Approval and Promulgation of Implementation Plans; Massachusetts; Emissions Banking, Trading, and Averaging Program Approval

ENVIRONMENT PROTECTION AGENCY

40 CFR Part 52

[FRL-5533-2]

Approval and Promulgation of Implementation Plans; Massachusetts;

Emissions Banking, Trading, and Averaging Program Approval

AGENCY: Environmental Protection Agency (EPA).

ACTION: Direct final rule.

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SUMMARY: The EPA is approving, in final, a State Implementation Plan

(SIP) revision submitted by Massachusetts. This revision establishes a

voluntary emissions banking, trading, and averaging program for

eligible sources of volatile organic compounds (VOC), nitrogen oxides

(NOX), or carbon monoxide (CO). The goal of these regulations is

to encourage the creation, trading, and averaging of emission reduction

credits in order for facilities to comply with new source review

offsetting, netting, and reasonably available control technology (RACT)

requirements in the most cost-effective manner. The program was adopted

as a discretionary Economic Incentive Program, developed pursuant to

EPA's guidance. This revision includes provisions which EPA proposed to

approve in a document published on February 22, 1995.

DATES: This action is effective October 7, 1996, unless notice is

received by September 9, 1996 that adverse or critical comments will be

submitted. If the effective date is delayed, timely notice will be

published in the Federal Register.

ADDRESSES: Comments may be mailed to Susan Studlien, Deputy Director,

Office of Ecosystem Protection, U.S. Environmental Protection Agency,

Region I, JFK Federal Bldg., Boston, MA 02203. Copies of the State

submittal and EPA's technical support document are available for public

inspection during normal business hours, by appointment at the Office

of Ecosystem Protection, U.S. Environmental Protection Agency, Region

I, One Congress Street, 11th floor, Boston, MA, and the Division of Air

Quality Control, Massachusetts Department of Environmental Protection,

One Winter Street, 8th floor, Boston, MA 02108.

FOR FURTHER INFORMATION CONTACT: Steven A. Rapp, Environmental

Engineer, Air Quality Planning Unit (CAQ), United States Environmental

Protection Agency, Region 1, JFK Federal Building, Boston, MA 02203.

(617) 565-2773.

SUPPLEMENTARY INFORMATION:

I. Background

On April 7, 1994, EPA published final rules for Economic Incentive

Programs (59 FR 16690). The notice set forth Economic Incentive Program

(EIP) rules which could be adopted by certain ozone and carbon monoxide

nonattainment areas which were mandated by sections 182(g)(3),

182(g)(5), 187(d)(3), and 187(g) of the Clean Air Act (Act) to use or

consider EIPs. The notice also served as interim guidance for States to

develop discretionary EIPs for any criteria pollutant in all areas.

Massachusetts has developed emissions banking and trading, and

emissions averaging regulations as a discretionary EIP. The program was

developed pursuant to EPA's EIP guidance. These regulations establish a

voluntary emissions banking, trading, and averaging program for

eligible sources of volatile organic compounds (VOC), nitrogen oxides

(NOX), or carbon monoxide (CO). The goal of these regulations is

to encourage the creation, trading, and averaging of emission reduction

credits in order for facilities to comply with new source review

offsetting, netting, and reasonably available control technology (RACT)

requirements in the most cost-effective manner.

II. State Submittal

Massachusetts submitted an emissions banking and trading, and

emissions averaging regulations in two separate SIP submittals. First,

on February 9, 1994, the Massachusetts Department of Environmental

Protection (MA DEP) submitted Sections 310 CMR 7.00 Appendix B(1), (2),

(3), and (5) as a revision to its SIP. These sections of the

regulations establish requirements for the certification of emission

reduction credits (ERCs), or ``banking,'' as well as for the trading of

the ERCs between facilities. On February 22, 1995, EPA proposed

approval of this submittal. Subsequently, on April 14, 1995, the EPA

received a request from the Massachusetts DEP to revise the SIP for

ozone, including amendments to 310 CMR 7.18 and 7.19, regarding

emissions averaging at VOC and NOX RACT sources, concurrent with

the addition of sections 310 CMR 7.00 Appendix B(4) and (6), which deal

with emissions averaging and public participation procedures,

respectively, in the EIP.

[[Page 41336]]

Additionally, on February 8, 1996, MA DEP submitted supplemental

information to EPA which provides a quantitative demonstration that the

use of ERCs certified under 310 CMR 7.00 Appendix B, including the use

of credits created by one-time actions, or unused credits carried over

from year to year, i.e., the inter-temporal use of credits, will be

consistent with the requirements of the Massachusetts SIP, Reasonable

Further Progress (RFP) and Rate of Progress (ROP) plans, and area wide

RACT requirements.

