Supplemental Notice for the Finding of Significant Contribution and Rulemaking for Certain States in the Ozone Transport Assessment Group Region for Purposes of Reducing Regional Transport of Ozone
Federal RegisterMay 11, 1998
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SUMMARY: In accordance with the Clean Air Act (CAA), today's action is
a SNPR to EPA's November 7, 1997 notice of proposed rulemaking (NPR).
This action augments EPA's proposal to require certain States to submit
State implementation plan (SIP) measures to ensure that emissions
reductions are achieved as needed to mitigate transport of ozone (smog)
pollution and one of its main precursors--emissions of oxides of
nitrogen (NOX)--across State boundaries in the eastern half
of the United States.
Ozone has long been recognized, in both clinical and
epidemiological research, to affect public health. There is a wide
range of ozone-induced health effects, including decreased lung
function (primarily in children active outdoors), increased respiratory
symptoms (particularly in highly sensitive individuals), increased
hospital admissions and emergency room visits for respiratory causes
(among children and adults with pre-existing respiratory disease such
as asthma), increased inflammation of the lung, and possible long-term
damage to the lungs.
Today's action includes proposed rule language for the November 7,
1997 NPR for the 23 jurisdictions, revised statewide emissions budgets
and cost analysis, proposed State reporting requirements and SIP
approvability criteria, a proposed model cap-and-trade rule, a
discussion of the interaction between this proposal and the title IV
NOX rule, and air quality analyses of the proposed statewide
emissions budgets.
The EPA intends to finalize today's action and the November 7, 1997
NPR simultaneously in the September 1998 timeframe.
DATES: The EPA is establishing a 45-day comment period, ending on June
25, 1998. Comments must be postmarked by the last day of the comment
period and sent directly to the Docket Office listed in ADDRESSES (in
duplicate form if possible). A public hearing will be held on May 29,
1998, beginning at 9:00 am. Please refer to SUPPLEMENTARY INFORMATION
for details.
ADDRESSES: Comments may be submitted to the Air and Radiation Docket
and Information Center (6101), Attention: Docket No. A-96-56, US
Environmental Protection Agency, 401 M Street SW, room M-1500,
Washington, DC 20460, telephone (202) 260-7548, between 8:00 a.m. and
4:00 p.m., Monday through Friday, excluding legal holidays. A
reasonable fee may be charged for copying. Comments and data may also
be submitted electronically by following the instructions under
SUPPLEMENTARY INFORMATION of this document. No Confidential Business
Information (CBI) should be submitted through e-mail. A courtesy copy
of comments to David Cole would be appreciated at Office of Air Quality
Planning and Standards, Air Quality Strategies and Standards Division,
MD-15, Research Triangle Park, NC 27711, telephone (919) 541-5565, Fax
(919) 541-0824. An electronic copy would also be helpful to
[email protected]. The address for sending overnight packages is US
EPA, Air Quality Strategies and Standards Division, 411 W. Chapel Hill
St., Durham, NC 27701. The public hearing will be held at the EPA
Auditorium at 401 M Street SW, Washington, DC, 20460.
FOR FURTHER INFORMATION CONTACT: General questions concerning today's
action should be addressed to Kimber Smith Scavo, Office of Air Quality
Planning and Standards, Air Quality Strategies and Standards Division,
MD-15, Research Triangle Park, NC 27711, telephone (919) 541-3354.
Please refer to SUPPLEMENTARY INFORMATION below for a list of contacts
for specific subjects described in today's action.
SUPPLEMENTARY INFORMATION:
Reopening of November 7, 1997 NPR Comment Period and Technical
Analyses
The Agency will ensure that all comments and technical analyses
received on the November 7, 1997 NPR (62 FR 60318) and this SNPR are
made publicly available in the docket to this rulemaking. The EPA will
accept comments on all issues raised in today's SNPR, as well as
comments concerning the implications that any such issues may have for
issues raised in the November 7, 1997 NPR. In addition, on April 9,
1998 (63 FR 17349), EPA published a notice in the Federal Register that
discussed additional items related to the November 7, 1998 NPR for
which the Agency is reopening the comment period. Therefore, the
comment period for the November 7, 1997 NPR is reopened until June 25,
1998 for the items specified in the April 9, 1998 notice.
Public Hearing
The EPA will conduct a public hearing on today's proposal on May
29, 1998 beginning at 9:00 a.m. The public hearing will be held at the
EPA Auditorium at 401 M Street SW., Washington, DC 20460. The metro
stop is Waterfront which is on the green line. Persons planning to
present oral testimony at the hearing should notify JoAnn Allman,
Office of Air Quality Planning and Standards, Air Quality Strategies
and Standards Division, MD-15, Research Triangle Park, NC 27711,
telephone (919) 541-1815 no later than May 22, 1998. Oral testimony
will be limited to 5 minutes each. Any member of the public may file a
written statement before, during, or by the close of the comment period
after the hearing. For written statements concerning the proposed
amended 40 CFR Part 76, the hearing record will be kept open for 30
days after the hearing date, under section 307(d)(5)(iv) of the CAA to
provide an opportunity for submission of rebuttal and supplementary
information. Written statements (duplicate copies preferred) should be
submitted to the docket at the above address. A hearing schedule
including a list of speakers will be posted on EPA's SIP call webpage
at http://www.epa.gov/ttn/oarpg/otagsip.html prior to the hearing.
Following the hearing, a verbatim transcript of the hearing and
written statements will be made available for copying during normal
working hours at the Air and Radiation Docket Information Center at the
above address. The Agency does not plan to schedule any additional
hearings on the proposed rule.
Electronic Availability
The official record for this rulemaking, as well as the public
version, has been established under docket number A-96-56 (including
comments and data submitted electronically as described below). A
public version of this record, including printed, paper versions of
electronic comments, which does not include any information claimed as
CBI, is available for inspection from 8 a.m. to 4 p.m., Monday through
Friday, excluding legal holidays. The official rulemaking record is
located at the address in ADDRESSES at the beginning of this document.
[[Page 25903]]
Electronic comments can be sent directly to EPA at: A-and-R-
D[email protected]. Electronic comments must be submitted as an
ASCII file avoiding the use of special characters and any form of
encryption. Comments and data will also be accepted on disks in
WordPerfect in 6.1 (or 5.1) file format or ASCII file format. All
comments and data in electronic form must be identified by the docket
number A-96-56. Electronic comments on this proposed rule may be filed
online at many Federal Depository Libraries.
Availability of Related Information
Documents related to the Ozone Transport Assessment Group (OTAG)
are available on the Agency's Office of Air Quality Planning and
Standards' (OAQPS) Technology Transfer Network (TTN) via the web at
http://www.epa.gov/ttn/. If assistance is needed in accessing the
system, call the help desk at (919) 541-5384 in Research Triangle Park,
NC. Documents related to OTAG can be downloaded directly from OTAG's
webpage at http://www.epa.gov/ttn/otag. The OTAG's technical data are
located at http://www.iceis.mcnc.org/OTAGDC. The October 10, 1997
signature version of the proposed SIP call, the November 7, 1997
Federal Register version, and associated documents are located at
http://epa.gov/ttn/oarpg/otagsip.html. Information related to Section
VII, Air Quality Assessment of the Statewide Emissions Budgets can be
obtained in electronic form from the following EPA website: http://
www.epa.gov/scram001/regmodcenter/t28.htm.
For Additional Information
For technical questions related to the air quality analyses, please
contact Norm Possiel; Office of Air Quality Planning and Standards,
Emissions, Monitoring, and Analysis Division; MD-14, Research Triangle
Park, NC 27711, telephone (919) 541-5692. For legal questions, please
contact Howard Hoffman, Office of General Counsel, 401 M Street SW, MC-
2344, Washington, DC, 20460, telephone (202) 260-5892. For questions
concerning the statewide emissions budget revisions, please contact
Laurel Schultz; Office of Air Quality Planning and Standards;
Emissions, Monitoring, and Analysis Division; MD-14, Research Triangle
Park, NC 27711, telephone (919) 541-5511. For questions concerning SIP
reporting requirements, please contact Bill Johnson, Office of Air
Quality Planning and Standards, Air Quality Strategies and Standards
Division, MD-15, Research Triangle Park, NC 27711, telephone (919) 541-
5245. For questions concerning the model cap-and-trade rule, please
contact Rob Lacount, Office of Atmospheric Programs, Acid Rain
Division, MC-6204J, 401 M Street SW, Washington, DC 20460, telephone
(202) 564-9122. For questions concerning the regulatory cost analysis
of electricity generating sources, please contact Ravi Srivastava,
Office of Atmospheric Programs, Acid Rain Division, MC-6204J, 401 M
Street SW, Washington DC 20460, telephone (202) 564-9093. For questions
concerning the regulatory cost analysis of other stationary sources,
please contact Scott Mathias, Office of Air Quality Planning and
Standards, Air Quality Strategies and Standards Division, MD-15,
Research Triangle Park, NC 27711, telephone (919) 541-5310.
Outline
I. Background
A. Summary of November 7, 1997 NPR
B. Updates With 1994-96 Air Quality Data for the Findings of
Significant Contribution
II. Proposed Rule for the 23 Jurisdictions
III. Emissions Budgets Analyses
A. Explanation of Revised Budgets
1. Electricity Generating Units
a. Addition of Sources
b. Growth Factors
c. Revised Budget Component
d. Alternative Approach to Calculating the Component of the
Budget for Electricity Generation
2. Non-Electricity Generating Point Sources
a. Addition of Sources
b. Application of Controls
c. Revised Budget Component
d. Options for Calculating the Budgets
3. Revised State Budgets
B. Revised Cost Analyses
1. Electricity Generating Sources
2. Non-Electricity Generating Point Sources
3. Cost Analysis Results
IV. SIP Criteria and Emissions Reporting Requirements
A. SIP Criteria
1. Introduction
2. Completeness Determination
3. Approvability Criteria
a. Additional Control Strategy Approvability Criteria
i. Introduction
ii. General Recommendations
iii. New Proposed Approval Criteria
b. Emissions Inventory Preparation Guidance and Control
Strategies Guidance
c. Growth Estimates
d. Emissions Growth and Projection Guidance
B. Emissions Reporting Requirements
1. Use of Inventory Data
2. Legal Authority
3. Background for Reporting Requirements
4. Proposal
5. Annual Reporting
a. Point Sources
b. Area Sources
c. Mobile Sources
6. Reporting Every Third Year (3-year cycle reporting)
7. 2007 Report
8. Ozone Season Reporting
9. Data Reporting Procedures
10. Reporting Schedule
11. Confidential Data
12. Data Elements to be Reported
V. NOX Budget Trading Program
A. Program Summary
1. Purpose of the NOX Budget Trading Program
2. Emissions Reductions Required by the Proposed Transport
Rulemaking
3. Benefits of Participating in the NOX Budget
Trading Program
4. EPA's Proposal
B. Evolution of the NOX Budget Trading Program
1. OTC's NOX Budget Program
2. OTAG Process
3. EPA Model Trading Program Workshops
4. RECLAIM Program
C. NOX Budget Trading Program
1. General Provisions
a. Purpose
b. Definitions, Measurements, Abbreviations and Acronyms
c. Applicability
i. Monitoring
ii. Responsible Party
iii. Inclusion of Additional Source Categories
iv. Individual Opt-Ins
v. Additional Options for Applicability
vi. Area and Mobile Sources
d. Retired Unit Exemption
e. Standard Requirements
f. Computation of Time
2. NOX Authorized Account Representative (AAR)
3. Permits
a. General Requirements
b. Title V/Non-title V Permits
c. NOX Budget Permit Application Deadlines
d. NOX Budget Trading Program Permit Application
e. NOX Budget Permit Issuance
f. NOX Budget Permit Revisions
4. Compliance Certification
5. NOX Allowance Allocations
a. Development of State Trading Program Budget
b. Timing Requirements
c. Options for NOX Allowance Allocation
Recommendation
i. Basis for Developing an Allocation Recommendation
ii. Options for an Allocation Recommendation
iii. Framework for an Allocation Recommendation
6. NOX Allowance Tracking System
a. Compliance Accounts
b. Overdraft Accounts
c. Compliance
d. General Accounts
7. Banking
a. General Discussion
i. Banking After the Start of the Program
ii. Banking Prior to the Start of the Program
iii. Management of Banking
b. Options
i. Option 1: No Banking
ii. Option 2: Banking After Program Start Only
[[Page 25904]]
iii. Option 3: Early-Reduction Credits
iv. Option 4: Phased-In Program
8. Allowance Transfers
9. Emissions Monitoring and Reporting
a. Requirements for Point Sources
b. Output Information
10. Opt-Ins
a. Applicability for Opt-In Units
b. Allowance Allocations for Opt-In Units
c. Units Sharing Stacks or Fuel Pipe Headers with NOX
Budget Units
d. Withdrawal and Termination of Opt-In Units
11. Program Audits
12. Administration of Program
D. SIP Approvability
E. OTC Integration
1. Applicability
a. State Applicability
b. Source Applicability
2. Allocations
3. Emissions Banking
4. Emissions Monitoring and Reporting
5. Permitting
F. New Source Review
G. End Use Energy Efficiency and Renewable Energy
1. Background
2. Energy Efficiency and Renewables Set-Aside Options
VI. Interaction with Title IV NOX Rule
VII. Air Quality Assessment of the Statewide Emissions Budgets
Analyses
A. Background Information
B. Emissions Scenarios
1. Development of Emissions Inputs
a. Electric Generation Sources
b. Non-Electric Generation Point Sources
c. Mobile and Area Sources
2. Emissions Summaries
C. Analysis of Modeling Results
1. Technical Procedures
a. State-Level Analysis
i. Selection of Grid Cells for Analysis
ii. Procedures for Calculating State-Level Metrics
b. OTAG Standard Table of Metrics
D. Analysis Results and Findings
1. Introduction
a. Impacts on 1-Hour Ozone Concentrations
i. State-Level Analyses--1-Hour Concentrations
ii. Ozone Problem Area Analyses--1-Hour Concentrations
b. Impacts on 8-Hour Ozone Concentrations
i. State-Level Analyses--8-Hour Concentrations
ii. Ozone Problem Area Analyses--8-Hour Concentrations
2. Summary and Conclusions
E. Alternative Approaches
VIII. Impact on Small Entities
IX. Unfunded Mandates Reform Act
X. Paperwork Reduction Act
XI. Judicial Review
I. Background
A. Summary of November 7, 1997 NPR
The EPA's November 7, 1997 proposal 1 (hereafter
referred to as the ``proposed SIP call'' or ``SIP call'') proposed to
find that the transport of ozone and ozone precursors from 22 States
and the District of Columbia (23 jurisdictions) significantly
contributes to nonattainment of the ozone national ambient air quality
standards (NAAQS), or interferes with maintenance of the NAAQS, in
downwind States. The proposed SIP call explained the basis for
determining significant contribution or interference with maintenance
for the 23 jurisdictions. Further, the SIP call proposed the
appropriate levels of NOX emissions that each of the 23
jurisdictions would be required to achieve. The EPA also conducted a
regulatory cost analysis which is available in the docket to this
rulemaking (docket number II-B-01) as a technical support document
(TSD) to the proposed SIP call. A detailed explanation of how EPA
established the budgets is also available as a TSD to the proposal
(docket number III-B-02). These TSDs have been revised as explained in
Section III, Emissions Budgets Analyses.
---------------------------------------------------------------------------
\1\ The EPA signed the November 7, 1997 NPR on October 10, 1997
and made it immediately available to the public on EPA's homepage at
http://www.epa.gov/ttn/oarpg/rules.html.
---------------------------------------------------------------------------
The SIP call proposed SIP requirements under CAA section 110(a)(1)
and section 110(k)(5) in order to meet the requirements of section
110(a)(2)(D), as it pertains to the ozone NAAQS, to prohibit ozone
precursor emissions from sources or activities in those States from
``contribut[ing] significantly to nonattainment in, or interfer[ing]
with maintenance by,'' a downwind State.
Based on this determination, the EPA proposed to require SIP
revisions in order to take steps toward ensuring that the necessary
regional reductions are achieved that will enable current ozone
nonattainment areas in the eastern half of the United States to prepare
attainment demonstrations and that will enable all areas to demonstrate
noninterference with maintenance of the ozone standard. This
requirement permits each State to choose for itself what measures to
adopt to meet the necessary emissions budget. Consistent with OTAG's
recommendations to achieve NOX emissions decreases primarily
from large stationary sources in a trading program, EPA encourages
States to consider electric utility and large boiler controls under a
cap-and-trade program as a cost-effective strategy. The cap-and-trade
program is described in more detail in Section V, NOX Budget
Trading Program.
B. Updates With 1994-96 Air Quality Data for the Findings of
Significant Contribution
In the proposed SIP call, EPA followed a weight of evidence
approach to determine which States cause a significant contribution to
nonattainment in downwind States. Part of the information EPA
considered in this determination included air quality modeling based on
the OTAG 2007 Base Case and OTAG ``zero-out'' subregional UAM-V
simulations. The results of the 2007 Base Case modeling were analyzed
with 1993-1995 ambient air quality measurements to identify areas which
(a) currently violate the NAAQS (based on monitoring) and (b) are
expected to continue to violate the NAAQS in the future (based on
modeling). The ``zero-out'' subregional modeling data were then used to
quantify the ``ppb'' contributions to ozone in these ``nonattainment''
areas. The resulting ``ppb'' contributions were provided in the SIP
call Tables II-10 and II-12 for the 1-hour and 8-hour NAAQS,
respectively.
The EPA stated in the SIP call that it would review more recent air
quality data and, in the event that these data alter the results of the
significant contribution assessment in any meaningful way, EPA would
make the appropriate adjustments to the findings. Since the SIP call
was published, EPA has reviewed 1996 air quality data to determine
which counties violate the 1-hour and 8-hour NAAQS based on 1994-1996
measurements. A list of the 1-hour and 8-hour violating counties based
on these data is provided in the docket. The EPA recalculated the
``ppb'' contributions to downwind nonattainment using the 1994-1996 1-
hour and 8-hour violating counties and the OTAG 2007 Base Case and
``zero-out'' subregional modeling. The resulting updated 1-hour and 8-
hour contribution tables are provided in the docket. Based upon a
review of the information in these tables, EPA finds no basis for
altering its conclusions on significant contribution.
II. Proposed Action for the 23 Jurisdictions
This SNPR includes the proposed rule language for the CFR for the
basic elements of the proposed SIP call, including the requirements
imposed on the 23 jurisdictions to submit SIP revisions, under both the
1-hour and 8-hour standard, providing for implementation of the
applicable statewide NOX emissions budget, as well as the
definition of the NOX
[[Page 25905]]
budget. The rule language is located at the end of the preamble.
III. Emissions Budgets Analyses
A. Explanation of Revised Budgets
A number of changes were made to the emissions inventory used to
calculate the budget. These changes apply to the electricity generating
and non-electricity generating point source sectors only and were made
to correct errors found subsequent to publication of the proposed SIP
call (NPR). These source sectors are discussed separately below.
Detailed information concerning the changes can be found in the revised
Budget TSD titled ``Development of Modeling Inventory and Budgets for
the Ozone Transport SIP Call'' (revised Budget TSD).
1. Electricity Generating Units
The changes that were made to the electricity generating component
of the budgets fall into two general categories: addition of sources
and changes in growth factors. Both of these changes increase the
budgets.
a. Addition of Sources. The changes that were made in the
population of the utility and non-utility owned electricity generating
units since the November 7, 1997 notice are summarized in Table III-1.
This SNPR includes 1,757 units compared to 1,180 units in the NPR. This
reflects an addition of 577 units to the State budget inventories.
These units include electricity generating sources 25 megawatts of
electrical output (MWe) or smaller and additional units not affected
under the Acid Rain Program (40 CFR part 76). Detailed information on
the sources of data for these additional units is contained in the
revised Budget TSD.
Table III-1.--Inventory Change From NPR
------------------------------------------------------------------------
NPR SNPR
Source population population
------------------------------------------------------------------------
Utility....................................... 1062 1510
Non-Utility................................... 118 247
-------------------------
Total..................................... 1180 1757
------------------------------------------------------------------------
b. Growth Factors. The EPA's ``Proposed Ozone Transport Rulemaking
Regulatory Analysis'' (September 1997, docket number III-B-01) used a
1995 forecast of future electricity demand prepared by the North
American Electric Reliability Council (NERC), with adjustments for
EPA's 1996 estimates of the electricity demand reductions that the
Climate Change Action Plan (CCAP) was projected to produce from the
year 2000 and on. Details on how EPA prepared this electricity demand
forecast can be found in EPA's ``Analyzing Electric Power Generation
under the Clean Air Act,'' (July 1996, docket number II-A-07). The EPA
used this electricity demand forecast in analyses conducted for OTAG
and the Clean Air Power Initiative (CAPI). Further, EPA also used this
forecast when establishing the State-specific growth factors used in
the NPR (referred to as the ``original'' projections).
While EPA is continuing to use the electricity generating industry
growth projections described in the NPR when establishing the budget
component for that sector, this SNPR is correcting one error in the
growth factor calculation of the NPR. The EPA corrected its estimates
of State-specific growth rates from 1996 to 2007. The estimates were
interpolated from the average annual growth of each State as forecasted
by EPA using the Integrated Planning Model (IPM) and EPA's baseline
electricity generation forecast. In developing the average annual
growth, EPA relied on unit-specific summer energy use from 2000 to 2010
as forecasted by the IPM. The average annual growth was determined
using the State-specific growth from 2000 to 2010. However, when
calculating the growth for the year 2010, EPA inadvertently omitted
information on many of the new combustion turbine and combined-cycle
units that IPM forecasts to be built by 2010. Thus new electricity-
generating capacity, expected to be built between 2000 and 2010 was not
included when estimating the industry growth between 2000 and 2010.
This error resulted in an underestimation of the expected average
annual growth for each affected State. In the revision of the budget
for the electric power industry, this error has been corrected. The
change leads to a higher electricity generating component of the
NOX budget for all affected States. The corrected growth
factors are shown in Table III-2 (referred to as the ``corrected''
projections).
Table III-2.--Corrected Electricity Generation Growth Factors
----------------------------------------------------------------------------------------------------------------
Original 96- Corrected 96- Percent
State 07 factor 07 factor increase
----------------------------------------------------------------------------------------------------------------
Alabama......................................................... 1.03 1.16 12.92
Connecticut..................................................... 0.92 1.22 32.99
District of Columbia............................................ 1.00 1.00 0.00
Delaware........................................................ 1.68 1.80 6.77
Georgia......................................................... 1.14 1.21 6.32
Illinois........................................................ 1.23 1.34 8.63
Indiana......................................................... 1.27 1.30 2.64
Kentucky........................................................ 1.20 1.28 6.41
Massachusetts................................................... 1.62 1.71 5.62
Maryland........................................................ 1.14 1.23 7.37
Michigan........................................................ 1.13 1.18 4.60
Missouri........................................................ 1.13 1.24 9.28
North Carolina.................................................. 1.10 1.26 15.04
New Jersey...................................................... 0.99 1.26 27.37
New York........................................................ 1.11 1.22 10.16
Ohio............................................................ 1.10 1.14 3.19
Pennsylvania.................................................... 1.07 1.15 7.07
Rhode Island.................................................... 0.43 0.48 11.83
South Carolina.................................................. 1.32 1.63 23.22
Tennessee....................................................... 0.92 1.25 35.78
Virginia........................................................ 1.18 1.43 20.50
Wisconsin....................................................... 1.07 1.13 6.30
West Virginia................................................... 1.02 1.05 3.26
----------------------------------------------------------------------------------------------------------------
[[Page 25906]]
Since the NPR, EPA has also updated its electricity demand forecast
to include more up-to-date information. The information was obtained
from the same sources used in developing the forecast used in the NPR.
The EPA's more recent forecast uses the 1997 forecast of future
electricity demand prepared by NERC with adjustments for the
Administration's 1997 estimates of electricity demand reductions that
the CCAP is projected to produce from 2000 on (referred to as the
``revised'' projections). The EPA found that this revised estimate
leads to lower growth rates for the electricity generating industry
than the estimate used in the NPR analyses. However, in this SNPR, EPA
uses the corrected forecast when calculating State-specific budgets
because of the inherent uncertainty in any projection, and EPA's
willingness to provide States flexibility in achieving their budgets.
Further, when evaluating the cost effectiveness of NOX
controls, EPA considered both the corrected and revised future
electricity demand forecasts. However, for all other analyses under
this SNPR, EPA is using the corrected future electricity demand
forecast. Further, EPA solicits comment on whether to use only the
revised future electricity demand forecast for the budget and cost
effectiveness calculations.
c. Revised Budget Component. Both the 2007 electricity generating
Base Case and the electricity generating Budget component were revised
based on the changes described above. These revisions are shown in
Tables III-3 and III-4. The difference between the 2007 Base Case and
Budget emissions that were proposed and the revised Base Case and
Budget emissions is shown in Table III-3. The revised percent reduction
from the 2007 Base Case to the Budget is shown in Table III-4.
Table III-3.--Changes to Proposed Base Case and Budget Components for Electricity Generating Units
[tons NOX/season]
----------------------------------------------------------------------------------------------------------------
Proposed Revised Percent Proposed Revised Percent
State base base increase budget budget increase
----------------------------------------------------------------------------------------------------------------
Alabama................................. 81,704 85,201 4 26,946 30,644 14
Connecticut............................. 5,715 7,048 23 3,409 5,245 54
Delaware................................ 10,901 10,727 -2 4,390 4,994 14
District of Columbia.................... 385 236 -39 152 152 0
Georgia................................. 92,946 84,890 -9 30,158 32,433 8
Illinois................................ 115,053 119,756 4 31,833 36,570 15
Indiana................................. 177,888 159,917 -10 48,791 51,818 6
Kentucky................................ 128,688 130,919 2 35,820 38,775 8
Maryland................................ 35,332 37,575 6 11,364 12,971 14
Massachusetts........................... 28,284 24,998 -12 12,956 14,651 13
Michigan................................ 82,057 73,585 -10 25,402 29,458 16
Missouri................................ 92,313 81,799 -11 22,932 26,450 15
New Jersey.............................. 14,553 17,484 20 5,041 8,191 62
New York................................ 39,639 43,705 10 24,653 31,222 27
North Carolina.......................... 83,273 86,872 4 27,543 32,691 19
Ohio.................................... 185,757 167,601 -10 46,758 51,493 10
Pennsylvania............................ 125,195 120,979 -3 39,594 45,971 16
Rhode Island............................ 773 1,351 75 905 1,609 78
South Carolina.......................... 43,363 57,146 32 15,090 19,842 31
Tennessee............................... 71,994 83,844 16 19,318 26,225 36
Virginia................................ 45,719 51,113 12 16,884 20,990 24
West Virginia........................... 83,719 76,374 -9 23,306 24,045 3
Wisconsin............................... 51,004 45,538 -11 15,755 17,345 10
-----------------------------------------------------------------------
Total............................... 1,596,255 1,568,655 -2 489,000 563,784 15
----------------------------------------------------------------------------------------------------------------
Table III-4.--Revised NOX Budget Components and Percent Reduction for Electricity Generating Units
[tons/season]
----------------------------------------------------------------------------------------------------------------
Revised Percent
State Revised base budget reduction
----------------------------------------------------------------------------------------------------------------
Alabama......................................................... 85,201 30,644 64
Connecticut..................................................... 7,048 5,245 26
Delaware........................................................ 10,727 4,994 53
District of Columbia............................................ 236 152 36
Georgia......................................................... 84,890 32,433 62
Illinois........................................................ 119,756 36,570 69
Indiana......................................................... 159,917 51,818 68
Kentucky........................................................ 130,919 38,775 70
Maryland........................................................ 37,575 12,971 65
Massachusetts................................................... 24,998 14,651 41
Michigan........................................................ 73,585 29,458 60
Missouri........................................................ 81,799 26,450 68
New Jersey...................................................... 17,484 8,191 53
New York........................................................ 43,705 31,222 29
North Carolina.................................................. 86,872 32,691 62
Ohio............................................................ 167,601 51,493 69
Pennsylvania.................................................... 120,979 45,971 62
Rhode Island.................................................... 1,351 1,609 -19
[[Page 25907]]
South Carolina.................................................. 57,146 19,842 65
Tennessee....................................................... 83,844 26,225 69
Virginia........................................................ 51,113 20,990 59
West Virginia................................................... 76,374 24,045 69
Wisconsin....................................................... 45,538 17,345 62
-----------------------------------------------
Total....................................................... 1,568,655 563,784 64
----------------------------------------------------------------------------------------------------------------
d. Alternative Approach to Calculating the Component of the Budget
for Electricity Generation. In this regulatory action, the component of
each State's budget assigned to electricity generation is determined
using the State's total heat input, applicable emission rate (0.15 lb/
million British thermal units per hour (mmBtu)), and projected growth
to 2007. Consequently, for each State this budget component is based on
the amount of fossil fuel each State uses to produce electricity.
However, States use other fuel sources to generate electricity,
notably nuclear and hydro energy, as well as solar and wind energy.
Furthermore, some facilities that rely on fossil fuel sources are more
efficient, in terms of lower NOX emissions, than other
facilities. In addition, each State's use of sources to generate
electricity may change over time. For example, electricity now produced
by the combustion of fossil fuels may, in the future, be produced using
alternative sources and vice versa.
