- within Litigation, Mediation & Arbitration and Corporate/Commercial Law topic(s)
The New Source Review ("NSR") Program under the Clean Air Act ("CAA") requires new major stationary sources and existing major stationary sources making major modifications to undergo permitting prior to beginning construction; a process that could take several years and result in stringent emissions control technology requirements. Given its scope, the NSR Program may impact the development of a wide range of facilities across various sectors, including power plants, refineries, manufacturing facilities, and data centers, among others. The U.S. Environmental Protection Agency ("EPA") recently has announced a suite of policy developments and a forthcoming rulemaking that attempt to clarify when NSR preconstruction permitting is required and could limit the lead time for development of both new facilities and modifications at existing facilities.
EPA's new NSR policies establish revised interpretations of certain regulatory requirements for preconstruction permitting under the CAA. These developments effectuate the Administration's ongoing initiatives to simplify and streamline permitting processes and reduce regulatory "red tape" for projects powering advancements in the nation's industrial and energy sectors. According to EPA, additional NSR guidance and policy developments may follow, as well as a potential rulemaking to codify certain aspects of the Agency's new approach to preconstruction permitting under the NSR Program.
This summary addresses how EPA's new approach to the NSR Program might impact stationary source projects.
Withdrawal of Reactivation Policy
On September 18, 2025, EPA issued a memorandum, New Source Review Program "Reactivation Policy" ("Reactivation Memorandum"), announcing that the Agency will no longer apply its longstanding "Reactivation Policy" in permitting and enforcement actions under the NSR Program on a national basis. In a September 15, 2025 press release announcing the Reactivation Memorandum, EPA stated that its new approach should "allow[] for idled facilities like power plants[,] which are desperately needed to provide electricity much faster," to be brought back into operation under the NSR Program.
Implemented by the Agency under various articulations in guidance and permitting actions since the 1970s, EPA's Reactivation Policy applied a rebuttable presumption that existing major stationary sources that have "permanently" shut down, or otherwise have been removed from a state's emissions inventory, but are seeking to restart operations, are considered "new" and therefore subject to the NSR Program. However, the Agency has, at times, expressed skepticism over the Policy's validity under both the CAA and its NSR Program regulations. Further, the U.S. Court of Appeals for the Third Circuit ("Third Circuit") recently rejected EPA's application of the Reactivation Policy to require a preconstruction permit for the resumption of operations at an existing major stationary source previously considered to have permanently ceased operations. See Port Hamilton Refining & Transp. LLLP v. EPA, 75 F.4th 166 (3d Cir. 2023) ("Port Hamilton"). The court reasoned that CAA Section 165 unambiguously limits NSR permitting requirements only to "construction" that is "commenced after August 7, 1977." The court additionally held that "construction" within the meaning of the NSR regulations also includes modification. Therefore, according to the court, NSR permitting requirements apply only to facilities constructed or modified after August 7, 1977, regardless of operational status (e.g., idled, shut down) or operator intent. As a result of the decision, EPA was precluded from applying the Reactivation Policy within the jurisdiction of the Third Circuit.
EPA now explains in the Reactivation Memorandum that it agrees with the Third Circuit's interpretation of the CAA. Consistent with Port Hamilton, EPA will no longer apply the Reactivation Policy "to classify resuming operation of a stationary source as construction of a new source in EPA permitting and enforcement actions" or in its "oversight of state, local, and tribal air permitting programs." EPA intends to implement its new approach on a national basis, which would bring nationwide application of NSR requirements in line with the approach currently in place within the jurisdiction of the Third Circuit. The nationwide application is based on EPA's determination that the Port Hamilton decision reflects the "best read[ing]" of the CAA, similar decisions in four other U.S. Courts of Appeals on the scope of the CAA's NSR requirements, and the "strong interest in equal treatment among sources and nationwide uniformity" under the CAA.
EPA encourages state, local, and tribal air agencies to follow its new approach "where doing so is consistent with applicable law in their jurisdictions." However, the Agency explains in the Reactivation Memorandum that its new policy does not preclude local permitting authorities from implementing local requirements for preconstruction permitting for reactivating idle sources "where those policies ... are more stringent than the CAA." Furthermore, EPA plans to evaluate on a case-by-case basis "the extent to which it is necessary to enforce or revisit its approval of State Implementation Plans" containing requirements based in the now-withdrawn Reactivation Policy or are otherwise "not independently supported by state or local laws."
