# Rulemaking on Section 126 Petition From North Carolina To Reduce Interstate Transport of Fine Particulate Matter and Ozone; Federal Implementation Plans To Reduce Interstate Transport of Fine Particulate Matter and Ozone; Revisions to the Clean Air Interstate Rule; Revisions to the Acid Rain Program

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URL: https://www.frixlaw.com/law-library/documents/fr%3A06-2692

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** April 28, 2006
- **Citation:** 71 FR 25328

## Text

ENVIRONMENTAL PROTECTION AGENCY
40 CFR Parts 51, 52, 72, 73, 74, 78, 96, and 97
[EPA-HQ-OAR-2004-0076; FRL-8047-5]
RIN 2060-AM99
Rulemaking on Section 126 Petition From North Carolina To Reduce Interstate Transport of Fine Particulate Matter and Ozone; Federal Implementation Plans To Reduce Interstate Transport of Fine Particulate Matter and Ozone; Revisions to the Clean Air Interstate Rule; Revisions to the Acid Rain Program

AGENCY:

Environmental Protection Agency (EPA).

ACTION:

Notice of final rulemaking (NFR).

SUMMARY:

Today, EPA is taking actions to address the interstate transport of emissions of nitrogen oxides (NO
X
) and sulfur dioxide (SO
2
) that contribute significantly to nonattainment and maintenance problems with respect to the national ambient air quality standards (NAAQS) for fine particulate matter (PM
2.5
) and 8-hour ozone. As one part of today's action, EPA is providing its final response to a petition submitted to EPA by the State of North Carolina under section 126 of the Clean Air Act (CAA). The petition requests that EPA find that SO
2
and/or NO
X
emissions from electric generating units (EGUs) in 13 States are significantly contributing to PM
2.5
and/or 8-hour ozone nonattainment and maintenance problems in North Carolina, and requested that EPA establish control requirements to prohibit such significant contribution. The EPA is denying the petition because, in today's action, EPA is promulgating Federal implementation plans (FIPs) for all jurisdictions covered by the Clean Air Interstate Rule (CAIR) to address interstate transport.

The FIPs will regulate EGUs in the affected States and achieve the emissions reductions requirements established by the CAIR until States have approved State implementation plans (SIPs) to achieve the reductions. As the control requirement for the FIPs, EPA is adopting the model trading rules that EPA provided in CAIR as a control option for States, with minor changes to account for Federal rather than State implementation.

Today's action also revises CAIR SIP model trading rules in order to address the interaction between the EPA-administered CAIR FIP trading programs being promulgated today and the EPA-administered CAIR State trading programs that will be created by any State that elects to submit a SIP establishing such a trading program to meet the requirements of the CAIR. In addition, EPA is taking final action on our reconsideration of the definition of “EGU” as it relates to solid waste incinerators.

Today's action also makes revisions to the Acid Rain Program in order to make the administrative appeals procedures, which currently apply to final determinations by the Administrator under the EPA-administered CAIR State trading programs, also apply to the EPA-administered trading programs under the FIP action. In addition, we are making certain minor revisions to the Acid Rain Program that will apply to all affected units.

DATES:

This action is effective on June 27, 2006.

ADDRESSES:

The EPA has established a docket for this action under Docket ID No. EPA-HQ-OAR-2004-0076. All documents in the docket are listed on the
http://www.regulations.gov
Web site. Although listed in the index, some information is not publicly available,
e.g.,
confidential business information (CBI) or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, is not placed on the Internet and will be publicly available only in hard copy form. Publicly available docket materials are available either electronically through
http://www.regulations.gov
or in hard copy at the EPA Docket Center (Air Docket), EPA/DC, EPA West, Room B102, 1301 Constitution Ave., NW., Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays. The telephone number for the Public Reading Room is (202) 566-1744 and the telephone number for the Air Docket is (202) 566-1742.

FOR FURTHER INFORMATION CONTACT:

For general questions concerning today's section 126 action, please contact Carla Oldham, U.S. EPA, Office of Air Quality Planning and Standards, Air Quality Policy Division, C504-05, Research Triangle Park, NC 27711, telephone (919) 541-3347, e-mail at
oldham.carla@epa.gov
. For general questions concerning today's FIP action, please contact Tom Coda, U.S. EPA, Office of Air Quality Planning and Standards, Air Quality Policy Division, C539-01, Research Triangle Park, NC 27711, telephone (919) 541-3037, e-mail at
coda.tom@epa.gov
. For legal questions concerning the section 126 action, please contact Steven Silverman, U.S. EPA, Office of General Counsel, Mail Code 2344A, 1200 Pennsylvania Avenue, NW., Washington, DC 20460, telephone (202) 564-5523, e-mail at
silverman.steven@epa.gov
. For legal questions concerning the FIP action, please contact Sonja Rodman, U.S. EPA, Office of General Counsel, Mail Code 2344A, 1200 Pennsylvania Avenue, NW., Washington, DC 20460, telephone (202) 564-4097, e-mail at
rodman.sonja@epa.gov
. For questions regarding the cap-and-trade programs and emissions budgets, please contact Meg Victor, U.S. EPA, Office of Atmospheric Programs, Clean Air Markets Division, Mail Code 6204J, 1200 Pennsylvania Avenue, NW., Washington, DC 20460, telephone (202) 343-9193, e-mail at
victor.meg@epa.gov
. For questions regarding the revisions to the CAIR and Acid Rain Programs, please contact Dwight Alpern, U.S. EPA, Office of Atmospheric Programs, Clean Air Markets Division, Mail Code 6204J, 1200 Pennsylvania Avenue, NW., Washington, DC 20460, telephone (202) 343-9151, e-mail at
alpern.dwight@epa.gov
.

SUPPLEMENTARY INFORMATION:

I. Does This Action Apply to Me?

Categories and entities potentially regulated by this action include the following:

Category

NAICS code
1

Examples of potentially regulated
entities

Industry
221112
Fossil fuel-fired electric utility steam generating units.

Federal government

2
221122

Fossil fuel-fired electric utility steam generating units owned by the Federal government.

State/local/Tribal government

2
221122

Fossil fuel-fired electric utility steam generating units owned by municipalities.

921150
Fossil fuel-fired electric utility steam generating units in Indian Country.

1
North American Industry Classification System.

2
Federal, State, or local government-owned and operated establishments are classified according to the activity in which they are engaged.

This table is not intended to be exhaustive, but rather provides a guide for readers regarding entities likely to be regulated by this action. To determine whether your facility is affected by this action, you should examine the definitions and applicability criteria in §§ 72.2, 72.6, 72.7, 72.8, and 74.2 for purposes of the Acid Rain Program revisions and §§ 97.102, 97.104, 97.105, 97.202, 97.204, 97.205, 97.302, 97.304, and 97.305 for purposes of the FIP action. If you have any questions regarding the applicability of this action to a particular entity, consult the person listed in the preceding section under
FOR FURTHER INFORMATION CONTACT.

II. Availability of Related Information

The EPA has conducted separate rulemakings that contain actions and information related to today's action. The final “Rule to Reduce Interstate Transport of Fine Particulate Matter and Ozone (Clean Air Interstate Rule)” was published on May 12, 2005 (70 FR 25162) (see also proposal at 69 FR 4566, January 30, 2004; supplemental proposal at 69 FR 32684, June 10, 2004; and notice of data availability at 69 FR 47828, August 6, 2004). The EPA subsequently reconsidered several aspects of the final CAIR (see 70 FR 72268; December 2, 2005 and 70 FR 77101; December 29, 2005) and is taking final action on reconsideration in a separate action today. In addition, the EPA issued a proposal to include Delaware and New Jersey in CAIR for PM
2.5
(70 FR 25408, May 12, 2005) and is finalizing that rulemaking today, also in a separate action. Documents related to the CAIR, including the actions on reconsideration and to include Delaware and New Jersey in CAIR for PM
2.5
, are available for inspection in docket EPA-HQ-OAR-2003-0053 at the address and times given above. The EPA has established a website for the CAIR at
http://www.epa.gov/cleanairinterstaterule
or more simply
http://www.epa.gov/cair/
which also includes information on the section 126 rulemaking. The rulemaking docket for the CAIR contains information and analyses that are relied upon in today's actions. Therefore, EPA is including by reference the entire CAIR record for purposes of the section 126 and FIP rulemakings.

III. Judicial Review

Under CAA section 307(b), judicial review of this final action is available only by filing a petition for review in the U.S. Court of Appeals for the District of Columbia Circuit on or before June 27, 2006. Under CAA section 307(d)(7)(B), only those objections to the final rule that were raised with specificity during the period for public comment may be raised during judicial review. Moreover, under CAA section 307(b)(2), the requirements established by today's final rule may not be challenged separately in any civil or criminal proceedings brought by EPA to enforce these requirements.

Section 307(d)(7)(B)also provides a mechanism for the EPA to convene a proceeding for reconsideration if the petitioner demonstrates that it was impracticable to raise an objection during the public comment period or if the grounds for such objection arose after the comment period (but within the time for judicial review) and if the objection is of central relevance to the rule. Any person seeking to make such a demonstration to EPA should submit a Petition for Reconsideration, clearly labeled as such, to the Office of the Administrator, U.S. EPA, Room 3000, Ariel Rios Building, 1200 Pennsylvania Ave., Washington, DC 20460, with a copy to the Associate General Counsel for the Air and Radiation Law Office, Office of General Counsel, Mail Code 2344A, U.S. EPA, 1200 Pennsylvania Ave., NW., Washington, DC 20460.

Outline

I. Background and Summary of Rule

A. Summary of Rule

B. General Background on PM
2.5
and Ozone

1. The PM
2.5
Problem

2. The 8-Hour Ozone Problem

3. Other Environmental Effects Associated With SO
2
and NO
X
Emissions

C. What Is the Statutory and Regulatory Background for Today's Action?

1. What Is the “Good Neighbor” Provision?

2. What Is the CAA Section 126 Provision?

3. What Is EPA's Previous Section 126 Rulemaking?

4. What Is the Clean Air Interstate Rule?

5. What Are the Findings of Failure to Submit for the Section 110(a)(2)(D) Plans?

6. What Are the Petitions for Reconsideration of the CAIR?

D. Summary of North Carolina's Section 126 Petition

1. What Sources Does the Petition Target?

2. What Control Remedy Does the Petition Request?

3. What Is the Technical Support for the Petition?

E. What Is the Consent Decree on the Section 126 Rulemaking Schedule?

II. What Is EPA's Legal and Analytical Approach for the Section 126 Petition?

III. What Is EPA's Final Action on the Section 126 Petition?

A. What Is EPA's Final Action With Respect to the 8-Hour Ozone NAAQS?

B. What Is EPA's Final Action With Respect to the PM
2.5
NAAQS?

IV. What Is the Federal Implementation Plan for the CAIR?

A. What Is the Legal Framework for the FIPs?

B. What Is the Timing and Scope of the CAIR FIP Actions?

C. What Are the FIP Control Measures?

D. When and How Will EPA Remove the FIP Requirements if EPA Approves a SIP to Meet the CAIR?

V. Emission Reduction Requirements for the CAIR FIP

A. Introduction

B. Regionwide SO
2
and NO
X
Caps

C. State SO
2
Emission Budgets

D. State NO
X
Annual and NO
X
Ozone Season Emission Budgets

E. State NO
X
Annual Compliance Supplement Pool

VI. CAIR FIP NO
X
and SO
2
Cap-and-trade Programs for EGUs

A. Purpose of CAIR FIP NO
X
and SO
2
Cap-and-trade Programs and Relationship to the CAIR

B. Relationship of Emissions Trading Programs to Section 126 Relief

C. Abbreviated SIP Revisions Covering Elements of the CAIR FIP Cap-and-trade Programs

D. Overall Structure of the CAIR FIP Cap-and-trade Programs

1. SO
2
Annual Program

2. NO
X
Annual Program

3. NO
X
Ozone Season Program

E. Sources Subject to the CAIR FIP Cap-and-trade Programs

F. Allocation of NO
X
Emission Allowances to Sources

1. Schedule for Determining and Recording NO
X
Allocations

2. Method for Allocating NO
X
Allowances

G. Allocation of SO
2
Allowances to Sources

H. Allowance Banking

I. Incentives for Early Reductions

1. SO
2
Annual Program

2. NO
X
Annual Program

3. NO
X
Ozone Season Program

J. Monitoring and Reporting Requirements

K. Interactions with Other CAA Programs

VII. What are the Revisions of the CAIR SIP Rule, Including the CAIR Model Cap-and-trade Rules?

VIII. What Are the Revisions of the Acid Rain Program Regulations?

IX. Statutory and Executive Order Reviews

A. Executive Order 12866: Regulatory Planning and Review

B. Paperwork Reduction Act

C. Regulatory Flexibility Act

D. Unfunded Mandates Reform Act

E. Executive Order 13132: Federalism

F. Executive Order 13175: Consultation and Coordination With Indian Tribal Governments

G. Executive Order 13045: Protection of Children From Environmental Health and Safety Risks

H. Executive Order 13211: Actions That Significantly Affect Energy Supply, Distribution, or Use

I. National Technology Transfer Advancement Act

J. Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations

K. Congressional Review Act

I. Background and Summary of Rule

A. Summary of Rule

In this rule, EPA is taking two final actions related to the interstate transport of emissions of NO
X
and SO
2
that contribute significantly to nonattainment and maintenance problems with respect to the NAAQS for PM
2.5
and 8-hour ozone. First, EPA is providing its final response to the petition submitted to EPA by the State of North Carolina under section 126 of the CAA. Second, EPA is promulgating FIPs for all jurisdictions covered by the CAIR. The EPA is also making revisions to the final CAIR to clarify certain provisions, to correct minor errors, and to take final action on reconsideration of the definition of “EGU” as it relates to solid waste incinerators. Finally, EPA is making minor revisions to the Title IV Acid Rain Program.

