The U.S. Environmental Protection Agency (EPA) has announced plans to propose, by 2026, a rule revising the definition of “begin actual construction” under the Clean Air Act’s (CAA) New Source Review (NSR) regulations. This threshold determines when a new or modified major stationary source must obtain an NSR permit before starting construction—a distinction with major implications for project sequencing, financing, and regulatory risk.
The EPA’s announcement comes at a critical time for U.S. energy and industrial policy. National electricity demand is projected to rise sharply over the next five years, driven by growth in AI data centers and widespread electrification. The International Energy Agency estimates that data centers alone will account for nearly half of the nation’s total increase in electricity demand through 2030—and, within five years, consume more power than all U.S. production of aluminum, steel, cement, and chemicals combined. In this context, the EPA’s reinterpretation of when “construction” truly begins could have favorable implications for energy and industrial developments nationwide.
How the EPA Has Interpreted “Begin Actual Construction”
Under the CAA, a new or modified major stationary source may not “begin actual construction” without first obtaining an NSR permit.[1] The EPA regulations define this term as “the initiation of physical on-site construction activities on an emissions unit which are of a permanent nature,” including activities such as installing building supports and foundations, laying underground piping, or constructing permanent storage structures.[2]
Historically, the EPA interpreted this provision broadly. In a March 28, 1986, memorandum from Edward Reich (the “Reich Memo”), the agency concluded that construction of structures intended to accommodate emissions units could itself constitute “actual construction,” even if no emissions equipment had yet been installed.[3] For decades, the regulated community treated this as effectively prohibiting most preparatory construction until an NSR permit was issued, a view reinforced in subsequent memoranda and guidance letters.[4]
In March 2020, however, the EPA under the first Trump administration issued draft guidance that adopted a less restrictive approach.[5] The March 2020 Draft Guidance clarified that:
- Source owners or operators may undertake physical on-site activities prior to obtaining an NSR permit—including activities that may be costly, significantly alter the site, or are permanent in nature—provided those activities do not constitute physical construction on an emissions unit, as defined in 40 CFR § 52.21(b)(7).
- In contrast to the 1986 Reich Memorandum, an “installation necessary to accommodate” the emissions unit is not considered part of that emissions unit, meaning construction activities involving such accommodations may occur before an NSR permit is obtained.
In short, NSR obligations are triggered only by direct work on emissions units, not by general building or site preparation. The EPA emphasized that any on-site construction undertaken prior to obtaining an NSR permit remains “at risk”—meaning that if a permit is later denied or additional controls are required, developers may face costly redesigns or delays.
The EPA’s 2025 Maricopa County Semiconductor Decision
In September 2025, the EPA reaffirmed this narrower interpretation in response to a request from the Maricopa County Air Quality Department regarding a proposed semiconductor manufacturing complex.[6] The developer sought to construct the building’s “core and shell”—including the foundation, steel frame, and exterior walls—before obtaining an NSR permit, while deferring installation of emissions units, related foundations, and piping until after permit approval.
The EPA concluded that these actions do not constitute “beginning actual construction,” provided that no emissions units or related components are installed. The agency clarified that the term applies specifically to on-site construction of emissions units, not other parts of a facility. The EPA also noted that the 1986 Reich Memo reflected an “overly broad” interpretation by treating structures accommodating emissions units as part of the units themselves.
Although the Maricopa County decision responds to project-specific facts, it aligns with the March 2020 Draft Guidance. The EPA confirmed that it does not plan to finalize the 2020 guidance; instead, the agency intends to initiate a formal rulemaking to revise the NSR program’s definition of “begin actual construction” consistent with this narrower approach. This rulemaking is included in the EPA’s 2025 Spring Agenda, with a proposed rule expected by January 2026 and a final rule targeted for September 2026.
Implications for Project Planning and Risk
The EPA’s evolving interpretation of “begin actual construction” may provide meaningful flexibility for project developers navigating lengthy NSR reviews. A clarified, narrower definition could allow certain preparatory site and building activities to proceed without triggering NSR requirements. However, the EPA has stressed that any such activities remain “at risk.”
Developers in Texas should also consider recent state-level changes. In 2019, the Texas Legislature amended the Texas Clean Air Act through House Bill 2726 (codified at Tex. Health & Safety Code § 382.004), authorizing limited “construction at risk.” Under this law, applicants for a permit amendment may begin construction once the Texas Commission on Environmental Quality (TCEQ) issues a draft permit, rather than waiting for final issuance. The statute requires compliance with federal law and specifies that all work proceeds at the applicant’s own risk. If the EPA finalizes its narrower definition of “begin actual construction,” TCEQ’s permitting approach may adjust accordingly, potentially broadening the range of activities it may approve before final permit issuance.
Looking ahead, the EPA’s forthcoming rule is expected to clarify when NSR preconstruction obligations attach and align federal policy with practical construction sequencing. The outcome will be closely watched by developers, permitting authorities, and environmental advocates. Even modest adjustments to the NSR “begin construction” threshold could materially affect project timing, costs, and compliance strategies in an era of accelerating energy demand and capital-intensive infrastructure development.
[1] 40 C.F.R. § 52.21(a)(2)(iii). Section 165(a) of the CAA states that “[n]o major emitting facility … may be constructed … unless – (1) a permit has been issued… [and various other requirements satisfied].”
[2] 40 C.F.R. § 52.21(b)(11).
[3] See Memorandum, Edward E. Reich, Director, U.S. EPA Division of Stationary Source Compliance, to Robert R. DeSpain, Chief, Air Programs Branch, EPA Region VIII (March 28, 1986)
[4] See Memorandum, John B. Rasnic, Director, U.S. EPA Stationary Source Compliance, Office of Air Quality Planning and Standards, to Bernard E. Turlinski, Chief, Air Enforcement Branch, EPA Region III (May 13, 1993) (noting the standard “prohibits activities in a permanent way that the source would reasonably undertake only with the intended purpose of constructing the regulated project”); Letter from John S. Seitz, Director, EPA Office of Air Quality Planning and Standards, to Charles W. Williams, Commissioner, Minnesota Pollution Control Agency (December 13, 1995) (confirming that site clearing and grading are not prohibited, but preconstruction activities that are permanent, costly, or significantly alter the site are).
[5] 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.
[6] See Letter from Aaron Szabo, Assistant Administrator, Office of Air and Radiation, to Philip McNeely, Director of Maricopa County Air Quality Department (September 2, 2025).