The following is a description of the changes being approved in

this action:

A. 310 CMR 7.00 Appendix B(1), (2), (3), and (5)

Sections (1), (2), (3), and (5) of Appendix B establish a

discretionary economic incentive program (EIP) under Section 182 of the

Clean Air Act of emission banking and trading. The EIP rule classifies

EIPs into three broad categories: emission limiting, market response,

and directionally sound. Since this EIP will limit total mass emission,

related parameters, or specify levels of emission reductions from

eligible sources, it is classified as emission-limiting. Under this

EIP, individuals and companies can voluntarily reduce emissions at

eligible stationary sources (e.g., factories), mobile sources (e.g.,

automobiles), or area sources (e.g., residential heating systems) below

the level required by State and federal regulations and then ``bank''

the surplus reductions as credit. This program also establishes the

requirements for the transfer credits between eligible entities. Under

this program, stationary sources can use credits to comply with new

source review offsetting, netting, and reasonably available control

technology (RACT) requirements. These sections of the regulations

became effective in Massachusetts on September 10, 1993.

B. 310 CMR 7.00 Appendix B(4)

The goal of this part of the regulations is to allow sources of

NOX and VOC to utilize emissions averaging, or ``bubbling'', in

order to comply with RACT requirements. The addition of 310 CMR 7.00

Appendix B(4), in combination to the changes made to 310 CMR 7.18 and

7.19, establishes a system by which facilities owned by the same

person(s) can average, or ``bubble'' emissions. These rule changes

became effective in Massachusetts on January 27, 1995. This means that

facilities which reduce emissions below the level required by State and

federal regulation at some emission sources, can control less at other

emission sources, provided that the net effect to the environment is as

if all the emission sources applied the otherwise required controls.

This regulation replaces the former 310 CMR 7.00 Appendix B.

C. 310 CMR 7.00 Appendix B(6)

Section 310 CMR 7.00 Appendix B(6) was added to establish public

participation procedures which apply to applications processed under

310 CMR 7.00 Appendix B. These rule changes became effective in

Massachusetts on January 27, 1995. These provisions require that the MA

DEP propose publicly whether an application should be approved,

approved with conditions, or disapproved. Additionally, these

provisions require the MA DEP to make all non-confidential information

available to the public, to publish a public notice, to provide a 30

day public comment period, and conduct a public hearing. The inclusion

of these requirements, in combination with the other requirements of

310 CMR 7.00 Appendix B, will allow EPA to consider permits issued

consistent with Appendix B, for the certification, withdrawal,

transfer, or use of ERCs, to be considered federally enforceable

without the need for further EPA approval.

D. 310 CMR 7.18(2)(b)

The changes adopted to 310 CMR 7.18 consist of providing facility

owners with the option to utilize emissions averaging to comply with

VOC RACT emission limitations contained in 310 CMR 7.18 (3) through

(7), (10) through (12), and (14) through (16). Also, these provisions

require any facility utilizing emissions averaging to comply with the

requirements of 310 CMR 7.18 to be subject to the emissions averaging

requirements of 310 CMR 7.00 Appendix B(4).

E. 310 CMR 7.19(2)(d), (2)(g), and (14)

The changes adopted to 310 CMR 7.19 allow any source subject to the

NOX RACT requirements of 310 CMR 7.19 either to comply with a more

stringent limitation, in order to create emission reduction (ERCs)

credits or offsets, or to comply with the emission limitations of 310

CMR 7.19 by averaging emissions or by using ERCs. Section 310 CMR

7.19(14) allows emission units subject to the emission standards in 310

CMR 7.19(4), (5), (7), (8), or (12) to comply by emissions averaging.

Further, this section provides the conversion factors necessary for

averaging emissions between stationary reciprocating internal

combustion engines or stationary combustion turbines with boilers.

Additionally, this section requires such averaging emission units to

meet the testing, monitoring, record keeping, and reporting

requirements of 310 CMR 7.19(13)(b), (c), and (d), which includes the

requirements to use NOX CEMS on averaging units.

III. Analysis of State Submittal and Supporting Material

EPA has evaluated the Massachusetts emissions banking, trading, and

averaging regulations and supporting documentation against applicable

EPA guidance, including, the Economic Incentive Program rules (40 CFR

Sec. 51.490-494) and the EPA's June 28, 1989 guidance on requirements

of State implementation plans (54 FR 27274). EPA has determined that

all applicable requirements of these guidance documents have been met.

EPA has developed a technical support document (TSD) that contains a

detailed description of this analysis. The TSD is part of the docket

supporting this action and is available upon request.

