Approval and Promulgation of Implementation Plans; California Implementation Plan Revision; South Coast Air Quality Management District

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[CA 78-2-6824; FRL-5162-4]

Approval and Promulgation of Implementation Plans; California

Implementation Plan Revision; South Coast Air Quality Management

District

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: EPA is proposing to conditionally approve revisions to the

California State Implementation Plan (SIP) which concern the control of

oxides of nitrogen (NOX) and oxides of sulfur (SOX) emissions

using an emissions-limiting economic incentives program, the NOX

and SOX Regional Clean Air Incentives Market (NOX and

SOX RECLAIM). This program, which consists of twelve rules and

associated appendices known as Regulation XX, applies to facilities in

the South Coast Air Quality Management District (SCAQMD) with four or

more tons of NOX or SOX emissions per year from permitted

equipment. The subject facilities, in order to meet annual emission

reduction requirements, will participate in an economic incentive

program (EIP) in order to reduce emissions at a significantly lower

cost.

The intended effect of proposing approval of Regulation XX is to

regulate emissions of NOX and SOX in accordance with the

requirements of the Clean Air Act, as amended in 1990 (CAA or the Act).

EPA's final action on this notice of proposed rulemaking (NPRM) will

incorporate this regulation into the federally approved SIP. EPA has

evaluated this regulation and is proposing to conditionally approve it

under provisions of the CAA regarding EPA action on SIP submittals,

SIPs for national primary and secondary ambient air quality standards

and plan requirements for nonattainment areas. The EPA's final

conditional approval is contingent on the SCAQMD providing the Agency

with an enforceable commitment which addresses and cures all of the

deficiencies associated with NOX and SOX RECLAIM within 12

months of the publication of the proposed conditional approval. In the

event that SCAQMD fails to provide EPA with such a commitment, then EPA

will publish a final rule to approve NOX and SOX RECLAIM in

the form of a limited approval/limited disapproval action. Both the

conditional approval action and the limited approval/limited

disapproval action are discussed in this NPRM.

DATES: Comments must be received on or before March 30, 1995.

ADDRESSES: Comments may be mailed to: Daniel A. Meer, Rulemaking

Section (A-5-3), Air and Toxics Division, U.S. Environmental Protection

Agency, Region IX, 75 Hawthorne Street, San Francisco, CA 94105.

Copies of the new regulation and EPA's evaluation report of the

regulation are available for public inspection at EPA's Region 9 office

(address above) during normal business hours. Copies of the submitted

regulation are also available for inspection at the following

locations:

California Air Resources Board, Stationary Source Division, Rule

Evaluation Section, 2020 ``L'' Street, Sacramento, CA 95814.

South Coast Air Quality Management District, 21865 E. Copley Drive,

Diamond Bar, CA 91765-4182.

FOR FURTHER INFORMATION CONTACT: Kenneth Israels, Rulemaking Section

(A-5-3), Air and Toxics Division, [[Page 10820]] Environmental

Protection Agency, 75 Hawthorne Street, San Francisco, CA 94105,

Telephone: (415) 744-1194.

SUPPLEMENTARY INFORMATION:

Background

On November 15, 1990, the Clean Air Act Amendments of 1990 (CAA)

were enacted. Pub. L. 101-549, 104 Stat. 2399, codified at 42 U.S.C.

7401-7671q. The air quality planning requirements for the reduction of

NOX emissions through reasonably available control technology

(RACT) are set out in section 182(f) of the CAA. On November 25, 1992,

EPA published a NPRM entitled ``State Implementation Plans; Nitrogen

Oxides Supplement to the General Preamble; Clean Air Act Amendments of

1990 Implementation of Title I; Proposed Rule,'' (the NOX

Supplement) which describes the requirements of section 182(f). The

November 25, 1992, notice should be referred to for further information

on the NOX requirements and is incorporated into this proposal by

reference.

