Statement of W. Henson Moore, American Forest & Paper Association

Senator Inhofe. Senator Voinovich. Good afternoon. I am Henson Moore, President and CEO of the American Forest & Paper Association Thank you for inviting me to present the views of America's leading forest and paper companies on EPA's New Source Review Program, or NSR. This hearing exemplifies your concern to see that our environmental laws work.

AF&PA; believes that the NSR program should meet a few basic principles. First, the rules should be consistent, in sync with congressional intent, and not change in midstream. Second, policies should benefit the environment. And finally, program regulators not enforcers - should set regulatory policies in a process that is open to public scrutiny.

Based on these principles, our industry judges today's NSR program as fundamentally "broken." It needs immediate reform.

Everyone agrees it's broken EPA, the states, industry, Republicans and Democrats in Congress and notably labor unions. In fact, the Forest Products Industry National Labor Management Committee, a coalition of labor unions and industry organizations which represent over 1 million workers, issued a statement today raising similar concerns with EPA's reform and enforcement efforts. I would like to submit it into the hearing record.

Making matters worse, EPA is playing "good cop, bad cop" with targeted industries, sending out conflicting signals on how it intends to pursue NSR. While the air program continues an on-going process started in 1991 to clarify, simplify, and fix NSR, the office of enforcement is aggressively issuing notices of violation on pulp and paper facilities. Other major industries are, or may soon be, facing similar assaults. By doing this, the enforcement office is reinterpreting established NSR policies that industry has long used to comply with the law and doing so without notice, comment, or any public procedure and applying these new interpretations retroactively asking for fines in the process. In addition, EPA's judgements frequently second-guess state permitting agencies earlier decisions leading to EPA's erroneous conclusion that 80% of industry is in non-compliance. This is as unfounded as the underlying guidance is confusing.

In some cases, plants are deferring routine maintenance, delaying conversion to cleaner fuels or making other environmental improvements, and shelving plans to move forward with production innovations all to avoid the uncertainties and burdens imposed by the current NSR review process. If this continues, two things will happen: our industry will lose its competitive edge in a global marketplace and the environment will suffer.

Our Industry and Its Commitment

Let me tell you a little about the forest and paper industry. With more than 1.5 million workers and an annual payroll of $41 billion, we're a major contributor to the nation's overall economic health.

Importantly, every AF&PA; company subscribes as a condition of membership to a set of eight environmental, health, and safety principles designed to make environmental performance an essential part of every aspect of their operations. As we have increased employment and production as an industry, we've also made important environmental strides:

We cut our sulfur dioxide emissions by 63 percent between 1980 and 1995. We reduced the amount of chlorine used in bleaching by 89% from 1988 to 1994. We decreased surface water discharges by 47 percent between 1988 and 1996. We've reduced the total energy we consume to make a ton of paper by 21 percent. Our industry are recycling leaders, recovering nearly half of all the paper and paperboard Americans use each year.

We have a similarly rigorous commitment to the management of forestlands, called the Sustainable Forestry InitiativeSM (SFISM) program. Participants in this innovative program abide by a set of strict principles and objectives. A panel of 18 nationally recognized experts including leading environmentalists, academics, and foresters, as well as representatives of the U.S. Forest Service and EPA oversees our performance and critiques it as part of our annual SFISM progress report. We are especially proud that in 1999, Renew America and the President's Council on Sustainable Development recognized SFISM with the National Award for Sustainability.

In addition to our commitment to innovation, we're also committed to cooperation. In meeting our environmental responsibilities, we work closely with regulators, environmentalists, and leaders in the communities that host our facilities, and others.

A good example is the way we worked in concert with EPA to develop the so-called pulp and paper "Cluster Rule," the first-of-its-kind multi-media regulation governing air and water quality in our industry. In fact, we were the only industry to voluntarily accept EPA's invitation to develop the "cluster" concept. Although it requires us to invest an estimated $2.8 billion in environmental upgrades, we're satisfied that the final rule fairly balances environmental improvements and benefits with our industry's capital planning expectations.

And, of course, we've been heavily involved in EPA's effort to reform the New Source Review program from the very beginning, putting constructive ideas on the table, working with other industries and stakeholders, and being responsive to EPA's requests. Incidentally, our experiences with Assistant Administrator Bob Perciasepe and his staff have always been positive and productive. We are ready to work diligently towards a reasonable NSR program.

Why NSR Is Broken

In broad terms, NSR requires a company to get a permit before it begins construction of any new "major source" with the "potential to emit" more than 100 to 250 tons a year of any regulated pollutant under the Clean Air Act. It also requires before construction begins a permit for a physical change to an existing "major source," or any change in its "method of operation," that will cause an increase in actual source emissions of any regulated pollutant exceeding specified levels. Typically, it takes over a year and a half to get a permit, even for very small plant changes, requiring extensive air quality analysis and a commitment to install expensive state-of-the-art control technology. In creating NSR, Congress told plant operators who would increase emissions by adding new equipment or making major changes to existing facilities to install the latest pollution control equipment. But Congress never intended NSR to impose new controls on older already permitted equipment simply because of their age and need for routine maintenance. So the problem with NSR is not congressional intent.

