EPA proposes changes to "Begin Actual Construction"

On March 25, 2020, EPA issued a draft “Interpretation of ‘Begin Actual Construction’ Under the New Source Review Preconstruction Permitting Regulations.” EPA noted that its current interpretation “considers almost every physical on-site construction activity that is of a permanent nature to constitute the beginning of ‘actual construction.’” Upon review, EPA stated that this interpretation “does not entirely comport with the plain language” of the regulatory definition and proposed to limit its prior interpretation to construction on an emissions unit. EPA also stated that it would not consider an “installation necessary to accommodate” the emissions unit as subject to the definition. EPA will accept comments until May 11, 2020 and comments may be submitted here. EPA’s action also provides limited guidance on how it interprets “emissions unit.”

ANALYSIS

EPA frankly acknowledges in Part I of its Draft Interpretation that “the interpretation at issue was a long-standing one and the Agency does not take lightly the decision to revise it.”

Part II of the Draft Interpretation sets forth the evolution of EPA’s definition of “begin actual emissions.” Consistent with other recent guidance, EPA begins its analysis in with the Clean Air Act, noting that while a source owner or operator is required to obtain a permit prior to constructing a major stationary source or making a major modification to such a source, the Act does not define what constitutes “construction.” See 42 U.S.C. §§ 7475(a), 7479(2)(C), 7502(c)(5). EPA concluded from this that Congress had left this question to EPA’s discretion.

EPA next turns to its regulations. The 1978 rules contained a definition of “construction” which included “fabrication, erection, installation, or modification of a source.” 40 C.F.R. 52.21(b)(7) (1978). EPA notes that this definition does not really answer the question of when construction “begins” and explained why the term “commencement of construction” is not relevant because it applies to what activities are required, after permits are in place, to warrant grandfathered status or avoid invalidation of a permit. Draft Interpretation, at 4 n.8.

EPA finds the genesis of its current interpretation in the December 1978 Reich Memo, which EPA paraphrased as follows:

EPA then announced that it was abandoning what it described as its prior approach of “mak[ing] the determination on a case-by-case basis, after considering all the facts of the individual situation,” in favor of a “new policy,” under which “certain limited activities will be allowed in all cases.” December 1978 Reich Memorandum at 2. “These allowable activities,” EPA stated, are “planning, ordering of equipment and materials, site-clearing, grading, and on-site storage of equipment and materials.” Id. EPA added that “[a]ny activities undertaken prior to issuance of a PSD permit would, of course, be solely at the owner’s or operator’s risk.” Id. At the same time, the Agency continued, “[a]ll on-site activities of a permanent nature aimed at completing a PSD source for which a permit has yet to be obtained are prohibited under all circumstances.” Id. “These prohibited activities,” EPA explained, “include installation of building supports and foundations, paving, laying of underground pipe work, construction of permanent storage structures, and activities of a similar nature.” Id.

Draft Interpretation at 5. This general interpretive approach was then codified in the 1980 rules as “Begin actual construction means in general, initiation of physical on-site construction activities on an emissions unit which are of a permanent nature.” 40 CFR § 52.21(b)(11).

In a 1986 Reich Memo, EPA further elaborated the original 1978 Reich Memo to include “any installations necessary to accommodate that unit” as falling within the scope of “begin actual construction.” Draft Interpretation at 9 (quoting 1986 Reich Memo at 2). EPA then traced a long line of interpretive memos that basically followed the outline of the 1986 Reich memo, with an increasing emphasis on permanence or costliness as a basis for finding that the action constituted “beginning actual construction.” Draft Interpretation at 9-11 (listing guidance).

In Part III of the Draft Interpretation, EPA states that the 1986 Reich Memorandum and the subsequent line of EPA guidance are “not the best reading of the relevant regulatory text because it fails to give meaning to the distinction between an emissions unit and a major stationary source.” EPA summarizes its proposed interpretation as follows:

Under EPA’s revised interpretation, a source owner or operator may, prior to obtaining an NSR permit, undertake physical on-site activities – including activities that may be costly, that may significantly alter the site, and/or are permanent in nature – provided that those activities do not constitute physical construction on an emissions unit, as the term is defined in 40 CFR § 52.21(b)(7). Further, under this revised interpretation, and in contrast to the 1986 Reich Memorandum, an “installation necessary to accommodate” the emissions unit at issue is not considered part of that emissions unit, and construction activities that involve an “accommodating installation” may be undertaken in advance of the source owner or operator obtaining an NSR permit.

Draft Interpretation at 11-12 (emphasis in original; footnotes omitted). EPA cautions, however, that

where a prospective source owner or operator chooses to undertake on-site construction activities prior to obtaining an NSR permit, as may be permitted under this revised interpretation, the owner or operator does so at their own risk. That is, the prospective source owner or operator must recognize that the resources (e.g., time, money) expended in undertaking such construction may be wasted should the owner or operator be required to re-do or revise work already completed in order to obtain a permit or should it ultimately be the case that no permit is issued or if the permit review agency determines that design changes (e.g., stack height, emission unit location, etc.) are needed to assure compliance with the National Ambient Air Quality Standards (NAAQS) and increment. A source cannot use the equity and resources expended to claim cost infeasibility or otherwise influence the Best Available Control Technology (BACT) determination or the decision to grant the permit.

Draft Interpretation at 12. EPA then summarizes its Draft Interpretation as follows: “The first sentence of this regulatory definition sets forth five distinct criteria that, collectively, identify the type of activity that a source owner or operator is precluded from undertaking prior to obtaining an NSR permit – i.e., activity (1) that is ‘physical’ in nature; (2) that is undertaken ‘on-site’; (3) that involves ‘construction’; (4) that is ‘on an emissions unit’; and (5) that is of a ‘permanent nature.’” Draft Interpretation at 13.

EPA defends its position on reinterpretation as (1) better comporting with the actual language of the regulatory definition of “begin actual construction” (admittedly while treating the second sentence as illustrative of what the first sentence defines), arguing that the prior interpretations had conflated the source with the emissions unit or else focused on the costliness or permanence of the activity and not whether it related to an emissions unit; and (2) that EPA’s initial concerns about sources leveraging prior construction work are less of a concern given experience with the program.

EPA also addresses the definition of an “emissions unit.” While stating that detailed guidance on this issue was beyond the scope of the Draft Interpretation, EPA notes that in prior guidance it has directed permitting authorities and states to consider definitions adopted in the New Source Performance Standards (NSPS), National Emissions Standards for Hazardous Air Pollutants (NESHAPs), and EPA’s decision in LimeTree Bay Terminals (April 5, 2018) (discussed earlier in NSR Law Blog). Draft Interpretation at 21.

COMMENTARY

EPA’s Draft Interpretation on “Begin Actual Construction” appears to signal that EPA’s commitment to NSR reform is not yet dead, even though some recent source-specific determinations had reined back interpretations announced earlier in the Trump Administration. This draft continues the Trump Administration's more textual and pragmatic approach and rejects the evolutionary or dogmatic approach seen in some prior Administrations.

The Draft Interpretation is perhaps best seen as an extension of the aggregation decision, where EPA effectively stated that changes to different emissions units at the same source, if not “substantially related,” are independent projects. It logically follows that the “begin actual construction” test would take the same approach and look to emissions unit boundaries.

As a practical matter, the Draft Interpretation, if finalized, will help address scheduling difficulties that arise due to winter weather, the need to relocate utilities, and storm water management, which often requires installing underground pipe, all of which are presently fraught with uncertainty and risk.