Section 182(b)(2) requires submittal of RACT rules for major

stationary sources of VOC emissions (not covered by a pre-enactment

control technologies guidelines (CTG) document or a post-enactment CTG

document) by November 15, 1992. There were no NOX CTGs issued

before enactment and EPA has not issued a CTG document for any NOX

sources since enactment of the CAA. The RACT rules covering NOX

sources and submitted as SIP revisions are expected to require final

installation of the actual NOX controls by May 31, 1995, for those

sources where installation by that date is practicable. Section 182(f)

of the Clean Air Act requires States to apply the same requirements to

major stationary sources of NOX (``major'' as defined in section

302 and section 182 (c), (d), and (e)) as are applied to major

stationary sources of volatile organic compounds (VOCs), in moderate or

above ozone nonattainment areas. The Los Angeles-South Coast Air Basin

is classified as extreme,1 therefore this area was subject to the

RACT requirements of section 182(b)(2), cited above, and the November

15, 1992 deadline.2

\1\The Los Angeles-South Coast Air Basin was designated

nonattainment and classified by operation of law pursuant to

sections 107(d) and 181(a) upon the date of enactment of the CAA.

See 55 FR 56694 (November 6, 1991).

\2\EPA made a finding of nonsubmittal for NOX RACT in

SCAQMD on April 21, 1993. NOX RECLAIM in combination with other

measures satisfy this requirement. On October 21, 1994, EPA found

that SCAQMD had submitted measures satisfying the NOX RACT

requirements.

---------------------------------------------------------------------------

On April 7, 1994, EPA published a final rule concerning EIPs

entitled ``Economic Incentive Program Rules,'' (EIP Rules) in order to

fulfill the requirements of section 182(g)(4)(A) of the Act (see 59 FR

16690). The EIP Rules establish several requirements which State

programs must meet.

These requirements are:

Statement of goals and rationale. This element shall

include a clear statement as to the environmental problem being

addressed, the intended environmental and economic goals of the

program, and the rationale relating the incentive-based strategy to the

program goals.

Program scope. This element shall contain a clear

definition of the sources affected by the program.

Program baseline. A program baseline shall be defined as a

basis for projecting program results and, if applicable, for

initializing the incentive mechanism (e.g., for marketable permits

programs). The program baseline shall be consistent with, and

adequately reflected in, the assumptions and inputs used to develop an

area's reasonable further progress (RFP) plans and attainment and

maintenance demonstrations, as applicable. The State shall provide

sufficient supporting information from the areawide emissions inventory

and other sources to justify the baseline used in the State or local

EIP.

Replicable emission quantification methods. This program

element, for programs other than those which are categorized as

directionally-sound, shall include credible, workable, and replicable

methods for projecting program results from affected sources and, where

necessary, for quantifying emissions from individual sources subject to

the EIP. Such methods, if used to determine credit taken in attainment,

RFP, and maintenance demonstrations, as applicable, shall yield results

which can be shown to have a level of certainty comparable to that for

source-specific standards and traditional methods of control strategy

development.

Source requirements. This program element shall include

all source-specific requirements that constitute compliance with the

program. Such requirements shall be appropriate, readily ascertainable,

and State and federally enforceable.

Projected results and audit/reconciliation procedures.

This program element includes a commitment to ensure the timely

implementation of programmatic revisions or other measures which the

State, in response to the audit, deems necessary for the successful

operation of the program in the context of overall RFP and attainment

requirements. (see 40 CFR 51.493(f)(3)(i))

Implementation schedule. The program shall contain a

schedule for the adoption and implementation of all State commitments

and source requirements included in the program design.

Administrative procedures. The program shall contain a

description of State commitments which are integral to the

implementation of the program, and the administrative system to be used

to implement the program, addressing the adequacy of the personnel,

funding, and legislative authority.

Enforcement mechanisms. The program shall contain a

compliance instrument(s) for all program requirements, which is legally

binding and enforceable by both the State and EPA. This program element

shall also include a State enforcement program which defines

violations, and specifies auditing and inspections plans and provisions

for enforcement actions. The program shall contain effective penalties

for noncompliance which preserve the level of deterrence in traditional

programs. For all such programs, the manner of collection of penalties

must be specified.

The EIP Rule should be referred to for further information on the

EIP requirements and is incorporated into this proposal by reference.

