Marina Thomas
EPA Issues New Guidance on Nonattainment NSR Emission Offsets
On July 16, 2026, the U.S. EPA issued guidance clarifying that certain “islanded” power generation facilities generally are not subject to the Clean Air Act’s Acid Rain Program (ARP). The memorandum addresses growing questions from industry and state regulators regarding large power generation facilities that produce electricity exclusively for a private customer—such as a data center—and have no physical connection to the electric utility grid.
The guidance explains that the ARP generally applies to fossil fuel-fired electric generating units owned or operated by a utility that serves a generator producing electricity for sale. EPA concludes that a facility generating electricity solely for a private consumer and operating entirely separate from the public electric grid does not fall within the scope of the ARP because it is not an electric utility serving the public within the meaning of the program’s governing regulations and the 1990 Department of Energy Form EIA-860 incorporated into those regulations.
EPA’s guidance was prompted by an inquiry involving a proposed 500-megawatt natural gas-fired power facility that would exclusively supply electricity to an adjacent, privately owned data center. According to EPA, because the facility would not be connected to the utility grid, it generally would not be subject to the Acid Rain Program. EPA cautions, however, that if such a facility later connects to the grid, the ARP may become applicable. The memorandum also emphasizes that it does not address other Clean Air Act programs or constitute a final agency determination for any facility.
Why This Matters
Congress created the Acid Rain Program under Title IV of the Clean Air Act to reduce sulfur dioxide (SO₂) and nitrogen oxides (NOₓ) emissions from electric utilities through a comprehensive regulatory program that includes operating permits, emissions monitoring, emissions allowance requirements, and ongoing compliance and reporting obligations. These requirements can impose significant administrative and compliance burdens on affected power generators.
EPA’s guidance provides greater regulatory certainty that dedicated, behind-the-meter generating facilities serving private customers generally are not subject to those requirements solely because they generate electricity. As a result, qualifying facilities may avoid obtaining Acid Rain Program permits, participating in the emissions allowance program, and complying with the ARP’s monitoring, recordkeeping, and reporting requirements.
The guidance may have significant implications for:
