Clean Air Act Final Interim Approval of the Operating Permits Program; Michigan

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 70

[MI001; FRL-5674-1]

Clean Air Act Final Interim Approval of the Operating Permits

Program; Michigan

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final interim approval.

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SUMMARY: The EPA is promulgating interim approval of the operating

permits program submitted by the State of Michigan for the purpose of

complying with Federal requirements for an approvable State program to

issue operating permits to all major stationary sources, and to certain

other sources.

EFFECTIVE DATE: February 10, 1997.

ADDRESSES: Copies of the State's submittal and other supporting

information used in developing the final interim approval are available

for inspection during normal business hours at the following location:

EPA Region 5, Air and Radiation Division (AR-18J), 77 West Jackson

Boulevard, Chicago, Illinois 60604.

FOR FURTHER INFORMATION CONTACT: Beth Valenziano, Permits and Grants

Section (AR-18J), EPA, 77 West Jackson Boulevard, Chicago, Illinois

60604, (312) 886-2703. E-mail address: [email protected].

SUPPLEMENTARY INFORMATION:

I. Background and Purpose

Title V of the Clean Air Act Amendments of 1990 (title V), and the

implementing regulations at 40 Code of Federal Regulations (CFR) part

70 require that States develop and submit operating permits programs to

EPA by November 15, 1993, and that EPA act to approve or disapprove

each program within 1 year after receiving the submittal. The EPA's

program review occurs pursuant to section 502 of the Clean Air Act

(Act) and the part 70 regulations, which together outline criteria for

approval or disapproval. Where a program substantially, but not fully,

meets the requirements of part 70, EPA may grant the program interim

approval for a period of up to 2 years. If EPA has not fully approved a

program by 2 years after the November 15, 1993 date, or by the

expiration of the interim approval period, it must establish and

implement a Federal program.

On June 24, 1996, EPA proposed interim approval of the operating

permits program for the State of Michigan. See 61 FR 32391. The EPA

received public comment from five organizations on the proposal and

compiled a Technical Support Document (TSD) responding to the comments

and briefly describing and clarifying aspects of the operating permits

program. In this document EPA is taking final action to promulgate

interim approval of the operating permits program for the State of

Michigan.

II. Final Action and Implications

A. Analysis of State Submission and Response to Public Comments

The EPA received comments on a total of 12 topics from five

organizations. The EPA's response to these comments as developed for

the response to comments TSD is included in this section.

1. Indian Country

The EPA proposed that the interim approval of Michigan's operating

permits program shall not extend to any sources of air pollution on

Indian lands, including lands within the exterior boundaries of any

Indian reservation in the State of Michigan. MDEQ commented that

Michigan's part 70 authority should extend to some lands within the

exterior boundaries of Indian reservations, and identifies a specific

[[Page 1388]]

source on an Indian reservation that the State believes is within its

jurisdiction. MDEQ states that it intends to develop legal arguments to

support its determination that lands within the exterior boundaries of

reservations that have been sold for non-tribal uses are within the

State's jurisdiction. MDEQ also states that it expects such sources to

submit operating permit applications in accordance with the State

regulations.

Because Michigan has not demonstrated the legal authority to

regulate sources in Indian country, including sources on non-Indian

owned fee lands within the exterior boundaries of Indian reservations,

the final interim approval of Michigan's part 70 program does not

extend to such sources. However, EPA will carefully consider any

evaluation Michigan submits in the future regarding State authority

over such sources. The EPA retains the authority to issue part 71

permits to all sources in Indian country until such time as EPA

approves a part 70 program. Part 71 application submittal deadlines for

Indian country are established in 40 CFR 71.4(b) and 40 CFR 71.5(a)(1),

and will be no later than November 15, 1998. Any sources located in

Indian country required to submit applications earlier than this date

will be notified in accordance with the requirements of part 71. The

EPA takes no position on the State seeking voluntary compliance with

State permitting requirements in Indian country.

2. Delegation of State Program to Local Governments

The proposed interim approval of Michigan's part 70 program

confirmed the State's authority to delegate the program to certain

county governments, such as Wayne County. MDEQ asked EPA to clarify

whether a delegation would require a part 70 program revision, and what

the timing and content of any required program revision would be.

Title V of the Act and the part 70 regulations specify the elements

of a State operating permits program. In addition to the criteria for

the permits themselves, these elements address various program

infrastructure and administration issues. Examples include the adequacy

of the agency's legal authorities and staffing. Thus, the delegation of

the program authorities to another agency would by its nature entail

revision of the State's part 70 program.

40 CFR 70.4(i) requires that program revisions be approved by EPA

before they become finally effective. However, EPA is developing a

program revision process that will meet the requirements of 40 CFR

70.4(i) while also providing continuity as States modify and update

their programs. Although the details of this process have yet to be

established, this process will focus on ongoing cooperation between the

State and EPA, with real-time evaluation of program revision efforts.

The EPA will work with Michigan as this process is developed so that

any program revision, including any delegation of the State program to

a local agency, can take advantage of this approach.

The content of a revised part 70 program submittal to EPA would

depend on the nature and scope of the actual delegation. The

information provided to EPA should address the changes and additions

that the delegation makes to the program that has already been approved

by EPA. The State should review the program submittal requirements in

40 CFR 70.4 and determine what elements are necessary to address the

delegation. For example, the submittal of State regulations would not

be necessary if they are not revised; however, the adoption of any

local regulations necessary for the delegation should be included in

the submittal. Similarly, a revised legal opinion from the Attorney

General would likely be needed to verify that the local agency has the

authority to carry out its part 70 program responsibilities established

by the delegation. The EPA will provide Michigan additional guidance as

necessary to address the program revision requirements for any

particular State delegation to a local agency.

3. Definition of Potential to Emit

As a condition of full approval, EPA proposed that Michigan must

revise its definition of ``potential to emit'' to require that limits

on potential to emit be federally enforceable. Two commenters noted

that a recent court case (Clean Air Implementation Project v. EPA, no.

96-1224 (D.C. Cir. June 28, 1996)) vacated the federally enforceable

requirement from the 40 CFR 70.2 definition of potential to emit. Both

commenters stated that this issue should be removed from Michigan's

list of interim approval issues. The EPA agrees with the commenters,

and has removed this issue as a condition of full approval. The EPA

intends to develop a rulemaking to address the enforceability

requirements on potential to emit limits for the title V program, the

New Source Review program, and the section 112 toxics program.

4. Research and Development (R&D) Activities

In the proposed interim approval of Michigan's part 70 program, EPA

acknowledged the State's regulatory provision that allows R&D

activities on the same contiguous site as manufacturing activities to

be treated as a separate source for purposes of determining operating

permit program applicability. Although EPA believes that R&D should be

treated as having its own industrial grouping for purposes of

determining major source status, EPA stated in the Michigan proposal

that separate treatment will not exempt R&D facilities in all cases.

This is because some R&D activities may be individually major, or

because they may be a support facility that makes significant

contributions to the product of a collocated major facility. One

commenter noted the R&D discussions in the part 70 supplemental

proposal preamble (60 FR 45556-45558), and asked EPA to clarify whether

EPA maintains its position in the supplemental proposal regarding the

applicability of the support facility test in the R&D context.

As discussed in the supplemental proposal preamble, EPA believes

that R&D activities should not generally be considered support

facilities to collocated industrial facilities, since the support

provided is directed towards development of new processes or products

and not to current production. However, if an activity does contribute

to the ongoing product produced or service rendered at a facility in

more than a de minimis manner, those activities should be considered

part of the source for applicability purposes.

5. Exemptions From Major Source Determinations

The EPA proposed as a condition of full approval that Michigan must

remove its exemptions of certain small activities from determining

major source status. Two commenters objected to this interim approval

issue. One commenter stated that there is no express regulatory

requirement mandating that insignificant activities be considered in

major source determinations under title V. The commenter also believes

the inclusion of such activities is inconsistent with EPA's July 10,

1995 guidance memorandum entitled ``White Paper for Streamlined

Development of Part 70 Permit Applications''.

Neither the applicability requirements in 40 CFR 70.3 nor the

``major source'' definition in 40 CFR 70.2 provide any exemptions for

insignificant activities in determining major source status. The

[[Page 1389]]

concept of insignificant activities originates under 40 CFR 70.5(c),

and only establishes reduced title V permit application requirements

for activities defined as insignificant. 40 CFR 70.5(c) does not modify

the title V applicability provisions, and specifically states that ``an

application may not omit information needed to determine the

applicability of, or to impose, any applicable requirement.'' In

addition, the White Paper provides guidance on the permit application

requirements for insignificant activities; it does not address major

source applicability considerations.

One commenter expressed concern that counting insignificant

activities in major source determinations would be very burdensome. The

commenter was also concerned that the use of engineering judgement in

determining emissions from insignificant activities does not provide

sources sufficient certainty and protection from lawsuits. The EPA does

not agree that the calculation of emissions from insignificant

activities need be a burdensome and resource intensive task. As

discussed in the proposed interim approval of Michigan's part 70

program, EPA expects that such emissions would only be examined in

those cases where the insignificant activity emissions might impact

whether the source is major. In addition, sources and permitting

authorities have significant discretion in determining the rigor of

analysis necessary for calculating insignificant activity emissions.