The State of California submitted the regulation being acted on in

this document on March 21, 1994. This document addresses EPA's proposed

action for SCAQMD, Regulation XX, NOX and SOX RECLAIM. SCAQMD

adopted Regulation XX on October 15, 1993. This submitted regulation

was found to be complete on April 11, 1994, pursuant to EPA's

completeness criteria that are set forth in 40 CFR Part 51, Appendix

V,3 and is being proposed for approval into the SIP.

\3\EPA adopted the completeness criteria on February 16, 1990

(55 FR 5830) and, pursuant to section 110(k)(1)(A) of the CAA,

revised the criteria on August 26, 1991 (56 FR 42216).

---------------------------------------------------------------------------

NOX emissions contribute to the production of ground level

ozone and smog. The regulation was adopted as part of SCAQMD's efforts

to achieve the National Ambient Air Quality Standards (NAAQS) for ozone

and in response to the CAA requirements cited above. The following is

EPA's evaluation and proposed action for this regulation.

EPA Evaluation and Proposed Action

In determining the approvability of a NOX regulation, EPA must

evaluate the [[Page 10821]] regulation for consistency with the

requirements of the CAA and EPA regulations, as found in section 110

and Part D of the CAA and 40 CFR Part 51 (Requirements for Preparation,

Adoption, and Submittal of Implementation Plans). The EPA

interpretation of these requirements, which forms the basis for today's

action, appears in the various EPA policy guidance documents.4

Among these provisions is the requirement that a NOX rule must, at

a minimum, provide for the implementation of RACT for stationary

sources of NOX emissions.

\4\Among other things, the pre-amendment guidance consists of

those portions of the proposed post-1987 ozone and carbon monoxide

policy that concern RACT, 52 FR 45044 (November 24, 1987); ``Issues

Relating to VOC Regulation Cutpoints, Deficiencies, and Deviations,

Clarification to Appendix D of November 24, 1987 Federal Register

Notice'' (Blue Book) (notice of availability was published in the

Federal Register on May 25, 1988).

---------------------------------------------------------------------------

For the purpose of assisting state and local agencies in developing

RACT rules, EPA prepared the NOX supplement to the General

Preamble, cited above (57 FR 55620). In the NOX supplement, EPA

provides guidance on how RACT will be determined for stationary sources

of NOX emissions. While most of the guidance issued by EPA on what

constitutes RACT for stationary sources has been directed towards

application for VOC sources, much of the guidance is also applicable to

RACT for stationary sources of NOX (see section 4.5 of the

NOX Supplement). In addition, pursuant to section 183(c) EPA is

issuing alternative control technique documents (ACTs) that identify

alternative controls for all categories of stationary sources of

NOX. The ACT documents will provide information on control

technology for stationary sources that emit or have the potential to

emit 25 or more tons per year of NOX. However, the ACTs will not

establish a presumptive norm for what is considered RACT for stationary

sources of NOX. In general, the guidance documents cited above, as

well as other relevant and applicable guidance documents, have been set

forth to ensure that submitted NOX RACT rules meet federal RACT

requirements and are fully enforceable and strengthen or maintain the

SIP.

In determining the approvability of an EIP, EPA must evaluate the

regulation for consistency with the requirements of the CAA and EPA

regulations, as found in section 110 and Part D of the CAA and 40 CFR

Part 51 (Requirements for Preparation, Adoption, and Submittal of

Implementation Plans). The EPA interpretation of these requirements,

which forms the basis for today's action, appears in the various EPA

policy guidance documents listed in footnote 4 of this notice. Among

these provisions is the requirement that an EIP rule must, at a

minimum, be consistent with attainment and RFP requirements found in

the CAA.

For the purpose of assisting state and local agencies in developing

rules which incorporate economic incentive strategies, EPA prepared the

EIP Rules, cited above (59 FR 16690). In the EIP Rules, EPA provides

guidance on how EIPs can be designed to be consistent with the

attainment and RFP requirements of the CAA. In general, the guidance

documents cited above, as well as other relevant and applicable

guidance documents, have been set forth to ensure that submitted EIPs

meet federal requirements and are fully enforceable and strengthen or

maintain the SIP.

