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Avoid PSD Violations When Expanding an Ethanol Plant

With the favorable ethanol market, many ethanol plants have begun or are considering plant expansions.  Although a plant may be in compliance with the terms of its current air emissions permits, a request for a new air permit due to a plant expansion may violate the EPA's  New Source Review ("NSR") or Prevention of Significant Deterioration ("PSD") regulations.  This violation can result in existing air permits being considered void and can result in sanctions. 

What are these NSR and PSD regulations?  PSD applies in areas that are in attainment for any pollutant for which a NAAQS exists.  If an area is in nonattainment for a pollutant, then nonattainment NSR applies.  PSD permits are pollutant specific, only one of the emitted pollutants from a source or several of the pollutants may be subject to PSD requirements.  There are several different federal regulations that discuss PSD.  40 C.F.R. 51.166 applies to states that are using their own EPA approved PSD program and 40 C.F.R. 52.21 applies to states implementing the federal PSD program.  40 C.F.R. 52.21(r)(4) requires application of NSR requirements to a source that asks for relaxation of permit limits which would be make the source major.  “EPA stated that it will require application of SS52.21(r)(4) even where a source legitimately changes a project after finding it cannot comply with the operating restrictions which were taken in good faith.”  Applicability of NSR Circumvention Guidance to 3M – Maplewood, Minnesota.

PSD requirements apply to new major stationary sources and to major modifications.  40 C.F.R. 52.21(a)(2).  A “major stationary source” is any source that belongs in one of the 28 categories listed in the Clean Air Act (CAA) at § 169 and emits or has the potential to emit 100 tons/year of any of the pollutants subject to the CAA, or any other type of source that emits or has the potential to emit pollutants at a rate greater than or equal to 250 tons/year.  40 C.F.R. 52.21(b)(1).  A “major modification” is a physical change or change in the method of operation that results in a “significant net emissions increase” in the emissions of any regulated pollutant.  40 C.F.R. 52.21(b)(2)(i).  A modification is subject to PSD if it is (1) an existing source and (2) the net emission increase of any pollutant emitted by the source as a result of the modification is equal to or greater than the rates found at 40 C.F.R. 52.21(b)(23)(i), which defines “significant.” 

The potential to emit is the most important factor in determining whether a new source or modification is major.  Due to the importance of potential to emit, EPA has issued numerous guidance documents devoted to this topic.  The phrase is defined as the maximum capacity of a stationary source to emit a pollutant under its physical and operational design.  40 C.F.R. 52.21(b)(4).  Any federally enforceable limit on emissions will be treated as part of the design.  There are three types of limitations that affect potential to emit:  emission limits, operation limits, and production limits.  Conditions on any of these limits placed in a permit must be stated independently of each other so that each is federally enforceable. 

There are three factors for determining PSD applicability:

1. determine whether the proposed project is sufficiently large (in terms of emissions) to be a “major” stationary source or a “major” modification
2. determine whether the new source will be located in an attainment area
3. determine if the pollutants that are emitted in, or increased by, in “significant” amounts are subject to PSD

Potential to Emit

The potential to emit is the most important factor in determining whether a new source or modification is major.  Due to the importance of potential to emit, EPA has issued numerous guidance documents devoted to this topic.  The phrase is defined as the maximum capacity of a stationary source to emit a pollutant under its physical and operational design.  40 C.F.R. 52.21(b)(4).  Any federally enforceable limit on emissions will be treated as part of the design.  There are three types of limitations that affect potential to emit:  emission limits, operation limits, and production limits.  Conditions on any of these limits placed in a permit must be stated independently of each other so that each is federally enforceable. 