NSR was designed to hold the line against emissions increases, not to aggressively pursue broad emission reductions. Other sections of the Clean Air Act already have that mandated purpose. The statutory term "prevention of significant deterioration" (PSD) makes that purpose clear.

The problem with NSR has always been with the way EPA has implemented it not congressional intent. The rules are too complex. The informal guidance, memoranda and letters EPA has issued over the last 23 years more than 4,000 pages of interpretations and reinterpretations is inconsistent. It is no surprise that so much confusion abounds when most of these interpretive changes occurred at EPA behind closed doors without the benefit of public notice and comment. In particular, in recent years, EPA has sought to change interpretations that industry, the states, and EPA itself have followed for years.

The definition of "routine maintenance" is a good example of EPA's flip-flopping policies.

In 1980, EPA provided an exclusion from NSR review for "routine maintenance" without defining the term.

In 1988, an EPA memorandum indicated the agency would weigh a variety of factors "to arrive at a common-sense finding" as to what was routine maintenance. This admittedly ambiguous interpretation left much latitude in state and EPA's case-by-case reviews.

Then, in 1999 the enforcement office substantially narrowed the exclusion, without public input, stating it "was meant to cover frequent, traditional, and comparatively inexpensive repairs to maintain existing equipment."

EPA is changing the rules 180 degrees contrary to congressional intent, and is applying those changes retroactively, using a process that lacks public involvement. For example, if a plant manager replaces worn-out bricks on the inside of a furnace, doesn't that sound like routine maintenance even if the replacements are costly and occur on an irregular basic? Real NSR reform needs to go back to a "common sense" definition of routine maintenance. SO the first problem is to reform NSR to make it workable.

EPA has long known of the problem. As far back as 1991, it announced it would "simplify and reform" the "old" 1980 NSR program to reduce confusion over its applicability and to streamline NSR review. Several years later, the Clinton Administration cited NSR as a candidate for reform in its National Performance Review of Regulations. At a September 1996 hearing, an EPA spokesman acknowledged: "A lot of uncertainty exists in the old regulations as they have evolved since about 1980."

Major efforts by the EPA air office in 1996 and 1998 to re-write the NSR rules did not yield successful reform, but clearly indicated EPA's desire to fix the broken program. However, the job is not completed and confusion still exists. Recently, two senior EPA staff members heavily involved in the NSR reform discussions publicly debated the "correct" interpretation of its "actual to potential" NSR policy. If EPA officials can't figure it out and agree on a single meaning, how are states and industry supposed to?

Some people familiar with NSR, again including some within EPA, have gone so far as to suggest the program is working at cross-purposes with the Clean Air Act. During a 1993 NSR Simplification Workshop, for example, Ed Lillis, the Chief of EPA's Permits Program Branch, admitted: "the rules seem to work against the purpose of why they were established."

The agency's current method for estimating emissions from a planned plant change is another good example of how NSR policy defies logic. EPA has recently changed its interpretations to require the facility to compare its pre-change actual emissions to its post-change potential emissions. This "apples to oranges" accounting scheme forces every facility to count imaginary emissions from unused capacity as an increase in emissions resulting from the modification, thus triggering NSR even when the change will cause no real increase in actual emissions, and, in many cases, will reduce actual emissions. For example, an effort to reduce emissions and comply with the "Cluster Rule" could land a facility in the 18-month NSR permit review process and end up requiring even more controls. Where's the common sense in this? To quote a letter from Pennsylvania's Department of Environmental Protection to Robert Perciasepe, "How can we expect industry to do everything they can to minimize emissions when we will be penalizing them for these actual reductions when they come in for New Source Review?"

Or consider the outcome of this real-world scenario.

In one year, a typical pulp and paper site may make 40,000 changes in equipment, procedures, and operations. Based on the latest round of EPA guidance and interpretations, the environmental manager at this typical site screens them all and comes up with 400 (or roughly 1%) that may be considered "changes" under the new guidance. Of these, the manager decides about 25 projects that would make the plant run better and cleaner might require permitting. In the past, the state regulatory agency would have considered most of those projects inconsequential, but now they are reluctant to take a position for fear they may be second-guessed by EPA's enforcement office. Because of this uncertainty, and the fact that the state lacks the resources to process that number of projects in the first place, all 25 efficiency and reliability improvements are stopped cold.

Does any of this sound like something that's good for the environment or good for business?

Misdirected Enforcement What's even more egregious than having to deal with a confusing myriad of guidance and interpretations is being held accountable for a constantly changing standard. We cannot sit here today and talk reasonably about NSR reform without talking about the aggressive NSR enforcement initiative launched last year. Just as we couldn't have a reasonable discussion about reforming the IRS while an army of IRS auditors were launching an all-out attack on taxpayers based on the old rules.

