Clean Air Act: Key Stakeholders' Views on Revisions to the New Source Review Program
Released: 2004-02-06T00:00:00

Letter

Background

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.

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

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.

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

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.

A Majority of the State Officials Expect the Rule to Increase Emissions and Hinder Efforts to Meet Health-based Air Quality Standards

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.

Most State Officials Believe the Rule Will Not Resolve Uncertainty About When NSR Applies to a Modification

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.

A Majority of State Officials Expect the Rule Will Increase Agencies’ Workloads and Would Like EPA’s Assistance in Understanding and Implementing the Rule

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.

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

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.

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

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.

About Half of the State Officials Opposed the Equipment Replacement Exclusion and a Majority Opposed the Annual Maintenance Allowance

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.

At Least Half of the State Officials Expected the Proposals Would Increase Emissions, Potentially Worsening Air Quality

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.

A Majority of the State Officials Expected the Exclusions Would Create a Greater Administrative Workload

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.

Other Stakeholders Expected the Proposed and Final NSR Revisions to Benefit Industry but Disagreed on Their Effect on Emissions and Air Quality Agencies’ Workload

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.

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

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.

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

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.

Conclusions

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.

Recommendations for Executive Action

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.

Agency Comments and Our Evaluation

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.

Appendix I: Summary of Local Agency Officials’ Responses

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.

Impacts on Industry

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.

Emissions Impacts

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.

Impacts on Local Agencies

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.

Impacts on Industry

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.

Emissions Impacts

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.

Impacts on Agencies

Unlike state officials, fewer than half (22 of 45) of the local officials believed the exclusions would increase their administrative burden.

Appendix II: Objectives, Scope, and Methodology

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.

Appendix III: Comments from the Environmental Protection Agency

The following are GAO’s comments on the letter from the Environmental Protection Agency dated January 23, 2004.

GAO Comments

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.

Appendix IV: GAO Contacts and Staff Acknowledgments

GAO Contacts

Staff Acknowledgments

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.