Defining “Significant”

“Significant” emission thresholds are defined in two ways.  The first is in term of rates in tons/year.  There is a list of certain pollutants in the regulations, found at 40 C.F.R. 52.21(b)(23)(i) (see below).  Significant emission rates are subject to PSD review in two situations: 

1. If a new source that is major for one regulated pollutant that is in attainment (and therefore subject to PSD review), then all the other emitted pollutants that are in attainment, and are emitted at a rate equal to or greater than those specified in the regulations are subject PSD review
2. When an existing source is modified, and the potential to emit due to the modification and the resulting net emissions increase of any regulated, attainment, noncriteria pollutant (any of the pollutants listed at 40 C.F.R. 52.21(b)(23)(i) that are not the six NAAQS pollutants) is equal to or greater than the respective pollutant’s significant emission rate in the regulations, the modification is major and is subject to PSD review.

The second manner in which emission thresholds are defined is when a new source is constructed within ten kilometers of a Class I (national park) area that would increase the 24-hour average concentration of any regulated pollutant.

Minor Sources

There are two types of minor sources.  True minors are sources that are physically unable to emit large amounts of air pollutants.  Synthetic minors are sources with a potential to emit that exceeds the major thresholds, but the sources have permit that limit emissions.

When a minor source makes a physical change or change in the method of operations that is by itself a major source, that change constitutes a major stationary source that is subject to PSD review.  It is important to remember that a source must first be a major source before it will be subject to the PSD requirements.  For an expanding minor source to be subject to PSD review, the change must increase the source’s potential to emit by 100 or 250 tons/year, depending on whether the source is included in the list of categories found in the CAA.  Once a minor source increases emissions by more than 100 tons/year, then the operational/physical change to the source is considered a major source subject to PSD review.  This major change also makes the source a major source for future changes.

Modifications

A modification is subject to PSD requirements if the existing source that is modified is a major source, and the net emission increase of any pollutant emitted by the source as a result of the modification is “significant.”  There are some activities that are not considered to be modifications under the CAA, those include routine maintenance, repair and replacement, an increase in operation hours unless restricted by federally enforceable permit; the regulations list more at 40 CFR 52.21(b)(2)(iii). 

The regulations require major modifications to meet two qualifications.  First, the regulated pollutant must have a significant emission increase (equal or greater than the emission rates found in the regulations).  Second, there must be a significant net emissions increase.  40 C.F.R. 52.21(a)(2)(iv)(a).  If there is no significant emission increase, then the project is not a major modification.  A significant net emission increase is only applicable to major stationary sources.  40 C.F.R. 52.21(b)(3)(i). 

If a net emission is shown to result, then PSD review is required for each pollutant that had a significant emission increase.  Minor sources are ineligible for netting emission changes because they are not considered a new major source until there has been an increase in emissions to bump them into the major source category.  Also, a modification that does not result in “significant” emission increases does not consider contemporaneous emissions. 

Sham Permitting

These regulations can pose a problem if an ethanol plant is built in stages.  As an example, a plant designed to emit just less than 100 tons of air pollutants (and much lesser amounts of "hazardous" air pollutants) per year should be able to avoid having to obtain a Title V air permit.  If that same plant is later modified and increases its air pollution emissions by up to 100 tons per year, it becomes a major source and will have to obtain a Title V air permit.  Although the plant may have avoided triggering PSD review because the increase was less than 100 tons per year, splitting a project into stages to avoid PSD review is considered circumvention of the regulation, and the plant could be subject to an enforcement action and revocation of its permit. 

The regulatory authority may ask a number of questions to determine if a plant is circumventing PSD review, including whether the expansions were proposed over a relatively short period of time and whether they are really a single project.  Circumvention of PSD review is sometimes called "sham permitting." Permits obtained through circumvention are void if the regulator can show an original intent to operate the plant at major source levels. 