IV. Issues

On February 22, 1995, EPA published a notice of proposed rulemaking

(NPR) proposing to approve portions of 310 CMR 7.00 Appendix B as a

non-generic economic incentive program (60 FR 9810). In response to

that notice, EPA received four comments. The commenters raised two

major areas of concern. First, three of the commenters argued that EPA

should grant ``generic'' authority to Massachusetts to allow the State

to approve emissions trades without further EPA approval. Second, one

commenter asserted that this EIP could result in pollution ``spikes''

if facilities traded emission reduction credits such that they would

emit more during the summer ozone season than the underlying control

requirements would have allowed absent the EIP.

However, since the publication of that notice, Massachusetts

adopted a number of regulatory changes which address the deficiencies

outlined in the NPR, including providing for public notice and comment

on each trade or credit certification. Also, Massachusetts has

submitted a quantitative analysis showing that the use of credits under

310 CMR 7.00 Appendix B(3), including the use of one-time or carry over

credits during time periods other than when they were generated (i.e.,

the inter-temporal use of credits), will be consistent with the

requirements of the Massachusetts SIP, RFP and ROP plans, and area wide

RACT requirements. EPA also performed an analysis of the potential

buffering effect inherent in implementation of the State's current

regulations. Based upon the regulatory

[[Page 41337]]

changes and additional analyses, EPA believes that the Massachusetts

emissions banking, trading program now fully meets the applicable EPA

guidance documents. Additionally, EPA has determined that the emissions

averaging portion of the program also meets the applicable EPA

guidance. Therefore, in lieu of finalizing the proposed final approval

of 310 CMR 7.00: Appendix B(1), (2), (3), and (5), and proposing

approval of the other provisions as a separate action, EPA is approving

all of 310 CMR 7.00 Appendix B, as well as 310 CMR 7.18(2)(b), 310 CMR

7.19(2)(d), 7.19(2)(g), and 7.19(14), as a fully generic EIP. The TSD

provides a detailed explanation of how EPA is addressing the comments

received on its earlier proposal, and how this current submittal

responds to the concerns raised in those comments.

V. Final Action

EPA is approving all of 310 CMR 7.00 Appendix B, as submitted to

date, as well as 310 CMR 7.18(2)(b), 310 CMR 7.19(2)(d), 7.19(2)(g),

and 7.19(14), as a fully generic EIP. Additionally, upon approval of

these regulations as part of the SIP, EPA will consider any emission

control plans or credit certifications issued according to the

requirements of 310 CMR 7.00 Appendix B since January 27, 1995, i.e.,

the effective date of the modified regulations, as federally

enforceable without the need for further EPA approval. EPA is

publishing this action without prior proposal because the Agency views

this as a noncontroversial amendment and anticipates no adverse

comments. However, in a separate document in this Federal Register

publication, EPA is proposing to approve the SIP revision should

adverse or critical comments be filed. This action will be effective

October 7, 1996 unless adverse or critical comments are received by

September 9, 1996.

If the EPA receives such comments, this action will be withdrawn

before the effective date by simultaneously publishing a subsequent

notice that will withdraw the final action. All public comments

received will then be addressed in a subsequent final rule based on

this action serving as a proposed rule. The EPA will not institute a

second comment period on this action. Any parties interested in

commenting on this action should do so at this time. If no such

comments are received, the public is advised that this action will be

effective on October 7, 1996.

VI. Procedural Background

Nothing in this action shall be construed as permitting or allowing

or establishing a precedent for any future request for a 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 relation to

relevant statutory and regulatory requirements.

VII. Regulatory Process

This action has been classified as a Table 3 action by the Regional

Administrator under the procedures published in the Federal Register on

January 19, 1989 (54 FR 2214-2225), as revised by a July 10, 1995

memorandum from Mary Nichols, Assistant Administrator for Air and

Radiation. A future document will inform the general public of these

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

action from review under Executive Order 12866.

Under the Regulatory Flexibility Act, 5 U.S.C. 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.

EPA's action does not create any new requirements, but simply

approves requirements that the State is already imposing. Therefore,

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

I certify that 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. USEPA, 427 US

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

Under sections 202, 203, and 205 of the Unfunded Mandates Reform

Act of 1995 (``Unfunded Mandates Act''), signed into law on March 22,

1995, EPA must assess whether various actions undertaken in association

with proposed or final regulations that include a Federal mandate that

may result in estimated costs of $100 million or more to the private

sector, or to State, local, or tribal governments in the aggregate.

EPA has determined, as discussed earlier, that the finding that is

the subject of this final action does not impose any federal

intergovernment mandate, as defined in Sec. 101 of the Unfunded

Mandates Act. This action consists of factual determinations based upon

the State's adoption of a voluntary program. Accordingly, no additional

costs to State, local, or tribal governments, or to the private sector

result from this action. This action also will not impose a mandate

that may result in estimated costs of $100 million or more to either

State, local, or tribal governments in the aggregate, or to the private

sector.

