Permitting Reform Ahead: EPA Targets Preconstruction Rules And Retires Reactivation Policy

The US Environmental Protection Agency (EPA) recently announced two significant reforms to its New Source Review (NSR) permitting program for major sources of air emissions. First, EPA is developing a rule to revise its interpretation of the definition of "begin actual construction" under NSR regulations, with a proposal expected in 2026. Second, EPA has rescinded its long-standing "Reactivation Policy" through a memorandum issued by Administrator Lee Zeldin on 18 September 2025 (Zeldin Memo). These actions mark shifts in the regulatory landscape for project development and facility restarts under the Clean Air Act (CAA).

These permitting reforms arrive at a moment when energy demand, particularly due to artificial intelligence (AI), data center growth, and electrification, is projected to surge sharply over the next five years. US data center power demand alone is projected to grow from 25 GW in 2024 to over 80 GW by 2030.¹ Given this backdrop, the timing of EPA's shifts on air permitting is likely to have outsized implications for developers of fossil-fuel-fired power plants, large industrial and manufacturing facilities, electric utilities, state and local permitting authorities, and community stakeholders.

Preconstruction Rule: Redefining "Begin Actual Construction"

Under the CAA, new or modified major stationary sources must obtain an NSR permit before they may "begin actual construction."² EPA's regulations define "begin actual construction" as "the initiation of physical on-site construction activities on an emissions unit...include[ing], but not limited to, installation of building supports and foundations, laying underground pipework and construction of permanent storage structures."³ Historically, EPA has sometimes applied this definition broadly, most notably in its 1986 "Reich memo," which implied that construction of structures accommodating emissions units could be considered "actual construction," even if no emissions units were installed.⁴

In contrast, a 2020 draft guidance issued during the previous Trump administration expressed a narrower interpretation, emphasizing that NSR permitting should be triggered only by physical on-site construction of emissions units themselves, not general building or site preparation.⁵

In September 2025, EPA responded to a request from the Maricopa County Air Quality Department regarding a proposed semiconductor facility.⁶ The developer sought to construct the "core and shell" of a building—its foundation, steel superstructure, and external walls—prior to receiving an NSR permit. EPA concluded that construction of structures not specifically configured for emissions units did not constitute "begin actual construction" and could proceed without an NSR permit, provided no emission units, foundations for such units, or related piping were installed.

EPA emphasized that the Reich memo reflected an overly expansive interpretation and confirmed that the agency intends to clarify its position through rulemaking. Specifically, EPA plans to propose and finalize a rule in 2026 to revise the regulatory definition of "begin actual construction."⁷ Until then, EPA will continue to apply its interpretation on a case-by-case basis, guided by the principle that nonemissions-unit construction does not, on its own, trigger NSR requirements. EPA has not identified any specific criteria it will rely on for its case-by-case analysis, which could raise the possibility that environmental groups and other nongovernmental organizations could seek to halt construction that they claim is proceeding without an NSR permit based on the prior EPA interpretation.

EPA's rulemaking is expected to bring clarity to project developers who often seek to advance construction schedules while awaiting permit decisions. A narrower definition of "begin actual construction" may enable developers to undertake certain preparatory building activities without risking an NSR violation. However, EPA has emphasized that construction activities undertaken before a permit is issued remain "at risk," as permitting authorities retain discretion to deny permits or require additional controls.

Rescission of the Reactivation Policy

Since the late 1970s, EPA has applied its "Reactivation Policy" to idle facilities, presuming that sources shut down for two or more years were permanently closed and thus subject to NSR permitting as newly constructed sources if restarted. Facility owners could rebut this presumption by showing intent to restart at the time of shutdown, based on factors such as maintenance activities, operator statements, and the cost of reactivation. The policy was most comprehensively articulated in the 1999 Monroe Order.⁸

In Port Hamilton Refining and Transportation LLP v. EPA, 87 F.4th 188 (3d Cir. 2023), the Third Circuit rejected EPA's application of the Reactivation Policy to require a prevention of significant deterioration (PSD) permit before restarting a long-idle refinery in the US Virgin Islands. The court held that the CAA unambiguously limits NSR applicability to construction of new sources and modifications of existing sources, not mere operation. The decision followed the court's earlier reasoning in EME Homer City Generation that the PSD program does not extend to "operation."⁹

Administrator Zeldin's 18 September 2025 memorandum formally rescinds the Reactivation Policy nationwide.¹⁰ EPA now recognizes that restarting an idle facility does not constitute "construction" under the CAA and will not, by itself, trigger NSR permitting requirements. Instead, EPA will apply NSR only where a restart involves a "major modification"—a physical or operational change that increases emissions above regulatory thresholds.