Because of the shifts in generation from one fuel source to
another, an alternative approach to determining each State's share of
the total regionwide budget component based on total heat input may be
a consideration of total electricity generation within the State. Under
this approach (referred to as ``output-based''), the electricity
generation component (i.e., 563,784 tons of NOX) of the
regionwide budget would be apportioned among the States based on total
electricity generation, not only fossil-fuel generation. Since the
total regionwide budget component would be the same as that proposed in
this notice, and assuming a multistate trading program, the
environmental effects and cost effectiveness of such an allocation
should be similar to the proposed approach.
The data used to apportion the regionwide budget component to each
State under the output-based approach would be State-specific
generation (in MWh) for the time period May 1 to September 30. One
source of such information is the Energy Information Administration's
(EIA) Form 759, where electricity generating sources report their
monthly generation. To more equitably account for shifts from State-to-
State, it may be appropriate to use the higher of summer 1995 or 1996
generation for each State in determining the output-based State budget
components, or perhaps the average of the highest two out of three
summer periods. The first approach is similar to that used in
generating the proposed budget for this sector.
This alternative approach has the effect of rewarding States that
have invested in methods of electricity generation that result in no,
or fewer, NOX emissions. At the same time, because most
electricity generation relies on fossil-fuel inputs that, in turn,
result in NOX emissions, even under this output-based
approach, the State budgets would bear a strong relationship to amount
of actual NOX emissions on a State-by-State basis.
Even so, the resulting budgets for each State would be different,
to some degree, from the budgets currently proposed. If a regionwide
trading program is ultimately used, it may be assumed that emissions
would be reallocated so that each State's budget under the alternative
approach would be the same as under the currently proposed approach. Of
course, in this case, the cost effectiveness and environmental benefit
associated with this alternative approach would be the same as that of
the currently proposed approach. It seems plausible to assume that
States subject to the NOX SIP call would opt for regionwide
trading due to the cost effectiveness of this approach.
However, in this rulemaking, EPA is not attempting to require
regionwide trading, and if the States opt not to employ such a system,
the air quality impacts of an output-based approach and its cost
effectiveness may be different from the air quality impacts under the
proposed budget. If for some States, the budget under the output-based
approach is significantly lower than that under the proposed approach,
the absence of a regionwide trading system may result in required
control levels that are not technically achievable.
Other issues that arise under the output-based approach concern the
representativeness and quality of the required data. Specifically, the
EIA data used in the output-based approach may not include all
electricity generating sources, such as Independent Power Producers
(IPPs) and Non-Utility Generators (NUGs). Additionally, some may argue
that it is inappropriate to incorporate the non-NOX-emitting
sources in the calculation of each State's electricity generation
component of the budget. In addition, the alternative budget fails to
consider the fact that nuclear-, hydro-, solar-, or wind-powered
facilities generate steam output, as well as electricity. Accordingly,
it may be logical to adjust the alternative budgets further to take
account of steam output. Further, as discussed in Section V.C.9.b,
Output Information, of this preamble, there are a number of issues
associated with measuring and using electricity- or steam-related
output data. The EPA solicits comments on all issues concerning this
alternative approach, including the appropriateness, legality,
rationale, and methodology for incorporating the output-based approach
when calculating the electricity generation component of each State's
budget.
2. Non-Electricity Generating Point Sources
Changes that were made to the non-electricity generating point
source component of the budgets fall into two categories: addition of
sources and application of controls. Addition of sources increases the
budgets, while correction in the application of controls tends to
decrease the budgets.
a. Addition of Sources. Based on the matching that was done to
identify electricity generating sources, it was determined that a
number of sources
[[Page 25908]]
that were identified in the OTAG inventory as utilities were, in fact,
not utility sources. In the budgets that were proposed on November 7,
1997, these sources were left out of the inventory when the OTAG
utility data were replaced by the acid rain data. These sources have
since been identified and added back into the budgets. A list of the
sources that were moved from the electricity generating to non-
electricity generating sector is contained in the revised Budget TSD.
b. Application of Controls. The non-electricity generating point
source budget components were calculated based on the OTAG
recommendations as follows:
70 percent control for large (> 250 mmBtu/hr) sources
(measured from uncontrolled 2007 emissions);
Reasonably Available Control Technology (RACT)-level
controls for all other NOX sources with more than 1.0 tons
per day (tpd) of NOX emissions (medium-sized sources);
Small source NOX emissions were estimated using
OTAG Base 1c scenario emission values.
For the budgets that were proposed, RACT was erroneously applied
only to those sources that were in areas required to adopt RACT. The
intent of the proposed approach was to apply RACT to all medium-sized
sources, regardless of whether they are located in an area that would
otherwise be required to apply RACT. The revised budgets reflect the
application of RACT to all medium-sized sources in the affected States.
A list of the sources that were treated as large and medium sources is
contained in the appendices to the revised Budget TSD.
c. Revised Budget Component. Both the 2007 Base Case and Budget
component for non-electricity generating point sources were revised
based on the changes described above. These revisions are shown in
Tables III-5 and III-6. The difference between the 2007 Base Case and
Budget emissions that were proposed and the revised Base Case and
Budget emissions for non-electricity generating units is shown in Table
III-5. The revised percent reduction from the 2007 Base Case to the
Budget is shown in Table III-6.
Table III-5.--Changes to Proposed Base Case and Budget Components for Non-Electricity Generating Units
[tons NOX/season]
----------------------------------------------------------------------------------------------------------------
Proposed Revised Percent Proposed Revised Percent
base base increase budget budget decrease
----------------------------------------------------------------------------------------------------------------
Alabama................................. 47,182 48,187 2 25,131 24,416 3
Connecticut............................. 4,732 5,254 11 4,475 3,103 31
Delaware................................ 5,205 5,276 1 3,206 2,271 29
District of Columbia.................... 312 311 0 312 259 17
Georgia................................. 34,012 33,939 0 20,472 14,305 30
Illinois................................ 63,642 65,351 3 39,855 40,719 -2
Indiana................................. 51,432 51,839 1 35,603 29,187 18
Kentucky................................ 18,817 19,019 1 12,258 11,996 2
Maryland................................ 6,729 10,710 59 4,825 5,852 -21
Massachusetts........................... 10,683 9,978 -7 7,590 6,207 18
Michigan................................ 57,190 61,656 8 35,317 35,957 -2
Missouri................................ 12,248 12,320 1 8,174 9,012 -10
New Jersey.............................. 32,663 22,228 -32 26,741 12,786 52
New York................................ 19,889 20,853 5 16,930 14,644 14
North Carolina.......................... 32,107 34,412 7 21,113 19,267 9
Ohio.................................... 50,946 53,329 5 32,799 30,923 6
Pennsylvania............................ 64,224 74,839 17 59,622 41,824 30
Rhode Island............................ 328 327 0 328 327 0
South Carolina.......................... 34,791 34,994 1 20,097 18,671 7
Tennessee............................... 65,051 67,774 4 32,138 34,308 -7
Virginia................................ 23,333 25,509 9 15,529 10,919 30
West Virginia........................... 41,510 42,733 3 31,377 21,066 33
Wisconsin............................... 21,209 21,263 0 12,269 11,401 7
-----------------------------------------------------------------------
Total............................... 698,233 722,101 3 466,158 399,416 14
----------------------------------------------------------------------------------------------------------------
Table III-6.--Revised NOX Budget Components and Percent Reduction for Non-Electricity Generating Units
[tons/season]
----------------------------------------------------------------------------------------------------------------
Revised Percent
Revised base budget reduction
----------------------------------------------------------------------------------------------------------------
Alabama......................................................... 48,187 24,416 49
Connecticut..................................................... 5,254 3,103 41
Delaware........................................................ 5,276 2,271 57
District of Columbia............................................ 311 259 17
Georgia......................................................... 33,939 14,305 58
Illinois........................................................ 65,351 40,719 38
Indiana......................................................... 51,839 29,187 44
Kentucky........................................................ 19,019 11,996 37
Maryland........................................................ 10,710 5,852 45
Massachusetts................................................... 9,978 6,207 38
Michigan........................................................ 61,656 35,957 42
[[Page 25909]]
Missouri........................................................ 12,320 9,012 27
New Jersey...................................................... 22,228 12,786 42
New York........................................................ 20,853 14,644 30
North Carolina.................................................. 34,412 19,267 44
Ohio............................................................ 53,329 30,923 42
Pennsylvania.................................................... 74,839 41,824 44
Rhode Island.................................................... 327 327 0
South Carolina.................................................. 34,994 18,671 47
Tennessee....................................................... 67,774 34,308 49
Virginia........................................................ 25,509 10,919 57
West Virginia................................................... 42,733 21,066 51
Wisconsin....................................................... 21,263 11,401 46
-----------------------------------------------
Total....................................................... 722,101 399,416 45
----------------------------------------------------------------------------------------------------------------
d. Options for Calculating the Budgets. In the November 7, 1997
NPR, EPA proposed budgets and developed cost effectiveness data for
non-utility boilers and gas turbines together with other non-utility
point sources. The budgets for these sources were based on the
applicable OTAG recommendation of 70 percent reduction from
uncontrolled levels at large units (greater than 250 mmBtu/hr), RACT at
medium units (other sources greater than 1 ton per day) and no controls
beyond the baseline for small sources. The revised budgets described in
Section III.A.2, Non-Electricity Generating Point Sources, of today's
action are based on the same approach. Costs were estimated for these
sources using a least cost approach for each State budget which assumed
incremental emissions reductions at the most cost-effective sources in
each State, including small, medium, and large units. In contrast,
electric generation sources were analyzed separately using an emissions
rate approach to develop the budgets and the Integrated Planning Model
(IPM) was run to estimate costs under an interstate trading program.
The November 7, 1997 NPR invited comment on the size cutoffs used in
the above analyses and also specifically invited comment on treating
large combustion sources, such as industrial boilers greater than 250
mmBtu (this level approximately corresponds to greater than 1 ton per
day), at control levels equal to that for large electric generation
sources.
In today's action, EPA is proposing to include the non-utility
boilers and gas turbines greater than 250 mmBtu/hr together with
electric generation sources as the core group of sources in the
NOX Budget Trading Program and analyze both using IPM. As a
result, EPA intends to conduct additional analyses as described below.
