Specific revisions in the final rule include the following:  a revised method for determining a facility’s baseline emissions level that  a company would use as the starting point for determining whether any  changes in emissions resulting from a planned physical change or change  in the method of operation subjected the company to NSR; a revised test that a company would use after establishing a facility’s  baseline emissions level to determine if a physical or operational change  would increase emissions beyond the NSR threshold; exemptions from the program if companies demonstrate that (1)  equipment qualifies as a “clean unit” because they already use state-of-the- art pollution control equipment or (2) a proposed modification specifically  controls air pollution and achieves an environmental benefit; and a mechanism for companies to work with state or local permitting  authorities to develop plantwide emissions limits, which would allow  companies to make changes in one part of a facility’s operations as long as  they offset any emissions increases with decreases elsewhere within the  facility. EPA’s  approach, while limited, is consistent with agency guidance for assessing  the economic impacts of proposed rules. OMB agreed that the rule would not have a significant  economic impact but was significant for policy reasons. OMB asked EPA if  it could better quantify impacts and was convinced that the agency lacked  the necessary data to do so. Some stakeholders have formally  asked EPA to reconsider the rule, arguing, among other things, that it will  enable facilities to increase their emissions. OMB Concurred with EPA’s Analysis and Conclusions and Determined That Data Limitations Precluded More Quantitative Analysis

According to senior EPA and OMB staff, OMB agreed with EPA’s finding  that the final rule was not economically significant because it was not  expected to impose costs or provide benefits beyond the $100 million  threshold that triggers requirements to conduct a more thorough analysis. Our review did not identify any comprehensive assessments of the final  rule’s effects that contradicted or supported the results of EPA’s analysis  or the assertions of those who oppose the final rule. EPA Relied Primarily on Anecdotes from Industries Most Affected by NSR to Conclude That It Discouraged Some Energy Efficiency Projects

EPA relied primarily on anecdotal information from industry in concluding  that the NSR program, prior to the final rule, discouraged some energy  efficiency projects—such as upgrades to industrial boilers—including  some projects that would have reduced air emissions. Several environmental groups disputed EPA’s findings. Several environmental groups experienced in NSR issues disagreed with  industry’s claims about the NSR program’s effects on energy efficiency. Because EPA based its conclusions on anecdotes,  the agency’s findings do not necessarily represent NSR’s effect on energy  efficiency projects within the industries that provided the anecdotes or  across all industries subject to the program. The executive director of one industry trade association stated that it  would make economic sense to increase production at more efficient  facilities. Therefore, any emissions  increases due to higher production levels at more efficient facilities would  be offset by decreased production elsewhere. Recommendations for Executive Action

Because of the lack of data and uncertainties about the NSR final rule’s  impacts, we recommend that the EPA Administrator:    determine what data are available that the agency could use to monitor  the emissions impacts of the rule,   work with state and local air quality agencies to identify any additional  data needs and possible ways to fill them, and   use the monitoring results to determine whether the rule has created  adverse effects that the agency needs to address. Appendix I: Objectives, Scope, and Appendix I: Objectives, Scope, and Methodology

The Ranking Minority Member of the Senate Environment and Public  Works Committee and Senator Lieberman asked us to determine the basis  of (1) EPA’s analysis of the economic impacts of the final rule and its  conclusion that the rule would not create significant enough benefits or  costs to merit a more detailed analysis and (2) EPA’s conclusions that the  NSR program (prior to the final rule) discouraged some energy efficiency  projects. We also met with senior OMB staff  responsible for reviewing EPA’s analysis within the Office of Information  and Regulatory Affairs.
Why GAO Did This Study

A recent Environmental Protection Agency (EPA) final rule changing the Clean Air Act's New Source Review (NSR) program--a key means to protect public health and enhance air quality--has been under scrutiny by the Congress, industry, environmental groups, state and local air quality agencies, and the courts. GAO was asked to determine the basis of EPA's conclusions that (1) the rule's economic impacts would not be significant enough to merit a detailed analysis and (2) the NSR program, prior to the rule, discouraged some energy efficiency projects. GAO, among other things, reviewed EPA's analysis of the rule and its impacts, as well as guidance from EPA and the Office of Management and Budget (OMB) on analyzing such impacts. GAO also met with industry and environmental stakeholders.

What GAO Found

Consistent with agency guidance, EPA used a limited screening analysis that relied on staff's professional judgment and public comments from earlier reform proposals to conclude that the final rule would decrease emissions and health risks and not impose significant costs. EPA determined that neither the rule's benefits nor its costs would exceed a $100 million threshold that triggers requirements to conduct a more comprehensive assessment. EPA issued the rule to streamline the NSR permitting process and provide flexibility to industry. For example, the rule provides a mechanism for companies to develop plantwide emissions limits, which would allow them to make changes in one part of a facility's operations as long as they offset emissions increases with decreases elsewhere within the facility. While OMB agreed with EPA's conclusion that the rule would not have significant economic effects, it determined that the rule was significant for policy reasons. Therefore, OMB asked EPA if it could better quantify the rule's potential impacts, but the agency lacked the necessary data to do so. EPA lacked comprehensive data on the program's economic impacts, and could not predict how many facilities would use the rule's optional provisions. Several states and environmental groups disagree with EPA's conclusions, claiming that it will enable facilities to increase their emissions. These parties have filed suit against EPA challenging the rule and also have petitioned EPA to reconsider the rule. We did not identify any comprehensive assessments that contradicted or supported EPA's conclusions or the assertions of those who oppose the rule. Because of the data limitations, it was not possible to verify EPA's conclusions about the rule's effects. Because it lacked comprehensive data, EPA relied on anecdotes from the four industries it believes are most affected by NSR to conclude that the NSR program (prior to the rule) discouraged some energy efficiency projects, such as upgrades to industrial boilers, including some that would have decreased emissions. Because the information is anecdotal, EPA's findings do not necessarily represent the program's effects across the industries subject to the program. Several environmental groups disputed EPA's findings. One such group said that factors other than NSR, such as economic downturns, discouraged the projects. Furthermore, EPA's conclusion that some projects would have decreased emissions assumed that facilities would not increase production after performing the projects. However, according to EPA and the executive director of an industry group, companies often expand production after implementing energy efficiency projects because it is advantageous to maximize production at the most efficient facilities. Such expansions could increase emissions and related health risks, although EPA asserts that this would be offset by decreased production and emissions at less efficient facilities.