Under section 801(a)(1)(A) of the Administrative Procedure Act

(APA) as amended by the Small Business Regulatory Enforcement Fairness

Act of 1996, EPA submitted a report containing this rule and other

required information to the U.S. Senate, the U.S. House of

Representatives and the Comptroller General of the General Accounting

Office prior to publication of this rule in today's Federal Register.

This rule is not a ``major rule'' as defined by section 804(2) of the

APA as amended.

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

relation to relevant statutory and regulatory requirements.

List of Subjects in 40 CFR Part 52

Environmental protection, Air pollution control, Carbon Monoxide,

Hydrocarbons, Incorporation by reference, Intergovernmental relations,

Nitrogen oxides, Ozone, Reporting and recordkeeping requirements.

Note: Incorporation by reference of the State Implementation

Plan for the State of Massachusetts was approved by the Director of

the Federal Register on July 1, 1982.

Dated: June 18, 1996.

John P. DeVillars,

Regional Administrator, Region I.

Part 52 of chapter I, title 40 of the Code of Federal Regulations

is amended as follows:

PART 52--[AMENDED]

1. The authority citation for part 52 continues to read as follows:

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

[[Page 41338]]

Subpart W--Massachusetts

2. Section 52.1120 is amended by adding paragraph (c)(112) to read

as follows:

Sec. 52.1120 Identification of plan.

* * * * * *

(c) * * *

(112) Revisions to the State Implementation Plan submitted by the

Massachusetts Department of Environmental Protection on February 9,

1994, and April 14, 1995, concerning emissions banking, trading, and

averaging.

(i) Incorporation by reference.

(A) Letters from the Massachusetts Department of Environmental

Protection dated February 9, 1994, and March 29, 1995, submitting

revisions to the Massachusetts State Implementation Plan.

(B) Regulations 310 CMR 7.00 Appendix B(1); 310 CMR 7.00 Appendix

B(2); 310 CMR 7.00 Appendix B(3), except 310 CMR 7.00 Appendix

B(3)(e)5.h; and, 310 CMR 7.00 Appendix B(5); effective on January 1,

1994. Also, regulations 310 CMR 7.00 Appendix B(4); 310 CMR 7.00

Appendix B(6); 310 CMR 7.18(2)(b); 310 CMR 7.19(2)(d); 310 CMR

7.19(2)(g); and, 310 CMR 7.19(14); effective on January 27, 1995.

(ii) Additional materials.

(A) Letter and attachments from the Massachusetts Department of

Environmental Protection dated February 8, 1996, submitting

supplemental information concerning the demonstration of balance

between credit creation and credit use.

3. In Sec. 52.1167, table 52.1167 is amended by removing the

existing entry for ``310 CMR 7.00 Appendix B'' and replacing it with

the new entry ``310 CMR 7.00 Appendix B, except for 310 CMR 7.00

Appendix B(3)(e)5.h''; and by adding new entries in numerical order to

existing state citations ``310 CMR 7.18'' and ``310 CMR 7.19'' to read

as follows:

Sec. 52.1167 EPA-approved Massachusetts State regulations.

* * * * *

Table 52.1167.--EPA-Approved Massachusetts Regulations

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Date submitted by Federal Register Comments/unapproved

State citation Title/subject State Date approved by EPA citation 52.1120(c) sections

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* * * * * * *

310 CMR 7.00 Appendix B (except Emissions Banking, 2/9/94 and......... Aug. 8, 1996.......... [FR citation from 112 Replaces earlier

310 CMR 7.00 Appendix Trading, and 3/29/95............ published date]. emissions averaging

B(3)(e)5.h). Averaging. rules with emissions

banking, trading, and

averaging.

* * * * * * *

310 CMR 7.18 (2)(b)............ Generic VOC bubble 3/29/95............ Aug. 8, 1996.......... [FR citation from 112 Replaces earlier

for surface published date]. emissions averaging

coaters. rules for surface

coaters.

* * * * * * *

310 CMR 7.19 (2)(d)............ Generic NOX 3/29/95............ Aug. 8, 1996.......... [FR citation from 112 Adds credit creation

bubbling and published date]. option for NOX RACT

trading for RACT sources.

sources.

310 CMR 7.19 (2)(g)............ Generic NOX 3/29/95............ Aug. 8, 1996.......... [FR citation from 112 Adds credit use option

bubbling and published date]. for NOX RACT sources.

trading for RACT

sources.

310 CMR 7.19 (14).............. Generic NOX 3/29/95............ Aug. 8, 1996.......... [FR citation from 112 Adds quantification,

bubbling for RACT published date]. testing, monitoring,

sources. record keeping,

reporting, and

emission control plan

requirements for

averaging NOX RACT

sources.

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[FR Doc. 96-20241 Filed 8-07-96; 8:45 am]

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