For the non-utility boilers and gas turbines greater than 250
mmBtu/hr, EPA intends to estimate costs using IPM and assuming a
trading program involving these sources and the electric generation
sources. The emissions budget would be calculated for these sources the
same as it was in the November 7, 1997 NPR. The EPA also solicits
comments on whether to calculate budgets for the non-utility boilers
and gas turbines through the alternative means of an emission rate
basis (e.g., 0.20 lbs/mmBtu), similar to the approach used by EPA for
electric generation sources in the November 7, 1997 NPR. The EPA
invites comment on these and other approaches for calculating the
budget component and costs for the non-utility boilers and gas turbines
greater than 250 mmBtu/hr.
Additionally, EPA intends to further analyze the point source
categories that are not part of the proposed core group of sources in
the NOX Budget Trading Program (e.g., process heaters,
stationary internal combustion engines, and cement manufacturing).
These analyses will look at applying (1) various cost-effectiveness
ceilings (e.g., maximum of $2000 per ton); (2) percentage reduction
floors (e.g., minimum of 50 percent reduction); and (3) combinations
(e.g., $2000 per ton maximum and 50 percent reduction minimum). These
analyses will cover individual source categories not in the proposed
core group of sources of the NOX Budget Trading Program as
well as all such sources in the aggregate. The EPA invites comment on
these and other approaches for calculating the budget component and
costs for this group of sources.
In the November 7, 1997 NPR, EPA noted that information on
emissions and potential control measures was generally lacking for
small sources. The EPA believes that there are several medium and large
units for which such information is also lacking. In the November 7,
1997 NPR (and in the revised budgets described in Section III.A.2, Non-
Electricity Generating Point Sources), these units were assigned a 70
percent reduction target for large and RACT for medium sized units,
consistent with the OTAG recommendation. However, since EPA cannot
identify specific control measures for these sources due to the lack of
available technical information, EPA now proposes to keep them in the
statewide budgets at baseline levels, without additional emission
reductions.
As the above analyses are completed, EPA intends to place them in
the docket.
3. Revised Statewide Budgets
The revised statewide budgets that reflect the changes to the
electricity generating and non-electricity generating point source
sectors described above are shown in Table III-7.
[[Page 25910]]
Table III-7.--Revised Statewide NOX Budgets
[tons/season]
----------------------------------------------------------------------------------------------------------------
State Base Budget Percent red.
----------------------------------------------------------------------------------------------------------------
Alabama......................................................... 241,564 155,617 36
Connecticut..................................................... 52,014 39,909 23
Delaware........................................................ 30,568 21,010 31
District of Columbia............................................ 7,978 7,000 12
Georgia......................................................... 246,243 159,013 35
Illinois........................................................ 350,154 218,679 38
Indiana......................................................... 340,084 200,345 41
Kentucky........................................................ 263,855 158,360 40
Maryland........................................................ 118,065 73,628 38
Massachusetts................................................... 103,445 73,575 29
Michigan........................................................ 283,821 199,238 30
Missouri........................................................ 185,104 116,246 37
New Jersey...................................................... 132,032 93,464 29
New York........................................................ 230,310 185,537 19
North Carolina.................................................. 234,300 153,106 35
Ohio............................................................ 391,012 236,443 40
Pennsylvania.................................................... 328,433 207,250 37
Rhode Island.................................................... 12,175 10,132 17
South Carolina.................................................. 169,572 109,267 36
Tennessee....................................................... 291,225 187,250 36
Virginia........................................................ 219,835 162,375 26
West Virginia................................................... 158,240 81,701 48
Wisconsin....................................................... 142,759 95,902 33
-----------------------------------------------
Total........................................................... 4,532,790 2,945,046 35
----------------------------------------------------------------------------------------------------------------
B. Revised Cost Analyses
The EPA has revised the cost estimates presented in the November 7,
1997 notice. As discussed in Section III.A, Explanation of Revised
Budgets, additional emissions sources were included in the emissions
budgets and several changes to the emissions inventory were made. Also,
revised unit control cost estimates for Selective Catalytic Reduction
(SCR) and Selective Non Catalytic Reduction (SNCR) were prepared for
non-electricity generating point sources. The revised costs are now
more consistent with the way estimates were developed for electricity
generating sources. Details on the revised cost analysis are presented
in ``Supplemental Ozone Transport Rulemaking Regulatory Analysis''
(Supplemental Regulatory Analysis TSD).
1. Electricity Generating Sources
The OTAG recognized the value of market-based approaches to
lowering emissions from power plants and large industrial sources. The
Agency agrees that a market-based approach with trading is preferable
as more cost effective and encourages all States covered by this
rulemaking to establish such a program. The Agency's regulatory
analysis is based on this view. As in the original proposal analysis,
analytical limitations kept EPA from estimating the costs of a single
cap-and-trade program for the electric power industry and other large
stationary sources. In this SNPR, the analysis of a cap-and-trade
program, across all States covered in the rulemaking, is limited to
sources in the electric power industry.
The analysis of the electric power industry has been expanded to
include additional electricity-generating sources (see Section III.A,
Explanation of Revised Budgets). Additionally, EPA also updated many of
the assumptions included in the Integrated Planning Model (IPM),
including more recent energy demand forecasts and more recent
information on future planned new units. These changes are discussed in
the Supplemental Regulatory Analysis TSD.
The EPA analyzed the cost of a NOX cap-and-trade program
with a summer NOX emissions cap of 563,784 tons, assuming
reductions are effective by the 2003 ozone season. Annual cost
estimates are provided for 2003 and 2007.
2. Non-Electricity Generating Point Sources
The costs for non-electricity generating point sources are
estimated using two alternative approaches. The first approach, called
the Least Cost Scenario, attempts to identify the mix of sources and
control technologies that achieve each State's non-electricity
generating budget level for point sources at the lowest possible
control cost. The sources controlled under the Least Cost Scenario may
not be the same sources that are controlled for the purpose of
establishing each State's emissions budget. The results of the Least
Cost Scenario are a proxy for State-level emissions trading programs
free of transactions costs. If it were possible to consider
transactions costs, the Least Cost Scenario would result in higher cost
estimates than are presented here. On the other hand, if the Least Cost
Scenario had been modeled assuming the States participate collectively
in a trading program for non-electricity generating sources (i.e.,
domain-wide trading as modeled in the electricity generating sector),
the resulting cost estimates would likely be lower than presented here.
The second approach, termed the Command-and-Control Scenario,
attempts to estimate the cost of controlling just those sources that
were used to establish each State's emissions budget. This method does
not take into account possible cost savings that can be realized by
more efficient regulatory schemes, such as emissions trading, and
therefore tends to overstate the cost of meeting the non-electricity
generating point source emissions budget.
The EPA has revised the cost of controls associated with non-
electricity generating sources based on information previously
developed for the revised IPM for electricity generating sources. The
new method for estimating SCR and SNCR costs for non-electricity
generating sources is now more
[[Page 25911]]
consistent with the estimates for electricity generating sources. The
annual costs for non-electricity generating sources are estimated based
on the 2007 non-electricity generating source emissions projections.
Unlike the IPM analysis for electricity generating sources, the cost
analysis framework for non-electricity generating sources did not allow
distinctions to be made between the estimated annual cost of compliance
in 2003 relative to the year 2007. As shown in Section III.B.3, Cost
Analysis Results, the electricity generating sector annual cost
estimates vary only 5 percent between 2003 and 2007. It is reasonable
to believe that non-electricity generating sector annual cost would
also not vary significantly between 2003 and 2007.
For NOX point sources, EPA estimated annual compliance
costs for achieving a total summer NOX emissions budget of
416,619 tons. This budget is slightly higher (4 percent) than the
399,416 ton budget presented in Section III.A.2, Non-Electric
Generation Point Sources, because the cost analysis for non-electricity
generating point sources was completed before all adjustments to the
proposed budgets had been finalized. If the final 399,416 ton budget
had been analyzed the cost estimates for non-electricity generating
point sources would have been only slightly higher.
3. Cost Analysis Results
Tables III-8 and III-9 show the analysis results based on the
changes to the proposed emissions budgets and cost methodology
improvements. Table III-8 shows the population of sources covered by
each element of the cost analysis and the resulting NOX
emissions levels. Table III-9 shows the estimated annual compliance
costs and average cost effectiveness.
Table III-8.--Population of Emissions Sources and NOX Emissions After
Compliance with the Ozone Transport Rulemaking
------------------------------------------------------------------------
Ozone season
Budget component Number of emissions (1,000
sources* NOX tons)
------------------------------------------------------------------------
Electricity generating sources.... 1,757 564
Non-Electricity generating
sources: Least Cost--2007........ 13,373 409
Non-Electricity generating
sources: Command-and-Control-2007 1,774 394
------------------------------------------------------------------------
* The number of electricity generating sources reflects the number of
sources in 1996 that were used to establish the summer season NOX
budget. The number of non-electricity generating sources reflects
sources controlled for the purpose of estimating costs.
Table III-9.--Incremental Annual Control Costs and Average Cost Effectiveness for Compliance with the Ozone
Transport Rulemaking
----------------------------------------------------------------------------------------------------------------
Average ozone Average annual
Annual control season cost cost
Budget component cost (million effectiveness ($/ effectiveness ($/
1990 dollars) ton) ton)
----------------------------------------------------------------------------------------------------------------
Electricity generating sources--2003................... 1,308 1,455 1,161
Electricity generating sources--2007................... 1,378 1,469 1,165
Non-Electricity generating sources: Least Cost--2007... 456 1,500 640
Non-Electricity generating Sources: Command-and-
Control--2007......................................... 1,170 3,700 2,600
----------------------------------------------------------------------------------------------------------------
Based on the Least Cost Scenario for non-electricity generating
sources, the incremental annual cost of the proposed SIP call in 2007
for both electricity and non-electricity generating sources is $1.8
billion (1990 dollars).