The North Carolina petition requests that EPA establish control requirements for EGUs in 13 States based on findings that these sources are significantly contributing to PM
2.5
and/or 8-hour ozone nonattainment and maintenance problems in North Carolina. (See Petition, Docket No. EPA-HQ-OAR-2004-0076-0002.)

The EPA's response (as well as the petition itself) is based on extensive analyses conducted for the CAIR (70 FR 25162; May 12, 2005). The EPA is denying the petition in full. For sources in States not shown in the final CAIR to be linked to (that is, to significantly contribute to) nonattainment and maintenance problems in North Carolina, the lack of significant contribution to North Carolina is the basis for this denial. For sources in States that are linked to North Carolina under the CAIR for the PM
2.5
NAAQS, EPA is denying the petition because, concurrently with the section 126 response, EPA is promulgating FIPs that require elimination of the significant contribution. The FIPs will control the significant transport from sources in States named in the petition as well as from sources in the other CAIR States, in the event that the States do not have timely, approved SIPs meeting the CAIR requirements. The States named in the petition with respect to the PM
2.5
NAAQS are: Alabama, Georgia, Illinois, Indiana, Kentucky, Michigan, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia, and West Virginia. Of these, Illinois and Michigan are not linked to North Carolina in the final CAIR.

The States named in the petition with respect to the 8-hour ozone NAAQS are: Georgia, Maryland, South Carolina, Tennessee, and Virginia. There are no States linked to North Carolina under the CAIR for the 8-hour ozone NAAQS because North Carolina is projected to be in attainment in the 2010 baseline for the analyses.

As mentioned above, in today's action, EPA is also promulgating FIPs to address interstate transport of NO
X
and SO
2
under section 110(a)(2)(D) for all jurisdictions that are covered by the CAIR. In the CAIR, EPA determined that 28 States and the District of Columbia contribute significantly to nonattainment of the NAAQS for PM
2.5
and/or 8-hour ozone in downwind States. The CAIR explains EPA's basis for determining significant contribution to downwind nonattainment and maintenance problems. In that rule, the EPA required the affected upwind States to revise their SIPs to include control measures to reduce emissions of SO
2
and/or NO
X
. Sulfur dioxide is a precursor to PM
2.5
formation, and NO
X
is a precursor to both ozone and PM
2.5
formation.

In an action published on the same day as the final CAIR, EPA proposed to find that Delaware and New Jersey contribute significantly to PM
2.5
nonattainment and maintenance problems in downwind States considering these States as a single entity (70 FR 25408; May 12, 2005). These States were included in the final CAIR only with respect to their impacts on downwind 8-hour ozone nonattainment and maintenance problems. Today, in a separate action, EPA is issuing the final rule to include Delaware and New Jersey in the CAIR region for PM
2.5
. Therefore, today's FIP rule includes emissions reductions requirements for Delaware and New Jersey to address their significant contribution to nonattainment or maintenance problems for the PM
2.5
NAAQS.

The FIPs will regulate EGUs in the affected States and achieve the emissions reductions required by the CAIR until States have approved SIPs to achieve the reductions. The CAIR emissions budgets were based on control requirements that are highly cost effective for EGUs.

The EPA intends the CAIR FIPs to address the requirements of section 110(a)(2)(D)(i) to prevent interstate transport that contributes significantly to nonattainment or interferes with maintenance in downwind areas and to provide a Federal backstop for CAIR. In no way should the FIPs for CAIR be viewed as a sign of any concern about States meeting their SIP responsibilities under CAIR. There are no sanctions associated with these FIPs and EPA does not intend for CAIR FIPs to have any negative consequences for the affected States. The EPA is providing FIP approaches that are flexible and intended to provide States options for getting their SIPs in place.

As the control requirement for the FIPs, EPA is adopting the model trading rules that EPA provided in CAIR as a control option for States, with minor changes to account for Federal rather than State implementation. The CAIR FIP NO
X
and SO
2
trading programs provide emissions reductions equal to those required under the CAIR in affected States.

These trading programs provide emissions reductions equal to those required under CAIR in the affected States. The CAIR FIP trading programs are integrated with the EPA-administered State CAIR trading programs that are based on the model rules so that sources can trade with one another under the respective emissions caps. The EPA emphasizes that the FIPs do not limit the options available to States to meet the requirements of the CAIR. We do not intend to record NO
X
allocations in sources' allowance accounts (or take any other steps to implement FIP requirements that could impact a State's ability to regulate their sources in a different manner) until a year after the CAIR SIP submission deadline.
1

This will allow EPA time to

take rulemaking action to approve timely SIPs before implementation of FIP requirements occurs. In addition, States could replace the FIP requirements at a later time.

1
The CAIR requires affected sources to begin monitoring 1 year before the initial control periods (
i.e.,
sources begin monitoring in 2008 for the NO
X
programs and begin monitoring in 2009 for the SO
2
program). Note that EPA will take any necessary actions to implement the monitoring provisions of the FIP trading rules in time for monitoring to begin in 2008. To the extent that a State chooses to

control EGUs to meet its CAIR obligations, the monitoring requirements will be identical whether EPA regulations EGUs through the Federal trading programs or the State regulates EGUs through its SIP.

In today's action, EPA is also making revisions to the CAIR in order to address the interaction of EPA-administered NO
X
and SO
2
trading programs under the CAIR and under the FIP action. In addition, EPA is making revisions to the CAIR in order to clarify certain provisions and to correct certain minor errors and taking final action on reconsideration of the definition of “EGU” as it relates to solid waste incinerators.

The EPA is also revising the Title IV Acid Rain Program in order to make the administrative appeals procedures (in 40 CFR part 78), which currently apply to final determinations by the Administrator under the EPA-administered State CAIR trading programs, also apply to the EPA-administered trading programs under the FIPs. In addition, EPA is making minor revisions that would apply to all affected units under the Acid Rain Program.

B. General Background on PM
2.5
and Ozone

1. The PM
2.5
Problem

In an action published on July 18, 1997, we revised the NAAQS for particulate matter (PM) to add new standards for fine particles, using as the indicator particles with aerodynamic diameters smaller than a nominal 2.5 micrometers, termed PM
2.5
(62 FR 38652). We established health- and welfare-based (primary and secondary) annual and 24-hour standards for PM
2.5.
The annual standard is 15 micrograms per cubic meter, based on the 3-year average of annual mean PM
2.5
concentrations. The 24-hour standard is 65 micrograms per cubic meter, based on the 3-year average of the annual 98th percentile of 24-hour concentrations. The annual standard is generally considered the more limiting value.
2

2
The EPA recently proposed to amend the NAAQS for PM
2.5
(71 FR 2620; Jan. 17, 2006). The EPA is scheduled to take final action on this proposal by September 27, 2006. These actions are not relevant to this rulemaking because all of the actions herein concern the existing NAAQS.

Fine particles are associated with a number of serious health effects including premature mortality, aggravation of respiratory and cardiovascular disease (as indicated by increased hospital admissions, emergency room visits, absences from school or work, and restricted activity days), lung disease, decreased lung function, asthma attacks, and certain cardiovascular problems. (See EPA, Air Quality Criteria for Particulate Matter (EPA/600/P-99/002bF, October 2004) at 9.2.2.3).) The EPA has estimated that attainment of the current PM
2.5
standards would prolong tens of thousands of lives and would prevent, each year, tens of thousands of hospital admissions as well as hundreds of thousands of doctor visits, absences from work and school, and respiratory illnesses in children.

Individuals particularly sensitive to fine particle exposure include older adults, people with heart and lung disease, and children. More detailed information on health effects of fine particles can be found on EPA's Web site at:
http://www.epa.gov/ttn/naaqs/standards/pm/s_pm_index.html.

The secondary or welfare-based PM
2.5
standards are designed to protect against major environmental effects caused by PM such as visibility impairment, soiling, and materials damage.

As discussed in other sections of this preamble, SO
2
and NO
X
emissions both contribute to fine particle concentrations. In addition, NO
X
emissions contribute to ozone concentrations, described in the next section.

The PM
2.5
ambient air quality monitoring for the 2001-2003 period shows that areas violating the standards are located across much of the eastern half of the United States and in parts of California and Montana. The EPA published the PM
2.5
attainment and nonattainment designations on January 5, 2005 (70 FR 944) and issued supplemental amendments on April 14, 2005 (70 FR 19844).

2. The 8-Hour Ozone Problem

In an action published on July 18, 1997, we promulgated identical revised primary and secondary ozone standards that specified an 8-hour ozone standard of 0.08 parts per million (ppm). Specifically, under the standards, the 3-year average of the fourth highest daily maximum 8-hour average ozone concentration may not exceed 0.08 ppm. In general, the revised 8-hour standards are more protective of public health and the environment and more stringent than the pre-existing 1-hour ozone standards.

Short-term (1- to 3-hour) and prolonged (6-to 8-hour) exposures to ambient ozone have been linked to a number of adverse health effects. At sufficient concentrations, short-term exposure to ozone can irritate the respiratory system, causing coughing, throat irritation, and chest pain. Ozone can reduce lung function and make it more difficult to breathe deeply. Breathing may become more rapid and shallow than normal, thereby limiting a person's normal activity. Ozone also can aggravate asthma, leading to more asthma attacks that may require a doctor's attention and the use of additional medication. Increased hospital admissions and emergency room visits for respiratory problems have been associated with ambient ozone exposures. Longer-term ozone exposure can inflame and damage the lining of the lungs, which may lead to permanent changes in lung tissue and irreversible reductions in lung function. A lower quality of life may result if the inflammation occurs repeatedly over a long time period (such as months, years, or a lifetime). There is also recent epidemiological evidence suggesting that there may be a correlation between short-term ozone exposure and premature mortality.

People who are particularly susceptible to the effects of ozone include people with respiratory diseases, such as asthma. Those who are exposed to higher levels of ozone include adults and children who are active outdoors.

In addition to causing adverse health effects, ozone affects vegetation and ecosystems, leading to reductions in agricultural crop and commercial forest yields; reduced growth and survivability of tree seedlings; and increased plant susceptibility to disease, pests, and other environmental stresses (
e.g.,
harsh weather). In long-lived species, these effects may become evident only after several years or even decades and have the potential for long-term adverse impacts on forest ecosystems. Ozone damage to the foliage of trees and other plants can also decrease the aesthetic value of ornamental species used in residential landscaping, as well as the natural beauty of our national parks and recreation areas. More detailed information on health effects of ozone can be found at the following EPA Web site:
http://www.epa.gov/ttn/naaqs/standards/ozone/s_o3_index.html.

Presently, wide geographic areas, including most of the nation's major population centers, experience ozone levels that violate the NAAQS for 8-hour ozone. These areas include much of the eastern part of the United States and large areas of California. The EPA published the 8-hour ozone attainment and nonattainment designations in the
Federal Register
on April 30, 2004 (69 FR 23858).

3. Other Environmental Effects Associated With SO
2
and NO
X
Emissions

In addition to the enumerated human health and welfare benefits resulting from reductions in ambient levels of PM
2.5
and ozone, reductions in NO
X
and SO
2
will contribute to substantial visibility improvements in many parts of the eastern United States. Reductions in these pollutants will also reduce acidification and eutrophication of water bodies in the region. In addition, reducing emissions of NO
X
and SO
2
from EGUs can be expected to reduce emissions of mercury. Reduced mercury emissions in turn may reduce mercury loadings in lakes and thereby potentially decrease both human and wildlife exposure to fish containing mercury.

C. What Is the Statutory and Regulatory Background for Today's Action?

1. What Is the “Good Neighbor” Provision?

Following promulgation of new or revised NAAQS, the CAA requires all areas, regardless of their designation as attainment, nonattainment, or unclassifiable, to submit SIPs containing provisions specified under section 110(a)(2). Among these requirements are those specified by the so-called “good neighbor” provision section 110(a)(2)(D) which addresses interstate transport of air pollution.