Such analysis may not even need to be performed on a source by source

basis, and could instead establish a general emission level for a

particular insignificant activity that can be used for all sources. For

example, a permitting authority could determine that sources may assume

1,000 pounds of emissions from a particular insignificant activity.

With respect to the commenter's concerns about protection from

lawsuits, EPA sees no distinction between the emissions calculations

for significant activities and insignificant activities. For example, a

source with a potential to emit that is just under a title V

applicability threshold should do what is necessary to ensure that the

source indeed is not subject to the operating permits program, as

additional emissions from either significant or insignificant

activities could make the source major.

Another commenter stated that Michigan's rule is consistent with

the actual application of major source determinations made throughout

the country, and commented that other States are not including

insignificant activities in determining applicability. The commenter

also stated that there is no EPA guidance for determining emissions

from such activities. The EPA is unaware of any other approved part 70

program that has regulatory exclusions for insignificant activities in

determining a source's potential to emit. If EPA determines that a

State's part 70 program is not being administered in accordance with

part 70, EPA has the authority under 40 CFR 70.10 to require the State

to correct the deficiencies. In addition, EPA has the authority to

pursue enforcement actions against sources for violations of the Act,

including the requirement to obtain a title V permit. With respect to

the lack of EPA guidance for determining insignificant activity

emissions, EPA generally issues emissions factor guidance on a source

category basis. The EPA will consider developing guidance for any

particular insignificant activities of concern that are not addressed

in current guidance.

6. Certification of Compliance

The EPA proposed a condition for full approval requiring Michigan

to adopt statutory or regulatory authority that ensures permit

applications include a certification of compliance and a statement of

the methods used for determining compliance. MDEQ commented that it

will work with EPA to resolve this issue during the interim approval

period. The EPA also agrees to work with MDEQ to resolve this issue,

and would like to clarify that this is a condition of full approval

because it is not clear that the underlying State requirements legally

obligate sources to include the compliance certification requirements

in their permit applications.1

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\1\ Despite this regulatory deficiency, the State application

forms do include the compliance certification requirements.

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Another commenter commented that Michigan's program does require

applications to include compliance certifications, and states that this

issue should be deleted. The following analysis addresses the

commenter's arguments.

40 CFR 70.5(c)(9)(i) and (iv) require permit applications to

include a statement of compliance for all applicable requirements. This

statement must be certified by a responsible official in accordance

with 40 CFR 70.5(d). Although Michigan's statute and regulations

require applications to include a certification by a responsible

official, they do not require applications to include a certified

statement of compliance for all applicable requirements.

40 CFR 70.5(c)(9)(ii) requires the compliance certification to

include a statement of the methods used for determining compliance.

Although section 324.5507(1)(f)(ix) of Michigan's Natural Resources and

Environmental Protection Act (NREPA) requires applications to include

proposed compliance method information, the State provision does not

associate this compliance method information to compliance

certification requirements. The compliance certification provisions

must therefore include a statement of the methods used for determining

compliance. Of course, this does not preclude Michigan from expanding

the scope of its current application requirement to serve this purpose

if the State provides a means by which a source can certify that it

made its compliance determination using its proposed compliance

determination method.

40 CFR 70.5(c)(9)(iii) requires applications to include a schedule

for submission of compliance certifications at least annually or more

frequently if specified by the underlying requirement or the permitting

authority. The EPA agrees that section 324.5507(1)(d) of NREPA

satisfies this requirement and is clarifying in the final condition of

full approval that this provision is not an issue.

7. Definition of Emergency

The EPA proposed as a condition of full approval that Michigan

revise its definition of emergency in section 324.5527(1) of NREPA to

ensure that the State's definition is not broader than that provided by

40 CFR 70.6(g)(1). Two commenters disagreed with this condition of full

approval. Both commenters stated that the Michigan definition is not

broader, and only clarifies what could be considered ``sudden and

reasonably unforeseeable events''. The EPA has reevaluated this issue

and agrees with the commenters that the State definition of emergency

meets the requirements of 40 CFR 70.6(g).

The additional language in the State definition of emergency

includes the following as events that could be considered an emergency:

``war, strike, riot, catastrophe, or other condition as to which

negligence on the part of the person was not the proximate cause''.

These situations are eligible for the affirmative defense only if they

meet all the provisions of 40 CFR 70.6(g). Specifically, such events

must arise from sudden and reasonably unforeseeable events beyond the

control

[[Page 1390]]

of the source; require immediate corrective action to restore normal

operation; and not include noncompliance to the extent caused by

improperly designed equipment, lack of preventative maintenance,

careless or improper operation, or operator error. Further, the

emergency defense only applies to exceedances of technology based

emission limitations that are due to unavoidable increases in emissions

attributable to the emergency. These provisions are important

qualifications, because the specific State examples would not qualify

as emergencies in all situations. For example, exceedances at a source

due to increased production would not qualify as an emergency even if

the increase is due to additional demand caused by a strike at another

source. Similarly, an exceedance at the source involved in a strike may

not qualify as an emergency if the strike was not reasonably

unforeseeable, or if the exceedance was not an unavoidable increase

attributable to the strike. The EPA believes that the additional

Michigan events are properly qualified because the State definition

includes all of the requirements of 40 CFR 70.6(g). Therefore, EPA is

removing this issue as a condition of full approval.

8. Source Category Limited Interim Approval

In its program submittal, the State of Michigan requested source

category limited (SCL) interim approval of its 4 year permit issuance

schedule. In the proposed interim approval notice for Michigan, EPA

acknowledged Michigan's 4 year schedule as part of the State's permit

fee sufficiency demonstration. However, EPA could only propose in the

alternative the State's request for SCL interim approval because

Michigan's regulations currently require a 3 year permit issuance

schedule. MDEQ requested that EPA clarify the State's obligations for

submitting a program revision once the 4 year schedule is incorporated

into the State's regulations.

The EPA proposed SCL interim approval in the alternative so that a

program revision would have been unnecessary if Michigan had been able

to finalize and submit its rule revisions prior to this final action on

Michigan's part 70 program. Because the State has not yet submitted the

regulatory revision that would change the State permit issuance

schedule from 3 to 4 years, this final action on Michigan's part 70

program fully approves the 3 year schedule contained in the current

State regulations.

Once Michigan finalizes its 4 year issuance schedule, the State

will be obligated to submit a part 70 program revision to EPA for SCL

interim approval. Although 40 CFR 70.4(i) requires that program

revisions be approved by EPA before they become finally effective, EPA

expects that it will be able to quickly process Michigan's request for

SCL interim approval. If the final 4 year schedule is identical to the

draft rule that EPA proposed for SCL interim approval, EPA will be able

to finalize SCL interim approval without having to repropose the

action. If there are changes to the schedule, EPA would still be able

to expedite the SCL interim approval through a direct final action. As

discussed above in section II.A.2., EPA is also developing a program

revision process that may help expedite the program revision process

for this situation.

9. Startup, Shutdown, and Malfunction (SSM) Provisions

The EPA proposed as a condition of full approval that Michigan

revise its SSM provisions to be consistent with the emergency defense

provisions in 40 CFR 70.6(g), or adopt an enforcement discretion

approach consistent with the Act. Two commenters expressed concern with

this interim approval issue. MDEQ disagreed that the SSM rules affect

the State's ability to enforce the requirements of title V, but agreed

to work with EPA to address the issue during the interim approval

period. The EPA believes it is important that MDEQ and EPA work

together during the interim approval period, and commits to working

with MDEQ to address this and other interim approval issues.

Another commenter stated that EPA's consideration of Michigan's SSM

rules is too inflexible, as the SSM rules provide an affirmative

defense only in narrowly defined and highly prescriptive circumstances.

The commenter also believes that EPA overlooked the potential for

environmental benefits resulting from the SSM requirements to use good

air pollution control practices and implement preventative maintenance

and malfunction abatement plans. Irrespective of the control and work

practice provisions that Michigan's SSM rules require for sources to be

eligible for the affirmative defense, EPA has no authority under its

part 70 rules to approve an affirmative defense that is less stringent

than that contained in 40 CFR 70.6(g). The commenter extolled the

benefits of the safeguards contained in Michigan's SSM rules, but did

not offer anything to counter EPA's finding that these rules are

broader than 40 CFR 70.6(g) and are therefore inconsistent with the

federal rule. As discussed in the Michigan proposal, however, EPA could

also consider an enforcement discretion approach as a means for

resolving this interim approval issue. Such an approach would allow

Michigan to retain the specific SSM provisions that may provide

environmental benefit.

The EPA would also like to clarify that the Michigan SSM

regulations do not affect EPA's enforcement capabilities under the Act

during the two year interim approval period. The EPA reserves the right

to pursue enforcement of applicable requirements, in accordance with

EPA's enforcement discretion policy, notwithstanding the existence of

the State's SSM regulations. Similarly, the Michigan rules do not

affect citizen suit rights under section 304 of the Act. The interim

approval of Michigan's part 70 program establishes the mechanism for

the State to issue federally enforceable part 70 permits; EPA will

continue to implement the operating permits program in accordance with

Title V of the Act and the implementing Federal regulations.

