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The Real Problem With New Source Review

February 2006

Citation: 36 ELR 10095

Issue: 2

Author: Shi-Ling Hsu

Editors' Summary: When the CAA was amended in 1977, the U.S. Congress imposed pollution control requirements on new stationary sources of air pollution, called new source review (NSR), but exempted existing facilities from such requirements. By creating a more favorable regulatory environment for existing facilities than for new ones, "grandfathering" creates an incentive to keep old facilities up and running. Moreover, as a command-and control program, requiring capital expenditures for pollution control equipment makes the capital sluggishness problem worse. Combined with often confusing EPA policies and a changing political environment, NSR has resulted in a running battle between the regulated community, environmentalists, and regulators over just how much work can be done on existing sources before they become "new" sources subject to expensive pollution control requirements. In this Article, Shi-Ling Hsu examines these issues and argues for an entirely new paradigm of pollution regulation--Pigouvian taxes and/or emissions trading. Although these two concepts are also controversial, Hsu argues that they are far better than the drag on capital turnover created by grandfathering and will be advantageous for environmentalists and industry alike by eliminating perverse incentives for keeping outdated stationary sources online to the disadvantage of newer, cleaner sources.

Shi-Ling Hsu is an Associate Professor of Law at the University of British Columbia Faculty of Law. The author acknowledges the valuable research assistance of David Madani and Jenny Biem and thanks Jamie Colburn and the participants at the 2005 Tulane Environmental Conference for their help and comments.

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