Section 110(a)(2)(D) requires that a SIP contain adequate provisions—

(i) Prohibiting, consistent with the provisions of this title, any source or other type of emissions activity within the State from emitting any air pollutant in amounts which will—

(I) Contribute significantly to nonattainment in, or interfere with maintenance by, any other State with respect to [any] national primary or secondary ambient air quality standard, or

(II) Interfere with measures required to be included in the applicable implementation plan for any other State under part C to prevent significant deterioration of air quality or to protect visibility.

(ii) Insuring compliance with the applicable requirements of sections 126 and 115 (relating to interstate and international pollution abatement);

Section 126 is discussed in the following section and section II of this preamble explains the relationship between CAA sections 110 and 126 with respect to our final response to the section 126 petition and the CAIR FIPs.

2. What Is the CAA Section 126 Provision?

Subsection (a) of section 126 requires, among other things, that SIPs require major proposed new (or modified) stationary sources to notify nearby States for which the air pollution levels may be affected by the fact that such sources have been permitted to commence construction. Subsection (b) provides:

Any State or political subdivision may petition the Administrator for a finding that any major source or group of stationary sources emits or would emit any air pollutant in violation of the prohibition of section 110(a)(2)(D)[(i)] [of] this section* * *.

Subsection (c) of section 126 states that—

[I]t shall be a violation of this section and the applicable implementation plan in such State [in which the source is located or intends to locate]—

(1) For any major proposed new (or modified) source with respect to which a finding has been made under subsection (b) to be constructed or to operate in violation of this section and the prohibition of section 110(a)(2)(D)[(i)]
3

[of] this section, or

3
While the text of section 126 refers to section 110(a)(2)(D)(ii), this is a scrivener's error. Congress intended to refer to section 110(a)(2)(D)(i). (See 64 FR 28267.) The EPA's interpretation was upheld in
Appalachian Power Co.
v.
EPA,
249 F. 3d 1032, 1040-44 (D.C. Cir. 2001).

(2) for any major existing source to operate more than three months after such finding has been made with respect to it.

However, subsection (c) further provides that EPA may permit the continued operation of such major existing sources beyond the 3-month period, if such sources comply with EPA-promulgated emissions limits within 3 years of the date of the finding.

3. What Is EPA's Previous Section 126 Rulemaking?

The EPA has previously taken action under section 126 to address interstate ozone transport (64 FR 28250; May 25, 1999 and 65 FR 2674; January 18, 2000). Because there are many parallels between that earlier action and today's rule, we briefly discuss our earlier action here.

Like the present rulemaking, EPA's previous section 126 rulemaking, dealing with interstate transport of NO
X
, occurred essentially in conjunction with an EPA rulemaking dealing with interstate transport of the same pollutants, the NO
X
SIP Call (62 FR 60318; November 7, 1997). As in today's rule, EPA concluded that section 126 and section 110(a)(2)(D)(i) are integrally connected (due to the reference to the section 110(a)(2)(D)(i) prohibition found in section 126 (b)). Thus, the interstate transport problem at issue could be addressed under either provision, and once the underlying section 110(a)(2)(D)(i) SIP deficiency is eliminated, there no longer is a basis for EPA to make a positive finding under section 126. (See sections II and III below for a more detailed discussion.) In the earlier rulemaking, we therefore concluded that emissions reductions sufficient to eliminate a section 110(a)(2)(D) SIP deficiency would also be sufficient to satisfy section 126.

The NO
X
SIP Call required SIP revisions eliminating the amount of emissions that contribute significantly to nonattainment in downwind States, the amount of emissions reductions corresponding to the quantity of emissions that could be eliminated by the application of highly cost-effective controls on specified sources in each upwind State. The section 126 remedy consequently called for the same set of highly cost-effective controls for the section 126 source categories, based on the record of the NO
X
SIP Call. We are adopting this same conceptual approach in today's rulemaking.

There are also parallels between our earlier section 126 action and this action with regard to timing of actions in the section 126 proceeding and in the closely-related interstate transport proceeding under section 110(a)(2)(D)(i). Because a section 126 finding turns on the existence of a section 110(a)(2)(D)(i) deficiency, in the May 1999 Section 126 Rule, we determined which petitions had technical merit, but we stopped short of granting the findings sought by the petitions. Instead, we stated that because we had promulgated the NO
X
SIP Call, as long as an upwind State remained on track to comply with that rule, EPA would defer making the section 126 findings (See 64 FR 28271-28272). Later judicial action staying the NO
X
SIP Call rule resulted in EPA granting the section 126 petitions at issue, but the new rule retained the basic linkage between section 126 and section 110(a)(2)(D)(i) by providing that EPA would withdraw the section 126 findings upon EPA approval of a SIP satisfying the emission reduction requirements of the NO
X
SIP Call rule or upon EPA's promulgation of a FIP that achieved the emissions reductions. [See 65 FR at 2683 and
Appalachian Power
v.
EPA
, 249 F. 3d 1032, 1039 (D.C. Cir., 2001).] Similarly, in our proposal on the North Carolina section 126 petition, we proposed to deny the section 126 petition if we approved SIPs which satisfied the emission reduction requirements of the CAIR, or if we promulgated a FIP which included the emission reduction requirements of the CAIR. (In today's final rule, we are denying the petition because we are promulgating FIPs concurrently with the final section 126 response, which FIPs eliminate the significant

contribution from upwind sources to North Carolina.)

Finally, in the earlier section 126 rule, EPA adopted as a remedy for section 126 a Federal NO
X
cap-and-trade program patterned after the model NO
X
cap-and-trade program that EPA developed for States as an option to meet their NO
X
SIP Call requirements. See 65 FR 2686. The EPA proposed the same approach for the North Carolina section 126 petition, in the event that EPA granted the petition.

4. What Is the Clean Air Interstate Rule?

The EPA developed the CAIR to address interstate pollution transport with respect to the newly adopted PM
2.5
and 8-hour ozone NAAQS.

In the CAIR, based on air quality modeling analyses and cost analyses, EPA concluded that SO
2
and NO
X
emissions in certain States in the eastern part of the country, through the phenomenon of air pollution transport,
4

contribute significantly to PM
2.5
and/or 8-hour ozone nonattainment and maintenance problems in downwind States. The CAIR establishes emission reduction requirements for the affected upwind States under CAA section 110(a)(2)(D)(i). The affected States and the District of Columbia have until September 11, 2006 to adopt and submit SIP revisions to achieve these required reductions. The SIP revision must contain measures that will assure that sources in the State reduce their SO
2
and/or NO
X
emissions sufficiently to eliminate the amounts of SO
2
and NO
X
that contribute significantly to nonattainment downwind. Reducing upwind precursor emissions will assist the downwind PM
2.5
and 8-hour ozone areas in achieving and maintaining the NAAQS. Moreover, attainment will be achieved in a more equitable, cost-effective manner than if each nonattainment area attempted to achieve attainment by implementing local emissions reductions alone. The EPA specified that the CAIR emissions reductions be implemented in two phases. The first phase of NO
X
reductions starts in 2009 (covering 2009-2014) and the first phase of SO
2
reductions starts in 2010 (covering 2010-2014); the second phase of reductions for both NO
X
and SO
2
starts in 2015 (covering 2015 and thereafter). The emissions reduction requirements are based on controls that are known to be highly cost effective for EGUs; however, States have the flexibility to determine what measures to adopt to achieve the necessary reductions. In the CAIR, EPA provided model SO
2
and NO
X
trading programs for EGUs that States can choose to adopt to meet the emissions reduction requirements in a flexible and highly cost-effective manner.

4
When we use the term “transport” we mean to include the transport of both fine particles (PM
2.5
) and their precursor emissions and/or transport of both ozone and its precursor emissions.

With the inclusion of Delaware and New Jersey in the CAIR PM
2.5
region, EPA estimates that the CAIR will reduce SO
2
emissions by 3.6 million tons in 2010 and by 3.9 million tons in 2015; and will reduce annual NO
X
emissions by 1.2 million tons in 2009 and by 1.5 million tons in 2015. (These numbers reflect the annual SO
2
and NO
X
requirements.) If all these States choose to achieve these reductions through EGU controls, then EGU SO
2
emissions in the affected States would be capped at 3.7 million tons in 2010 and 2.6 million tons in 2015;
5

and EGU annual NO
X
emissions would be capped at 1.5 million tons in 2009 and 1.3 million tons in 2015.

5
It should be noted that the SO
2
trading program provides that sources may bank pre-2010 title IV SO
2
allowances to be used for compliance with CAIR. These provisions encourage sources to make early emission reductions and ease the transition to the CAIR SO
2
program, and as a result, emissions may not reflect the emission caps in any given year.

Based on the promulgated CAIR (70 FR 25162), EPA estimates that the required SO
2
and NO
X
emissions reductions would, by themselves, bring into attainment 52 of the 79 counties that are otherwise projected to be in nonattainment for PM
2.5
in 2010, and 57 of the 74 counties that are otherwise projected to be in nonattainment for PM
2.5
in 2015. The EPA further estimates that the required NO
X
emissions reductions would, by themselves, bring into attainment 3 of the 40 counties that are otherwise projected to be in nonattainment for 8-hour ozone in 2010, and 6 of the 22 counties that are projected to be in nonattainment for 8-hour ozone in 2015. In addition, the CAIR will improve PM
2.5
and 8-hour ozone air quality in the areas that would remain in nonattainment for those two NAAQS after implementation of the CAIR. Because of CAIR, the States with those remaining nonattainment areas will find it less burdensome and less expensive to reach attainment by adopting additional local controls. The CAIR will also reduce PM
2.5
and 8-hour ozone levels in attainment areas, providing significant health and environmental benefits in all areas of the eastern United States.

For a more complete description of the CAIR and its impacts, the reader is encouraged to review the preamble to the CAIR.

5. What Are the Findings of Failure To Submit for the Section 110(a)(2)(D) Plans?

In a final rule published on April 25, 2005 (70 FR 21147), we made national findings that States have failed to submit SIPs required under section 110(a)(2)(D) to address interstate transport with respect to the 8-hour ozone and PM
2.5
NAAQS.

The April 25, 2005 findings started a 2-year clock for EPA to promulgate a FIP to address the requirements of section 110(a)(2)(D). Under section 110(c)(1), EPA may issue a FIP any time after such findings are made and must do so unless a SIP revision correcting the deficiency is approved by EPA before the FIP is promulgated. For States affected by CAIR, an approved SIP meeting the CAIR requirements would satisfy the requirement and turn off the FIP clock. As discussed below in section IV, EPA is today promulgating FIPs for States affected by the CAIR. However, EPA intends to withdraw the FIP in a State in coordination with approval of a SIP for the State that meets the CAIR requirements.

The findings do not start a sanctions clock pursuant to section 179 because the findings do not pertain to a part D plan for nonattainment areas required under section 110(a)(2)(I) and because the action is not a SIP Call pursuant to section 110(k)(5).

6. What Are the Petitions for Reconsideration of the CAIR?

Following publication of the final CAIR, EPA received twelve petitions requesting reconsideration of certain aspects of the final rule. The EPA considered all issues raised in the petitions and decided to reconsider six issues. In the notice of proposed rulemaking for this rule, EPA announced its decision to reconsider one issue: the definition of “EGU” as it relates to certain solid waste incineration units. Subsequently, on December 2, 2005 (70 FR 72268), and December 29, 2005 (70 FR 77101), EPA published in the
Federal Register
notices announcing its decisions to reconsider five additional aspects of CAIR and requesting comment on those issues.

As part of this rule, EPA is taking final action on reconsideration of the definition of “EGU” as it relates to certain solid waste incineration units. As explained in sections VI.E and VII below, EPA has revised the definition of EGU to establish a specific exemption for certain solid waste incineration units.

In a separate notice signed today, EPA is taking final action on the five

additional aspects of CAIR for which EPA granted petitions for reconsideration. The EPA also is taking final action today to deny the remaining issues raised in the twelve petitions for reconsideration. These actions are discussed in greater detail in the preamble for the notice of final action on reconsideration, titled “Rule to Reduce Interstate Transport of Fine Particulate Matter and Ozone (Clean Air Interstate Rule): Reconsideration” and all related documents are available in the docket for the CAIR (EPA-HQ-OAR-2003-0053).

D. Summary of North Carolina's Section 126 Petition

1. What Sources Does the Petition Target?

The North Carolina petition requests reductions of certain emissions from large EGUs located in 13 States. With respect to the PM
2.5
NAAQS, the petition requests that EPA find that NO
X
and SO
2
emissions from large EGUs in 12 States (Alabama, Georgia, Illinois, Indiana, Kentucky, Michigan, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia, and West Virginia) are significantly contributing to nonattainment in, or interfering with maintenance by, North Carolina. With respect to the 8-hour ozone NAAQS, the petition requests that EPA find that NO
X
emissions from large EGUs in 5 States (Georgia, Maryland, South Carolina, Tennessee, and Virginia) are significantly contributing to nonattainment in, or interfering with maintenance by, North Carolina (Petition, p.1).