10. Environmental Audit Privilege and Immunity Law

The EPA proposed several conditions for full approval based on the

enforcement deficiencies created by Michigan's Environmental Audit

Privilege and Immunity Law (audit law), part 148 of NREPA. Four

commenters disagreed with EPA's position that Michigan's audit law

adversely affects Michigan's ability to comply with the enforcement

requirements of part 70.2

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\2\ One commenter also submitted comments on a fifth commenter's

behalf.

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MDEQ generally commented that Michigan's law does not affect the

State's ability to enforce the requirements of title V. The Michigan

State Senator sponsoring the bill that became Michigan's audit law also

commented that the law does not adversely affect Michigan's authority

to assure compliance with and enforce permits. Both commenters stated

that regulated entities remain fully liable for any damages they cause,

and self reporting data, agency inspections, and other information

required by law is not privileged and remains available to the State

and the public. However, both commenters supported the interim approval

of Michigan's part 70 program, as it will allow the program to be

implemented while EPA and MDEQ resolve these issues during the interim

approval period.

For the reasons outlined in the Michigan proposal and as further

discussed below, EPA remains

[[Page 1391]]

concerned that Michigan's audit law affects the State's ability to meet

the enforcement requirements of part 70. The EPA recognizes that

Michigan may have a different interpretation of the provisions in the

audit law, and has provided as an alternative condition for full

approval that the State need only submit a revised title V Attorney

General's opinion that addresses EPA's concerns and certifies that

Michigan's operating permits program meets the part 70 requirements in

light of the audit law. The EPA believes that a new Attorney General's

opinion would be appropriate, as the Attorney General's opinion in the

original program submittal to EPA was developed prior to the passage of

the State audit law. The EPA appreciates Michigan's willingness to work

with EPA during the interim approval period to resolve these issues.

The EPA also received extensive adverse comments from two law firms

that represent nationwide trade organizations and industries. The

following subsections address the issues raised by these

commenters.3

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\3\ These commenters also commented on various EPA documents,

including the memorandum entitled ``Effect of Audit Immunity/

Privilege Laws on States' Ability to Enforce Title V Requirements'',

April 5, 1996, and the policy entitled ``Incentives for Self-

Policing: Discovery, Disclosure, Correction and Prevention of

Violations'', December 22, 1995. These comments are addressed to the

extent that they are relevant to EPA's action on Michigan's title V

operating permits program.

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a. Effect of the Michigan audit law on Michigan's enforcement

authority.

The commenters stated that nothing in the Act or part 70 prohibits

a State from establishing a new protection for audits, expanding

existing privileges, providing an additional affirmative defense, or

determining that criminal or civil prosecution is inappropriate in

certain defined situations, such as those specified in the Michigan

audit law.

The EPA disagrees. Section 502(b)(5)(E) of the Act lays out the

minimum enforcement authorities which Congress required a State to have

in order to secure Federal approval to implement and enforce a title V

operating permits program. That section requires, as a condition of

Federal approval, that a State have adequate authority to issue permits

and assure compliance; to terminate or revoke such permits for cause;

and to enforce permits, permit fee requirements and the requirement to

obtain a permit, including authority to recover civil penalties in a

maximum amount of not less than $10,000 per day for each violation and

to provide appropriate criminal penalties. The part 70 implementing

regulations, at 40 CFR 70.11, elaborate upon those authorities. Part 70

requires a State to have authority to issue emergency orders and seek

injunctive relief (40 CFR 70.11(a) (1) and (2)), to assess civil and

criminal penalties in a maximum amount of not less than $10,000 per day

per violation (40 CFR 70.11(a)(3)), and to assess appropriate penalties

(40 CFR 70.11(c)). Although neither title V nor part 70 expressly

prohibits State audit privilege and/or immunity laws, the analysis in

the proposed interim approval of Michigan's program shows how EPA

believes the Michigan audit law interferes with Michigan's general

enforcement authority and its civil penalty authority as required in

title V and the part 70 implementing regulations so as to preclude full

approval of Michigan's operating permits program.4 For example, as

EPA explained in the Michigan proposal, the immunity provisions of the

Michigan audit law alter and in fact eliminate the State's authority to

recover any civil penalties under the circumstances identified in the

State law. See 61 FR 32394-32395. Moreover, the privilege provisions of

the Michigan audit law prevent the State from obtaining potentially

important information on whether a civil or criminal violation occurred

or has been corrected. If the State, by virtue of such laws, surrenders

its ability to thoroughly investigate potential violations or its

discretion to assess appropriate penalties in the face of violations,

then the State's fundamental enforcement authority is significantly

compromised. The EPA believes that this is the case with the Michigan

audit law.

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\4\ In addition, part 70 does not provide for any affirmative

defenses beyond that provided by the emergency defense provisions in

40 CFR 70.6(g). See subpart II.A.9. of this notice regarding

Michigan's affirmative defense for startups, shutdowns, and

malfunctions.

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In a similar vein, the commenters argue that the State of Michigan

has the general authorities enumerated in section 502(b)(5)(E) and 40

CFR 70.11 to enforce permits, permit fee requirements and the

requirement to obtain a permit and to recover civil and criminal

penalties in a maximum amount of not less than $10,000 per day of

violation, and that nothing in the text of section 502(b)(5)(E) of the

Act or the part 70 regulations authorizes EPA to consider the effect of

State laws of general applicability on a State's title V civil and

criminal enforcement authorities. The commenters further argue that the

logical corollary of EPA's proposed action with respect to the Michigan

audit law is that every State procedural and evidentiary rule must be

evaluated and amended whenever EPA believes that it could in some

fashion, directly or indirectly, interfere with environmental

enforcement.

Laws of general applicability are an appropriate subject for EPA

review as is evident from the language of the part 70 regulations

themselves. The regulations require that a State applying for a title V

operating permits program include copies of ``all applicable State or

local statutes and regulations including those governing State

administrative procedures that either authorize the part 70 program or

restrict its implementation.'' 40 CFR 70.4(b)(2) (emphasis added). The

regulations also require a legal opinion from the State Attorney

General asserting that the laws of the State provide adequate authority

to carry out ``all aspects of the program.'' 40 CFR 70.4(b)(3). It is

certainly EPA's expectation that, in issuing such a legal opinion, the

Attorney General is certifying that no State laws, even laws of general

applicability or laws of evidence, interfere with the State's authority

to administer and enforce the title V program. See 59 FR 47105, 47108

(September 14, 1994) (requiring Oregon to revise or clarify meaning of

criminal statute appearing to limit criminal liability of corporations

as a condition of full title V approval); 59 FR 61820, 61825 (December

2, 1994) (accepting Oregon Attorney General's opinion regarding effect

of statute).5

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\5\ One commenter argues that section 116 of the Act bars EPA

from seeking to preempt State audit privilege and/or immunity laws.

Section 116 states that, subject to limited exceptions, nothing in

the Act shall preclude or deny the right of any State to adopt or

enforce emissions standards or limitations or requirements

respecting the control or abatement of air pollution ``except where

such emission standard or limitation is less stringent than required

by the Clean Air Act.'' Such an interpretation would mean that EPA

had no authority to disapprove any State enforcement provisions as a

condition of title V approval. Section 502(b)(5)(E), which requires

EPA to promulgate minimum enforcement authorities required for

approval of a State title V program, clearly belies such an

argument.

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Both commenters also argued that the Michigan audit law does not

interfere with the enforcement requirements of title V because it is

qualified in a number of important respects. The commenters note that

the Michigan audit law does not offer protection from disclosure for

information obtained by observation, sampling, or monitoring by any

regulatory agency; machinery and equipment maintenance records;

information legally obtained independent of the environmental audit;

and information required by law to be collected, developed, reported or

otherwise made available to a government agency. See section

[[Page 1392]]

14802(3), part 148 of NREPA. The commenters state that the privilege is

further limited because it only applies to an environmental audit

report as defined in the Michigan audit law. In addition, the

commenters state that the immunity provisions in the Michigan audit law

are limited by the provisions in section 14809 of NREPA, which, among

other things, require the source to promptly disclose violations, make

a good faith effort to achieve compliance, pursue compliance with due

diligence, and promptly correct the noncompliance.

The EPA noted in the proposed interim approval of Michigan's

program that, although the Michigan audit law appears to contain

several exemptions from the otherwise broad scope of the privilege

protection, EPA is unable to determine the extent to which the

exemptions limit the application of the privilege. In other words, the

extent to which evidence of violations of title V permits and permit

program requirements would be exempted from the privilege provisions of

the Michigan audit law is not clear. For example, the Michigan audit

law appears to provide privilege protection for a source that

determines through an environmental audit that it is operating without

a title V permit. This violation appears eligible for the privilege

because part 70 does not have any source notification requirements

prior to the submittal of the permit application that would exclude

this violation from the privilege provisions. The EPA does not agree

with the commenters' assertion that the privilege is further limited by

the definition of an environmental audit report. The Michigan audit law

broadly defines such a report to include any documents created as a

result of an environmental audit, such as supporting information and

implementation plans that address correcting violations and improving

current compliance. In addition, the Michigan audit law's exemptions

from privilege protection do not appear to apply to the penalty

immunity in section 14809, part 148 of NREPA. Therefore, it appears

that any violation discovered during an environmental audit, regardless

of whether it is eligible for the privilege, is eligible for the

immunity as provided in section 14809. Despite the limitations on the

scope of the State's immunity provisions imposed by the requirement

that disclosure be ``voluntary'', EPA believes that application of the

immunity provisions is so broad that it potentially could apply to any

title V violation. Because the privilege and immunity exemptions could

apply to title V requirements, EPA must therefore infer that there

could be violations at a title V source discovered through an

environmental audit that would be entitled to the privilege or immunity

provided by the Michigan audit law. The EPA again notes that Michigan

may have a different interpretation of its audit law, in which case an

Attorney General's opinion may help to resolve these interim approval

issues.

