Environmentalists declared victory while a spokesman for the Environmental Protection Agency said there was not enough time left in its term for the administration to finalize the rules changes it had sought.
Abandoning a second proposed change, the EPA also said it will not seek to loosen rules concerning plants near national parks and wilderness areas, according to the environmental group National Resource Defense Council (NRDC).
The Bush administration has for much of its tenure sought to change the manner in which existing industrial plants including power plants trigger the "new source review" provision of the Clean Air Act. The "new source review" was added to the Clean Air Act by Congress in 1977.
Supporters of the changes have long said lengthy federal review diminishes energy efficiency and hinders use of newer technologies at plants, and in some cases increases pollution.
Opponents claim that utilities have sought to skirt rigorous "new source review" by disguising major upgrades, calling them routine maintenance.
"I am heartened that both of these destructive and unlawful air pollution rules will not be forced upon the American people," said John Walke, NRDC clean air program director.
The NRDC blames the Bush administration for what it views as eight years of business interests trumping environmental concerns. It put pressure on the incoming president, Barack Obama, to keep campaign promises to cut pollution.
"With the barbarians at the gate having pulled up their tents and headed for the hills, we can look forward as a civilized society to tackling the critical problems of global warming, smog and soot pollution that continue to damage our health, and toxic mercury that contaminates our waters," said Walke.
He said the NRDC "looks forward to working with the incoming administration." Obama on Wednesday named scientist Steven Chu, who received the 1997 Nobel Prize for physics, as his nominee for energy secretary.
The Electric Reliability Coordinating Council, an advocate for power generating and transportation companies, expressed disappointment but said it was understandable that the issue was passed along to the incoming administration.
Scott Segal, director of the ERCC, said the proposed rule changes now dropped "would have brought further clarity to Clean Air Act enforcement. Unfortunately, the EPA missed an important opportunity to advance the cause of energy efficiency projects with material benefits for the environment and the economy."
Segal added: "It seems clear that EPA wants to give the Obama Administration an opportunity to grapple with this important issue on their own, and that's understandable."
The National Parks Conservation Association said the EPA had wanted to allow plants near national parks to "circumvent pollution limits established by Congress to protect these areas."