IV. SIP Criteria and Emissions Inventory Reporting Requirements
A. SIP Criteria
1. Introduction
The November 7, 1997 NPR explained that each State would be
required to submit a SIP demonstrating ``that each State will meet the
assigned statewide emission budget'' (62 FR 60365). It further
explained that each ``SIP revision should include the following general
elements related to the regional strategy: (1) Baseline 2007 statewide
NOX emissions inventory (which includes growth and existing
control requirements)--this would generally be the emissions inventory
that was used to calculate the required statewide budget; (2) a list
and description of control measures to meet [the] statewide budget; (3)
fully-adopted State rules for the regional transport strategy with
compliance dates providing for control between September 2002 and
September 2004, depending on the date EPA adopts in its final
rulemaking; (4) clearly documented growth factors and control
assumptions; and (5) a 2007 projected inventory that demonstrates that
the State measures along with national measures will achieve the State
budget in 2007.'' Id.
The purpose of this Section is to identify criteria for determining
completeness and approvability of a State submittal in response to the
final SIP call. The criteria are set forth in proposed regulatory
language (40 CFR 51.121). In addition, this section describes the
actions the Agency intends to take if a State fails to make a
submittal, or the Agency makes a finding of incompleteness or
disapproves the SIP.
2. Completeness Determination
Any submittal that is made with respect to the final SIP call first
will be determined to be either incomplete or complete. A finding of
completeness means that EPA will review the submittal to determine
whether it is approvable. It is not a determination that the submittal
is approvable; rather, it means the submittal is administratively and
technically sufficient for EPA to determine whether it meets the
statutory and regulatory requirements for approval. In order for any
submittal to be complete, 40 CFR 51.121 provides that the submittal
must meet the criteria described in 40 CFR, part 51, Appendix V,
``Criteria for Determining the Completeness of Plan Submissions.''
These criteria apply generally to SIP submissions and so should be
familiar to States submitting transport SIPs.
Section 1.2 of Appendix V, in accordance with section 110(k)(1) of
the
[[Page 25912]]
CAA, requires EPA to notify States within 60 days of EPA's receipt of a
submittal, but no later than 6 months after the submittal is due. If a
completeness determination is not made within 6 months after
submission, the submittal is deemed complete by operation of law. For
purposes of rules submitted in response to the SIP call, EPA intends to
make completeness determinations expeditiously. In addition, EPA
expects to make findings of failure to submit no later than the Agency
makes completeness determinations.
A finding of failure to submit or incompleteness triggers an 18-
month sanctions clock that can only be stopped by an affirmative EPA
finding that the State has made a complete submittal. The findings also
trigger the requirement that EPA promulgate a Federal implementation
plan (FIP) within 2 years of the date of the finding, if the deficiency
has not yet been corrected. The EPA intends to propose FIPs in the fall
of 1998 and move quickly to promulgate a FIP where necessary. In
addition, sanctions and FIP clocks are triggered if a State submits a
complete SIP, but EPA subsequently disapproves it, in whole or in
part.2
---------------------------------------------------------------------------
\2\ A more detailed discussion of sanctions and FIPs appeared in
the November 7, 1997 NPR at page 60368-69.
---------------------------------------------------------------------------
3. Approvability Criteria
In the November 7, 1997 NPR, EPA highlighted several general
elements that must be included in ozone transport SIP revisions.
Without these general elements, a SIP submission will not be approved.
This Section (1) identifies EPA's proposed additional approvability
criteria for control strategies that will help States meet their
NOX budgets; and (2) provides guidance to assist States in
preparing emissions inventories for purposes of identifying emissions
benefits of possible control strategies. The existing guidance
documents listed below will help States incorporate existing EPA
guidance into their SIPs. Much of the pertinent guidance is available
electronically.
Each State must start with a baseline 2007 statewide NOX
emissions inventory, including growth and existing control
requirements. The 2007 projected control inventory must demonstrate
that the State measures, along with national measures, will achieve the
State budget in 2007. The EPA has issued documents to assist States in
developing emissions inventories. Specifically, these documents
describe how to clearly define the particular control measures and
document the methods used to estimate emissions reductions from
implementation measures. A State need not define these measures in its
SIP to the extent it chooses to achieve the required reductions through
the model rule for the NOX Budget Trading Program, which is
being proposed in this notice.
a. Additional Control Strategy Approvability Criteria.
i. Introduction. The approvability criteria for transport SIP
submissions appear in proposed 40 CFR 51.121. Most of the criteria are
substantially identical to those that already apply to attainment SIPs.
For example, each submission must describe the control measures that
the State intends to employ, identify the enforcement methods for
monitoring compliance and handling violations, and demonstrate that the
State has legal authority to carry out its plan. This part of the
preamble focuses on approvability criteria that are being proposed for
the first time to ensure States meet their NOX budgets.
ii. General Recommendations. As discussed in the NPR (62 FR 60365-
66), regulatory requirements that employ a maximum mass emissions
limitation for a source or group of sources provide the greatest
certainty that a specific level of emissions will be attained and
maintained. With respect to transport of pollution, a mass emissions
limitation also provides the greatest assurance to downwind States that
air emissions from upwind States will be effectively managed over time.
Regulatory requirements designed and enforced as an emissions rate
limitation can achieve a measurable emissions reduction, but the
targeted level of emissions may or may not be reached depending on the
actual activity level of the affected source(s). Finally, regulatory
requirements designed as a specific technology or measure have the
greatest uncertainty for achieving a targeted emissions level due to
uncertainty in both the activity level of the affected source(s) and
uncertainty in the effectiveness of the technology or measure.
Based on the desire to establish regulatory requirements with the
greatest likelihood of achieving and maintaining the statewide
NOX emissions budget, EPA recommends that, to the maximum
extent practicable, all regulatory requirements be in the form of a
maximum level of emissions for a source or group of sources. The EPA
recognizes that this option may be difficult for some sources because
the available emissions control options may be limited, and the
techniques for quantifying mass emissions to ensure compliance with a
tonnage budget may not be adequate.
iii. New Proposed Approval Criteria. While mass emissions
limitations may be difficult for some sources, EPA believes that, if
the State chooses to meet the budget through control requirements for
electric generators and large industrial boilers, the State can
feasibly require these sources to quantify mass emissions through
reasonably available measurement technology. For this reason, as well
as others discussed below, EPA proposes the following additional SIP
approvability criteria which would apply if the State selected
regulatory requirements covering NOX sources serving
electric generators with a nameplate capacity greater than 25 MWe and
boilers with a maximum design heat input greater than 250 mmBtu/hr:
Regulatory requirements to meet the 2007 budget for these
sources would need to be expressed in one of three ways: (1) In terms
of mass emissions, which would limit total emissions from a source or
group of sources; (2) in terms of emissions rates that when multiplied
by the affected sources' maximum operating capacity would meet the
tonnage component of the emissions budget for this source or for these
sources; or (3) an alternative approach for expressing regulatory
requirements, provided the State demonstrates to EPA that its
alternative provides equivalent or greater assurance than options (1)
or (2) that seasonal emissions budgets will be attained and maintained.
Sources would be required to demonstrate that they have
met these applicable emissions control provisions using continuous
emissions monitors. Further, EPA is taking comment on whether sources
should be required to demonstrate that they met these requirements
using the monitoring provisions of the Acid Rain Program for monitoring
NOX mass emissions in 40 CFR part 75.
The EPA believes control approaches and monitoring for this group
\3\ of sources have advanced to the point that complying with,
tracking, and enforcing a maximum mass emissions limitation or tonnage
budget is reasonable. A variety of regulatory programs are currently in
use or under development that utilize a mass emissions limitation for
large combustion devices. These
[[Page 25913]]
regulatory systems include the EPA's Acid Rain Program for sulfur
dioxide (SO2) emissions, the South Coast Air Quality
Management District's Regional Clean Air Incentives Market for
SO2 and NOX, and the Ozone Transport Commission's
NOX Budget Program. Experience with these regulatory
programs indicates that establishing a tonnage budget for large
combustion sources is currently feasible and cost effective. These
approaches exist because there is a range of reasonable options
available for controlling emissions from these sources. In general,
large combustion sources have several effective control options for
reducing NOX emissions, including combustion modifications,
post-combustion technologies, and fuel switching. This range of options
provides flexibility for these sources or groups of sources to maintain
a tonnage budget for emissions.
---------------------------------------------------------------------------
\3\ NOX sources serving electric generators with a
nameplate capacity greater than 25 MWe and boilers with a maximum
design heat input greater than 250 mmBtu/hr.
---------------------------------------------------------------------------
For measuring emissions, continuous emissions monitors, currently
installed at most sources participating in these programs, provide
accurate, complete and timely accounting of emissions which enable the
administrators of these programs to easily track and enforce emissions
on a mass emissions basis. Therefore, EPA proposes that all of the
sources in this group must employ continuous emissions monitoring.
Further, EPA seeks comment on what specifications, if any, to require
for such continuous emissions monitoring systems (CEMS). More
specifically, EPA is taking comment on requiring these sources to meet
the NOX mass emissions monitoring and reporting provisions
that are contained in a proposed new subpart to the monitoring and
reporting provisions of the acid rain regulations in 40 CFR part 75.
These revisions are being proposed in a separate notice entitled ``Acid
Rain Program; Continuous Emission Monitoring Revisions'' that will be
published in the Federal Register in the near future. Electric utility
units have been meeting the current 40 CFR part 75 requirements since
at least 1995. The EPA believes that the proposed 40 CFR part 75
provisions will provide accurate monitoring of NOX mass
emissions and also provide flexibility, particularly for smaller and
infrequently operated sources. Additional information on the proposed
40 CFR part 75 requirements can be found in Section V.C.9.a,
Requirements for Point Sources. Also, EPA has prepared a memorandum for
the docket that compares the proposed provisions of 40 CFR part 75 to
other available CEMS requirements.\4\
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\4\ See Memorandum from Kevin Culligan, EPA, Acid Rain Division,
to Docket regarding ``Transport SIP Call: Potential Continuous
Emissions Monitoring Systems Requirements'' April 8, 1998, Docket
Number A-96-56, IV-B-01.