The Zeldin Memo also stresses the importance of nationwide consistency and makes clear that EPA regional offices should no longer apply the Reactivation Policy in permitting or enforcement. State and local agencies are encouraged to align with this approach, though stricter state laws may still apply.

The rescission provides significant regulatory relief for operators of idle facilities, eliminating a policy that EPA itself acknowledged was subjective and inconsistently applied. Owners of facilities seeking to restart operations will no longer face automatic NSR permitting obligations absent a qualifying modification. Nevertheless, sources must still carefully evaluate whether changes undertaken in connection with a restart amount to a major modification that triggers NSR.

Conclusion

EPA's actions mark a notable reorientation of NSR permitting policy. The forthcoming preconstruction rule promises greater clarity on when physical construction may begin without an NSR permit, while the rescission of the Reactivation Policy resolves long-standing legal and practical uncertainties for idled facilities. Together, these reforms could expedite project development timelines and facilitate restarts of dormant sources, though state permitting authorities—which may have different views and interests than EPA—retain broad discretion to enforce NSR requirements where modifications increase emissions. As data center capacity, AI model training, digitalization, and electrification drive electricity demand upward, clarity around when construction triggers permitting, and when restarting a source requires NSR, will matter more than ever.

Footnotes

1. How data centers and the energy sector can sate AI's hunger for power, McKinsey & Co. (Sep. 17, 2024), https://www.mckinsey.com/industries/private-capital/our-insights/how-data-centers-and-the-energy-sector-can-sate-ais-hunger-for-power; see also AI is set to drive surging electricity demand from data centres while offering the potential to transform how the energy sector works, IEA (Apr. 10, 2025), https://www.iea.org/news/ai-is-set-to-drive-surging-electricity-demand-from-data-centres-while-offering-the-potential-to-transform-how-the-energy-sector-works; AI to drive 165% increase in data center power demand by 2030, Goldman Sachs (Feb. 4, 2025), https://www.goldmansachs.com/insights/articles/ai-to-drive-165-increase-in-data-center-power-demand-by-2030.

2. 40 C.F.R. § 52.21(a)(2)(iii).

3. 40 C.F.R. § 52.21(b)(11).

4. See Draft Memorandum from Anne L. Idsal, principal deputy administrator, Office of Air and Radiation, to the EPA Regional Air Division Directors, titled: "Interpretation of 'Begin Actual Construction' Under the New Source Review Preconstruction Permitting Regulations," March 15, 2020, https://19january2021snapshot.epa.gov/sites/static/files/2020-03/documents/begin_actual_construction_032520_1.pdf.

5. Id.

6. Letter from EPA Assistant Administrator to Maricopa County Air Quality Department at 3, Sep. 2, 2025, https://www.epa.gov/system/files/documents/2025-09/tsmc-arizona-begin-actual-construction-epa-response-letter.pdf.

7. Construction Activities Allowed Before Obtaining a Preconstruction Air Permit, EPA.gov (Sep. 9, 2025), http://epa.gov/nsr/construction-activities-allowed-obtaining-preconstruction-air-permit.

8. In the Matter of Monroe Electric Generating Plant Entergy Louisiana Inc., Proposed Operating Permit, Petition No. 6-99-2 (June 11, 1999) (Monroe Order).

9. US v. EME Homer City Generation, L.P., 727 F.3d 274 (3d Cir. 2013).

10. Memorandum from Lee M. Zeldin, Director, to Regional Administrators and Deputy Regional Administrators, titled: "New Source Review Program 'Reactivation Policy'," Sep. 18, 2025,