The EPA has set out a four-part "factors" test in the EPA's June 13, 1989 "Guidance on Limiting Potential to Emit in New Source Permitting."  http://www.epa.gov/docs/region07/programs/artd/air/nsr/nsrmemos/lmitpotl.pdf

The first factor is:

Filing a PSD or nonattainment  NSR permit application. If a major source or major modification permit application is filed simultaneously with or approximately the same time as the minor source construction permit, this is strong evidence of an intent to circumvent the requirements of preconstruction review. Even a major source application filed after the minor source application, but either before operation has commenced or after less than a year of operation should be looked at closely. </ul>

Under this guidance document the regulating agency is asked to "look closely" at the former and subsequent applications when they are filed at approximately the same time.  In other words, proximity in filing is only an initial trigger requiring that the regulating agency study the situation.  From a legal standpoint, it is very important to also note that what the regulating agency is looking for is "intent."  This is not an objective test, although objective facts can be used to determine subjective intent.  In other words, this factor does not mean that all applications made within one year of each other are to be collapsed into one application with no further inquiry.   The legal question that must be answered by the regulating agency is whether the permitee actually intended to circumvent the PSD review process. This means that the test is subjective.  In other words, what was going through the permitee's head at the time they filed the earlier and subsequent permit application. 

The second factor is:

Applications for funding.  Applications for commercial loans or, for public utilities, bond issues, should be scrutinized to see if the source has guaranteed a certain level of operation which is higher than that in its construction permit. If the project would not be funded or if it would not be economically viable if operated on an extended basis (at least a year) at the permitted level of production, this should be considered as evidence of circumvention.

Most ethanol projects with which I am familiar will not have a problem meeting this test.  Financial projections are self-sustaining for the original construction of each ethanol plant.

The third factor is:

Reports on consumer demand and projected production levels. Stockholder reports, reports to the Securities and Exchange Commission, utility board reports, or business permit applications should be reviewed for projected operation or production levels. If reported levels are necessary to meet projected consumer demand but are higher than permitted levels, this is additional evidence of circumvention.

One important point needs to be mentioned with respect to this factor.  While expanding markets and demand is relevant to this factor, ethanol is not a market that can only be met by a few producers.  Unlike most commercial goods which are subject to alteration and specifications, ethanol is a commodity.  Therefore, an increase in demand for a commodity cannot be translated into a plan on the part of every producer to increase production to meet that demand.  In at least one example discussed in EPA guidance, the product in question was specific and had a market that could only be met by a few producers.  The producer in question was fooling no one by artificially setting production goals in the permit application at a level that would not serve the existing market for that manufactured product.  This particular factor is therefore less useful when viewed in the context of a commodity such as ethanol. 

The fourth factor is:

Statements of authorized representatives of the source regarding plans for operation.  Statements by representatives of the source to EPA or to state or local permitting agencies about the source's plans for operation can be evidence to show intent to circumvent preconstruction review requirements.

Summary:

It is clear from this guidance document that the EPA must engage in a fact-finding process to determine if the permit holder intended from the outset (or at some later date) to circumvent PSD review.  For new plants still in the planning stage, avoid mentioning purely conjectural plant expansions in offering documents, web sites and other documents.  Otherwise, an agency may be able to argue that there was an intention from the outset to build a larger plant and that any permits granted for the first "stage" of construction circumvented PSD review.  If a future plant expansion is central to the company's plans, then the permit engineer should consider complying with PSD requirements in the first permit application in order to avoid later penalties and sanctions.  Considering a significant expansion?  Examine the original offering documents. Was a future plant expansion mentioned?  If so, carefully consider the new permit applications.  Regardless, management should understand that PSD regulations pose additional regulatory risks associated with plant expansions.

James L. Pray, BrownWinick copyright 2006

Grain Processing Corp. Pays $538,000 Civil Penalty for Air Pollution Violations at its Ethanol Plant

Excerpted from the Iowa Attorney General’s Website.

Muscatine County District Court Judge J. Hobart Darbyshire entered judgment today against Grain Processing Corporation, assessing a $538,000 civil penalty for air pollution control violations and requiring other measures to prevent air pollution in the future.

Grain Processing Corporation processes grain into ethanol and various feed and food products at its facility located in Muscatine, Iowa.

Attorney General Tom Miller said the Court’s order resolves a State lawsuit against Grain Processing Corporation, which also was filed today. The lawsuit alleged that Grain Processing exceeded its annual hourly operating limits for a spray dryer, resulting in excess pollution, and failed to take measures to prevent significant deterioration of the air quality. The company agreed to the “Consent Order, Judgment and Decree” entered by the Court today. [Click here for the lawsuit. Click here for the Consent Order, Judgment and Decree.]