The commenters also take issue with EPA's interpretation of the

title V and part 70 requirements for enforcement authority, as

evidenced in the April 5, 1996 memorandum entitled ``Effect of Audit

Immunity/Privilege Laws on States' Ability to Enforce Title V

Requirements'' (hereinafter, the ``April 5 Title V Memorandum'') and

the proposed interim approval of Michigan's part 70 program. The

commenters argue that EPA's interpretation and application of the title

V enforcement requirements improperly interferes with the States' role

as independent sovereigns, improperly divests States of their primary

responsibility for implementing and enforcing the Act, and conflicts

with the Clinton Administration's stated policy to allow States to

experiment with alternative approaches to achieve environmental

protection. The commenters further argue that the determination of the

Michigan legislature that criminal or civil penalties are inappropriate

under the circumstances set forth in the Michigan audit law is within

the statutory boundaries and flexibility provided by the Act. The

commenters continue that the immunity provisions of the Michigan audit

law reflect the Michigan legislature's judgment as to the

``appropriate'' penalty for companies that voluntarily disclose and

correct instances of environmental noncompliance and reflect a

reasonable allocation of the State's enforcement resources.

The EPA agrees that, in enacting the Act, Congress believed that

States and local governments should have the primary responsibility for

controlling air pollution at its source. See Section 101(a)(3) of the

Act. The EPA also agrees with the commenters that the States are to be

given broad flexibility to select alternative means to achieve the

minimum Federal requirements established in the Act by Congress and by

EPA in the part 70 regulations, and fully supports State

experimentation to achieve greater compliance with environmental laws.

Such flexibility and experimentation, however, must be, as the

commenters acknowledge, within the bounds of the statutes enacted by

Congress and the implementing regulations promulgated by EPA. It cannot

cancel out the requirement that States must meet some minimum Federal

requirements as a condition of Federal approval of their programs.

In the case of the operating permits program, those minimum Federal

requirements are set forth in title V and the part 70 regulations. It

is these requirements that EPA is insisting that the State of Michigan

meet as a condition of full approval of its title V program. In short,

EPA does not believe that the Michigan title V program is within the

statutory boundaries established by Congress or the flexibility

provided by the Act because the Michigan audit law would limit the

enforcement authority Congress and EPA required States to have as a

condition of Federal approval.

Moreover, the commenters' argument that the Michigan audit law

governs areas of law traditionally committed to States in their role as

independent sovereigns--if taken to its logical conclusion--would mean

that a State could not be required to have any civil or criminal

penalty authority to get approval for a title V program. It is an

argument that goes to the validity of section 502(b)(5)(E) and 40 CFR

70.11 themselves and therefore is untimely in this context. As stated

above, Congress through title V, and EPA through the part 70

implementing regulations, required States to satisfy certain minimum

requirements for enforcement authority as a condition of Federal

approval of a Clean Air Act operating permits program. By conditioning

full approval of the Michigan title V program on changes to the

Michigan audit law or a demonstration by the State satisfactory to EPA

that the Michigan audit law does not interfere with the enforcement

requirements of title V, EPA is simply seeking to assure that Michigan

has the required enforcement authorities before receiving Federal

approval of its program. Cf. Commonwealth of Virginia v. Browner, 80

F.3d 869, 880 (4th Cir. 1996) (in rejecting Virginia's argument that

requiring the State to change its judicial standing rules as a

condition of title V approval violated State's sovereignty, the Court

stated: ``Even assuming arguendo the accuracy of Virginia's assertion

that its standing rules are within the core of its sovereignty, we find

no constitutional violation because federal law 'may, indeed, be

designed to induce state action in areas that would otherwise be beyond

Congress' regulatory authority.''' citing FERC v. Mississippi, 456 U.S.

742, 766 (1982)).

[[Page 1393]]

The commenters also assert that EPA's use of its title V program

approval authority to ``force'' States to modify their audit privilege

and/or immunity legislation is contrary to Congress' general expression

of intent against the automatic use of audit reports for enforcement of

the Act, as expressed in the Joint Explanatory Statement of the

Conference Committee Report for the 1990 Amendments. S. Conf. Rep. 101-

952, 101st Cong. 2d Sess. 335, 348 (Oct. 26, 1990), reprinted in

Legislative History at 941-42, 955, 1798. The commenters further assert

that Michigan's decision to provide qualified audit immunity is

consistent with that Congressional intent.

As an initial matter, EPA disagrees that it is using the title V

approval process to ``force'' States to modify their audit legislation.

Instead, as stated above, EPA is simply analyzing to what extent the

audit privilege and/or immunity laws of a particular State compromise

the enforcement authorities required by Congress in title V and

interpreted by EPA through the part 70 regulations, as a condition of

Federal approval of the State's operating permits program.

With respect to the issue of Congress' intent, the language from

the Conference Report cited by the commenters does not clearly express

a desire that audit reports not be used for enforcement of the Act

requirements. Rather, the text expresses some general support for the

concept of auditing and a desire that the criminal penalties of section

113(c) ``should not be applied in a situation where a person, acting in

good faith, promptly reports the results of an audit and promptly acts

to correct any deviation. Knowledge gained by an individual solely in

conducting an audit or while attempting to correct deficiencies

identified in an audit or the audit report should not ordinarily form

the basis for intent which results in criminal penalties.'' (emphasis

added). The legislative history merely indicates that the circumstances

involving violations discovered through an audit report and voluntarily

disclosed by the company will generally not meet the requirements for

criminal liability. Importantly, Congress did not in any way suggest

that a company which self-disclosed violations discovered through an

environmental audit should be immune from civil penalties. In any case,

when Congress amended the Act in 1990, there were no audit privilege

and/or immunity laws on the books in any State. Any legislative history

on auditing and enforcement from that period must be read in light of

that reality. EPA does not believe Congress intended that the growth of

environmental auditing--in itself a laudable goal fully supported by

EPA--comes at the expense of the enforcement of environmental laws.

6 If Congress had wished to give special status to self-disclosed

violations detected during an environmental compliance audit or to

prohibit the use for general enforcement purposes of audits conducted

under the Act and EPA approved programs, Congress could have done so in

the language of the 1990 amendments. If anything, the legislative

history of the Act is evidence of Congress' intent that such incentives

for audits should be a basis for the exercise of prosecutorial

discretion, and not a legislative grant of immunity or protection from

disclosure.

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\6\ That distinction is also reflected in EPA's Self-Disclosure

policy, which offers significant incentives for businesses to audit

and self-disclose violations, while at the same time retaining

safeguards to ensure the protection of public health and the

environment.

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The commenters also argue that Congress intended to vest the States

with discretion in enforcing title V permit requirements and that the

part 70 regulations merely provide that penalties assessed under a

title V program must be ``appropriate'' to the violation. Nothing

requires a State to obtain a penalty for every violation or prohibits a

State from rewarding good actors who identify, disclose and correct

violations, the commenters continue.

The EPA agrees that a State is not required to collect a penalty

for every violation or is precluded from using its discretion to reward

companies that conduct environmental audits and disclose and correct

any violations discovered through such an audit. The EPA disagrees,

however, that the only inquiry for title V approval is whether a State

has authority to assess ``appropriate'' penalties. The part 70

regulations first state that civil and criminal fines must be

recoverable ``in a maximum amount of not less than $10,000 per day per

violation.'' 40 CFR 70.11(a)(3)(i)-(iii) (emphasis added). 7

Section 70.11(c) then provides that ``[a] civil penalty or criminal

fine assessed, sought, or agreed upon by the permitting authority under

paragraph (a)(3) of this section shall be appropriate to the

violation.'' (emphasis added). By interpreting title V and part 70 to

require only that States have authority to assess ``appropriate''

penalties, the commenters are reading out of the regulations the

independent requirement that States have the authority to assess civil

and criminal penalties of an amount not less than $10,000 per day per

violation. Read together, 40 CFR 70.11(a)(3) and 70.11(c) require that

a State have authority to assess a civil or criminal penalty of up to

$10,000 per day per violation and that, in addition, the penalty

assessed in any particular case be ``appropriate'' to the violation at

issue. Thus, EPA agrees with the commenters that it is within

Michigan's discretion not to impose the statutory maximum penalty for

violations as to which a lesser penalty is appropriate or to determine

that criminal or civil prosecution is inappropriate under the facts and

circumstances of a particular case so long as the State has the

authority to assess penalties for each day of violation. The

legislative history cited by the commenters in support of their

position is, in fact, consistent with EPA's position on this issue. See

Legislative History at 5815 (``states are not going to be required to

impose these minimum fines of $10,000 for permit violations. Instead,

the bill is revised to make clear that states shall ensure that they

have the authority to impose this. It is not mandated, it is

authority.'') (emphasis added).

