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4 Analytic Framework for Assessing Effects of New Source Review Rule Changes
Pages 110-139

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From page 110...
... This chapter provides a basis for discussions, conclusions, and recommendations presented in the remainder of the report. A number of analytic methods could, in principle, be used to assess the effects of the EPA's recent changes in the NSR rules.
From page 111...
... ­Adoption by industries ­Performance histories of selected technologies ­Trends in emissions generated per unit of product produced · Life-cycle material-use effects, considering economywide effects through supply chain and product delivery, use, reuse, and disposal ­Number of products introduced into commerce with reduced hazardous properties ­Substitution of materials with less-polluting substances Energy · Innovation, implementation, and improvement in use of new technologies efficiency that enable energy efficiency in electricity generation and industrial processes · Energy efficiency of operating units and plants · Industry sectorwide energy use · Life-cycle energy-use effects, considering economywide effects through supply chain and product delivery, use, reuse, and disposal Emissions · Trends in emissions for individual units, plants, industries, states, regions, and nation as a whole · Relationships between emissions and unit and plant operating costs and use · Life-cycle emission effects Air · Ambient concentrations of relevant emitted primary pollutants and quality pollutants formed in atmosphere over various spatial and temporal scales Health · Human exposure and dose effects · Mortality and disease ­Population incidence ­Incidence in particular subpopulations (regional and socioeconomic) ­Risks to highly exposed people
From page 112...
... Key uncertainties exist in technological factors, economic conditions, and future regulatory and judicial outcomes regarding the NSR rules. There are also substantial uncertainties in the operating and emissions characteristics of existing facilities, air quality, and patterns of exposure and health effects that might result from the NSR changes.
From page 113...
... However, some emission reductions resulting from investments in plant efficiency that might be discouraged by stricter NSR enforcement could also be achieved. Economic General level of economic Greater economic growth and demand growth as well as demand could encourage plant upgrades or for products of particular replacement with new facilities that use industries cleaner technologies.
From page 114...
... or to the adoption of additional pollution controls to stay within their caps, thereby limiting the potential for emission increases by these companies.
From page 115...
... Higher prices for production inputs would discourage new investments, increasing the number of facilities that maintain, repair, or replace, thereby increasing the pool of facilities for which maintenance and repair projects might or might not trigger NSR, depending on how the NSR rules are defined and interpreted. A number of regulatory and judicial uncertainties also make it difficult to assess the likely effects of the proposed NSR rule changes.
From page 116...
... There is significant uncertainty in the behavioral response of firms to a number of the 2002 changes in the NSR rules, including the demand growth exclusion, the procedure for computing prechange emissions, the use of projected actual emissions to assess a project's impact, and the decision to allow plants to apply for plantwide applicability limits (PALs)
From page 117...
... A structural or behavioral model focuses on the underlying decision being made by the firm -- in this case, whether to proceed with a given investment project that may be subject to NSR requirements. This type of model includes measures of the characteristics of the applicable NSR rules, allowing estimation of the effect of variations in these rules on the specific investment decision.
From page 118...
... A detailed-enough model of the investment decision incorporating NSR might be able to predict the difference in investment decisions after the NSR rules changed. If the measures of policy stringency are sufficiently detailed (perhaps using several X variables, measuring such items as the delay required to get an NSR permit, the level of control equipment required, and the cost of consultant services needed to complete the permit application)
From page 119...
... Given large enough sets of facilities and a large enough effect of the NSR rule changes on the outcome, we should see some differences in outcomes between the sets of facilities.1 The reduced-form approach has the advantage of not requiring microlevel investment data and focuses our attention on differences in aggregate outcome measures, which may be easier to observe than outcomes of individual projects. However, it requires us to be able to identify two sets of observations: one of facilities operating under the prerevision NSR requirements and the other of facilities operating under the new NSR rules.
From page 120...
... In contrast, a properly specified structural model could allow us to extrapolate from the effect of these NSR rule changes on investment decisions to provide estimates of the effect on investment decisions if the NSR rule changes had been different. However, structural models for particular industries may yield very different results.
From page 121...
... Changes in NSR rules that made it clear that certain investment projects would not trigger NSR would make such projects more attractive: reducing the cost of control equipment and reducing delays and uncertainties due to NSR review. If NSR sufficiently discourages modifications to existing plants, the environmental gains from imposing stricter controls on investments that do proceed could be outweighed by the environmental losses from the forgone modifications.