Notwithstanding EPA's new policy, the Agency will continue to apply NSR permitting requirements to modification at sources that have been shut down. Therefore, where an idled source seeks to make modifications to restart operations, the modifications must be analyzed to determine whether they are considered "major modifications" that are subject to the NSR Program.
Revised Interpretation of "Begin Actual Construction"
The NSR Program's Prevention of Significant Deterioration ("PSD") and Nonattainment New Source Review ("NNSR") regulations at 40 C.F.R. §§ 52.21 and 51.165, respectively, require that "[n]o new major stationary source or major modification to which [PSD or NNSR requirements apply] shall begin actual construction without a permit that states that the major stationary source or major modification will meet those requirements." The phrase "begin actual construction" means, "in general, initiation of physical on-site construction activities on an emissions unit which are of a permanent nature." 40 C.F.R. §§ 52.21(b)(11), 51.165(a)(1) (emphasis added).
On September 2, 2025, EPA issued a letter to the Maricopa County Air Quality Department ("MCAQD") clarifying the Agency's interpretation of these requirements. MCAQD originally sought EPA's opinion on whether an NSR permit was required prior to the initial stage of construction activities at a semiconductor manufacturing facility, which consisted of construction of the core and shell of a building that would eventually house the emission unit. In the letter, EPA explained that its previous interpretation of the federal NSR regulations adopted "an overly broad reading" of the term "emissions unit," by construing the term to include "installations necessary to accommodate an emission unit." According to the letter to MCAQD, EPA now interprets its NSR regulations to allow certain construction activities, such as the construction of the core and shell of a building, to occur prior to issuance of an NSR permit, so long as the construction does not involve "the physical construction on an emission unit" itself or, in accordance with MCAQD's regulations, "the laying of underground piping or construction of supports and foundations that are part of any emissions unit."
EPA plans to undertake a rulemaking to codify its new interpretation and clarify which construction activities require or do not require an NSR permit to proceed. According to a September 9, 2025 press release, EPA anticipates that this rulemaking will provide "flexibility to begin certain building activities that are not related to air emissions," streamline preconstruction permitting, and reduce potential project delays. In the rulemaking, the Agency intends to revise the definition of "begin actual construction" so that it is tied specifically to the construction of the emissions unit itself. The rulemaking also may adopt a narrower definition of "emissions unit."
According to the Office of Management and Budget's Spring 2025 Unified Agenda of Regulatory and Deregulatory Actions, EPA expects to issue a proposed rule in January 2026 and a final rule in September 2026.
Reissuance of "No Second Guessing" Memorandum
In a press release issued on September 15, 2025, EPA announced for the first time that the Agency has reissued its December 7, 2017, memorandum, New Source Review Preconstruction Permitting Requirements: Enforceability and Use of the Actual-to-Projected-Actual Applicability ("APTA") Test in Determining Major Modification Applicability ("2017 Memorandum), also known as the "no second guessing" memorandum. EPA originally issued the 2017 Memorandum to outline the Agency's intended approach to NSR enforcement for existing major stationary sources undertaking modifications in light of a series of decisions from the U.S. Court of Appeals for the Sixth Circuit involving certain NSR enforcement actions. The 2017 Memorandum had been rescinded by EPA on December 9, 2022, with no rationale provided.
Now, with the reissuance of the 2017 Memorandum, EPA's interpretation of the NSR program and its NSR enforcement policy, as discussed in the 2017 Memorandum, are back in effect. In the 2017 Memorandum, EPA explained that it would interpret the NSR regulations to permit the consideration of a project owner's intent to actively manage future emissions from a proposed project at an existing major stationary source, which would allow the project owner to prevent significant emissions increases from a project that would have to be taken into account when calculating the project's projected actual emissions.
EPA also explained its view that the NSR rules provide "no mechanism" for the Agency to review a source's exclusion of emissions that (1) could have been accommodated during the baseline period, and (2) are unrelated to the project. EPA further clarified that owners/operators would be considered to have met their pre-project requirements under the NSR regulations if they performed a pre-project NSR applicability analysis in accordance with the regulations and followed the applicable recordkeeping and notification requirements, "unless there is clear error (e.g. the source applies the wrong significance threshold)." Importantly, EPA stated that it does not intend to pursue enforcement for projects that would result in less than significant emission increases or net emission increases, unless post-project actual emissions data indicated that a significant emissions increase or a significant net emissions increase did, in fact, occur.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