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\7\ One commenter appears to assert that a State need only have

the authority to assess ``appropriate'' criminal penalties. In doing

so, the commenter ignores the clear language of the part 70

regulations. Section 502(b)(5)(E) requires States to have authority

to ``recover civil penalties in a maximum amount of not less than

$10,000 per day for each violation, and provide appropriate criminal

penalties.'' In promulgating part 70, EPA determined that to provide

``appropriate criminal penalties'' for purposes of title V approval,

a State must have authority to issue criminal penalties in a maximum

amount of not less than $10,000 per day per violation. See 40 CFR

70.11(a)(3)(ii) and (iii). If the commenter believes that the

enforcement authorities enumerated in the part 70 regulations,

including the requirement for criminal penalty authority of up to

$10,000 per day per violation, are excessive or in any way

inconsistent with the statutory authorities, the commenter should

have challenged the part 70 regulations at the time of promulgation

in 1992.

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Several commenters stated that section 113(e) of the Act only sets

forth penalty factors that EPA or a Federal court must consider in

imposing civil penalties for noncompliance with the Act, that section

113(e) has no bearing on EPA's authority to approve or disapprove State

title V programs, and that nothing in section 113, title V or part 70

authorizes EPA to condition approval of a State's title V permit

program on the State's ability to consider penalty factors comparable

to those set out in section 113(e). The commenters further assert that,

although section 113(e) is inapplicable, section 113(a) authorizes EPA

in certain defined circumstances to take appropriate action, namely,

filing an action against a facility where EPA believes the State's

response was inadequate. This back-up

[[Page 1394]]

authority, and not wholesale invalidation of a State's title V permits

program, the commenters continue, is EPA's tool for ensuring to its own

satisfaction that State audit legislation does not allow egregious Act

violations to go unsanctioned. In any event, one commenter asserts that

the Michigan audit law does take into account a violator's full

compliance history in establishing the disclosure and immunity

provisions.

The EPA agrees that the purpose of section 113(e) is, as the

commenters assert, to set forth factors which EPA and the Federal

courts must consider in assessing civil penalties under the Act. The

EPA believes, however, that the section 113(e) factors can also serve

as guidance in determining what civil penalty authority is minimally

necessary in a State title V program.

In order for a State to have the authority to assess penalties that

are ``appropriate'' to the violation in any particular case as required

by 40 CFR 70.11(c), a State must have, in addition to the authority to

assess a penalty of at least $10,000 per day per violation, the

authority to consider mitigating or aggravating factors. In enacting

section 113(e), Congress set forth factors it believed EPA and Federal

judicial and administrative courts should consider in determining an

appropriate penalty under the specific facts and circumstances before

it. Although EPA believes that the factors enumerated by Congress in

section 113(e) are the most fundamental, EPA believes that States may

consider other factors as well. To the extent that a State has

surrendered its ability to consider factors such as those set forth in

section 113(e), EPA believes that a State does not have adequate

authority, on a case-by-case basis, to collect penalties that are

``appropriate'' to the violation, as required by 40 CFR 70.11(c).

Industry commenters argue that since the section 113(e) factors do

not apply to State programs, it must follow that Congress did not

prescribe factors a State must apply in assessing ``appropriate''

penalties under title V, and that a State must therefore be given full

approval as long as it possesses ``appropriate'' enforcement authority.

As explained above, the question for EPA at the program approval stage

is not how the State will exercise its enforcement discretion to assess

penalties in any particular case. Rather, it is whether the State has

sufficient authority to assess appropriate penalties in every case.

Before granting full approval to a title V program, EPA must ensure,

first, that the State has the general authority to assess penalties up

to the amounts specified in section 70.11. The EPA must also ensure

that the State has authority to consider factors, similar to those in

section 113(e), such that the penalty actually assessed in any case may

be appropriate to the violation. Because the immunity provisions of the

Michigan audit law preclude the State from considering the factors set

forth in section 113(e) or any other factors in determining an

``appropriate'' penalty in cases in which the source has disclosed and

corrected violations discovered in an environmental audit, EPA believes

that Michigan lacks this authority. The EPA also disagrees with the

commenters' assertion that EPA's sole remedy where EPA believes a State

does not have adequate enforcement authority is to take its own

enforcement actions to address violations in that State. Although EPA

does file Federal actions where the State fails to take enforcement

action or where State action is inadequate to address a particular

violation, before approving a State title V program EPA must also

ensure that the State has demonstrated the capacity to administer and

fully enforce the program as required by law and regulation. If Federal

action were the only remedy for situations in which a State does not

possess adequate enforcement authority, there would have been no need

for Congress to direct EPA to promulgate rules setting forth minimum

enforcement requirements for Federal approval of a State operating

permits program. See 59 FR 61825 (rejecting similar comment in acting

on Oregon's title V program).

Finally, regardless of one commenter's assertion that the Michigan

audit law does take into account a violator's full compliance history

in establishing the disclosure and immunity provisions, it is EPA's

position that the Michigan audit law nonetheless prevents consideration

of other critical factors in determining appropriate civil penalties,

including but not limited to serious harm or risk of harm to the public

or the environment, and substantial economic benefit to the violator.

To the extent the Michigan audit law prevents consideration of

mitigating or aggravating factors, EPA believes that Michigan has

surrendered its authority to assess appropriate penalties as required

by section 502(b)(5)(E) of the Act and 40 CFR 70.11.

The commenters stated that EPA's approach on State audit privilege

and/or immunity laws is bad policy and not supported by empirical

evidence. The commenters expressed strong support for environmental

auditing as a means of obtaining compliance with increasingly complex

environmental requirements. These commenters argue that EPA's reaction

against such audit statutes is a ``knee-jerk'' reaction that ignores

the potentially huge benefits that these laws offer. EPA has wrongly

concluded, the commenters continue, that the existence of a limited and

qualified affirmative defense to penalties for violations discovered

through environmental audits and protection for information in audit

reports weakens Michigan's authority to enforce the law or to ensure

compliance, and that the evidence to date in other States with such

laws shows in fact that audit privilege and/or immunity legislation

encourages self-correction and increased compliance. At the same time,

the commenters argue, EPA has not cited to any specific instance in

which the Michigan audit law or some other State audit privilege and/or

immunity law has compromised or inhibited enforcement of the Act or a

title V permit program.

The EPA has expressed strong support for incentives which encourage

responsible companies to audit to prevent noncompliance and to disclose

and correct any violations that do occur. See, e.g., EPA's Self-

Disclosure Policy. The issue involved in this Federal Register action,

however, is not whether environmental auditing is good or bad policy.

Rather, the issue is whether the Michigan audit law, in offering

privilege and immunity to companies conducting environmental audits, so

deprives the State of its authority to take enforcement action for

violations of title V requirements such that the State does not have

the necessary authority required for full title V approval.

Moreover, EPA believes that it is premature at this point to expect

significant empirical evidence to document whether environmental audit

privilege and/or immunity laws enhance or impede environmental

compliance. Most of the State audit statutes are little more than one

year old and only a few States have issued permits under approved title

V programs. In any event, EPA is aware of several on-going

environmental enforcement actions in certain States with audit

privilege and/or immunity laws in which the audit privilege appears to

be interfering with prosecutors' efforts to obtain and utilize certain

evidence. 8

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\8\ The confidentiality prerequisites that attach to all on-

going enforcement actions, however, prevent the Agency from

revealing additional details at this time.

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[[Page 1395]]

The commenters go on to argue that the reasoning set forth in the

April 5 Title V Memorandum and the proposed interim approval of

Michigan's program could have far-reaching and unintended effects on

the relationship between EPA and States in the implementation of the

Act and other environmental laws such as approvals of State

Implementation Plans and State programs under the Clean Water Act and

Resource Conservation and Recovery Act.

The EPA agrees that the rationale behind the April 5 Title V

Memorandum and EPA's action on the Michigan title V program has

implications for other Federal programs delegated to the States.

Because of that, the Agency has for some months been analyzing the

effects of State audit privilege and/or immunity laws on enforcement

authorities under the Clean Water Act, the Resource Conservation and

Recovery Act, and other statutes. The rationale behind the April 5

Title V Memorandum and EPA's action on the Michigan title V program as

it relates to the Michigan audit law, however, is dictated not by

political or policy considerations, but rather by statutes and

regulations that were finalized after public notice and comment.

The commenters also stated that EPA's proposed interim approval of

Michigan's program based on the Michigan audit law is inconsistent with

existing EPA and Department of Justice (DOJ) enforcement policies,

which reflect the appropriateness of limiting enforcement discretion.

The commenters point to ``Factors in Decisions on Criminal Prosecutions

for Environmental Violations in the Context of Significant Voluntary

Compliance or Disclosure Efforts by the Violator,'' DOJ, July 1, 1991;

``The Exercise of Investigative Discretion'', EPA, January 12, 1994;

``Policy on Flexible State Enforcement Responses to Small Community

Violations'' EPA, November 1995 (``EPA Policy on Small Communities'');

``Policy on Compliance Incentives for Small Businesses,'' EPA, May

1996; and EPA's Self-Disclosure Policy.