SCAQMD's Regulation XX, NOX and SOX RECLAIM, is a new

rule which was adopted to control NOX and SOX emissions using

an emissions-limiting economic incentives program applicable to

facilities with four or more tons of NOX or SOX emissions per

year. Facilities with NOX or SOX emissions from permitted

equipment participate in a pollutant-specific market in order to reduce

emissions at a significantly lower cost. The program subsumes fourteen

SCAQMD Air Quality Management Plan (AQMP) control measures and is

projected to reduce emissions by an equivalent amount.

The regulation discussed below is being proposed for conditional

approval under Section 110(k)(4) of the CAA because it strengthens the

SIP and EPA is optimistic that the SCAQMD will provide EPA a commitment

within 12 months of the publication of this proposal and prior to the

publication of the final rule. Such a commitment must obligate the

SCAQMD to revise Regulation XX to correct the identified Appendix D

deficiencies, within one year after the date of publication of the

final rule. The conditional approval shall be treated as a disapproval

if the SCAQMD fails to comply with the submitted commitment.

The NOX and SOX RECLAIM program strengthens the SIP by

placing a declining emissions cap on subject facilities. The declining

cap is based on the application of RACT (or requirements more stringent

than RACT) at the facility and is reduced to overall emissions below

RACT levels in order to bring the South Coast Air Basin into attainment

of the ozone NAAQS. Regulation XX is comprised of 12 rules and 2

associated appendices which are described below:

Rule 2000--General. This rule provides the program's

objective, its purpose, and applicable definitions;

Rule 2001--Applicability. This rule provides the criteria

for inclusion in NOX and SOX RECLAIM, requirements for

sources electing to enter NOX and SOX RECLAIM and identifies

provisions in SCAQMD rules and regulations that do not apply to

NOX and SOX RECLAIM sources;

Rule 2002--Allocations for Oxides of Nitrogen (NOX)

and Oxides of Sulfur (SOX). This rule establishes the methodology

for calculating initial facility allocations for NOX and SOX

RECLAIM;

Rule 2004--Requirements. This rule establishes

requirements for operating under the NOX and SOX RECLAIM

program. The rule includes provisions pertaining to permits,

allocations, reporting, variances, penalties, and breakdowns;

Rule 2005--New Source Review (NSR) for RECLAIM. This rule

sets forth pre-construction review requirements for new facilities

subject to the requirements of the NOX and SOX RECLAIM

program and for modifications to existing NOX and SOX RECLAIM

facilities;

Rule 2006--Permits. This rule sets forth procedures for

issuing and amending NOX and SOX RECLAIM facility permits;

Rule 2007--Trading Requirements. This rule defines the

NOX and SOX RECLAIM trading credit (RTC) and establishes the

trading requirements for NOX and SOX RECLAIM;

Rule 2008--Mobile Source Credits. This rule establishes

criteria for and requirements on utilizing emission reductions

generated from SCAQMD 1600 series rules as RTCs;

Rule 2010--Administrative Remedies and Sanctions. This

rule specifies provisions to ensure that NOX and SOX RECLAIM

facilities which exceed their allocation provide compensating emission

reductions. This rule also provides for administrative penalties for

NOX and SOX RECLAIM rule violations;

Rule 2011--Requirements for Monitoring, Reporting, and

Recordkeeping for Oxides of Sulfur Emissions. This rule and its

appendix (Appendix A) establish the monitoring, reporting, and

recordkeeping requirements for SOX emissions under the NOX

and SOX RECLAIM program;

Rule 2012--Requirements for Monitoring, Reporting, and

Recordkeeping for Oxides of Nitrogen Emissions. This rule and its

appendix (Appendix A) establish the monitoring, reporting, and

recordkeeping [[Page 10822]] requirements for NOX emissions under

the NOX and SOX RECLAIM program; and

Rule 2015--Backstop Provisions. This rule specifies

NOX and SOX RECLAIM program auditing requirements and actions

that the SCAQMD will take in the event that the environmental goals of

RECLAIM program are not achieved.