Grain Processing Corporation has ceased its excess emissions from the spray dryer and is enjoined from further violations. In addition to paying the civil penalty, Grain Processing Corporation agreed in the order to conduct facility-wide modeling to determine whether additional changes need to be made at the facility to ensure compliance with air quality standards, and to make any improvements that are necessary.

U.S. Supreme Court rules that federally regulated dams need to obtain a Section 401 discharge license.

S. D. WARREN CO. v. MAINE BOARD OF ENVIRONMENTAL PROTECTION ET AL.

No. 04–1527. Argued February 21, 2006—Decided May 15, 2006

The issue in this case was whether operating a dam to produce hydroelectricity “may result in any discharge intothe navigable waters” of the United States. If so, then a federal license under §401 of the Clean Water Act requires state certification that water protection laws will not be violated. In this case t needed to obtain a recertification from FERC.

In 1999, he operator of a hydroelectric dam sought to renew federal licenses for five of its hydroelectric dams. It applied for water quality certifications from the Maine Department of Environmental Protection (the state agency responsible for whathave come to be known as “401 state certifications”), but it filed its application under protest, claiming that its dams do not result in any “discharge into” the river triggering application of §401.

The Maine agency issued certifications that required the dam operator, Warren, to maintain a minimum stream flow in the bypassed portions of the river and to allow passage for various migratory fish and eels. When FERC eventuallylicensed the five dams, it did so subject to the Maine conditions, and Warren continued to deny any need of §401 state certification.

Warren argued that the definition of “discharge” should be read narrowly and similarly to the definition applied to NPDES cases (§ 402). The Supreme Court disagreed, holding that the triggering statutory term in §402 is not the word “discharge” alone, but “discharge of a pollutant,” a phrase made narrower by its specific definition requiring an “addition” of a pollutant tothe water. §1362(12).

The Court held that a dam does raise a potential for a discharge, and state approval is needed.

EPA proposes new rule to increase PSD limit for ethanol plants from 100 tons to 250 tons per year

(extracted from EPA website)

EPA is proposing to apply the same air permitting requirements for facilities that produce ethanol for fuel or human consumption. Ethanol, a clean-burning renewable fuel, can be used to meet the requirements of the Renewable Fuels Standard Program, which is designed to reduce dependence on foreign oil by doubling the use of vehicle fuels from American crops by 2012.

Ethanol is produced at corn milling facilities for use as fuel or human consumption. While the processes are similar, these facilities are currently treated differently under Clean Air Act permitting programs. EPA’s proposal would provide equal treatment for corn milling facilities, regardless of whether they produce ethanol for fuel or human consumption.

Currently, corn milling facilities that produce fuel and emit less than 100 tons per year of air pollutants are not subject to the Prevention of Significant Deterioration (PSD) permitting program. Conversely, corn milling facilities that produce products for human consumption do not trigger PSD until they emit more than 250 tons per year. The proposal would establish the same emissions limits under the PSD program – 250 tons per year – regardless of whether the ethanol end product is used for fuel or human consumption. The thresholds for the New Source Review and Title V permitting programs would remain at current levels, which vary from 10 to 100 tons per year depending on the area in which the facility is located.

EPA will accept comment on this proposal for 60 days following publication in the Federal Register.

For more information about PSD and this proposal, visit: http://www.epa.gov/nsr/actions.html

Contact Information: John Millett, (202) 564-4355 / millett.john@epa.gov

http://www.epa.gov/nsr/documents/proposal20060228.pdf

“Daily” in Total Daily Maximum Loads means “Daily” Circuit Court Rules

The Court of Appeals for the District of Columbia ruled that the word “daily” in the “Total Maximum Dailiy Load” definition of the Clean Water Act means “every day.” A lower court had ruled that the word was ambiguious and that the use by the EPA of seasonal and annual TMDLs was reasonable. This ruling will eliminate the ability of municipal sewage treatment facilities to avoid violations if heavy storms overpower their facilities. Friends of the Earth, Inc. v. EPA No. 05-5015 (D.C. Cir. April 25, 2006).