The petition defines the term “EGUs” as all facilities meeting the criteria described in the proposal for the CAIR. (
See
69 FR 4566, 4610; January 30, 2004.) In the proposal for the CAIR, we defined EGUs as “fossil-fuel fired boilers and turbines serving an electric generator with a nameplate capacity of greater than 25 megawatts (MW) producing electricity for sale.” (Id.) (See sections VI.E. and VII of today's preamble for clarification of the EGU definition.)

2. What Control Remedy Does the Petition Request?

In its petition, North Carolina states that compliance with the NO
X
and SO
2
emissions budgets in the proposal for the CAIR would satisfy the requirements of the petition. These emissions budgets were based on controls that are highly cost effective for EGUs [the highly cost effective control metric being a component of determining which emissions contribute significantly (see
State of Michigan
v.
EPA
, 213 F.3d 663, 674-80 (D.C. Cir., 2000) (upholding consideration of cost as an aspect of significant contribution)]. North Carolina also states that it does not oppose the flexibility discussed by EPA (69 FR at 4622) to allow equivalent reductions from other source categories in given States, so long as those reductions are real and enforceable (Petition, p. 24).

In the CAIR, EPA provided model NO
X
and SO
2
cap-and-trade programs for EGUs as control options for States to choose to meet the CAIR emissions reductions requirements. The trading programs allow interstate trading among sources in all States subject to the CAIR that adopt the programs. In its petition, North Carolina said it recognizes the value of allowing sources flexibility to reduce their emissions in the most cost-effective manner consistent with the statute. However, North Carolina expressed concerns about a regional trading program (Petition, pp. 25-28). We address this issue below in sections II and VI.

3. What Is the Technical Support for the Petition?

To support its claim that EGUs outside North Carolina are contributing significantly to nonattainment and maintenance problems in the State, North Carolina relies largely on EPA's technical analyses for the proposed CAIR. Therefore, as discussed above, the petition targets sources in the same States that EPA linked to North Carolina in the proposed CAIR. As corroborative support, North Carolina cites analyses conducted by the Southern Appalachian Mountains Initiative (SAMI) on PM
2.5
transport, North Carolina's further evaluation of the SAMI's analyses, as well as back trajectory analyses performed by the North Carolina Division of Air Quality from PM
2.5
monitors in two counties. (See Petition, pp. 13-17.)

E. What Is the Consent Decree on the Section 126 Rulemaking Schedule?

On March 19, 2004, EPA received a petition from the State of North Carolina filed under CAA section 126. Section 126(b) requires EPA to make the requested finding, or to deny the petition, within 60 days of receipt. It also requires EPA to provide a public hearing before acting on the petition. In addition, EPA's action under section 126 is subject to the procedural requirements of section 307(d) of the CAA. [See section 307(d)(2)-(5).] One of these requirements is that EPA conduct notice-and-comment rulemaking. Section 307(d)(10) provides for a time extension, under certain circumstances, for rulemakings subject to that provision. Specifically, it allows statutory deadlines that require promulgation in less than 6 months from proposal to be extended to not more than 6 months from proposal to afford the public and the Agency adequate opportunity to carry out the purposes of section 307(d). In an action published on May 26, 2004 (69 FR 30038), EPA extended the deadline for EPA to take action on the North Carolina petition by the full 6 months, to November 18, 2004.

On February 17, 2005, the State of North Carolina and the citizen's group Environmental Defense filed complaints against EPA seeking to compel EPA to take action on the State's section 126 petition:
State of North Carolina
v.
Johnson
, No. 5:05-CV-112 (E.D. N.C.) and
Environmental Defense
v.
Johnson
, No. 5:05-CV-113 (E.D. N.C.). The EPA, North Carolina, and Environmental Defense filed a proposed consent decree that would establish a schedule for EPA to act on the petitions. Pursuant to CAA section 113(g), the EPA solicited comments on the proposed consent decree, by notice dated March 2, 2005 (70 FR 10089). The comment period closed April 1, 2005 without EPA receiving negative comment. On May 9, 2005, the court entered a slightly modified version of the consent decree.

The schedule in the consent decree required EPA to sign a proposal to grant or deny the petition by August 1, 2005, a date EPA met. (See 70 FR 49746.) The consent decree also required EPA to hold a public hearing on the proposal during the week of September 12 in North Carolina, and EPA held hearings in Research Triangle Park, North Carolina and Washington, DC during that week. The EPA must also take final action to grant or deny the petition by March 15, 2006, and is doing so in this rule. With the signature of today's final response to the petition, EPA has thus fulfilled all the deadlines and provisions of the consent decree.

II. What Is EPA's Legal and Analytical Approach for the Section 126 Petition?

For the PM
2.5
NAAQS, EPA proposed to deny the petition with respect to sources in any State having an approved SIP meeting the CAIR emissions reductions requirements, and with respect to sources in any State for which EPA promulgated a FIP with those same emission reductions requirements. In either case, there would no longer be a violation of the prohibition in section 110(a)(2)(D)(i). Since a violation of that prohibition is a condition precedent for granting a section 126 petition, EPA

necessarily would deny the petition. (
See
70 FR at 49716-49717.)

A number of commenters disagreed with EPA's approach. In their view, section 126 guarantees a particular result: reductions of emissions from designated upwind sources linked to North Carolina nonattainment or maintenance problems, which reductions are to occur within three years.

In the commenters' view, if an approved SIP or a FIP does not provide this result within the three year time frame stated in section 126(c), then EPA must grant the petition. Thus, the argument goes, EPA must find that certain sources significantly contribute to nonattainment problems in North Carolina regardless of whether there is a current violation of the section 110(a)(2)(D)(i) prohibition. The commenters maintain that the statute, case-law, and past EPA practice all compel their interpretation.

EPA disagrees. In our view, section 126 provides a mechanism forcing EPA to act, but does not force adoption of controls beyond those necessary to remove the underlying SIP deficiency which violates the prohibition of section 110(a)(2)(D)(i). In essence, section 126 provides States a means to force EPA to take action to reduce specific emissions when EPA has not taken the actions required by section 110(a)(2)(D)(i) to address significant contribution to downwind receptors, but does not force further action. It follows, therefore, that once EPA has taken action to eliminate the SIP deficiencies by approving SIPs which implement CAIR (
i.e.,
which eliminate the significant contribution), or itself promulgates a CAIR FIP for states with SIP deficiencies, there is no longer a cause of action under section 126.
6

6
This analysis assumes that the facts underlying CAIR remain unchanged. If a Petition were to present new information showing, for example, that there is a different level of contribution than EPA analyzed in CAIR, compliance with CAIR would not automatically be determinative regarding whether upwind sources are emitting in violation of the section 110 (a)(2)(D)(i) prohibition. See 64 FR at 28274 n. 15 and
Appalachian Power,
249 F.3d at 1067 (later developments can be the basis for another section 126 petition).

This interpretation is consistent with the text of the statute, which links action under section 126 inextricably with the existence of an underlying section 110(a)(2)(D)(i) SIP deficiency: “[a]ny State * * * may petition the Administrator for a finding that any major source or group of stationary sources emits * * * any air pollutant
in violation of the prohibition of section 110(a)(2)(D)[(i)]

7

o[f] this section
” (emphasis added). Case law likewise makes clear that EPA's determination of whether or not to grant a section 126 petition turns on whether SIPs are in violation of section 110(a)(2)(D)(i).
Appalachian Power
v.
EPA
, 249 F.3d 1032, 1045-46 (D.C. Cir. 2001). Similarly, in the rulemaking dealing with a section 126 petition in circumstances most analogous to those here (EPA's response to the Northeastern states' petition regarding interstate transport of ozone precursors, issued roughly contemporaneously with the NO
X
SIP Call), EPA stated that it “interprets section 126 to provide that a source is emitting in violation of the prohibition of section 110(a)(2)(D)(i) where the applicable SIP fails to prohibit (and EPA has not remedied this failure through a FIP) a quantity of emissions from that source that EPA has determined contributes significantly to nonattainment or interferes with maintenance in a downwind [S]tate” (64 FR at 28272; May 25, 1999). Thus, “[a]n upwind State and EPA may remedy this excessive interstate transport of air pollutants through adoption and approval of a SIP revision barring the emission of such pollutants. Alternatively, a downwind State and EPA may remedy this excessive interstate transport of air pollutants through the State petitioning EPA under section 126 and EPA regulating the sources directly” (65 FR 2680; January 18, 2000).

7
As noted earlier, the statutory text refers to subsection (ii) of section 110(a)(2)(D), but this is a scrivener's error.
Appalachian Power,
249 F.3d 1032, 1040-44.

Commenters argued, however, that the reference in section 126(b) and (c) to “the prohibition of section 110(a)(2)(D) [(i)]” must be to the functional prohibition in section 110(a)(2)(D)(i), by which they mean a cessation of emissions that contribute significantly to nonattainment in a downwind state. Under this reading, a remedy under section 126 must entail emission reductions, not merely SIP revisions. EPA agrees that the prohibition referred to is the functional prohibition on significant contribution to downwind states, and therefore, for example, EPA cannot defer granting a section 126 petition merely because a state is under a legal obligation to revise its SIP.
Appalachian Power,
249 F.3d at 1044. However, adoption of a SIP implementing CAIR (or EPA enacting a CAIR FIP) addresses the functional prohibition of section 110(a)(2)(D)(i) by eliminating the SIP deficiency triggering the prohibition through requirements on sources to eliminate the significant contribution to downwind receptors. Moreover, to the extent the commenters are maintaining that the ‘functional prohibition in section 110(a)(2)(D)(i)’ refers to some specific environmental result, such as North Carolina coming into attainment (see Comments of North Carolina Attorney General at 17), we disagree. EPA interprets “significant contribution” in the CAIR and in this proceeding to include both an emission component and a feasibility/cost-effectiveness component, so that what is prohibited are specific levels of emissions which can feasibly be reduced in a highly cost-effective manner. See also 65 FR at 2677 (applying cost effectiveness component of the significant contribution standard in granting a section 126 petition). Adoption of a CAIR SIP (or EPA adopting a CAIR FIP) fully addresses this prohibition.

In the same vein, other commenters argued that sections 110(a)(2)(D) and 126 are independent provisions, and that EPA is vitiating that independence by substituting a section 110 remedy for the section 126 remedy, the implication again being that section 126 commands an environmental result which must be effectuated once the section 110(a)(2)(D) prohibition is violated. EPA disagrees with the premise of the comment. Although the two provisions unquestionably may be applied independently, they are also closely linked in that a violation of the prohibition in section 110(a)(2)(D)(i) is a condition precedent for action under section 126 and, critically, that significant contribution is construed identically for purposes of both provisions (since the identical term naturally is interpreted as meaning the same thing in the two linked provisions). See
Appalachian Power,
249 F. 3d at 1049-50. If EPA or a State has adopted provisions that eliminate the significant contribution to downwind states, then there simply is no violation of the section 110(a)(2)(D) prohibition. Moreover, since we interpret significant contribution to mean the same thing under both provisions, relief under section 126 to eliminate significant contribution must in any case mean eliminating those emissions which can feasibly be controlled in a highly cost-effective manner as defined in the CAIR. Put another way, requiring additional reductions would result in eliminating emissions which do not contribute significantly, an action beyond the scope of section 126.

Commenters further argued that relief under section 126 must occur within 3 years and therefore that the CAIR emission reductions do not satisfy

section 126 because although those reductions commence within 3 years they are phased in over a longer time. These comments assume that EPA must make the section 126 findings, however, in which case sources covered by the petition would indeed have to eliminate significant contribution within 3 years. But as just explained, a condition precedent to making section 126 findings is the existence of an underlying SIP deficiency, which EPA has chosen to address directly through action under section 110(a)(2)(D). Moreover, this choice is appropriate. As a result of today's action, not only will there be an approved SIP or a CAIR FIP in place requiring emission reductions which eliminate the significant contribution to North Carolina, but these reductions occur within 3 years, commencing in 2009 when NO
X
controls (a PM
2.5
precursor) are required (70 FR at 49718). This is similar to EPA's decisions in the parallel NO
X
SIP Call/section 126 rulemakings where EPA initially deferred making section 126 findings because there would be approved SIPs in place requiring elimination of significant contribution to downwind States with emission reductions to commence (although not be concluded) within the 3-year period (64 FR at 28275).
8

When the NO
X
SIP Call rule was judicially stayed, it was no longer appropriate to defer making the section 126 findings because there were no longer “explicit and expeditious deadlines for compliance with the NO
X
SIP Call” (65 FR 2680). Here, the certainty of SIP submissions (or action under a CAIR FIP) coupled with explicit and certain compliance deadlines calling for emissions reductions commencing in the same timeframe as the section 126 3-year window make it appropriate for EPA to utilize the section 110(a)(2)(D) remedy.