Although the approval of Regulation XX will strengthen the

SIP, the regulation still contains deficiencies, identified below and

in the associated technical support document (TSD), which are required

to be corrected pursuant to section 182(b)(2) of the CAA. The NOX

and SOX RECLAIM program contains the following deficiencies:

The program allows the use of variances to avoid

compliance with program requirements; this results in the program

failing to meet the requirements of section 110(i) of the Act,

The program does not meet certain new source review

requirements of the Act and Part D,

The program allows the use of Executive Officer discretion

in the implementation of certain emissions monitoring provisions; this

results in the program failing to meet the requirements of section

110(i) of the Act,

The program's references to other programs, notably those

involving the use of mobile source emission reduction credits (MERCs)

is inconsistent with section 110(i) of the Act, and

The submittal does not provide all of the necessary

demonstrations to ensure that the requirements of EPA's EIP Rules are

being met.

A detailed discussion of the rule deficiencies can be found in the

TSD for Regulation XX (January 5, 1995), which is available from the

U.S. EPA, Region 9 office. Because SCAQMD is not using Regulation XX as

a means to achieve or maintain attainment of the SO2 NAAQS,5

the PM10 NAAQS,6 or the NO2 NAAQS, EPA does not believe

that Regulation XX will interfere with SCAQMD's ability to meet the

requirements necessary in the Act for achieving or maintaining these

standards. EPA believes that the penalty provisions found in RECLAIM

Rule 2004 will be adequate for enforcement of the RECLAIM program.

However, EPA does not believe that such penalty provisions would

necessarily be adequate for other program designs. EPA will evaluate

the penalty provisions of each program design on an individual basis,

paying particular attention to the program elements found in the EIP

rule (see 40 CFR 51.493(i) and 59 FR 16700-16701 dated April 7, 1994)

where applicable.

\5\SCAQMD is presently in attainment of the SO2 NAAQS.

\6\In this instance, SCAQMD is not asserting and EPA is not

finding that SOX RECLAIM is designed to be used as a means to

identify or implement best available control measures (BACM) for

PM10 in the South Coast Air Basin. If at some point in the

future SCAQMD decides to use SOX RECLAIM as a means of

fulfilling this requirement, an additional SIP submittal must be

made at which time EPA will apply the appropriate review criteria.

---------------------------------------------------------------------------

Because of the above deficiencies, EPA cannot grant approval of

this regulation under section 110(k)(3), section 110(a)(2), section

169A, and Parts C and D of the Act. Also, because the submitted

regulation is not composed of separable parts which meet all the

applicable requirements of the CAA, EPA cannot grant partial approval

of the regulation under section 110(k)(3). However, EPA may grant a

conditional approval under section 110(k)(4) based on a commitment by

the SCAQMD to revise the regulation to correct the identified

deficiencies within one year of the Notice of Final Rulemaking of the

conditional approval. EPA is optimistic that the SCAQMD will commit to

adopt a regulation correcting the deficiencies within the required

timeframe. The commitment letter must contain a schedule of interim

steps (with dates) for the regulation. The State of California must

submit the commitment letter to EPA. Therefore, EPA is proposing to

give conditional approval to submitted Regulation XX under section

110(k)(4) of the CAA.

Under section 110(k)(4), the conditional approval shall be treated

as a disapproval of a rule if the SCAQMD fails to adopt rules

correcting the deficiencies within the time allowed. Under 179(a)(2),

if the Administrator disapproves a submission under section 110(k) for

an area designated nonattainment, based on the submission's failure to

meet one or more of the elements required by the CAA, the Administrator

must apply one of the sanctions set forth in section 179(b) unless the

deficiency has been corrected within 18 months of such disapproval.

Section 179(b) provides two sanctions available to the Administrator:

highway funding and offsets. The 18 month period referred to in section

179(a) will begin on the effective date of EPA's final disapproval.

Moreover, the final disapproval triggers the federal implementation

plan (FIP) requirement under section 110(c). It should be noted that

the regulation covered by this NPRM has been adopted by the SCAQMD and

is currently in effect in the SCAQMD.