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Another reason that States choosing to control electricity
generating sources should use available means to assure that the
source's mass emissions stay within the State's projected levels is
that recent changes in the utility industry may foster substantial
shifts in electricity production from State to State for market
reasons. Given the changing market forces in the electricity generating
industry today, State measures to limit electricity generating unit
emission rates without accounting for potential utilization increases
would provide little assurance that mass emissions from these sources
would be reduced to the levels necessary to meet the proposed budgets.
For this reason, too, EPA believes that regulatory requirements for
large combustion sources to meet a State's NOX budget can
and should be expressed and enforced as mass emissions limitations or
an alternative providing equivalent assurance that the mass reductions
will occur.
Finally, while EPA has not heretofore imposed the proposed
approvability criteria on State ozone control measures, EPA believes
they are reasonable (as described above) and appropriate in the context
of this transport rulemaking. This SIP call addresses the regional
problem of emissions transport--i.e., the problem of one State's effect
on one or more other States. The EPA believes it is appropriate to take
reasonable and feasible steps to minimize the potential ``commons''
phenomenon inherent in this problem. Under the theory of the commons, a
State has less interest in controlling pollution that is produced
within its borders but primarily affects the health of non-residents,
compared to its interest in controlling pollution that has intrastate
effects. The additional approvability criteria proposed today offer
downwind States the assurance that upwind States, to the extent they
elect to control the applicable group of sources, will implement
measures that offer transparent certainty of success. Given the
availability of reasonable measures to control the applicable group of
sources in this way, and the potential for substantial shifts in
utilization in the utility sector in coming years, EPA believes it is
appropriate for this transport SIP call to propose additional SIP
approvability criteria to address the potential commons phenomenon.\5\
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\5\ Authority for the proposed additional SIP approval criteria
described above resides in sections 110(a) and 301(a) of the Clean
Air Act. Specifically, the requirement in section 110(a)(2)(A) that
SIPs include enforceable emissions limitations and other control
measures ``as may be necessary or appropriate'' to meet the Clean
Air Act, together with the requirement in section 110(a)(2)(D) that
SIPs include ``adequate provisions'' to mitigate certain transport
effects on other States, implicitly authorize EPA to impose the
additional SIP approval criteria described above to ensure that
affected States adequately mitigate their contribution to ozone
transport, given the reasons and circumstances described above.
Additionally, section 301(a) grants EPA broad authority to prescribe
such regulations as are necessary to carry out its functions under
the Clean Air Act. The proposed additional SIP approval criteria are
necessary for EPA to meet its obligation to approve only SIPs that
contain ``necessary or appropriate'' and ``adequate'' provisions for
the applicable State to mitigate its contribution to ozone
transport.
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To assist States with the development and implementation of an
emissions budget for large combustion sources, EPA is proposing the
NOX Budget Trading Program in section V of today's notice.
States may voluntarily choose to participate in the NOX
Budget Trading Program by adopting the model rule. This multistate
trading program would provide sources the flexibility and cost
effectiveness of a market based system, while meeting the additional
SIP approvability criteria for States that are proposed in this
section.
The EPA intends to approve the portion of any State's SIP
submission that adopts the model rule, provided: (1) The State has the
legal authority to adopt the model rule and implement its
responsibilities under the model rule, and (2) the SIP submission
accurately reflects the NOX reductions to be expected from
the State's adoption of the model rule. As noted above, today's action
proposes that transport SIP submissions comply with various approval
criteria that are substantially identical to existing approval criteria
for attainment SIPs. Those criteria include: (1) A demonstration by the
State that it has the legal authority to adopt and implement each of
the control measures contained in the SIP submission, and (2) a
demonstration of the expected emissions reductions to be achieved from
each new control measure. Provided a State meets these two criteria
with respect to its adoption of the model rule, then EPA intends to
approve the model rule portion of the State's SIP submission.
A State or group of States may also choose to develop, adopt, and
implement their own cap-and-trade program separate from today's
proposed NOX Budget Trading Program. In developing these
alternative programs,
[[Page 25914]]
States should follow the available guidance in the Economic Incentive
Program requirements (see 40 CFR part 51, subpart U) and EPA's
Emissions Trading Policy Statement (see 51 FR 43814, December 4, 1986)
in addition to the transport SIP approval criteria in proposed 40 CFR
51.121.
Regulatory requirements used to meet the 2007 budget for other
sources not identified in the above description may be expressed as (1)
a mass emissions limit, (2) an emissions rate, or (3) specific
technology or measure. As discussed above, EPA recognizes that it may
not be reasonable to require regulatory requirements to be expressed as
mass emissions limitations for all of these sources because of
limitations with control options and the ability to measure mass
emissions. Moreover, EPA believes that the likelihood of substantial
shifts in demand (and corresponding changes in emissions compared to
historical actuals) is lower for these other sources. Therefore, EPA
believes there is substantially less risk with respect to these sources
that past representative production rates will prove unreliable
predictors of future activity. However, EPA recommends that mass
emissions budgets also be used for these sources to the maximum extent
practicable.
The EPA solicits comments on the proposed SIP approvability
criteria for regulatory requirements that govern emissions from large
combustion sources. In addition, EPA solicits comments as to the
reasonableness of expressing regulatory requirements as mass emissions
limitations for other sources.
b. Emissions Inventory Preparation Guidance and Control Strategies
Guidance. This Section presents guidance that States should follow when
initiating the planning and development of an emissions inventory. The
documents referenced below describe control measures a State may wish
to consider for purposes of meeting a statewide NOX budget.
Most of these documents can be obtained directly by computer download
from the EPA's Clearinghouse for Inventories and Emission Factors
(CHIEF) Web Site (http://www.epa.gov/ttn/chief) or by contacting the
InfoCHIEF helpline at (919) 541-5285.
Descriptions of a number of potential data sources that can be
consulted for emission estimation methods are provided below. Site-
specific source tests are generally expected to provide a better
estimate for the tested site than average emission factors (including
factors cited in ``Compilation of Air Pollutant Emission Factors (AP-
42)'') derived from testing at similar sources. Site-specific tests
should be based on a reliable test procedure and should represent
typical operating conditions at the site before being assumed to be
superior to an average emission factor. The CEMS data for a given site
can be considered a superior form of site-specific source test data.
Material balances for NOX sources, and particularly
combustion NOX sources, are not appropriate and should not
be used.
If reliable site-specific tests or calculation methods are not
available or are not feasible to use for all sources, an emission
factor or emission model approach can be used. The EPA's Factor
Information Retrieval (FIRE) Data System provides a searchable
electronic listing of all criteria, toxic, and greenhouse gas emission
factors appearing through the latest printed AP-42 supplement for
stationary sources. The FIRE database also contains a number of non-AP-
42 factors, but only for sources where no AP-42 factor exists. In
addition, FIRE contains a reference indicating if the factor is from
AP-42 or another source, and it contains the factor quality rating if
one exists. Note that mobile source emission factors do not appear in
FIRE. The most recently finished AP-42 stationary source revisions can
only be found on the CHIEF web site (http://www.epa.gov/ttn/chief/
ap42etc.html).
If an emission factor is not available from one of the above
sources, or if the inventory preparer wants to improve the emissions
estimates for sources deemed significant, the following data sources
may be of use.
``Volume I, Introduction to the Emission Inventory
Improvement Program (EIIP)'' (EPA-454/R-97-004a)--
http://www.epa.gov/ttn/chief/eiip/techrep.htm#intro
``Volume II, Preferred and Alternative Methods for
Estimating Air Emissions from Point Sources'' (EPA-454/R-97-004b)--
http://www.epa.gov/ttn/chief/eiip/techrep.htm#pointsrc
``Volume III, Preferred and Alternative Methods for
Estimating Air Emissions from Area Sources'' (EPA-454/R-97-004c)--
http://www.epa.gov/ttn/chief/eiip/techrep.htm#areasrc
``Volume IV, Preferred and Alternative Methods for
Estimating Air Emissions from Mobile Sources'' (EPA-454/R-97-004d)--
http://www.epa.gov/ttn/chief/eiip/techrep.htm#mobsrc
``Procedures for the Preparation of Emission Inventories
for Carbon Monoxide and Precursors of Ozone, Volume I: General Guidance
for Stationary Sources'' (EPA-450/4-91-016)--
This document provides general procedures for estimating emissions
from point and area stationary sources; it may still be useful for
estimating emissions from area sources that are not yet covered in the
EIIP area source guidance document (e.g., small publicly owned
treatment works, aircraft refueling, on-site incineration, residential
heating (excluding wood fuel), barge and tank drum cleaning). It is not
available in electronic form. Paper copies are available from the
InfoCHIEF help desk (919) 541-5285.
``Procedures for the Preparation of Emission Inventories
for Carbon Monoxide and Precursors of Ozone, Volume II: Emission
Inventory Requirements for Photochemical Air Quality Simulation
Models'' (Revised) (EPA-450/R-92-026)--
This document offers technical assistance to those engaged in the
planning and development of detailed emissions inventories for use in
photochemical air quality simulation models. It includes guidance for
identifying and incorporating the additional detail required by
photochemical air quality simulation models into an existing base year
inventory. It is not available in electronic form. Paper copies are
available from the InfoCHIEF help desk (919) 541-5285.