8
Commenters asserted that all emissions reductions under the SIP Call would have occurred within the three-year period, but this is not the case. The date for achieving the budgets provided by the SIP Call (
i.e.,
the full panoply of annual emission reductions) was 2007, six years from the rule's promulgation date. See 63 FR at 57450.

We note further that in arguing that EPA must order all emissions reductions from designated sources which contribute to North Carolina PM
2.5
nonattainment to occur within 3 years, commenters again ignore the feasibility/cost-effectiveness prong of the significant contribution test. EPA has found that the CAIR emissions reductions are highly cost effective based on the compliance schedule established in that rule, and further found that that compliance schedule is needed for reasons of technical feasibility (70 FR at 25195-25229). Requiring those reductions to occur on a more rapid timeframe would thus require considerably more than merely eliminating significant contribution, and so would exceed the scope of section 126. Moreover, commenters presented no independent analysis showing that emission reductions from the designated sources could be obtained cost-effectively (or even feasibly) within 3 years.
9

9
The petitioner (in its comments on the proposal) stated that “[c]ontrols for sources contributing to nonattainment in North Carolina would be cost effective. EPA concluded as much in the Proposed CAIR Rule * * *. There is nothing in the Final CAIR Rule that indicates that adding North Carolina to the list of downwind states would ‘break the bank’ on cost effectiveness.' ” Comments of North Carolina Attorney General at p. 30 n. 16. This statement does not address whether controls on upwind souces would be cost effective (or feasible) in timeframes more rapid than those found to be cost effective and feasible in the CAIR.

Commenters also argued that because a SIP (or the CAIR FIP) could (or in the case of the FIP, would) reflect a trading component, such a scheme would not satisfy section 126. The legal argument is that section 126 requires emission reductions to come from designated sources, a result not possible to guarantee under a trading regime. More basically, commenters stated that under a trading regime there was no certainty that there would be reduction of emissions to North Carolina, so that at the least, trading should be limited to sources designated in the petition as contributing significantly to nonattainment in North Carolina. These arguments again assume that EPA must grant the petition, which is not our view so long as the underlying SIP deficiencies are rectified, as explained above. The arguments also do not address the critical point that availability of trading options are part of the basis for EPA's findings that reductions are highly cost effective, and hence are an element of the finding that emissions contribute significantly to nonattainment.
10

The approach here is also consistent with the one EPA adopted initially in the NO
X
SIP Call/section 126 rulemaking, where EPA deferred granting section 126 petitions based on the existence of the NO
X
SIP Call remedy, which included a trading scheme across the entire region. 63 FR at 56309-320; see generally 64 FR at 28307-309 (appropriateness of trading as a section 126 remedy). Indeed, as noted earlier, EPA adopted a trading scheme when granting that earlier section 126 petition. See 65 FR at 2686; see also
Appalachian Power,
249 F. 3d at 1039 noting that EPA's section 126 rule included a cap-and-trade program. Further discussion of issues relating to the trading regime are found in section VI.B of this preamble.

10
Indeed, the Petition relies on EPA's analysis of what constitutes significant contribution, which, as just noted, includes an assumption that sources participate in a trading scheme to achieve highly cost-effective emission reductions. The Petition presents no independent analysis of what would constitute a significant contribution in the absence of a trading program. It is thus illogical for the Petition to argue that sources must eliminate all significant contribution (of which trading is a necessary element) but must do so without a trading program.

Some commenters also challenged EPA's basis for proposing to deny the petition with respect to ozone. EPA did so because no area in North Carolina is projected to be in nonattainment with the ozone 8-hour NAAQS in the CAIR base case and therefore upwind states would (by definition) not be contributing significantly to North Carolina nonattainment (70 FR at 25162). Commenters argued that EPA is obligated to consider current conditions, and not base findings on future conditions, because some areas in North Carolina are presently in nonattainment. They base this argument on the use of the present tense in section 126(b) (“emits or would emit any air pollutant in violation of the prohibition of section 110(a)(2)(D)[(i)]”), plus equitable consideration of the need to address existing pollution problems.

EPA disagrees. With respect to the statutory language, both section 126(b) and 110(a)(2)(D)(i) do not specify the time by which EPA must evaluate significance of contribution. Indeed, section 110(a)(2)(D)(i) is written exclusively in the future tense, and the reference to “emits or would emit” in section 126(b) is naturally read as making clear that controls can apply to both existing and new sources. See
Appalachian Power,
249 F. 3d at 1056-57. Moreover, it makes sense for significant contribution determinations to be based on conditions at the time at which potential controls are contemplated. Suppose, for example, that due to future rules (a clutch of effective mobile source controls, for example) it can reliably be predicted that an area will be in attainment although it is not so presently. We do not believe that the statute mandates immediate assessment of interstate contribution to address a nonattainment problem that will no longer exist at the time controls on the interstate emissions would be implemented. EPA thus has consistently adopted this future-looking approach when assessing interstate transport, and believes it reasonable to continue doing so here. See 63 FR at 57375 (adopting this approach in NO
X
SIP Call).

Finally, commenters argued that EPA had ignored the statutory requirement in section 110(a)(2)(D)(i) (incorporated within section 126(b) and (c)) to prohibit interstate transport that “interefere[s] with maintenance” by North Carolina of the 8-hour ozone NAAQS. They further stated that a number of North Carolina counties projected to attain the ozone NAAQS are modeled to do so by narrow margins that should be deemed to fall within the interfere with maintenance test based on modeling uncertainties and historic ozone variability patterns in the counties in question.

EPA stated in the CAIR rule that it would apply the interfere with maintenance provision in section 110(a)(2)(D) in conjunction with the significant contribution to nonattainment provision and so did not use the maintenance prong to separately identify upwind States subject to CAIR (70 FR at 25193). EPA did this so as not to give the interfere with maintenance requirement greater weight than the significant contribution requirement, thus avoiding giving greater weight to the potentially lesser environmental effect. (See CAIR Response to Comments Response at p. 63.) EPA's reading also promotes a reasonable balance between controls on upwind states and in-state controls, an important objective in applying the section 110 and 126 interstate transport provisions. (See 70 FR at 25193.) Suppose, for example, that a downwind area is projected to attain by the effective date of potential section 110(a)(2)(D) (or section 126(b)) controls, so that those controls are unnecessary to prevent significant contribution to nonattainment. Applying controls on upwind sources in these circumstances not only could be environmentally unnecessary, but could even create a perverse incentive for downwind states to increase local emissions.
11

11
In this case, the three North Carolina counties mentioned in comments as warranting upwind reductions to maintain attainment status, are not only projected to be in attainment in 2010 in both the base case and the CAIR case (considering emission reductions occurring under CAIR to prevent significant contribution) and the 2015 base case and CAIR case. In fact, in 2015, these counties (Mecklenburg, Rowan, and Wake) are projected to be attaining by comfortable margins. CAIR Modeling TSD App. E Table E-1 (projected levels of 75.0 ppb, 74.1 ppb, and 70.8 ppb respectively in the 2015 CAIR case, which are all below the levels (3-5 ppb) EPA considered to raise maintenance concerns in the CAIR. These projections do not consider the effect of local controls other than those already enacted. Projected levels in the 2015 base case,
i.e.
without CAIR and without further local controls, are likewise comfortably below the levels which could raise likely possibility of returning to nonattainment. (It is reasonable to defer consideration of maintenance issues until 2015 in this anlaysis because the CAIR remedy is in two parts. There thus will be further emission controls of NO
X
between 2010 and 2015 as a result of CAIR which could subsume any controls adopted for maintenance reasons.) EPA thus in any case does not beleive that further reductions from upwind sources is needed to maintain the 8-hour ozone standard in these counties, and that such emission reductions would not reasonably balance upwind and local controls. See also Response to Comment Document addressing these factual issues.

We note further that even if (against our view) the interference with maintenance standard were to be applied in cases where there is no evidence of significant contribution to nonattainment, EPA would still interpret the standard as requiring consideration of cost and technical feasibility since EPA already considers these factors as aspects of significant contribution, and it would make little sense to interpret the interfere with maintenance language (the lesser environmental effect) as allowing reductions without considering those same factors. See also 63 FR 57370 (interfere with maintenance must also reflect significant contribution to be cognizable under section 110 remedies for interstate transport. Moreover, given that maintenance addresses the less significant environmental effect, EPA would likely require that emission reductions be no less highly cost effective than those which significantly contribute to nonattainment, and might require that reductions be even more highly cost effective. It is thus difficult to see that further emission reductions than those already required under CAIR would be warranted.

III. What Is EPA's Final Action on the Section 126 Petition?

In determining whether emissions from EGUs in the States named in the North Carolina section 126 petition contribute significantly to 8-hour ozone and/or PM
2.5
nonattainment and maintenance problems in North Carolina, EPA is relying on the conclusions drawn in the final CAIR. As discussed in section I above, North Carolina based its petition in large part on the analyses for the proposed CAIR—identifying EGUs in the same upwind States that EPA proposed to link to North Carolina. The EPA conducted new modeling analyses using updated emissions inventories for the final CAIR. The EPA also applied a different value for the threshold contribution level for the air quality portion of the significant contribution determination for PM
2.5
in the final CAIR. Therefore, the upwind State-to-downwind State linkages differed in the final CAIR from the proposal.

A. What Is EPA's Final Action With Respect to the 8-Hour Ozone NAAQS?

In its petition, North Carolina requested that EPA make findings that large EGUs in Georgia, Maryland, South Carolina, Tennessee, and Virginia contribute significantly to nonattainment in, or interfere with maintenance by, North Carolina with respect to the 8-hour ozone NAAQS. In the proposed CAIR, EPA linked these States to 8-hour ozone air quality problems in Mecklenburg County, North Carolina. In the final CAIR, EPA's updated analyses project all of North Carolina to be in attainment for 8-hour ozone in the CAIR 2010 base case. Therefore, EPA did not link any upwind States to North Carolina with respect to the 8-hour ozone NAAQS in the final CAIR (
See
CAIR preamble, Table VI-9 at 70 FR at 25249). Consequently, EPA is denying the section 126 petition with respect to the 8-hour ozone NAAQS.

B. What Is EPA's Final Action With Respect to the PM
2.5
NAAQS?

In its petition, North Carolina also requested that EPA make findings that large EGUs in Alabama, Georgia, Illinois, Indiana, Kentucky, Michigan, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia and West Virginia contribute significantly to nonattainment in, or interfere with maintenance by, North Carolina with respect to the PM
2.5
NAAQS. In the proposed CAIR, these 12 States were linked to PM
2.5
nonattainment problems in North Carolina. In the final CAIR, as noted, EPA used different, updated modeling and also applied a 0.2 (μ/m
3
contribution threshold level rather than the proposed 0.15 (μ/m
3
for the air quality portion of the significant contribution determination (70 FR 25190-25191). Based on the updated modeling and the 0.2 (μ/m
3
contribution threshold level, EPA determined in CAIR that only the following 10 States are significantly contributing to PM
2.5
air quality problems in North Carolina: Alabama, Georgia, Indiana, Kentucky, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia, and West Virginia (see preamble Table VI-8; 70 FR at 25248-25249). This means for purposes of section 126(b) that sources within these States for which EPA determined highly cost-effective controls are available are also contributing significantly to PM
2.5
nonattainment problems in North Carolina.

In determining what action to take in response to the PM
2.5
portion of the section 126 petition, EPA is taking into consideration the CAIR FIPs that are being promulgated today in conjunction

with the section 126 action (see section IV below). The FIP action establishes control requirements for each of the States affected by the CAIR in order to achieve the emissions reductions required to address interstate transport.

In the proposal for the section 126 action, for EGUs in States linked to North Carolina in CAIR (and therefore, for which EPA proposed a FIP), EPA proposed in the alternative (1) to deny the petition if EPA issued the final FIPs to address the interstate transport no later than the final section 126 response or (2) to grant the petition and make section 126 findings if EPA did not promulgate the FIPs prior to or concurrently with the final section 126 response. Because the FIPs would fully address the PM
2.5
-related interstate transport problem identified in CAIR and thus eliminate the section 110(a)(2)(D) violation, there would no longer be a basis for the section 126 findings. In today's action, EPA is finalizing the CAIR FIPs. Therefore, EPA is denying the section 126 petition for EGUs in States linked to North Carolina for PM
2.5
.

For EGUs located in Illinois and Michigan, which are not linked to North Carolina in the final CAIR with respect to the PM
2.5
NAAQS (70 FR 25247-25248), EPA is also denying the petition.