Cattle Feedlot Operator in Southwestern Iowa Cited for Clean Water Act Violations

Extracted from EPA website

EPA Region 7 has cited Lauritsen Cattle Company, a feedlot operator in southwestern Iowa, for illegally discharging pollutants into a tributary of the East Nishnabotna River in violation of the Clean Water Act. The operator also has failed to fully comply with the Iowa Open Feedlot Plan.

EPA ordered Lauritsen Cattle Company (Lauritsen) to build proper livestock waste control structures to stop feedlot wastewater and runoff from further damaging the environment. Lauritsen had been violating the law by operating its cattle feedlot without those controls. The feedlot is located near Exira, about 70 miles west of Des Moines.

In addition, Lauritsen has agreed to pay a $29,700 penalty. The enforcement case will be finalized in mid-March, subject to public comment during a 40-day comment period.

EPA brought this action after the Iowa Department of Natural Resources (IDNR) expelled Lauritsen from the Iowa Open Feedlot Plan (Iowa Plan). Lauritsen registered in the Iowa Plan in 2001, but failed to meet its mandatory deadlines for progress. The Iowa Plan ends April 1.

“Our message to Iowa cattle producers has been clear,” said Jim Gulliford, EPA regional administrator. “Producers were given a five-year enforcement moratorium to fully comply with the law, and we expect them to meet the commitments they made when they entered into the agreement. When the Iowa Plan ends, EPA will enforce the Clean Water Act against feedlots that are polluting the nation’s waters.”

IDNR developed the Iowa Plan in 2001 with input from 11 organizations and agencies, including EPA. It established a five-year enforcement moratorium by IDNR and EPA for feedlots that registered in the Iowa Plan and met specific compliance milestones.

Several hundred cattle feedlots in Iowa are regulated under the Clean Water Act, which requires feedlots to prevent the discharge of all livestock runoff because of the numerous pollutants it contains, often at harmful levels. Illegal runoff from open feedlots has caused a number of fish kills in Iowa in recent years.

Animal wastes are typically high in nutrients, including ammonia and other pollutants, which can cause decreased oxygen levels in receiving waters. These depleted oxygen levels can adversely impact fish and other aquatic life. In addition, ammonia above certain concentrations in surface water is toxic to fish.

Cattle feedlot wastewater may also contain a number of bacterial and viral pathogens (such as E. coli), as well as parasites (such as Cryptosporidium). Illnesses caused by ingestion of these microorganisms can result in gastroenteritis, fever, and kidney failure.

Release date: 03/06/2006

Contact Information: Martin Kessler, (913) 551-7236, kessler.martin@epa.gov

EPA proposed new rules to increase PSD limit from 100 tons to 250 tons per year

(Extracted from EPA news release dated March 1, 2006)

EPA is proposing to apply the same air permitting requirements for facilities that produce ethanol for fuel or human consumption. Ethanol, a clean-burning renewable fuel, can be used to meet the requirements of the Renewable Fuels Standard Program, which is designed to reduce dependence on foreign oil by doubling the use of vehicle fuels from American crops by 2012.

Ethanol is produced at corn milling facilities for use as fuel or human consumption. While the processes are similar, these facilities are currently treated differently under Clean Air Act permitting programs. EPA's proposal would provide equal treatment for corn milling facilities, regardless of whether they produce ethanol for fuel or human consumption.

Currently, corn milling facilities that produce fuel and emit less than 100 tons per year of air pollutants are not subject to the Prevention of Significant Deterioration (PSD) permitting program. Conversely, corn milling facilities that produce products for human consumption do not trigger PSD until they emit more than 250 tons per year. The proposal would establish the same emissions limits under the PSD program – 250 tons per year – regardless of whether the ethanol end product is used for fuel or human consumption. The thresholds for the New Source Review and Title V permitting programs would remain at current levels, which vary from 10 to 100 tons per year depending on the area in which the facility is located.

