EPA Clarifies Timing of Emission Reduction Credit Requirements Under the Nonattainment NSR Program
The U.S. Environmental Protection Agency (EPA) on July 1, 2026, issued new guidance (the “Guidance”) addressing the timing of emission reduction credit (ERC) obligations under the New Source Review (NSR) permitting program for facilities located in nonattainment areas (NNSR Permits) under the Clean Air Act, 42 U.S.C. § 7401 et seq. (CAA). The Guidance addresses a longstanding question regarding when offsets must be obtained under the CAA and clarifies EPA's interpretation of provisions governing offsets for new and modified major stationary sources located in nonattainment areas and may provide increased permitting flexibility for facilities planning new construction projects or major modifications.
The CAA [1] establishes a permitting framework for stationary sources in locations designated as “nonattainment areas” that do not meet the National Ambient Air Quality Standards (NAAQS) codified under 42 U.S.C. § 7409.[2] Part D of Title I of the CAA establishes the NNSR Permit program, which subjects facilities in nonattainment areas to additional requirements, such as obtaining an NNSR Permit before constructing a new or modified major stationary source in a nonattainment area.[3]
42 U.S.C. § 7503(a) sets out the core requirements for permit issuance: the applicant must obtain sufficient offsetting emission reductions, apply the Lowest Achievable Emission Rate (LAER) [4], demonstrate that its other major sources in the State are in compliance, and show that the project’s benefits outweigh its environmental and social costs. ERCs are the mechanism used to satisfy the offset requirement and must be surplus, permanent, quantifiable, and federally enforceable.[5] 42 U.S.C. § 7503(a)(1) provides that required emission reuctions (including ERCs) must be in effect by the time the source commences operation. However, certain permitting agencies have required applicants to secure ERCs prior to commencing construction for permit issuance, even where operation would not begin for years, a practice the Guidance now clarifies is not required by the CAA.[6]
The Guidance provides several important clarifications regarding the timing and enforceability of ERC requirements in the NNSR permitting process. The key points are summarized below, with a brief explanation of the practical significance of each:
The CAA does not require all ERCs to be actually acquired before an NNSR permit is issued.
The Guidance focuses on the distinction in 42 U.S.C. § 7503 between permit issuance and commencement of operations. While 42 U.S.C. §§ 7503(a)(1)(A) and (c) require offsetting emission reductions to be obtained and in effect before a new or modified source begins operating, EPA interprets the federal-enforceability requirement in § 7503(a) as applying to the permittee's obligation to obtain offsets rather than to the prior acquisition of specific ERCs. As a result, EPA concludes that an NNSR permit may be issued before the required ERCs are identified and secured, provided the permit contains enforceable conditions requiring the permittee to obtain the necessary offsets before operation and prohibiting operation until those offsets are secured. This interpretation provides greater flexibility in the timing of ERC procurement while preserving the statutory requirement that offsets be in place before operations commence.
Rather, the NNSR Permit must (a) include an enforceable obligation to obtain ERCs before the facility (or any relevant modification) commences operation, and (b) prohibit operation until the required ERCs are secured in compliance with the NNSR Permit conditions.
This approach shifts the key timing requirement from permit issuance to operation, while preserving enforceable protection against uncompensated emissions increases. This gives permitting agencies the discretion to issue an NNSR Permit while ERCs are still being identified or finalized, so long as the NNSR Permit includes the noted enforceable conditions. For a new facility or a facility planning a major modification, this may allow the permitting process and construction planning to move forward pending purchase of qualifying ERCs.
For phased construction projects, ERCs may be secured by phase rather than for the entire facility.
This may provide additional flexibility where construction and operation will occur in stages over an extended period. A facility expanding capacity in multiple phases, for instance, may be able to secure offsets for the first phase before that phase begins operation and address later-phase offsets closer to the applicable operational dates.
Permit conditions included in an NNSR Permit issued under EPA-approved State Implementation Plan regulations are federally enforceable.
Accordingly, EPA and, where applicable, qualifying citizen plaintiffs may enforce the offset-related commitments if the permittee fails to comply. If a facility were to begin operating before satisfying an ERC condition, EPA and qualifying citizen plaintiffs may have a basis to pursue enforcement under the CAA.
For facilities planning major modifications, including cement clinker kilns, the Guidance provides meaningful clarity for permitting flexibility to meet emission obligations. In particular, facilities located in areas designated nonattainment for PM under the NAAQS may be able to move permitting and construction planning forward while qualifying offsets are identified, approved, or finalized. It does not eliminate the need to obtain ERCs before operation. Still, in practical terms, the Guidance may allow facilities to separate the timing of permit issuance from the timing of operation in securing ERCs, which can help reduce front-end permitting delays and provide a clearer framework for aligning permitting, construction planning, and ERC procurement.
The Guidance offers helpful policy clarification that may benefit new facilities and facilities with planned major modifications located in nonattainment areas. While the Guidance is not legally binding and permitting decisions remain case-specific, it provides a clear interpretation of 42 U.S.C. § 7503(a) that NNSR Permits may be issued and construction may commence before ERCs are actually obtained. That said, each facility and modification may present unique issues, so affected parties should consult with legal counsel to assess how the Guidance may apply to planned projects and to develop strategies for incorporating its framework into particular NNSR Permit applications.
[1] The Guidance refers to the nonattainment NSR offset provisions as CAA § 173. This article cites the corresponding codified provisions in the United States Code, 42 U.S.C. § 7503. References to CAA § 173 and 42 U.S.C. § 7503 are interchangeable and refer to the same statutory requirements.
[2] See also, 42 U.S.C. § 7407.
[3] 42 U.S.C. § 7502(c)(5).
[4] The term “lowest achievable emission rate” is defined in 42 U.S.C. § 7501(3) as “any source, that rate of emissions which reflects (A) the most stringent emission limitation which is contained in the implementation plan of any State for such class or category of source, unless the owner or operator of the proposed source demonstrates that such limitations are not achievable, or (B) the most stringent emission limitation which is achieved in practice by such class or category of source, whichever is more stringent.”
[5] 42 U.S.C. § 7503(c).
[6] See, e.g., Memorandum dated June 14, 1994, from John S. Seitz, Director, Office of Air Quality Planning and Standards, to Air Division Directors, EPA Regions 1-10, Subject: “Offsets Required Prior to Permit Issuance” (“1994 Seitz Memo”) at 1, 5-6 (stating that, “[I]n such circumstances, creditable offsets have been identified, quantified, adopted as a matter of State law, and submitted to EPA, but the EPA administrative process to approve the measure may not be completed by the time the source seeks to commence construction,” and, accordingly, “it may not be feasible for EPA's administrative process needed to make the offsets federally enforceable . . . within the ordinary timeframe for issuing a construction permit.”).
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