IV. What Is the Federal Implementation Plan for the CAIR?

A. What Is the Legal Framework for the FIPs?

Section 110(c)(1) of the CAA requires the Administrator to promulgate a FIP within 2 years of: (1) Finding that a State has failed to make a required submittal, (2) finding that a submittal received does not satisfy the minimum completeness criteria established under section 110(k)(1)(A), or (3) disapproving a SIP submittal in whole or in part. The EPA may issue a FIP any time after making one of these findings or the Agency may issue a SIP disapproval. However, EPA is relieved of the obligation to promulgate the FIP if a SIP revision correcting the deficiency identified is approved by EPA before such a FIP is promulgated.

As discussed in paragraph I.D.5, in a final rule signed the same day as CAIR, EPA found that States have failed to submit SIPs to satisfy the interstate transport requirement under section 110(a)(2)(D)(i) of the CAA for the PM
2.5
and 8-hour ozone NAAQS (70 FR 21147). These findings started the 2-year clock for the promulgation of a FIP. They did not start a “sanctions clock” as there are no mandatory sanctions associated with the FIP or the finding of State failure to submit SIPs to satisfy 110(a)(2)(D)(i).

The EPA's authority to act when it has identified deficiencies in SIPs is derived from multiple sources. First, EPA may promulgate any measure which it is permitted to issue pursuant to pre-existing independent statutory authority—for example, the provisions of title II. That is, EPA may promulgate any measure which it has authority to issue in a non-FIP context, without reliance on section 110(c). Second, EPA may invoke section 110(c)'s general FIP authority and act in accordance with this provision, and the CAA more broadly, to cure a SIP deficiency. Third, under section 110(c), the courts have held that EPA may exercise all authority that the State may exercise under the CAA.

The first type of authority, EPA's general authority, is independent of section 110(c). It is not dependent on or altered by finding a deficiency in a SIP.

The second type of authority, EPA's general authority under section 110(c), is essentially remedial. The EPA has broad power under that section to cure a defective State plan. Thus, in promulgating a FIP, EPA may exercise its own, independent regulatory authority in accordance with section 110(c), and the CAA more broadly. When EPA has promulgated a FIP, courts have not required explicit authority for specific measures: “We are inclined to construe Congress' broad grant of power to the EPA as including all enforcement devices reasonably necessary to the achievement and maintenance of the goals established by the legislation.” (
South Terminal Corp.
v.
EPA,
504 F.2d 646, 669. (1st Cir., 1974)).

Third, the same authority that is exercised by the States under the CAA in connection with the adoption, implementation, and enforcement of a SIP may be assumed to be available to the EPA when the agency issues a FIP, after determining that a State has not adopted a satisfactory SIP. As the Ninth Circuit has held, when EPA acts in place of the State pursuant to a FIP under section 110(c), EPA “stands in the shoes of the defaulting State, and all of the rights and duties that would otherwise fall to the State accrue instead to EPA,” (
Central Arizona Water Conservation District
v.
EPA,
990 F.2d 1531, at 1541 9th Cir., 1993). The First Circuit, in an early FIP case, agreed:

* * * the Administrator must promulgate promptly regulations setting forth an implementation plan for a State should the State itself fail to propose a satisfactory one. The statutory scheme would be unworkable were it read as giving to EPA when promulgating an implementation plan for a State, less than those necessary measures allowed by Congress to a State to accomplish Federal clean air goals. We do not adopt any such crippling interpretation.

South Terminal Corporation
v.
EPA,
504 F.2d 668 (1st Cir., 1974).

In the case of Federally-recognized Indian Tribes, as we explained in the CAIR, (70 FR 25167-25168) Tribes are subject to section 110(a)(2)(D), but are not required to submit implementation plans. The EPA is required to promulgate FIPs for Indian country as necessary or appropriate to protect air quality. See 40 CFR 49.11(a). Presently, there are no emissions sources in Indian country within the region affected by CAIR which would make a FIP necessary or appropriate. In the event of the planned construction of such a source within Indian country in the 28-State region subject to CAIR, EPA will work with the relevant Tribal government to regulate the source through a Tribal or Federal implementation plan. In the case of an EGU, the EPA anticipates that the Tribal implementation plan (TIP) or FIP would involve the participation of the EGU in the EPA administered cap-and-trade program. The EPA will also work with the Tribe and affected States to determine how allowances allocated to the Indian country source will affect State allowance allocations. Because any FIPs for Indian country will necessarily be tailored to the specific circumstances, today's action contains no such FIP. The reader is referred to the CAIR for a more detailed discussion of the potential impact of the CAIR in Indian country (70 FR 25167-25168, 25315).

B. What Is the Timing and Scope of the CAIR FIP Actions?

As described in the CAIR, EPA views seriously its responsibility to address the issue of regional transport. Decreases in NO
X
and SO
2
emissions are needed in the States identified in the CAIR to enable downwind States to develop and implement plans to achieve and maintain the PM
2.5
and 8-hour ozone NAAQS. The CAIR identified the amount of emissions reductions necessary for each State identified in the CAIR to meet their section 110(a)(2)(D) interstate transport obligations. Implementation of these reductions is necessary to help downwind States to achieve the NAAQS in order to provide clean air for their residents.

Therefore, EPA is promulgating FIPs today in conjunction with the action responding to North Carolina's section 126 petition concerning transport of

PM
2.5
and 8-hour ozone. The EPA is promulgating these FIPs at the same time as its response to North Carolina's section 126 petition, which is required to be finalized no later than March 15, 2006 in accordance with a judicially-enforceable consent decree. The EPA believes it is appropriate to coordinate these two actions because they both address interstate transport, both apply to EGUs, and because the States of concern in the section 126 petition are a geographical subset of the States covered by CAIR. Promulgating the CAIR FIPs at this time provides a backstop of Federal controls for all States covered by CAIR for PM
2.5
and/or 8-hour ozone, not just those States that significantly contribute to North Carolina for PM
2.5
. This provides a level playing field, giving assurance to all the affected downwind States that the upwind emissions reductions required under CAIR will be achieved on time. Further, EPA believes that the CAIR reductions are best implemented as a unified program. The EPA believes that States will submit SIP revisions implementing the CAIR reductions in their States in a unified manner, and that this reduces workload for the States and provides sources with more certainty. Finally, promulgating the 8-hour ozone FIP as well as the PM
2.5
FIP as early as possible gives States more flexibility to take advantage of the abbreviated SIP option discussed below and in section VI.C. This could further reduce workload for States to meet the requirements of CAIR. In today's action, EPA is not promulgating FIPs for any States not covered by CAIR.

The Agency is taking this action to provide a Federal backstop for CAIR where all States may not be able to develop and submit timely, approvable SIP revisions. In no way should the FIP for CAIR be viewed as a sign of any concern about States ultimately making the emission reductions required under CAIR. There are no sanctions associated with today's rule, and EPA does not intend CAIR FIPs to have any negative consequences for the affected States. To the contrary, EPA is finalizing FIP approaches that are flexible and allow States a full opportunity to get their SIP revisions in place, with minimal disruption in transitioning from Federal to State implementation.

Moving quickly to promulgate a FIP is consistent with Congress' intent that attaining the standard occurs in these downwind nonattainment areas “as expeditiously as practicable” (sections 181(a) and 172(a)(2)(B)). The FIP will help ensure that all emissions reductions required by CAIR, and the associated environmental benefits, will be achieved by the CAIR deadlines. In addition, the FIP will ensure that sources in all States covered by CAIR, regardless of whether they were included in the North Carolina section 126 petition, will be required to achieve emissions reductions at the same time.

By finalizing the FIP well before the deadline for States to submit their CAIR SIPs, EPA is providing States an additional option for complying with the requirements of CAIR. States planning to adopt the model trading programs contained in the CAIR rule, can accept the FIP and significantly reduce the State resources needed to establish a program to implement the CAIR. Since there are no punitive consequences for States associated with the FIP or the finding of failure to submit SIPs to satisfy section 110(a)(2)(D)(i), some States could avoid much of the time and expense of revising their SIPs to comply with CAIR. Some States, particularly those subject to the NO
X
SIP Call, may need to prepare minor SIP revisions regardless of whether they accept the FIP implementing the requirements of CAIR; yet the time and expense involved would be significantly reduced.

The EPA is finalizing, with certain changes described in section VI.C, the approach that a State can choose to modify the application of the CAIR FIP through abbreviated SIP revisions. The abbreviated SIP revisions approach covers specific elements of the FIP trading programs without submitting full SIP revisions to meet the requirements of CAIR. By accepting such abbreviated SIP revisions, EPA is providing additional options for States to comply with CAIR. A State can choose to retain control of these specific elements of the trading programs, without submitting a full SIP revision to meet the requirements of CAIR. As there are no sanctions associated with the FIP, EPA anticipates that some States will prefer to avoid spending the time and money necessary to submit a full SIP revision.

The Agency will accept abbreviated SIP revisions for any or all of the following four specific elements of the FIP trading programs: (1) Provisions for otherwise unaffected units to opt-in to the FIP trading programs, (2) allocating annual and/or ozone season NO
X
, (3) allocating allowances from the annual NO
X
Compliance Supplement Pool (CSP), and (4) including NO
X
SIP Call trading sources that are not EGUs under CAIR in the Federal CAIR ozone season NO
X
cap-and-trade program. Upon approval of any such SIP revisions, EPA anticipates that the corresponding portions of the FIP for that State would be replaced or their application to sources would be modified.

In offering a framework for abbreviated SIP revisions, the Agency anticipates that many States will wish to retain control over the allocation of allowances. Additionally, the Agency recognizes that States may wish to meet their NO
X
SIP Call obligations by allowing NO
X
budget units (that is, units in the NO
X
SIP Call trading program) that are not EGUs under CAIR to participate in the CAIR ozone season trading program.

In its proposal, the EPA invited comment on the option for States to submit abbreviated SIPs covering specific elements of the Federal trading programs. A more complete discussion of the proposed abbreviated SIP provisions and the comments received is found in section VI of today's preamble.

Thus, the FIP will increase the options available for a State to comply with CAIR. Through the CAIR rulemaking actions, EPA has provided States with a great deal of data and analyses concerning air quality and control costs, as well as a determination whether upwind sources contribute significantly to downwind nonattainment under section 110(a)(2)(D). The EPA recognizes that States would face great difficulties in developing transport SIPs to meet the requirements of section 110(a)(2)(D) without these data and policies. Indeed, EPA acknowledged in the CAIR that the Agency's extensive analyses and data, including the multi-year operation of a federally-funded monitoring system (and the considerable information generated through that system) was a necessary element in the Agency's conclusion that it was appropriate to impose such requirements on States (70 FR 25267).

States have 18 months from the signature date of the CAIR, or until September 11, 2006, to develop, adopt, and submit revisions to their SIPs that meet the requirements of CAIR. The EPA will withdraw the FIP once EPA approves a SIP that meets the CAIR requirements in that State.

Having the FIP in place early provides for a transition to a CAIR trading program with the greatest continuity, administrative ease, and cost savings for States that would otherwise develop a program identical to the model trading programs. The EPA's goal is to have approvable programs in place that meet the requirements of the CAIR whether they are in the form of a SIP or a FIP. By finalizing a FIP today, EPA in no way precludes a State from developing its own SIP to either adopt the trading

rules with any discretionary elements allowed by the CAIR or from meeting the State emissions budget through different measures of the State's choosing. The EPA has considered the timing of each element of the FIP process to make sure to preserve each State's freedom to develop and implement SIPs. In this way, EPA has enhanced each State's options for complying with the requirements of the CAIR while ensuring that all the emissions reductions and environmental benefits of the CAIR are realized.

C. What Are the FIP Control Measures?

In contrast to the SIP process—where selection and implementation of control measures is the primary responsibility of the State—in the case of a FIP, it is EPA's responsibility to select the control measures for sources and assure compliance with those measures. Thus, while the FIP is designed by EPA to achieve the same total emissions reductions described in the CAIR, the specific control measures assigned in the FIP may be different from what a State might choose.

In selecting the control measures for the FIP, EPA is adopting the same measures used in the CAIR for calculating the required emissions reductions. In the CAIR, EPA is requiring States to achieve specified levels of emissions reductions based on levels that are achievable through implementation of highly cost-effective controls on EGUs. See the discussion in section IV of the CAIR, “What Amounts of SO
2
and NO
X
Emissions Did EPA Determine Should Be Reduced?” The EPA is including by reference the technical basis and supporting rationale for EPA's conclusions as to the highly cost-effective strategy developed for the CAIR.

The SO
2
and NO
X
cap-and-trade programs for the FIP are discussed below in section VI. The unit NO
X
allocations will be provided in a later action and will meet the State EGU budgets that are established in the CAIR for States that choose to meet the required emissions reductions by controlling EGUs only.

D. When and How Will EPA Remove the FIP Requirements if EPA Approves a SIP To Meet the CAIR?

As discussed previously, EPA is finalizing the FIP today concurrently with EPA's response to the section 126 petition from North Carolina. The EPA intends to withdraw the FIP in a State in coordination with EPA's approval of a SIP for that State that meets the CAIR requirements. It is EPA's preference that States regulate sources to control the interstate transport; therefore, EPA will work with States to help ensure that the FIP would not need to be implemented.