In the event that SCAQMD is unable to provide EPA with a commitment

which addresses all of the deficiencies identified by EPA within 12

months of the publication of this NPRM, then EPA will publish a final

rule which finalizes a limited approval/limited disapproval action on

the NOX and SOX RECLAIM program in lieu of publishing a final

rule which finalizes a conditional approval action on the NOX and

SOX RECLAIM program. In the instance in which SCAQMD fails to

provide the commitment within 12 months of the publication of the NPRM,

the limited approval/limited disapproval would be finalized based on

the same deficiencies noted elsewhere in this document and the

associated TSD. As noted above, because of the noted deficiencies, EPA

cannot grant approval or partial approval of this regulation under

section 110(k)(3) and part D. However, EPA may grant a limited approval

of the submitted regulation under section 110(k)(3) in light of EPA's

authority pursuant to section 301(a) to adopt regulations necessary to

further air quality by strengthening the SIP. The approval is limited

because EPA's action also contains a simultaneous limited disapproval.

In the instance where a commitment from SCAQMD is not submitted within

12 months of the publication of the NPRM, in order to strengthen the

SIP, EPA will finalize a limited approval of SCAQMD's submitted

Regulation XX under sections 110(k)(3) and 301(a) of the CAA.

At the same time, EPA will also finalize a limited disapproval of

this regulation because it contains deficiencies that have not been

corrected as required by section 182(a)(2)(A) of the CAA, and, as such,

the regulation does not fully meet the requirements of part D of the

Act. As noted above, if the identified deficiencies are not corrected

within 18 months of EPA's final limited disapproval, the sanctions

described in section 179 of the CAA will be applied. It should be noted

that the regulation covered by this NPRM has been adopted by the SCAQMD

and is currently in effect in the SCAQMD. EPA's final limited

disapproval action in this NPRM will not prevent the SCAQMD or the EPA

from enforcing this regulation.

Nothing in this action should be construed as permitting or

allowing or establishing a precedent for any future request for

revision to any state implementation plan. Each request for revision to

the state implementation plan shall be considered separately in light

of specific technical, economic, and environmental factors and in

[[Page 10823]] relation to relevant statutory and regulatory

requirements.

Regulatory Process

Under the Regulatory Flexibility Act, 5 U.S.C. Section 600 et seq.,

EPA must prepare a regulatory flexibility analysis assessing the impact

of any proposed or final rule on small entities. 5 U.S.C. 603 and 604.

Alternatively, EPA may certify that the rule will not have a

significant impact on a substantial number of small entities. Small

entities include small businesses, small not-for-profit enterprises and

government entities with jurisdiction over populations of less than

50,000.

Conditional approvals of SIP submittals under sections 110 and 301

and subchapter I, Part D of the CAA do not create any new requirements,

but simply approve requirements that the State is already imposing.

Therefore, because the federal SIP-approval does not impose any new

requirements, it does not have a significant impact on any small

entities affected. Moreover, due to the nature of the federal-state

relationship under the CAA, preparation of a regulatory flexibility

analysis would constitute Federal inquiry into the economic

reasonableness of state action. The CAA forbids EPA to base its actions

concerning SIPs on such grounds. Union Electric Co. v U.S. E.P.A., 427

U.S. 246, 256-66 (S.Ct. 1976); 42 U.S.C. 7410(a)(2). This discussion

applies in the case where EPA finalizes a limited approval/limited

disapproval action as well.

If the conditional approval is converted to a disapproval under

section 110(k), based on the State's failure to meet the submitted

commitment, it will not affect any existing state requirements

applicable to small entities. Federal disapproval of the state

submittal does not affect its state-enforceability. Moreover, EPA's

disapproval of the submittal does not impose a new federal requirement.

Therefore, EPA certifies that this disapproval action does not have a

significant impact on a substantial number of small entities because it

does not remove existing state requirements nor does it impose any new

federal requirements.

The Office of Management and Budget (OMB) has exempted this action

from review under Executive Order 12866.

List of Subjects in 40 CFR Part 52

Environmental protection, Air pollution control, Ozone,

Hydrocarbons, Intergovernmental relations, Reporting and recordkeeping

requirements, Volatile organic compounds, Nitrogen dioxide.

Authority: 42 U.S.C. 7401-7671q.

Dated: February 15, 1995.

Felicia Marcus,

Regional Administrator.

[FR Doc. 95-4891 Filed 2-27-95; 8:45 am]

BILLING CODE 6560-50-P