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On March 25, 2020, the United States Environmental Protection Agency (“USEPA”) published on its website a draft memorandum entitled “Interpretation of ‘Begin Actual Construction’ Under the New Source Review Preconstruction Permitting Regulations” (“draft memorandum”). The draft memorandum announces that USEPA is adopting a revised interpretation of “begin actual construction” that will allow a source owner or operator to undertake significantly more physical on-site activities prior to obtaining a construction permit than previously allowed under the current interpretation.  Background of the “begin actual construction” requirement, history of the current interpretation, and the meaning and impacts of the revised interpretation are discussed below.

Background

The New Source Review (“NSR”) program is a preconstruction air permitting program under which a source owner or operator is required to obtain a permit prior to constructing a major stationary source or making a major modification to an existing source. NSR is split into two programs based on whether the area the source is located in is meeting or not meeting the National Ambient Air Quality Standards (“NAAQS”). The Prevention of Significant Deterioration (“PSD”) program governs attainment areas and the Nonattainment New Source Review (“NANSR”) program governs nonattainment areas.

The federal PSD and NANSR regulations, at 40 CFR 52.21 and 51.165 respectively, provide that no new major stationary source or major modification to which the substantive PSD or NANSR permitting requirements apply shall begin actual construction without a permit that states that the major stationary source or major modification will meet those requirements. “Begin actual construction” is defined as:

[I]nitiation of physical on-site construction activities on an emissions unit which are of a permanent nature. Such activities include, but are not limited to, installation of building supports and foundations, laying underground pipework and construction of permanent storage structures. With respect to a change in method of operation, this term refers to those on-site activities other than preparatory activities which mark the initiation of the change.

The above definition was added to the federal NSR regulations in 1980. Definitions of “construction” and “emissions unit” were also added to the federal regulations. “Construction” is currently defined in the NSR regulations as “any physical change or change in the method of operation (including fabrication, erection, installation, demolition, or modification of an emissions unit) that would result in a change in emissions.”  “Emissions unit” is currently defined, in part, as “any part of a stationary source that emits or would have the potential to emit any regulated NSR pollutant.”

Both prior to and after the federal regulations were amended to add these definitions, there has been a myriad of case law and USEPA determinations and guidance on the topic of what activities sources are allowed or not allowed to undertake prior to obtaining an NSR permit.

Current Interpretation

Under USEPA’s current interpretation of “begin actual construction,” USEPA considers almost every physical on-site construction activity that is of a permanent nature to fall under the definition of “begin actual construction.” This interpretation includes even those activities that do not involve construction on the emissions unit at issue. USEPA has explained that prohibited preconstruction activities include construction activities that are costly, that significantly alter the site, and/or those that are permanent in nature. On the other hand, USEPA has clarified over the course of prior guidance that certain limited activities that do not represent “an irrevocable commitment to the project” are not prohibited. These activities include planning, ordering of equipment and materials, site clearing, grading, and on-site temporary storage of equipment and materials.

Industry stakeholders consider USEPA’s current interpretation to be overly restrictive. Because USEPA considers physical on-site construction activities that are not on the emissions unit to constitute “begin actual construction,” source owners and operators are typically precluded from undertaking a range of preparatory activities that would allow them to move forward in an expedient and efficient manner prior to obtaining an NSR permit. Consequently, industry stakeholders argue that projects have been delayed due to this interpretation, especially projects undertaken pursuant to staged schedules that are dependent on seasonal conditions.

Revised Interpretation

USEPA has concluded that its current interpretation of “begin actual construction” “does not entirely comport with the plain language of the long-standing regulatory definition of that term.” As such, USEPA is adopting a revised interpretation that it believes better conforms to the regulatory language.

Under the revised interpretation, source owners and operators may, prior to obtaining an NSR permit, undertake any physical on-site activities provided that those activities do not constitute physical construction on an emissions unit. USEPA has explained that these physical on-site activities may be costly, may significantly alter the site, and may be permanent in nature, as long as they do not constitute physical construction on an emissions unit.

USEPA breaks down the regulatory definition of “begin actual construction” into five distinct criteria: activity that (1) is physical in nature; (2) is undertaken on-site; (3) involves construction; (4) is on an emissions unit, and (5) is of a permanent nature. An activity will constitute the beginning of actual construction only if it meets all five of these criteria. USEPA notes that the fourth criterion is key, i.e., for activity to be prohibited under this definition, the activity must be on an emissions unit. USEPA believes that placing emphasis on activities that involve construction on an emissions unit “gives full effect to the regulatory definition.”

Because the determination of what constitutes the “emissions unit” is key to determining when actual construction begins, USEPA attempted to clarify the scope of what constitutes an “emissions unit.”  Despite recognizing that a distinction had to be made between a major stationary source and an emissions unit, USEPA adopted a broad position in prior guidance that an emissions unit included any installations necessary to accommodate that unit. In the draft memorandum, USEPA now recognizes that its prior interpretation failed to reflect the need for distinction between the two terms and failed to give full effect to the regulatory text. As to its revised interpretation, USEPA explains that an “installation necessary to accommodate” the emissions unit at issue is not considered part of that emissions unit. Therefore, construction activities that may involve accommodating installations may be undertaken prior to obtaining an NSR permit.

Further, USEPA explains that what is considered an “affected facility” under the New Source Performance Standard (“NSPS”) regulations may be helpful when determining what is part of an “emissions unit.” USEPA also discussed the “interconnectedness” approach in the draft memorandum. Under this approach, USEPA implies that a group of individual emission sources may be considered one “emissions unit” if the new or modified emission source for which the permit is being sought has “interconnectedness” by way of piping with other emission sources.

Despite the above explanations, USEPA underscored the fact that determinations of whether certain activities involve construction on an emissions unit will still need to be made on a case-by-case basis, and that the parties will have to exercise their judgment on this issue.

Conclusion

The revised interpretation is favorable to regulated entities. However, where a source owner or operator chooses to undertake on-site construction activities prior to obtaining an NSR permit, the site owner or operator does so at their own risk.  As USEPA emphasized in the draft memorandum, an owner or operator cannot use the money and resources spent prior to permit issuance as an argument to influence the Best Available Control Technology determination or the decision to grant the permit. Moreover, regulated entities will need to pay particularly close attention to the issue of what constitutes the “emissions unit.” Some of the approaches discussed in the draft memorandum may lead to situations that render the revised interpretation of “begin actual construction” less meaningful. For example, under the “interconnectedness” approach, at a large integrated facility, preparatory activities for installing or modifying an emission source might never be able to occur pre-issuance of the permit because the emissions unit has been defined as the entire process area or even the entire site.

Because the revised interpretation is a significant change from the current interpretation, USEPA accepted comments on the draft memorandum. A copy of the draft memorandum is available on USEPA’s website.