The EPA intends to withdraw the FIP requirements as soon as practical after receiving approvable CAIR SIP revisions. The EPA will work with States to ensure a timely withdrawal of the FIP and recording of State NO
X
allocations in source accounts (for States choosing to allocate NO
X
allowances). A more detailed discussion of the timing for recording allocations is found in section VI.F.1 of this preamble.

V. Emission Reduction Requirements for the CAIR FIP

A. Introduction

In the CAIR (70 FR 25162), EPA determined that SO
2
and NO
X
emissions from sources in the District of Columbia and the following 23 States contribute significantly to downwind PM
2.5
nonattainment: Alabama, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Mississippi, Missouri, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, West Virginia, and Wisconsin.

In a separate rulemaking signed the same day as this action, EPA finds that SO
2
and NO
X
emissions from sources in Delaware and New Jersey also contribute significantly to downwind PM
2.5
nonattainment.

In the CAIR, the Agency also determined that the District of Columbia and the following 25 States contribute significantly to downwind 8-hour ozone nonattainment: Alabama, Arkansas, Connecticut, Delaware, Florida, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia, West Virginia, and Wisconsin.

The EPA established CAIR annual SO
2
and NO
X
emission reduction requirements for States that contribute significantly to downwind PM
2.5
nonattainment and established NO
X
ozone season emission-reduction requirements for States that contribute significantly to downwind 8-hour ozone nonattainment. The CAIR requires upwind States to revise their SIPs to include control measures to reduce emissions of SO
2
and/or NO
X
to meet the requirements in CAIR (SO
2
is a precursor to PM
2.5
formation, and NO
X
is a precursor to both ozone and PM
2.5
formation).

The CAIR requires that the emission reductions be implemented in two phases. The first phase of CAIR NO
X
reductions starts in 2009 (covering 2009-2014) and the first phase of CAIR SO
2
reductions starts in 2010 (covering 2010-2014); the second phase of CAIR reductions for both NO
X
and SO
2
starts in 2015, covering 2015 and thereafter.

In CAIR, EPA determined the extent of reductions required to eliminate significant contribution (
i.e.
, to remove the section 110(a)(2)(D) violation). EPA interprets significant contribution as a specific level of emissions that can be feasibly reduced in a highly cost-effective manner. The required reductions are expressed as statewide budgets of SO
2
and NO
X
emissions. Regionwide emissions trading programs for large EGUs (within the constraints of the emissions caps based on these statewide emission budgets
12

) provide one option for eliminating significant contribution and thus also eliminating the section 110(a)(2)(D) violation. The violation is eliminated once a State adopts a SIP containing the CAIR trading programs (or a SIP containing other emission reduction options meeting the requirements specified in CAIR), or EPA promulgates a FIP to achieve those same reductions. The CAIR includes model rules for regionwide EGU SO
2
annual, NO
X
annual, and NO
X
ozone season emission cap-and-trade programs. States can choose to adopt these model rules (the CAIR SIP model trading rules) to obtain the required reductions in a flexible and cost-effective manner.

12
It should be noted that the SO
2
trading program provides that sources may bank pre-2010 title IV SO
2
allowances to be used for compliance with CAIR. These provisions encourage sources to make early emission reductions and ease the transition to the CAIR SO
2
program, and as a result, emissions may not reflect the emission caps in any given year.

Today, EPA is finalizing FIPs that implement the emission reduction requirements of the CAIR in all States covered by CAIR. The Agency is promulgating today's FIPs to provide a federal backstop for CAIR.

EPA decided to adopt, as the FIP for each State in the CAIR region, the SIP model trading programs in the final CAIR, modified slightly to allow for federal instead of State implementation.
13

The specific requirements of the FIP trading programs are explained in greater detail in section VI below.

13
Today's action includes revisions to the CAIR SIP model rules as described in section VII in this preamble. For the FIP trading programs the Agency adopts the SIP model rules as finalized today and modified for federal implementation.

The CAIR FIPs will require SO
2
annual and NO
X
annual emission

reductions from EGUs in States contributing significantly to PM
2.5
nonattainment and NO
X
ozone season emission reductions from EGUs in States contributing significantly to ozone nonattainment through participation in the regionwide cap-and-trade programs. The requirements of these trading programs were developed in the SIP model trading rules. The SIP model trading rules provide flexibility to the implementing organization only in certain specific areas. In adopting these model trading programs as FIPs, the Agency adopts the requirements of the model trading rules. As the implementing organization, therefore, it has only the same flexibility that is available to States that choose to implement the model trading programs.

The CAIR FIP trading programs will achieve the emission reductions required by CAIR by the deadlines established in that rule, with the same highly cost-effective EGU control measures forming the basis for the emission budgets. The regionwide emission reduction requirements, State emission budgets and trading rules that are the basis for today's FIPs were established in the final CAIR rule. They were developed through a process that involved significant public participation. In the CAIR rulemaking, EPA determined that the CAIR emission reduction requirements can be met in a highly cost-effective manner using regionwide SO
2
and NO
X
cap-and-trade programs for large EGUs (70 FR 25195-25229). The incentives provided by such regionwide cap-and-trade programs encourage economically efficient compliance over the entire region.

The applicability provisions of the FIPs promulgated in today's final rule, which cover large EGUs, are identical to the applicability provisions in the CAIR SIP model rules including the revisions finalized today.
See
sections VI.E and VII in today's preamble for detailed discussion of applicability. The FIPs and the CAIR SIP model rules apply to large EGUs because EPA determined that their emissions can be reduced through the application of highly cost-effective controls (70 FR 25195-25229).

During development of the CAIR, the Agency considered the interactions between the existing title IV Acid Rain Program and the new CAIR (
see
the preamble to the final CAIR for discussion, 70 FR 25290). As explained in CAIR, “In the absence of an approach for taking account of the title IV program, a new program (
i.e.,
the CAIR) that imposes a significantly tighter cap on SO
2
emissions for a region encompassing most of the sources and most of the SO
2
emissions covered by title IV would likely result in a significant excess in the supply of title IV allowances, a collapse of the price of title IV allowances, disruption of operation of the title IV allowance market and the title IV SO
2
cap-and-trade system, and the potential for increased SO
2
emissions.” These impacts would undermine the efficacy of the title IV program and could erode confidence in emissions trading programs in general. For these same reasons, today's FIP SO
2
trading program is integrated with the title IV program (
see
discussion of FIP SO
2
trading program in section VI, below). EPA was petitioned for and granted reconsideration of CAIR on claims that inequities result from applying the SO
2
allocation methodology (which is based on title IV allocations). In the notice of final action on reconsideration, signed the same day as this action, EPA decided not to alter the approach taken in the final CAIR (
see
further discussion of reconsideration in section VI.G, below).

Today's FIPs implement the CAIR emission reduction requirements by adopting the CAIR SIP model trading rules; the FIPs do not develop new emission reduction requirements or trading programs. For these reasons, the Agency did not re-open in the FIP rulemaking any elements of the reduction requirements and trading programs (except for the elements such as NO
X
allocations and opt-ins where States had flexibility) that were determined in the CAIR NFR and that were not modified by today's rule. By adopting as FIPs the CAIR SIP model trading programs, the Agency intends to implement the requirements of CAIR in a highly cost-effective manner and to ease the transition for sources that might initially be covered by the FIP programs and subsequently be covered by SIP programs that also adopt the model trading rules.

The Agency is promulgating these FIPs to provide a Federal backstop for CAIR. In no way should the FIPs be viewed as a sign of any concern about States ultimately making the emission reductions required under CAIR. There are no sanctions associated with today's rule, and EPA does not intend CAIR FIPs to have any negative consequences for the affected States. To the contrary, EPA is finalizing FIP approaches that are flexible and allow States a full opportunity to get their SIP revisions in place, with minimal disruption in transitioning from Federal to State implementation.

B. Regionwide SO
2
and NO
X
Caps

Today's final rule provides a federal backstop for achieving the CAIR emission reduction requirements. Today's rule does not establish those reduction requirements, which were established in the CAIR rulemaking.

In the preamble to the CAIR NFR, the Agency explained how it determined regionwide SO
2
and NO
X
emissions caps. See section IV in the CAIR NFR preamble (70 FR 25195-25229). The EPA also summarized the process for determining the regionwide CAIR SO
2
and NO
X
emissions caps in the preamble to the proposed CAIR FIP (70 FR 49722). The CAIR FIP proposal did not reopen for public comment EPA's determination of the CAIR regionwide caps or the caps themselves. The EPA received a few comments on the CAIR regionwide caps during the public comment process on the proposed FIP. Those comments are not within the scope of today's final rule. As discussed above, in today's FIP rule the Agency is implementing the emission reduction requirements (including regionwide SO
2
and NO
X
caps) that EPA developed in the CAIR rulemaking through a process that included extensive public participation.

The CAIR regionwide caps (including the States of Delaware and New Jersey) are: for SO
2
, 3.7 million tons and 2.6 million tons in 2010 and 2015, respectively; for NO
X
annual, 1.5 million tons and 1.3 million tons in 2009 and 2015, respectively; for NO
X
ozone season, 0.6 million and 0.5 million tons in 2009 and 2015, respectively.

C. State SO
2
Emission Budgets

In the preamble to the final CAIR, the EPA explained how it determined CAIR State annual SO
2
emission budgets (
see
section V.A.1.a of the CAIR NFR preamble, 70 FR 25229-25230;
see also
the rulemaking, signed the same day as this action, to include Delaware and New Jersey in CAIR for PM
2.5
). The EPA also summarized the process for determining CAIR State SO
2
budgets in the preamble to the proposed FIP (70 FR 49723). The CAIR FIP proposal did not reopen for public comment EPA's determination of the CAIR State SO
2
budgets or the budgets themselves. As discussed above, in today's FIP rule, the Agency is implementing the emission reduction requirements (including State SO
2
emission budgets) that EPA developed in the CAIR rulemaking through a process that included extensive public participation.

Today's final FIP rule will achieve the required SO
2
emission reductions

through a regionwide SO
2
cap-and-trade program for EGUs. As discussed further in section VI, below, the CAIR FIP SO
2
cap-and-trade program will rely on title IV allowances, which sources will retire at specified ratios generally greater than 1-to-1 for compliance with the CAIR FIP SO
2
program. Congress has already allocated title IV SO
2
allowances to sources in perpetuity. State SO
2
emissions budgets would not affect the distribution of SO
2
allowances for the CAIR FIP SO
2
trading program (because SO
2
allowances are already allocated to sources) and are not directly relevant for today's final FIP rule.

After EPA finalized CAIR, the Agency was petitioned for and granted reconsideration on claims that inequities result from applying the CAIR SIP model rule SO
2
allocation methodology (which is based on existing title IV allocations). The Agency announced its decision to reconsider this issue in a
Federal Register
action dated December 2, 2005 (70 FR 72268) and is taking final action on the reconsideration in a separate action signed the same day as this action. EPA decided not to alter the approach taken in the final CAIR (
see
further discussion of reconsideration in section VI.G, below).

A few commenters on the proposed CAIR FIP expressed concern with the use of title IV to establish State SO
2
emission budgets. The FIP State SO
2
budgets and the FIP unit SO
2
allocations are both based on existing title IV allocations. The EPA responds to comments on the budgets and allocations for the FIP together in section VI.G, below.

The Agency is finalizing its proposed approach regarding SO
2
budgets for the CAIR FIP SO
2
trading programs.

D. State NO
X
Annual and NO
X
Ozone Season Emission Budgets

In the preamble to the final CAIR, the EPA explained how it determined CAIR State NO
X
annual and NO
X
ozone season emission budgets (
see
section V.A.1.a of the CAIR NFR preamble, 70 FR 25230-25233;
see also
the rulemaking, signed the same day as this action, to include Delaware and New Jersey in CAIR for PM
2.5
).

The EPA also summarized the process for determining CAIR State NO
X
annual and NO
X
ozone season budgets in the preamble to the proposed FIP (70 FR 49723). The CAIR FIP proposal did not reopen for public comment EPA's determination of the CAIR State NO
X
annual and NO
X
ozone season budgets or the budgets themselves. As discussed above, in today's FIP rule the Agency is implementing the emission reduction requirements (including State NO
X
annual and NO
X
ozone season emission budgets) that EPA developed in the CAIR rulemaking through a process that included extensive public participation.

After EPA finalized CAIR, the Agency was petitioned for and granted reconsideration on the use of fuel adjustment factors in determining CAIR State NO
X
annual and NO
X
ozone season emission budgets. The EPA announced its decision to reconsider this issue in a
Federal Register
notice dated December 2, 2005 (70 FR 72268) and is taking final action on the reconsideration in a separate action signed the same day as this action. EPA decided not to alter the approach taken in the final CAIR.

