The debate over whether more energy creates more pollution came to a head Friday when the Environmental Protection Agency exempted old energy-producing plants from anti-pollution retro-fitting.

The decision is a throwback to the Clinton administration rule that required old power plants to modernize in order to boost energy production. To do so required spending millions on new anti-pollution devices, an expense that power plants said prevented them from producing more energy.

Environmentalists called the Friday turnaround a gift to polluters that is sure to result in dirtier air.

"We have nothing against increased production, but it's often increased production that results in additional pollution. And if there's increased pollution, we feel that needs to be controlled by the industries that are generating it," said Ed Hopkins, Director of the Environmental Quality Program at the Sierra Club.

Free market analysts, on the other hand, have long objected to the Clinton rule, saying it doesn't make sense.

"What we're doing is taking older equipment and making it [more] efficient, and saying the old must apply to the rules of the new one. That just doesn't make sense," said Pat Michaels of the Cato Institute. "It's kind of like if I take my old beater car and get a new carburetor put on it, then all of a sudden my old beater car has to correspond to all the new emissions controls."

The new Environmental Protection Agency regulation will allow industry to:

—Set higher limits for the amount of pollution that can be released by calculating emissions on a plant-wide basis rather than for individual pieces of equipment.

—Rely on the highest historical pollution levels during the past decade when figuring whether a facility's overall pollution increase requires new controls.

—Avoid having to update pollution controls if there has already been a government review of existing ones within the past 10 years.

—Exempt increased output of secondary contaminants that result from new pollution controls for other emissions.

It also will allow power plants to have an annual "allowance" for maintenance. Only when expenditures rise above that allowance would an owner or operator have to install new pollution control equipment. Replacement of existing equipment would be considered maintenance.

The administration said the new maintenance treatment "will offer facilities greater flexibility to improve and modernize their operations in ways that will reduce energy use and air pollution."

In changing the rule, the Environmental Protection Agency said it will speed up plant modernization, reduce air pollution, increase energy output and eliminate lawsuits.

"The steps we are taking today recognize that some aspects of the NSR program have deterred companies from implementing projects that would increase energy efficiency and decrease air pollution," EPA administrator Christine Todd Whitman said in a statement about the new rule, called the New Source Review.

Hopkins said the rule will increase air pollution.

"The Bush administration has opened up a series of loopholes in the Clean Air Act that will result in more soot, smog, and toxic chemical pollution. And right now about 165 million Americans live in areas where the air is unhealthy and this is going to increase that problem," Hopkins said.

Sen. Joe Lieberman, D-Conn., outgoing chairman of the Senate Environment and Public Works Clean Air Subcommittee, has called for Whitman's resignation over the rules, saying she has been compromised in her position.

"Gov. Whitman has a good record and good intentions, but on her watch this administration has undertaken the biggest rollback in Clean Air Act history and scaled back countless other environmental protections," Lieberman said. "Time and again, her advice has been overruled by a White House determined to gut commonsense environmental standards. Out of principle and protest, she should step down."

New York and Connecticut have already promised to sue to block the new EPA rules. Northeastern and Mid-Atlantic states have long argued that older power plants belch tons of noxious fumes in the air, aggravating the problem of acid rain.

"The Bush administration is again putting the financial interests of the oil, gas and coal companies above the public's right to breathe clean air," said New York Attorney General Eliot Spitzer.

The new rules only protect from litigation companies that modernize in the future, keeping in place a Clinton-era lawsuit against utilities and 51 power plants who circumventing the Clean Air rules.

Fox News' Major Garrett and The Associated Press contributed to this report.