December 19, 2018

Oren Cass and the Clean Air Act’s New Source Review



In his latest book, The Once and Future Worker, Oren Cass once again fulminates against environmental regulation in general, and the Clean Air Act’s New Source Review (NSR) program in particular. Unfortunately for Cass, his criticisms are undercut by his apparent lack of understanding of the program.

The NSR program requires industrial facilities to install emissions control equipment when they are built or when they are upgraded or modified so as to significantly increase emissions. NSR is applied in two different ways, depending on whether the air where the facility is built already meets air quality standards (“attainment areas”) or does not meet those standards (“non-attainment areas”).    

Here is how Cass describes the NSR program (p. 93):

Consider a hypothetical manufacturing plant that seeks to double in size. The expansion would represent a major modification and therefore lead to a review of the entire facility as “new.” If the plant is located in an area already meeting air quality standards, it must now install pollution controls where before none were required—in both the “new” part of the facility and the old part. If it is located in a [nonattainment area], it must install the best possible pollution controls and pay to offset its pollution. The plant’s owners had wanted to create more jobs on the same basis as existing jobs, but they cannot. An investment that once looked attractive might not go forward at all.

This argument makes no sense. If the plant is located in an attainment area meeting air quality standards, the purpose of installing pollution controls on the new plant is to make sure that its additional emissions do not result in the area failing to meet those standards. Cass completely ignores this, instead characterizing this as unfairly requiring the new facility to “install pollution control where before none were required”–as if adding emissions to the area has no consequences.

If those additional emissions cause the area to fall into nonattainment, this not only has obvious consequences for people’s health, but also serious economic consequences for all the other facilities in the area. If the additional emissions cause the area to fall out of attainment, then all facilities in the area are fair game for state regulators who then have to decide which entire categories of facilities must reduce their emissions in order to get back into attainment. 

Thus, the actual choice is between requiring the new facility to install equipment so that its emissions do not cause the area to fall out of attainment, or potentially require all the existing facilities in the area (plus the newcomer) to retrofit in order to do so. You don’t need to be an economist to intuitively understand which of these is more economically efficient and better for public health.

Cass is also wrong when he says that existing sources do not have any emission controls. Unless an existing plant was built before the early 1970’s, it has probably been constructed in compliance with the Act’s New Source Performance Standards. And the more recently those existing sources were built, the more stringent the NSPS standards are. In other words, the new plant is only required to install incrementally better emissions control equipment than existing facilities.1 Moreover, if the area is currently in attainment but had previously not been, it achieved that precisely because those existing facilities were required to install emissions controls.  

Cass fares no better when he deals with NSR in non-attainment areas, which he criticizes because the new facility “must install the best possible pollution controls and pay to offset its pollution.”  He doesn’t seem to understand that in this situation, the new facility is proposing to add more emissions to an area that already does not meet air quality standards. In that case, it makes perfect sense to limit these additional emissions as much as possible (hence the “best possible emissions controls”),2 and then offset those additional emissions so that a bad situation does not get any worse.

Cass sums up his remedy this way (p. 94):

The key reform to shift the Act’s fulcrum and strike a new balance would be to eliminate new source review, ending the discriminatory treatment of new facilities. Removing heightened new source requirements would allow industrial and energy-producing facilities to expand and would also allow new facilities to be built under the same rules that older plants must follow. The EPA would continue to set air quality targets as it saw fit, but progress toward those targets would proceed more slowly.

The fundamental flaw with this reasoning is that by adding new and uncontrolled emissions in an area that is already in non-attainment does not make progress towards meeting air quality standards “proceed more slowly”; it reverses it and the air gets worse. And once that happens, in order to actually make the air cleaner, you have to impose additional regulations on other sources to make up for the pollution added by the new one. In other words, Cass prefers to let the new source shift the cost of its additional pollution on to all the other emitters.

All Clean Air Act practitioners know that there are (as with all regulatory programs) flaws with NSR.  But Cass’s preferred solution – to eliminate it entirely – demonstrates a lack of understanding of the purpose of NSR and how it works, or of the health, regulatory, and economic consequences of simply doing away with it.  

1. Clean Air Act wonks refer to this as the difference between the “best system of emissions reduction” (“BSER”, required by NSPS), and the “best available control technology” (“BACT”, required by NSR).

2. Those would be controls designed to meet “LAER”, or “Lowest Achievable Emission Rate”.  Other such CAA terminology includes “RACT” (Reasonably Achievable Control Technology), and “MACT” (Maximum Achievable Control Technology). Do not blame EPA for this – these are all terms straight out of the Act itself.