comment related to the  “facts” however, largely only represents references to its own  assertions.
First, as discussed previously we have identified limitations with EPA’s  analysis of the revisions’ impacts. As we stated in our August 2003  report, a senior EPA economist said that uncertainty about the extent  to which companies might elect to use the NSR alternatives in the  December 2002 rule limited the agency’s ability to estimate the rule’s  impacts. For these reasons, we did not use EPA’s analysis as a  benchmark to evaluate the survey responses. Again, in this context, the  opinions of key stakeholders, especially those responsible for  implementing the regulations, provide an important perspective  appropriately considered by congressional decisionmakers.
Second, as to EPA’s examples of opinions conflicting with facts, the  agency suggests that the opinions of those who expect the December  2002 rule to delay attainment of air quality standards are incorrect. In  its first example, EPA states that (1) even if emissions increased, the  increase would be small and dwarfed by decreases coming from other  air quality regulations, and (2) facilities affected by the revisions either  already have emissions controls or would have to have them to qualify  for many of the rule’s exemptions, such as those for plantwide  emissions limits, clean units, and pollution control projects. Regarding  the first point, as we report, 7 officials agreed with EPA and said that  the rule would not impede their ability to meet or maintain air quality  standards. Another 14 expect they will offset the anticipated increases  using other air quality regulations. A minority of the respondents (13)  said that, despite these other regulations, they would still have  difficulty meeting or maintaining air quality standards. Therefore,  these 13 officials already took into account the other air quality  regulations EPA cites. Regarding the second point, EPA did not  mention the rule’s key exemption—the revised method for determining   facilities past emissions—that does not require that facilities have  emissions controls, and was the provision cited most often by the state  officials as likely to lead to emissions increases. While EPA maintains  that this provision will not have a significant environmental impact,  agency managers for the NSR program acknowledged that EPA’s  analysis justifying its position was not based on a statistically valid  sample of affected facilities. Ultimately, many stakeholders disagreed  with EPA’s assertions.
Regarding the second example, GAO agrees that these opinions  conflict with EPA’s information but also believes the state officials  provided plausible explanations for why they expect their burden to  increase even though they expect to issue fewer permits. As we point  out in the report, some of the officials said that they find the December  2002 rule confusing, complicated, and leading to more uncertainty  about the NSR program—all of which can contribute to agencies’  workloads. While EPA asserts that the rule will lead to an overall  reduction in workload for agencies based on its experience with six  states that have used flexible permitting systems, our survey results  found that four of these same states said the opposite—they expect the  rule to increase their workload (one had not assessed such impacts,  and the other did not know what the effect would be). Officials from  the four states said they would spend more time drafting laws,  regulations, and guidance, as well as processing permits, explaining  the rule to industry, and training staff. Furthermore, officials from the  four states said that they expected more work associated with the  rule’s revised method for determining facilities’ past emissions.  Therefore, GAO disagrees with EPA’s assertion that the experience of  these states shows that the rule will reduce agencies’ workloads or  that the survey results are contradictory.
section_title: Appendix IV: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the individuals named above, Ulana Bihun, Michael Hix,  Jeffrey Larson, Lisa Turner, and Laura Yannayon made key contributions  to this report. Nancy Crothers, Bob DeRoy, Tim Guinane, Karen Keegan,  Judy Pagano, Minette Richardson, and Monica Wolford also made  important contributions.