There is an important distinction between the policies cited by the

commenters, which adopt an ``enforcement discretion'' approach, and the

Michigan audit law.9 The EPA and DOJ have announced policies

guiding the exercise of their enforcement discretion under certain

narrowly defined circumstances, while preserving the underlying

statutory and regulatory authority.10 State audit privilege and/or

immunity laws, such as the Michigan audit law, by contrast, constrain

enforcement discretion as a matter of law, impermissibly surrendering

the underlying statutory and regulatory enforcement authorities

required for Federal approval of the State programs.

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\9\ In addition, the criminal enforcement policies noted by the

commenters are irrelevant, as Michigan's audit law does not create

deficiencies in the State's part 70 criminal enforcement penalty

authority.

\10\ Although the EPA Policy on Small Communities does encourage

States to provide small communities an incentive to request

compliance assistance by waiving all or part of a penalty under

certain circumstances, it does not provide an unqualified waiver of

civil penalties. The policy directs States to assess a small

community's good faith and compliance status before granting any

relief from penalties and identifies a number of factors that a

State should consider in determining whether relief from civil

penalties is appropriate in the particular circumstances. In

addition, EPA's Policy on Small Communities directs a State to

consider the seriousness of the violation. See EPA's Policy on Small

Community Violations, page 4. Although the policy does not direct

the State to consider economic benefit in determining the

appropriate enforcement response, the policy is available only to

those small communities that are financially unable to satisfy all

applicable environmental mandates without the State's compliance

assistance.

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Both commenters stated that EPA's proposed action on the Michigan

program is inconsistent with several previous title V approvals where

audit privilege and/or immunity legislation has not posed a bar to full

approval. As examples of previous title V approvals which the

commenters believe are inconsistent with EPA's proposed action on the

Michigan program, as it relates to the Michigan audit law, the

commenters cite to EPA's action on the Oregon, Kansas and Colorado

title V programs. Relying on the recent Ninth Circuit decision in

Western States Petroleum Association v. EPA, 87 F.3d 280 (9th Cir 1996)

(``WSPA''), the commenters state that, where EPA is departing from a

prior course of action, more is required of the Agency than conclusory

statements concerning the potential impact of the Michigan audit law on

the State's title V enforcement authority. Instead, the commenters

argue that EPA must provide a basis for deviating from its earlier

approaches in Oregon, Kansas and Colorado.

As an initial matter, EPA notes its action on Michigan's title V

program is consistent with its action on the Texas title V program, 61

FR 32693, 32696-32699 (June 25, 1996) (final interim approval), and the

Idaho title V program, 61 FR 64622-64635 (December 6, 1996) (final

interim approval). Moreover, EPA has notified the States of Ohio,

Arizona, and Florida that audit privilege and/or immunity laws that

these States have enacted or are contemplating enacting could interfere

with the enforcement requirements of title V and part 70.

With respect to the three programs cited by the commenters as

inconsistent with EPA's proposed action on the Michigan program, EPA is

still in the process of reviewing the audit privilege and/or immunity

statutes in Oregon, Kansas and Colorado and their effects on the title

V enforcement requirements in those States in order to determine

whether EPA acted inconsistently in approving those programs. If EPA

determines that it acted inconsistently, EPA intends to take

appropriate action to follow the WSPA Court's mandate that EPA act

consistently or explain any departures.

Finally, one commenter challenges the April 5 Title V Memorandum

itself arguing that the guidance document imposes requirements on EPA

approval of a State operating permits program in addition to those

required by section 502(b)(5)(E) of the Act and the part 70 rules.

Because the April 5 Title V Memorandum sets additional substantive and

binding standards for approval of State title V operating permits

programs not included in the part 70 regulations, the commenter

continues, the guidance is a rule disguised as guidance and must be

promulgated in accordance with the Administrative Procedures Act. This

requires, among other things, public notice and comment.

The EPA disagrees. The April 5 Title V Memorandum does not, as the

commenters assert, ``purport to change fundamentally the requirements

in section 70.11 by adding provisions that (1) effectively prohibit a

state from adopting an audit protection or immunity law and (2) impose

at least four new penalty criteria.'' Rather, the guidance simply

recounts and reiterates existing statutory and regulatory requirements

for enforcement authority under the title V program and shows how audit

privilege and/or immunity laws may prevent a State from meeting those

requirements. It creates no new ``substantive and binding standards''

for approval of title V programs, and therefore is not subject to

notice and comment rulemaking of the Administrative Procedures

Act.11

[[Page 1396]]

Moreover, in explaining why the Michigan audit law precludes full

approval, EPA is relying on the requirements of title V and part 70

themselves, and not the April 5 Title V Memorandum. Finally, EPA's

application of the title V and part 70 enforcement requirements to the

specific circumstances before EPA in the case of the Michigan audit law

is subject to notice and comment rulemaking.12

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\11\ One commenter also stated that EPA expressly recognized in

its earlier approval of the Oregon title V program that EPA would

have to use rulemaking to modify its part 70 rules before EPA could

prohibit States from adopting audit privilege and/or immunity laws.

The commenter misstates the Agency's position. As an initial matter,

the Oregon audit statute, Oregon Revised Statute 468.963, contains

only an audit privilege and does not contain an immunity provision.

In proposing interim approval of the Oregon title V program, EPA

stated it was in the process of developing a national position

regarding EPA approval of environmental programs in States which

have environmental audit privileges, and that therefore, it proposed

to take no action on the Oregon audit provision in the context of

the Oregon title V approval. EPA noted, moreover, that it might

consider such a privilege grounds for withdrawing program approval

under 40 CFR 70.10(c) in the future if EPA later determined that the

Oregon audit provision interfered with Oregon's enforcement

responsibilities under title V and part 70. 59 FR 47105, 47106

(September 14, 1994). During the public comment period on EPA's

proposal, one commenter stated that EPA's suggestion that a State

audit privilege could be grounds for interim approval or withdrawal

was bad policy and that Oregon's audit privilege statute was

consistent with the Act. In addition to responding to the merits of

the comment, EPA stated that the commenter's concerns were premature

because, as the commenter acknowledged, EPA had not proposed to take

any action on Oregon's environmental audit privilege statute in the

context of final interim approval of the Oregon program. EPA further

stated that any such concerns about EPA's position on the Oregon

audit privilege statute would be properly made if EPA later proposed

to withdraw Oregon's title V approval based on Oregon's audit

privilege or if EPA ``revised part 70 to prohibit environmental

audit provisions such as Oregon's.'' 59 61820, 61824 (December 2,

1994). EPA did not say in that Federal Register notice that a

rulemaking would be required in order for the Agency to disapprove a

title V program in a State with an environmental audit privilege

and/or immunity statute.

\12\ EPA also disagrees with one commenter's assertion that the

Congressional review provisions of Subtitle E of the Small Business

Regulatory Enforcement Fairness Act of 1996, P.L. 104-121 (SBREFA),

requires EPA to submit the April 5 Title V Guidance Memorandum to

Congress. EPA does not believe that April 5 Title V Memorandum is

subject to Congressional review under SBREFA because it is not a

rule and it does not substantially affect the rights or obligations

of a nonagency party. Even if the Memorandum were subject to review,

EPA has not relied on that Memorandum as a basis for this action.

Therefore, any procedural defect with respect to the April 5 Title V

Memorandum would be irrelevant to the legal sufficiency of this

action.

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b. Additional concerns regarding the effect of the privilege

provisions of the Michigan audit law on the State's enforcement

authority. Both commenters disagreed with EPA's position that the

Michigan audit law contains a privilege for environmental audit reports

which impermissibly interferes with the enforcement requirements of

title V and part 70. The commenters note that the Michigan audit law

does not prohibit the State from gaining access to underlying data not

prepared for or during the audit. One commenter states that EPA is

directly linking title V enforcement authority to State evidentiary

rules, and that every State procedural and evidentiary rule must

therefore be evaluated and amended whenever it interferes with

environmental enforcement. The commenters continue that EPA has singled

out audit privilege laws while not taking issue with State attorney-

client privilege provisions.

As discussed in the proposed interim approval of Michigan's part 70

program, EPA believes that the Michigan audit law prevents the State

from requiring an owner or operator to produce an environmental audit

report under the State's general information gathering authority.

Although a source must voluntarily disclose the relevant portions of

the audit report in order to obtain immunity from civil penalties, an

owner or operator can hold as privileged audit reports containing

information on violations in the hopes that the violations will not

otherwise come to the attention of the State agency. Further, a source

can rely on the privilege provisions to avoid disclosing criminal

violations, as the Michigan audit law does not provide immunity for

disclosed criminal violations (other than for negligent acts or

omissions). Similarly, a facility could elect to disclose the fact of a

violation under the immunity provisions, but not the related evidence

of whether the violation was knowing or intentional. Although EPA

agrees that the Michigan audit law does not preclude access to

information that is not part of an environmental audit report, EPA

remains concerned that the data that led the source to conduct the

environmental audit may by itself be insufficient to demonstrate either

compliance or noncompliance with an applicable requirement.