A commenter on the proposed CAIR FIP raised concerns regarding the use of fuel adjustment factors in determining State NO
X
emission budgets. Concerns raised by the commenter with respect to EPA's use of fuel adjustment factors in determining State emission budgets are the same issues that the Agency is addressing in the context of the CAIR reconsideration process. The Agency's responses to this commenter on the use of fuel adjustment factors in setting FIP State NO
X
emission budgets are addressed in the CAIR reconsideration notice. See the December 2, 2005
Federal Register
notice announcing the reconsideration (70 FR 72268) as well the notice of final action on reconsideration signed the same day as this action.

Some commenters addressed the use of fuel adjustment factors in the proposed FIP methodology for unit-by-unit NO
X
allocations. The Agency's responses regarding the use of fuel adjustment factors in the NO
X
allocation methodology are discussed in section VI.F in this preamble.

The State annual and ozone season EGU NO
X
budgets for today's final CAIR FIP trading programs are the same as the budgets in the final CAIR. For each State affected by the FIP NO
X
trading programs, the State NO
X
budgets are the total amount of allowances
14

that the Agency will allocate to sources in the State or that States will allocate using an abbreviated SIP revision.
See
section VI.F, below, for EPA's methodology and schedule for allocating NO
X
allowances to affected sources.

14
As in CAIR, a NO
X
annual allowance will authorize the emission of a ton of NO
X
during a calendar year, and a NO
X
ozone season allowance will authorize the emission of a ton of NO
X
during an ozone season.

Table V-1 shows the State NO
X
emission budgets for the final FIP NO
X
cap-and-trade program. These are the same State NO
X
budgets as in the final CAIR (
see
Table V-2 in the CAIR NFR preamble (70 FR 25231);
see also
the rulemaking, signed the same day as this action, to include Delaware and New Jersey in CAIR for PM
2.5
).

Table V-1.—CAIR FIP NO
X
Annual Electric Generating Units Budgets

[tons]

State

State NO
X
annual budget 2009-2014

State NO
X
annual budget 2015 and thereafter

Alabama
69,020
57,517

Delaware
4,166
3,472

District of Columbia
144
120

Florida
99,445
82,871

Georgia
66,321
55,268

Illinois
76,230
63,525

Indiana
108,935
90,779

Iowa
32,692
27,243

Kentucky
83,205
69,337

Louisiana
35,512
29,593

Maryland
27,724
23,104

Michigan
65,304
54,420

Minnesota
31,443
26,203

Mississippi
17,807
14,839

Missouri
59,871
49,892

New Jersey
12,670
10,558

New York
45,617
38,014

North Carolina
62,183
51,819

Ohio
108,667
90,556

Pennsylvania
99,049
82,541

South Carolina
32,662
27,219

Tennessee
50,973
42,478

Texas
181,014
150,845

Virginia
36,074
30,062

West Virginia
74,220
61,850

Wisconsin
40,759
33,966

CAIR Region Total
1,521,707
1,268,091

Table V-2 shows the State NO
X
ozone season emission budgets for the final CAIR FIP NO
X
ozone season cap-and-trade program. These are the same State NO
X
ozone season budgets as in the final CAIR (
see
Table V-4 in the CAIR NFR preamble (70 FR 25233).

Table V-2.—CAIR FIP NO
X
Ozone Season Electricity Generating Unit Budgets

[tons]

State *

State NO
X
ozone season budget 2009-2014

State NO
X
ozone season budget 2015 and thereafter

Alabama
32,182
26,818

Arkansas
11,515
9,596

Connecticut
2,559
2,559

Delaware
2,226
1,855

District of Columbia
112
94

Florida
47,912
39,926

Illinois
30,701
28,981

Indiana
45,952
39,273

Iowa
14,263
11,886

Kentucky
36,045
30,587

Louisiana
17,085
14,238

Maryland
12,834
10,695

Massachusetts
7,551
6,293

Michigan
28,971
24,142

Mississippi
8,714
7,262

Missouri
26,678
22,231

New Jersey
6,654
5,545

New York
20,632
17,193

North Carolina
28,392
23,660

Ohio
45,664
39,945

Pennsylvania
42,171
35,143

South Carolina
15,249
12,707

Tennessee
22,842
19,035

Virginia
15,994
13,328

West Virginia
26,859
26,525

Wisconsin
17,987
14,989

CAIR Region Total
567,744
484,506

* For States that have lower EGU budgets under the NO
X
SIP Call than their 2009 CAIR budget, table V-2 includes their SIP Call budget. For Connecticut, the NO
X
SIP Call budget is also used for 2015 and beyond.

E. State NO
X
Annual Compliance Supplement Pool

The CAIR established State Compliance Supplement Pools (CSP) of NO
X
annual allowances of vintage 2009. In the FIP NPR, the Agency proposed to include in the CAIR FIP NO
X
trading program the same State CSP amounts as were established in CAIR.

The Agency received several comments on its proposal to include the CAIR CSPs in the CAIR FIP NO
X
trading program. The EPA responds to comments on inclusion of the CAIR CSPs in the FIP program, as well as comments on EPA's proposed method for distributing CSP allowances to sources, in section VI.I in today's preamble, below.

The Agency is finalizing its proposal to include the CAIR CSPs in the FIP trading programs. Table V-3 shows the State CSP amounts for the final CAIR FIP NO
X
trading program. These are the same CSP amounts as shown in the CAIR NFR preamble (
see
Table V-3 in the CAIR NFR at 70 FR 25232;
see also
the rulemaking, signed the same day as this action, to include Delaware and New Jersey in CAIR for PM
2.5
).

The CSPs provide, for each affected State, a pool of CAIR NO
X
annual allowances from which EPA, or a State using an abbreviated SIP revision, can distribute allowances for use in complying with the CAIR FIP NO
X
annual trading program (
see
section VI.I in today's preamble for further discussion regarding distribution of CSP allowances).

Table V-3.—CAIR FIP NO
X
Annual Compliance Supplement Pool

[tons]

State
Compliance supplement pool

Alabama
10,166

Delaware
843

District Of Columbia
0

Florida
8,335

Georgia
12,397

Illinois
11,299

Indiana
20,155

Iowa
6,978

Kentucky
14,935

Louisiana
2,251

Maryland
4,670

Michigan
8,347

Minnesota
6,528

Mississippi
3,066

Missouri
9,044

New Jersey
660

New York
0

North Carolina
0

Ohio
25,037

Pennsylvania
16,009

South Carolina
2,600

Tennessee
8,944

Texas
772

Virginia
5,134

West Virginia
16,929

Wisconsin
4,898

Total
199,997

VI. CAIR FIP NO
X
and SO
2
Cap-and-Trade Programs for EGUs

A. Purpose of CAIR FIP NO
X
and SO
2
Cap-and-Trade Programs and Relationship to the CAIR

In today's action, EPA is finalizing CAIR FIP NO
X
and SO
2
cap-and-trade programs for EGUs as the Implementation Plan remedy for CAIR. The Agency is finalizing 3 separate CAIR FIP cap-and-trade programs: (1) SO
2
annual; (2) NO
X
annual; and (3) NO
X
ozone season. The EPA decided to adopt, as the FIP for each State in the CAIR region, the model cap-and-trade programs in the final CAIR, modified slightly to allow for Federal instead of State implementation.
15

Emissions cap-and-trade programs are a proven method for achieving highly cost-effective emissions reductions while providing regulated sources of emissions with flexibility in adopting compliance strategies. The incentives provided by regionwide cap-and-trade programs encourage economically efficient compliance over the entire region. The specific elements of the 3 trading programs in the FIP were developed by EPA, with significant public participation, during the CAIR development process.

15
Today's action includes revisions to the CAIR SIP model rules as described in section VII in this preamble. For the FIP trading programs the Agency adopts the SIP model rules as finalized today and modified for federal implementation.

Participation in the new CAIR FIP NO
X
and SO
2
cap-and-trade programs is mandatory for all sources covered by the final CAIR FIP.
See
section VI.E in today's preamble for discussion of affected sources (applicability). Regulatory text for today's new CAIR FIP NO
X
and SO
2
cap-and-trade programs will be located in part 97 in title 40 of the CFR.

The CAIR established State EGU emissions budgets that each State will use to determine its required emissions reductions. Today's final CAIR FIP cap-and-trade programs set specific rules for EGUs to decrease NO
X
and SO
2
emissions sufficiently to achieve emission reductions that are required under CAIR. As explained above in section IV, EPA will withdraw a State's FIP in coordination with approval of a SIP implementing the requirements of CAIR.

States may choose to meet their emission reduction obligations under CAIR by adopting, as part of their SIPs, the model cap-and-trade rules set forth in the CAIR and participating in the EPA administered trading programs. Any such participation will be fully integrated with the CAIR FIP NO
X
and SO
2
cap-and-trade programs that are finalized in today's action.

In order to be eligible to participate in an emissions cap-and-trade program, the Agency believes that there are two principal criteria that sources must meet, as stated in the supplemental proposal for the NO
X
SIP Call (62 FR 25923). The first criterion requires that sources be able to account accurately and consistently for all of their emissions to ensure the trading program goal of maintaining emissions within a cap. Emissions monitoring must be accurate and consistent among all sources so that each allowance turned in, represents its assigned amount of emissions. The second criterion for participation in a trading program is the ability to identify a responsible party for each regulated source who would be accountable for demonstrating and ensuring compliance with the program's provisions. The EPA believes that today's rule meets those criteria. The Agency also believes that, because

today's rule contains the same mandatory program elements as are in the part 96 CAIR SIP model trading programs and is designed to meet the same environmental goals and caps sources at the same levels as those model trading programs, it is appropriate to integrate today's CAIR FIP with the CAIR SIP trading programs.

Sources subject to trading programs under the FIP and sources in States choosing to participate in the EPA-administered CAIR SIP trading programs will be able to trade allowances with one another under common emissions caps across participating States. Integration of the trading programs reduces the possibility of inconsistent or conflicting deadlines or requirements, increases the potential cost savings for sources, and streamlines program administration. Unnecessary inconsistency in trading programs could hamper sources' ability to plan and achieve the needed reductions as cost effectively as possible. In addition, if a State submits and EPA approves a SIP revision including the CAIR SIP model trading programs after EPA establishes trading programs under today's FIP, disruptions to sources that shift from regulation under a FIP to regulation under a SIP will be minimized due to the consistency between the respective CAIR SIP and FIP programs.

The EPA establishes (in part 97) the geographic boundaries of the common trading programs as those States that submit SIP revisions in response to the CAIR implementing the EPA-administered trading programs or that are subject to FIPs. The EPA will administer these common trading programs in collaboration with affected States.

For the final CAIR FIP NO
X
and SO
2
cap-and-trade programs, EPA adopted the CAIR model trading programs with slight revisions to allow for Federal implementation. The FIP trading programs are thus virtually identical to the CAIR SIP model trading programs. The CAIR FIP cap-and-trade programs include all of the mandatory elements that States are required to include in their SIPs in order to participate in the EPA-administered cap-and-trade programs for CAIR.

The Agency is finalizing, with certain changes described in section VI.C, the proposal to provide States that are subject to today's CAIR FIP requirements with the option to submit abbreviated SIP revisions covering specific elements of the FIP trading programs without submitting full SIP revisions to meet the requirements of CAIR.
See
section VI.C in this preamble for further discussion of abbreviated SIP revisions.

B. Relationship of Emissions Trading Programs to Section 126 Relief

In section II of today's preamble, EPA responds to commenters who argued that, because a CAIR SIP could or the CAIR FIP would reflect a trading component, such an implementation plan would not satisfy section 126 as a matter of law. As explained in section II, these arguments assume that the Agency must grant the petition, which is not EPA's view so long as the underlying SIP deficiencies are rectified.

Although EPA is denying the section 126 petition as discussed elsewhere in today's preamble, based on modeling projections the Agency believes that sources in States upwind of North Carolina will reduce emissions under the CAIR trading regime.

As discussed in the FIP NPR (70 FR 49737), EPA believes that upwind sources in States that were found to contribute significantly to North Carolina nonattainment will in fact reduce emissions of PM
2.5
precursors under the CAIR trading regime. The Agency explained that its Integrated Planning Model (IPM)
16

analysis conducted for the CAIR NFR—which assumes emissions trading—projects decreases in annual SO
2
and NO
X
emissions under CAIR compared to the Base Case (
i.e.,
compared to projections without CAIR) in both 2010 and 2015 for each of the States found in the CAIR NFR analysis to contribute significantly to nonattainment of the PM
2.5
NAAQS in North Carolina.

16
The IPM is a multiregional, dynamic, deterministic linear programming model of the U.S. electric power sector. The Agency uses IPM to examine costs and, more broadly, analyze the projected impact of environmental policies on the electric power sector i

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A06-2692. Public record. Not legal advice.