Unfortunately, that's what's happening under the NSR program. The enforcement actions rely on new interpretations of past EPA policy and seek large retroactive fines which can exceed $20 million per facility. The enforcement office is taking the program in the exact opposite direction of where the NSR reform effort needs to go. Hundreds or thousands of minor changes at facilities would be pulled into the review system, swamping the state review process and further delaying permitting decisions all with little or no environmental benefit. This is very counterproductive. I think all Americans can agree, it is unfair to change the rules in the middle of the game and penalize people for their retroactive application.

This abrogation of the basic principles previously outlined is leading to enforcement actions like these where EPA is overturning past determinations that NSR review was unnecessary because there was no significant expected increase in emissions.

Ten years ago, a mill replaced an old power boiler with a new one that had lower potential emissions. The state, after soliciting comments from EPA, approved the mill's permit application for the new boiler without requiring an NSR review. Now, EPA says the new boiler increases mill operating capacity and potential emissions and alleges the mill failed to comply with the NSR requirements. But the law states that only actual increases in emissions require NSR review.

A pulp and paper facility installed a boiler with a Prevention of Significant Deterioration (PSD) permit many years ago. Some years later, part of the boiler was replaced with a slightly different design that did not increase the capacity but improved the efficiency, reduced overall downtime, and decreased emissions. Now, years later, EPA's enforcement office, using new interpretations of what triggers NSR review, determined that this project was a modification that required a NSR permit and issued a notice of violation. Again, only actual emission increases require NSR review.

A facility obtains a permit from a state agency, using best emissions estimates available at the time those from EPA's emissions factors database. Data developed years later shows the original estimate was low. EPA holds that the source should have obtained a permit based on the new data. The agency also orders it to undergo a Best Available Control Technology (BACT) analysis using today's measure of best available technology. As a result, the earlier state decision is reversed. The source must install expensive controls that were not originally available and EPA imposes a large fine. This type of ratcheting of control requirements is unfair and not required by the law.

What is EPA trying to accomplish by going after actions that are within the law and in some cases even reduce emissions?

As we cite these real-world examples to illustrate how EPA would overstep its authority, we need to make one thing clear. We are not here today to talk about the details of individual enforcement actions. We do not want to impede any legitimate enforcement discussions between EPA and our member companies. The record of the American Forest & Paper Association in recent years makes it quite clear that we have little patience for those who fail to meet their environmental responsibilities. Real violations of clear environmental regulations should be enforced. Period.

Rather, we are here today to raise legitimate concerns over EPA's overall enforcement policy. We question the logic behind the timing of what appears to be a well-orchestrated enforcement campaign at the same time that the rules underlying the enforcement actions are in flux. EPA incorrectly claims that 80-90% of our industry is not in compliance, 80 to 90%! This claim comes from bizarre interpretations of NSR. For example, one EPA enforcement official recently stated, "If capital investments at major facilities have been made for the purpose of meeting market demand, diversifying product lines, increasing production efficiency, or reducing operating costs there is a high probability of PSD violations." [Betsy Wise, EPA Region 10 Enforcement Official at January 2000 meeting of the Joint Legislative Environmental Common Sense Committee in Idaho.] In other words, if a company has pursued its routine business goals, then it seems likely to have violated the PSD standards. Yes, under this convoluted logic, 100% of the industry is guilty guilty of providing products to meet the changing demands of the American public while doing its best to meet the intent and spirit of the Clean Air Act!

We are here today to raise concerns over a broken environmental regulation that allows one EPA office to retroactively reinterpret regulations established two decades ago. A clear NSR regulation must be developed to eliminate arbitrary enforcement that is being imposed on companies going about their normal business in full compliance with the adopted NSR rules.

To draw a sports analogy, it's like the National Basketball Association eliminating the 3-point shot and then going back to overturn any victories that were won based on 3-point shooting. Or, if we're talking about the IRS and taxes again, it's like the IRS eliminating the mortgage-interest deduction for millions of American taxpayers today and then demanding their past taxes with huge penalties for having used the deduction in prior years.

So the second problem is this out-of-control enforcement binge. EPA should suspend those enforcement actions that rely on new interpretations of older policies and do not involve emissions above permitted limits until the NSR reforms are successfully completed. Enforcement actions where emission increases exceeded permitted limits and clearly violated the law should proceed.

Summary and Conclusions

You know the axiom all too well. It's not the role of the judicial branch to legislate. Likewise, it should not be the role of the EPA's enforcement office to regulate. Compounding this issue is the matter of timing. Not only should the enforcement office not be regulating and changing the rules of the game and applying them retroactively, they shouldn't be doing so as part of an aggressive campaign while the air office is rewriting the rules.

We fully appreciate the challenge before the air office. Making sense out of these complex rules is no easy task. And we applaud the "open door policy" that the air office has shown us in working on the reform effort. We ask, however, that EPA's reform effort follow the basic principles I have identified: establish consistent rules and only apply them prospectively, give the job to the air office, not the enforcement office, and base them on the law.

We're prepared to hold up our end of the bargain by working tirelessly with EPA to make NSR reform a reality. All we ask is that EPA all of EPA hold up its end of the bargain as well.

Thank you.