Furthermore, there may not be any documented information or event which

caused a source to conduct an environmental audit. In such a situation,

all information regarding a potential violation would exist only in the

environmental audit report. The EPA therefore believes that the

Michigan audit law so interferes with the State's information gathering

authority as to prevent the State from obtaining appropriate civil and

criminal penalties and assuring compliance with the Act, as required by

section 502(b)(5)(E) of the Act and 40 CFR 70.11.

As discussed previously in this notice, EPA agrees with the

commenters that State procedural and evidentiary rules are an

appropriate subject for EPA review, as provided by 40 CFR 70.4(b)(2)

and 40 CFR 70.4(b)(3). However, EPA does not agree with the commenters

that the attorney-client privilege and the privilege provisions in the

Michigan audit law are analogous. The attorney-client privilege merely

prevents an attorney from revealing information disclosed by a client

in a confidential communication made for the purpose of obtaining legal

advice. It does not preclude the enforcement authority from obtaining

the information from the source by any legal means. On the other hand,

the privilege created by the Michigan audit law completely prevents an

enforcement authority from obtaining any information labeled as an

environmental audit report.

One commenter also stated that adequate title V enforcement

authority cannot depend on access to voluntarily prepared audit

reports. If such were the case, the commenter reasoned, State

regulators would necessarily lack adequate enforcement authority over

those entities that do not conduct audits voluntarily.

The EPA agrees that access to voluntarily prepared audit reports is

not per se a prerequisite for adequate enforcement authority for title

V approval. However, such access is important if the report exists and

it contains information on violations or whether violations have been

promptly corrected. The lack of such access can adversely affect the

adequacy of enforcement authority.

One commenter also stated that State audit protection legislation

does not inhibit whistle blowers but instead merely prohibits

unauthorized disclosure of an audit report because whistle blowers are

free to disclose any ``non audit'' information to support their

allegations without fear of violating the laws.

As an initial matter, EPA notes that this concern is irrelevant in

EPA's action on Michigan's title V program. To EPA's knowledge, neither

the Michigan audit law nor any other provision of Michigan law

specifically restricts the information that a whistle blower may

disclose to a State agency, and EPA therefore did not raise this as a

concern in proposing action on Michigan's title V program.

The commenter appears to be responding to an issue discussed in the

April 5 Title V Memorandum. In that memorandum, EPA expressed concern

with State audit privilege and/or immunity statutes that impose special

sanctions upon persons who disclose privileged information. See April 5

Title V Memorandum, pp. 5-6. Although irrelevant to action on

Michigan's title V program, EPA believes, as stated in the guidance,

that the Act provision

[[Page 1397]]

which gives explicit protection to whistle blowers makes no

distinctions with respect to the source of the information relied upon

by the whistle blower. The EPA believes that it is inconsistent with

section 322 of the Act for States to remove audit reports from the

universe of information which employees may rely upon in reporting

violations to local or State authorities.

c. Summary. The EPA continues to believe that the privilege and

immunity provisions of the Michigan audit law impermissibly interfere

with the enforcement authorities required for full title V approval.

Accordingly, Michigan must narrow the applicability of the privilege

provided in section 14802, part 148 of NREPA, and narrow the

applicability of the immunity provided by section 14809, part 148 of

NREPA, to ensure that the State title V program has the authority to:

assure compliance with part 70 permits and the requirements of the

operating permits program [40 CFR 70.4(b)(3)(i)]; enforce permits and

the requirement to obtain a permit [40 CFR 70.4(b)(3)(vii)]; and meet

the general enforcement authority requirements of 40 CFR 70.11(a) and

(c), as addressed above. In addition, the State must submit a revised

title V Attorney General's opinion that addresses EPA's concerns in

subpart II.A.10. above and in subpart II.A.2.i. of the proposed interim

approval of Michigan's program [61 FR 32391-32398], in which the

Attorney General certifies that the revised part 148 does not affect

Michigan's ability to meet the enforcement requirements of 40 CFR

70.4(b)(3)(i), 40 CFR 70.4(b)(3)(vii), 40 CFR 70.11(a), and 40 CFR

70.11(c).

Alternatively, the State may submit a revised title V Attorney

General's opinion certifying that the current part 148 does not affect

the enforcement requirements of 40 CFR 70.4(b)(3)(i), 40 CFR

70.4(b)(3)(vii), 40 CFR 70.11(a), and 40 CFR 70.11(c). Such an opinion

must also specifically address why EPA's interim approval provision

requiring revisions to the currently enacted law is not valid. Finally,

Michigan must also submit a supplemental Attorney General's opinion

certifying that all other title V authorities that may be affected by

part 148 are met, including but not limited to: Michigan's authority to

bring suit to restrain any person from engaging in any activity in

violation of a permit that is presenting an imminent and substantial

endangerment [40 CFR 70.11(a)(1)]; Michigan's authority to seek

injunctive relief to enjoin any violation of any program requirement,

including permit conditions [40 CFR 70.11(a)(2)]; Michigan's authority

to recover criminal fines [40 CFR 70.11(a)(3)(ii) and (iii), and 40 CFR

70.11(c)]; and the requirement that the burden of proof for

establishing civil and criminal violations is no greater than the

burden of proof required under the Act [40 CFR 70.11(b)]. The

supplemental Attorney General's opinion must specifically address these

requirements in light of the provisions contained in the State's audit

law. Although EPA does not believe that the Michigan audit law affects

any title V requirements other than the ones specifically identified in

this action, a supplemental Attorney General's opinion is appropriate

because Michigan's current part 70 Attorney General's opinion was

written before the existence of the Michigan audit law.

11. Additional State Comments

MDEQ noted that it is pursuing changes to Michigan's operating

permit regulations to address the interim approval issues pertaining to

the definition of ``schedule of compliance'', the definition of

``stationary source'', and the applicability requirements for nonmajor

solid waste incineration units. The EPA has reviewed Michigan's

proposed rules revision package, and submitted comments to MDEQ during

the package's public comment period.

MDEQ also acknowledged the condition for full approval that

requires removal of section 5534 of NREPA. MDEQ agrees to pursue an

amendment to NREPA to remove section 5534.

B. Final Action

1. Interim Approval

The EPA is promulgating interim approval of the Michigan operating

permits program received by EPA on May 16, 1995, July 20, 1995, October

6, 1995, November 7, 1995, and January 8, 1996. The scope of Michigan's

part 70 program approved in this notice applies to all part 70 sources

within Michigan, except for any sources of air pollution in Indian

country. The State must make the following changes to receive full

approval:

a. Revise the definition of ``schedule of compliance'' in R

336.1119(a) to provide that the schedule of compliance for sources that

are not in compliance shall resemble and be at least as stringent as

that contained in any judicial consent decree or administrative order

to which the source is subject. This provision is required by 40 CFR

70.5(c)(8)(iii)(C).

b. Revise the definition of ``stationary source'' in R 336.1119(q)

to provide that the definition includes all of the process and process

equipment which are located at one or more contiguous or adjacent

properties. The emphasized phrase is not currently included in the

State regulation. This provision is required in the definition of

``major source'' in 40 CFR 70.2.

c. Revise R 336.1211(1) to provide that nonmajor solid waste

incineration units required to obtain a permit pursuant to section

129(e) of the Act are subject to the title V permits program. The

permitting deferral for nonmajor section 111 sources in 40 CFR 70.3(b)

does not apply to solid waste incineration units required to obtain a

permit pursuant to section 129(e) of the Act.

d. Revise R 336.1212(1) to delete the exemption of certain

activities from determining major source status. Part 70 and other

relevant Act programs do not provide for such exemptions from major

source determinations. This interim approval issue does not apply to

the State's use of R 336.1212(1) as an insignificant activities list

pursuant to 40 CFR 70.5(c).

e. Revise the State statutes or regulations, as appropriate, to

require that permit applications include a certification of compliance

with all applicable requirements and a statement of the methods used

for determining compliance, as specified in 40 CFR 70.5(c)(9) (i),

(ii), and (iv).

f. Remove the provisions of section 324.5534 of NREPA, which

provide for exemptions from penalties or fines for violations caused by

an act of God, war, strike, riot, catastrophe, or other condition as to

which negligence or willful misconduct was not the proximate cause.