From page 122...
... They found that new facilities in nonattainment areas started out larger but received less additional investment than new facilities in attainment areas, whereas existing facilities in attainment areas were less likely to survive than those in nonattainment areas. They concluded that stricter NSR rules discouraged modifications and encouraged older plants to remain in operation, potentially increasing emissions (they did not measure emissions directly)
From page 123...
... . Taken as a whole, those results indicate that the NSR rules before the 2002-2003 rule changes tended to discourage investment in new facilities and in renovations of existing facilities.
From page 124...
... . In the past, EPA developed and maintained a somewhat similar model, known as the Integrated Air Pollution Control System (IAPCS)
From page 125...
... ANALYTIC FRAMEWORK FOR ASSESSING EFFECTS OF RULE CHANGES 12 precipitator or fabric filter) , nitrogen oxide (NOx)
From page 126...
... in response to a change in NSR rules, some other facility or set of facilities will need to decrease production (and possibly emissions)
From page 127...
... One used EPA's Integrated Planning Model (IPM) , while the other utilized the National Energy Modeling System (NEMS)
From page 128...
... · A set of five increased maintenance cases, based upon an assumption that the proposed changes in the NSR rules would result in existing coalfired plants undertaking more maintenance. These plants' fuel-use efficiencies, capacities, and availabilities were assumed to have a higher trend than in the base case.
From page 129...
... However, these savings include only decreases in fuel costs and investments in major retrofits and new plants. They do not include the higher expenditures on maintenance that would occur under the new NSR rules, so the net savings would be less than these values.
From page 130...
... A comparison of the base and higher maintenance cases for 2010 and 2020 resulted in the following conclusions about the effect of the proposed NSR rule changes: 7In our analysis in Chapter 6, we allow for plants to retrofit scrubbers, retool, or retire, although not in response to a modeled deterioration in performance, but rather as a surrogate for stricter NSR enforcement.
From page 131...
... Like the IPM analyses, the NEMS analyses assumed that, under present NSR rules, owners of coal-fired power plants would be able to avoid triggering NSR by forgoing large maintenance expenditures. As noted above, we consider in Chapter 6 a different set of conditions in which plants are forced to retire or meet stricter emission standards (through scrubbing)
From page 132...
... The analysis compares the reported emissions in 1989 and 1998 to the emissions reported for the 2 previous years, 1987 and 1988, and 1996 and 1997, respectively. This is appropriate, because the average of the previous 2 years had, until the December 2002 NSR rule change, served as the baseline for determining whether a significant increase in emissions had occurred.8 The December 2002 NSR rule change allows the use of any consecutive 24-month period during the previous 10 years.
From page 133...
... Comparisons between the two periods are made for the common pollutants, CO, SO2, and NOx, as well as PM in 1987-1989 versus PM10 in 1996-1998, since these should respond in a similar manner. A calculation similar to that used to determine facility-allowable emissions under the current NSR rules was implemented by comparing the new actual emission value to the average of the previous 2 years9 and determining whether it exceeds the previous average by the allowable amount.
From page 134...
... . This result, consistent with the reduced means and standard deviations apparent in 1998 versus 1989, indicates that a smaller fraction of facilities implemented actual emission increases (of the magnitude associated with the current NSR rule)
From page 135...
... ANALYTIC FRAMEWORK FOR ASSESSING EFFECTS OF RULE CHANGES 13 4-1a FIGURE 4-1 Relative emission change (REC) for carbon monoxide (CO)
From page 136...
... 136 NEW SOURCE REVIEW FOR STATIONARY SOURCES OF AIR POLLUTION 4-3a FIGURE 4-3 Relative emission change (REC) for particulate matter (PM)
From page 137...
... ANALYTIC FRAMEWORK FOR ASSESSING EFFECTS OF RULE CHANGES 13 4-5a FIGURE 4-5 Relative emission change (REC) for carbon monoxide (CO)
From page 138...
... 138 NEW SOURCE REVIEW FOR STATIONARY SOURCES OF AIR POLLUTION 4-7a FIGURE 4-7 Relative emission change (REC) for particulate matter with an aerodynamic diameter less than 10 µm (PM10)
From page 139...
... Inferences regarding possible implications for NSR enforcement would require information on those facilities undertaking modifications potentially subject to the NSR rules during these periods. Before such an inference could be made, however, other factors that changed during this period (e.g., economic conditions or the stringency of other regulations)


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