EPA will accept comment on this proposal for 60 days following publication in the Federal Register.

For more information about PSD and this proposal, visit: http://www.epa.gov/nsr/actions.html
Contact Information: John Millett, (202) 564-4355 / millett.john@epa.gov

IDNR, Wind Advocates and Wildlife Groups Meet to Discuss Wind Siting Guidelines

(Excepted from IDNR’s ECONEWSWIRE)

DES MOINES - Responding to growing interest in wind energy generation in the state, as well as concern over potential impacts to Iowa wildlife, the Iowa Department of Natural Resources convened a group on October 26, 2005 to discuss wind and wildlife issues.

The group will continue to meet through 2006 and will develop a map showing areas of concern relating to wildlife that could be used when siting proposed wind turbines. Although only counties have regulatory authority over wind siting, the group may recommend a voluntary set of guidelines wind developers should follow when siting turbines in sensitive areas, to allow for maximum economic development in the state with minimum impact on wildlife.

Meeting participants included representatives from the American Wind Energy Association, Iowa Audubon, Iowa State University, the Iowa Renewable Energy Association, MidAmerican Energy, the National Renewable Energy Laboratory, the Nature Conservancy, the Sierra Club and the US Fish and Wildlife Service.

For more information about this effort, contact Doug Harr with the DNR at (515) 281-4815 or by e-mail at Doug.Harr@dnr.state.ia.us .

Karen Grimes
515-281-51I35
Karen.Grimes@dnr.state.ia.us

Comments Sought on CAFO Compliance Extensions

(extracted from EPA Newsroom)

(12/16/05) EPA is seeking comments on a proposal to extend the dates for concentrated animal feeding operations (CAFOs) to seek National Pollutant Discharge Elimination System permit coverage and to implement nutrient management plans as required by EPA's 2003 CAFO rule. The extensions reflect revisions to permit application deadlines required by the decision issued by the Second Circuit Court of Appeals in Waterkeeper Alliance et al. v. EPA, 399 F.3d 486 (2nd Cir. 2005). EPA is developing new regulations in response to the decision but is not expected to finalize the rule by the date that new CAFOs must seek permit coverage. EPA is proposing to move expediently to revising these dates in a separate rulemaking.

Contact: Dale Kemery, 202-564-4355 / kemery.dale@epa.gov

Additional information about the CAFO rule is available at: http://cfpub.epa.gov/npdes/afo/cafofinalrule.cfm Visit: http://www.epa.gov/npdes/afo for details about animal feeding operations.

Roquette America pays a $560,000 penalty for air violations

(Extracted from Iowa Attorney General’s Office Website)
DES MOINES. Attorney General Tom Miller said today that Lee County District Court Judge Mary Ann Brown has entered judgment against Roquette America, Inc., assessing a $560,000 civil penalty for air pollution violations at Roquette’s corn wet milling facility in Keokuk.
The Court’s order is contained in a “Consent Order, Judgment and Decree” entered late this morning at Lee County District Court in Keokuk. The State’s allegations were contained in a lawsuit also filed today at the Court.
The suit alleged: “Roquette illegally modified its method of operations by changing from use of coal to a blended fuel of coal and petroleum coke, resulting in significant increases in sulfur dioxide emissions, without complying with State and federal requirements to prevent significant deterioration of air quality.”
The court ordered Roquette to submit a permit application within 30 days for construction of a new boiler which will apply the best available control technology and comply with all applicable air pollution control requirements. The court also permanently enjoined Roquette from further violations.
According to the lawsuit, the Iowa Department of Natural Resources determined that Roquette had illegally changed its fuel for certain emission units from coal (which had been approved) to a blended fuel of coal and petroleum coke. Petroleum coke is a by-product from oil refineries and is composed mainly of carbon with high levels of sulfur and heavy metals. The suit alleged that Roquette illegally changed to the blended fuel for its boilers in 2000 and discontinued use of the blended fuel in 2002.