Title V does not provide for such broad penalty and fine exemptions.

g. Revise R 336.1913 and R 336.1914 to be consistent with the

affirmative defense provisions in 40 CFR 70.6(g). Alternatively, adopt

an enforcement discretion approach consistent with the Act. These State

regulations provide an affirmative defense that is broader than that

provided by 40 CFR 70.6(g). They are also inconsistent with agency

enforcement discretion permissible under the Act. These regulations,

therefore, affect the State's ability to enforce permits and assure

compliance with all applicable requirements and the requirements of

part 70 [40 CFR 70.4(b)(3)(i) and 70.4(b)(3)(vii)]. For the same

reasons, they also affect the State's general enforcement authority

under 40 CFR 70.11.

h. Address all of the following issues relating to the State's

audit privilege and immunity law, part 148 of NREPA. These conditions

are proposed interim approval issues to the extent that they affect the

State's title V operating

[[Page 1398]]

permits program and the requirements of part 70.

i. Narrow the applicability of the privilege provided in section

14802, part 148 of NREPA, and narrow the applicability of the immunity

provided by section 14809, part 148 of NREPA, to ensure that the State

title V program has the authority to: assure compliance with part 70

permits and the requirements of the operating permits program [40 CFR

70.4(b)(3)(i)]; enforce permits and the requirement to obtain a permit

[40 CFR 70.4(b)(3)(vii)]; and meet the general enforcement authority

requirements of 40 CFR 70.11 (a) and (c) as addressed in subpart

II.A.10. of this notice.

ii. Submit a revised title V Attorney General's opinion that

addresses EPA's concerns in subpart II.A.10. above and in subpart

II.A.2.i. of the proposed interim approval of Michigan's program [61 FR

32391-32398], and certifies that the revised part 148 does not affect

Michigan's ability to meet the enforcement requirements of 40 CFR

70.4(b)(3)(i), 40 CFR 70.4(b)(3)(vii), 40 CFR 70.11(a), and 40 CFR

70.11(c).

iii. In lieu of subparts i. and ii. above, submit a revised title V

Attorney General's opinion certifying that the current part 148 does

not affect the enforcement requirements of 40 CFR 70.4(b)(3)(i), 40 CFR

70.4(b)(3)(vii), 40 CFR 70.11(a), and 40 CFR 70.11(c). The Attorney

General's opinion must also specifically address why EPA's interim

approval provision requiring revisions to the currently enacted law is

not valid.

iv. Submit a supplemental Attorney General's opinion certifying

that all other title V authorities that may be affected by part 148 are

met, including but not limited to: Michigan's authority to bring suit

to restrain any person from engaging in any activity in violation of a

permit that is presenting an imminent and substantial endangerment [40

CFR 70.11(a)(1)]; Michigan's authority to seek injunctive relief to

enjoin any violation of any program requirement, including permit

conditions [40 CFR 70.11(a)(2)]; Michigan's authority to recover

criminal fines [40 CFR 70.11(a)(3) (ii) and (iii), and 40 CFR

70.11(c)]; and the requirement that the burden of proof for

establishing civil and criminal violations is no greater than the

burden of proof required under the Act [40 CFR 70.11(b)]. The

supplemental Attorney General's opinion must specifically address these

requirements in light of the provisions contained in the State's

privilege and immunity law.

This interim approval extends until February 10, 1999. During this

interim approval period, Michigan is protected from sanctions for

failure to have a program, and EPA is not obligated to promulgate,

administer, and enforce a Federal operating permits program for the

State. Permits issued under a program with interim approval have full

standing with respect to part 70, and the 1-year time period for

submittal of permit applications by subject sources begins upon the

effective date of this interim approval, as does the 3-year time period

for processing the initial permit applications.

If the State of Michigan fails to submit a complete corrective

program for full approval by August 10, 1998, EPA will start an 18-

month clock for mandatory sanctions. If the State of Michigan then

fails to submit a corrective program that EPA finds complete before the

expiration of that 18-month period, EPA will be required to apply one

of the sanctions in section 179(b) of the Act, which will remain in

effect until EPA determines that Michigan has corrected the deficiency

by submitting a complete corrective program. Moreover, if the

Administrator finds a lack of good faith on the part of the State of

Michigan, both sanctions under section 179(b) will apply after the

expiration of the 18-month period until the Administrator determines

that Michigan has come into compliance. In any case, if, 6 months after

application of the first sanction, Michigan still has not submitted a

corrective program that EPA has found complete, a second sanction will

be required.

If EPA disapproves the State of Michigan's complete corrective

program, EPA will be required to apply one of the section 179(b)

sanctions on the date 18 months after the effective date of the

disapproval, unless prior to that date Michigan has submitted a revised

program and EPA has determined that it corrected the deficiencies that

prompted the disapproval. Moreover, if the Administrator finds a lack

of good faith on the part of Michigan, both sanctions under section

179(b) shall apply after the expiration of the 18-month period until

the Administrator determines that the State has come into compliance.

In all cases, if, 6 months after EPA applies the first sanction,

Michigan has not submitted a revised program that EPA has determined

corrects the deficiencies, a second sanction is required.

In addition, discretionary sanctions may be applied where warranted

any time after the expiration of an interim approval period if the

State has not timely submitted a complete corrective program or EPA has

disapproved its submitted corrective program. Moreover, if EPA has not

granted full approval to Michigan's program by the expiration of this

interim approval because that expiration occurs after November 15,

1995, EPA must promulgate, administer and enforce a Federal permits

program for the State of Michigan upon expiration of interim approval.

2. Other Actions

Requirements for approval, specified in 40 CFR 70.4(b), encompass

section 112(l)(5) requirements for approval of a program for delegation

of section 112 standards as promulgated by EPA as they apply to part 70

sources. Section 112(l)(5) requires that the State's program contain

adequate authorities, adequate resources for implementation, and an

expeditious compliance schedule, which are also requirements under part

70. Therefore, EPA is promulgating approval under section 112(l)(5) and

40 CFR part 63.91 of the State's program for receiving delegation of

section 112 standards that are unchanged from Federal standards as

promulgated. This program for delegations only applies to sources

covered by the part 70 program.

The EPA is also promulgating approval of Michigan's preconstruction

permitting program found in Part 2 of Michigan's Air Pollution Control

Rules (R 336.1201-336.1299) under the authority of title V and part 70

solely for the purpose of implementing section 112(g) to the extent

necessary during the transition period between promulgation of the

Federal section 112(g) rule and adoption of any necessary State rules

to implement EPA's section 112(g) regulations. However, since the

approval is for the single purpose of providing a mechanism to

implement section 112(g) during the transition period, the approval

itself will be without effect if EPA decides in the final section

112(g) rule that sources are not subject to the requirements of the

rule until State regulations are adopted. Although section 112(l)

generally provides authority for approval of State air programs to

implement section 112(g), title V and section 112(g) provide authority

for this limited approval because of the direct linkage between the

implementation of section 112(g) and title V. The scope of this

approval is narrowly limited to section 112(g) and does not confer or

imply approval for purposes of any other provision under the Act, for

example, section 110. The duration of this approval is limited to 18

months following promulgation by EPA of section 112(g) regulations, to

provide Michigan adequate time for the State to

[[Page 1399]]

adopt regulations consistent with the Federal requirements.

III. Administrative Requirements

A. Official File

Copies of the State's submittal and other information relied upon

for the final interim approval, including public comments on the

proposal received and reviewed by EPA, are maintained in the official

file at the EPA Regional Office. The file is an organized and complete

record of all the information submitted to, or otherwise considered by,

EPA in the development of this final interim approval. The official

file is available for public inspection at the location listed under

the ADDRESSES section of this document.

B. Executive Order 12866

The Office of Management and Budget has exempted this action from

Executive Order 12866 review.

C. Regulatory Flexibility Act

The EPA's actions under section 502 of the Act do not create any

new requirements, but simply address operating permits programs

submitted to satisfy the requirements of 40 CFR part 70. Because this

action does not impose any new requirements, it does not have a

significant impact on a substantial number of small entities.

D. Unfunded Mandates Reform Act of 1995

Under section 202 of the Unfunded Mandates Reform Act of 1995,

signed into law on March 22, 1995, EPA must prepare a budgetary impact

statement to accompany any proposed or final rule that includes a

Federal mandate that may result in estimated costs to State, local, or

tribal governments in the aggregate, or to the private sector, of $100

million or more. Under section 205, EPA must select the most cost

effective and least burdensome alternative that achieves the objectives

of the rule and is consistent with statutory requirements. Section 203

requires EPA to establish a plan for informing and advising any small

governments that may be significantly or uniquely impacted by the rule.

EPA has determined that the final interim approval action promulgated

today does not include a Federal mandate that may result in estimated

costs of $100 million or more to State, local, or tribal governments in

the aggregate, or to the private sector. This Federal action approves

pre-existing requirements under State or local law, and imposes no new

Federal requirements. Accordingly, no additional costs to State, local,

or tribal governments, or to the private sector, result from this

action.

Under 5 U.S.C. 801(a)(1)(A) as added 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 the rule in today's

Federal Register. This rule is not a ``major rule'' as defined by 5

U.S.C. 804(2).

List of Subjects in 40 CFR Part 70

Environmental protection, Administrative practice and procedure,

Air pollution control, Intergovernmental relations, Operating permits,

Reporting and recordkeeping requirements.

Dated: December 27, 1996.

Valdas V. Adamkus,

Regional Administrator.

Part 70, title 40 of the Code of Federal Regulations is amended as

follows:

PART 70--[AMENDED]

1. The authority citation for part 70 continues to read as follows:

Authority: 42 U.S.C. 7401 et seq.

2. Appendix A to part 70 is amended by adding the entry for

Michigan in alphabetical order to read as follows:

Appendix A to Part--70-Approval Status of State and Local Operating

Permits Programs

* * * * *

Michigan

(a) Department of Environmental Quality: received on May 16,

1995, July 20, 1995, October 6, 1995, November 7, 1995, and January

8, 1996; interim approval effective on February 10, 1997; interim

approval expires February 10, 1999.

(b) (Reserved)

* * * * *

[FR Doc. 97-643 Filed 1-9-97; 8:45 am]

BILLING CODE 6560-50-P