``Procedures for Emission Inventory Preparation, Vol. IV:
Mobile Sources'' (EPA-450/4-81-026d [Revised]) (You can download a
zipped WordPerfect file of this document from the ``Emission Inventory
Guidance'' Section of the CHIEF Web Site.)
http://www.epa.gov/ttn/chief/ei__guide.html
c. Growth estimates. In order for EPA to approve a SIP for the
proposed Ozone Transport Rule, the State must clearly document growth
factors and control assumptions used in the budget calculations. To the
extent the State uses EPA growth factors and control assumptions, the
SIP need only include a statement attesting to this. If a State wants
to substitute its own growth factors or control assumptions in the
budget analysis, it must provide adequate justification for using the
alternative numbers. As stated in the November 7, 1997 NPR (62 FR
60367), EPA believes it is important that consistent emissions growth
estimates be used for the State's budget
[[Page 25915]]
demonstration and for EPA's calculation of the required statewide
emissions budget. The EPA will evaluate any revision to these growth
factors or control assumptions that is suggested during the comment
period on this rule and may recalculate the required statewide budget
to reflect the State's change. Because the revised growth estimates
will be included in EPA's budget calculation, lower growth rates could
not be considered part of a State's NOX control strategy to
attain that budget unless the change in growth is the result of clearly
identified control strategies that can be shown to provide real,
permanent, and quantifiable changes in growth. In the November 7, 1997
NPR, EPA encouraged States to request any changes to growth estimates
or control assumptions during the comment period for the proposal so
that budgets given in the final rulemaking would reflect these changes.
Guidance on how to prepare emission growth and projections is listed
below.
The EPA is currently considering an optional alternative approach
for States to use to meet the major source offset requirements under
section 173 of the Act (new source review (NSR) for nonattainment
areas).6 This approach would allow States to create an
offset ``pool'' composed of actual emissions reductions that generally
will be achieved as a result of NOX control strategies
adopted in response to the SIP call. To create an offset pool, at the
time States revise their SIPs to include statewide NOX
control measures, under certain conditions states could set aside a
subset of their emissions reductions generated from those measures for
the purpose of offsetting anticipated emissions increases of ozone
precursors from new and modified major sources that would be subject to
nonattainment NSR preconstruction permitting. (The EPA is considering
modifying the NSR regulations to consider both NOX and VOC
ozone precursors in all areas. Under such an approach, for offset
purposes, VOC emissions increases from new and modified major sources
could be offset with NOX emissions decreases where
appropriate.)
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\6\ The EPA is not now seeking comment on the optional
alternative approach of an offset pool. The approach is described
here solely for the purpose of informing States of the potential for
such an approach and its potential relationship to the growth
estimates in the SIP call rulemaking. If EPA pursues this approach,
the agency will propose it for comment in a separate Federal
Register notice and intends to take final action by the end of this
year. In particular, to the extent that the offset pool option might
elaborate upon or vary from existing Agency policy or guidance, such
differences will be addressed in the later notice.
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The EPA currently anticipates that those States subject to the
NOX SIP call will be able to take advantage of the offset
pool idea, as compliance with the SIP call will necessitate emissions
reductions that are likely to be creditable as offsets. Specifically,
because States' budgets under the SIP call account for a certain
increment of new major source growth, states may set aside that
increment in an offset pool and still comply with the budgets mandated
by the SIP call. Thus, to take full advantage of the offset pool
approach, States would need to ensure that they have projected
sufficient growth considering major new sources and major modifications
to existing major sources that will be locating in existing and new
nonattainment areas. In general, EPA believes that sufficient growth
assumptions have been built into the budget calculations to allow an
adequate margin for new source offsets. Nevertheless, before EPA
finalizes the NOX budgets, States have an opportunity to
reevaluate and adjust growth factors and control assumptions to ensure
that the final budgets accurately reflect State-specific forecasts of
major new source growth. Consequently, EPA recommends that States
covered by this rulemaking and interested in using offset pools review
their emissions growth assumptions and projections for anticipated new
and modified major sources that will become part of their 2007 baseline
emissions inventories under this rulemaking to ensure that growth
projections accurately reflect the expected new emissions that will be
required to be offset under major NSR.
d. Emissions Growth Projection Guidance.
``Procedures for Preparing Emissions Projections'' EPA-
450/4-91-019, July 1991 (Hard copy only available).
``Guidance for Growth factors, Projections, and Control
Strategies for the 15 Percent Rate-Of-Progress Plans'' EPA 452/R-93-
002, March 1993 (Hard copy only available).
B. Emissions Reporting Requirements for States
As stated in the November 7, 1997 NPR, the EPA believes it is
essential that compliance with the regional control strategy be
verified. Tracking emissions is the principal mechanism to ensure
compliance with the budget and to assure the downwind affected States
and EPA that the ozone transport problem is being mitigated. Emissions
reporting requirements for States subject to this SIP call are
discussed in this Section.
1. Use of Inventory Data
If tracking and periodic reports indicate that a State is not
implementing all of its NOX control measures beginning in
September 2002 7 or is off track to meet its statewide
budget by 2007, EPA will work with the State to determine the reasons
for noncompliance and what course of remedial action is needed. The EPA
will expect the State to submit a plan showing what steps it will take
to correct the problems. As described more fully in the NPR (62 FR
60364--60369), noncompliance with the NOX transport SIP may
lead EPA to make a finding of failure to implement the SIP and
potentially to implement sanctions, if the State does not take
corrective action within a specified time period.
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\7\ In this discussion of reporting requirements, September 2002
is presumed to be the compliance date for NOX transport
call controls. As discussed earlier, the final rule may adopt a
different date for compliance which may, in turn, affect the dates
in the final requirements for State reporting.
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The EPA will use 2007 data to assess how each State's SIP actually
performed in meeting the statewide NOX emissions budget. If
emissions exceed the required budget in any year after 2006, the
control strategies in the SIP will need to be strengthened. The EPA
will evaluate the circumstances for the budget failure and may issue a
call for States to revise their SIPs, as appropriate.
2. Legal Authority
The legal authority for the proposed State reporting requirements
described in this Section resides in sections 110(a) and 301(a) of the
Clean Air Act. Specifically, the requirement in section 110(a)(2)(D)
that SIPs include ``adequate provisions'' to mitigate certain transport
effects on other States implicitly authorizes emissions inventory
reporting to EPA, as reporting will be needed and appropriate to verify
that a State is in fact meeting its NOX budget. Section
110(a)(2)(F) provides additional authority for requiring that SIP call
submissions include provisions for emissions reporting by sources to a
State, correlation of source information by the State, and steps by the
State to make the correlated information available to the public.
Section 110(a)(2)(K), in turn, requires a State to submit to EPA as
requested, data related to modeling the effect of NOX and
other emissions on ambient air quality. The reported emissions
inventory data described in this Section will be used by EPA in air
quality modeling to assess the effectiveness of the transport
rulemaking's regional strategy. Finally, section 301(a) grants EPA
broad
[[Page 25916]]
authority to prescribe such regulations as are necessary to carry out
its functions under the CAA. These proposed regulations are necessary
for EPA to properly carry out its evaluation of compliance with the SIP
call.
3. Background for Reporting Requirements
In the November 7, 1997 NPR, EPA indicated that it intended to work
with affected States to determine what reporting procedures are needed
to provide adequate assurance that the emissions budgets are being
achieved. On January 13, 1998, EPA held a 1-day workshop with the
States to discuss tracking issues. The objectives of the workshop were
to determine what type and frequency of inventory reporting are
feasible for the different source sectors (power generating sources,
other point sources, area sources, and mobile sources) to identify key
reporting issues related to each sector, and to develop recommendations
on reporting requirements to ensure compliance with the SIP call. The
goal was to share information and ideas rather than to reach consensus.
A summary of the meeting is contained in the docket (docket number V-B-
18) for this rulemaking.
The workshop participants generally thought that existing reporting
requirements for attainment SIPs should be used whenever possible to
minimize any new reporting burden. The States further recommended that
the degree of reporting rigor should be directly related to the sectors
that the State chooses to control in its NOX transport
strategy. Reporting every 3 years was considered feasible for all
source sectors. Reporting on an annual basis was considered both
achievable and necessary for all source sectors that a State chooses to
regulate specifically for the purpose of meeting the NOX
budgets proposed in the SIP call. This would include all NOX
sources within the State which are subject to measures included by the
State in its transport SIP revision in response to this SIP call. In
addition, it was noted that sources or source categories that would be
participating in a trading program would need to meet the reporting
protocols specific to that program. Consideration was also given to
establishing uniform monitoring and reporting requirements and a
centralized data base for reporting for other sources. Several States
indicated support for this concept if there were easy access to the
data by all parties. For all source sectors, the States suggested that
emissions rather than indicators should be reported.
4. Proposal
After taking into account the suggestions on tracking of the
participants in the workshop, EPA today is proposing inventory
reporting requirements for States subject to the NOX SIP
call. The regulatory text appears in proposed Sec. 51.122 and is
described below.
The EPA is proposing that States report emissions annually starting
with data for the year 2003 8 for any emissions source
(point, area, or mobile) to which additional controls are being applied
for the purpose of meeting the NOX budget, with certain
exceptions as discussed below, and from any emissions source that will
either sell or buy NOX emission allowances. The EPA is also
proposing that States develop and submit comprehensive statewide
NOX inventories, including all NOX sources,
controlled and uncontrolled, every 3 years, starting with data for the
year 2002.
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\8\ 2003 would be the year for which the data would be reported.
The actual reporting schedule is given in the Reporting Schedule
Section.
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The tracking requirements for meeting the NOX SIP call
budget attempt to make use of existing inventory reporting mechanisms
as much as possible so that existing requirements are not duplicated.
However, the reporting requirements outlined below are more
comprehensive than current reporting requirements for attainment SIPs
in two respects. This is because EPA proposes that States report
emissions from area sources and mobile sources annually if the State
adopts new measures to reduce emissions from these sources for purposes
of meeting the NOX budget. Currently, there is no annual
reporting requirement for area or mobile sources. In addition, States
are not currently required to report on a 3 year cycle emissions from
area and mobile sources in attainment areas. States would be required
to report Statewide area and mobile source ozone season emissions every
third year under the proposed requirements.
Details of reporting for specific source types are set forth below.
5. Annual Reporting
Annual NOX emissions reporting requirements for point,
area and mobile source emissions are to start for the year 2003. The
State must submit annual reports for all sources the State chooses to
regulate specifically for the purpose of meeting the NOX
budgets proposed in the SIP call. This would include all NOX
sources within the State which are subject to measures included by the
State in its transport SIP revision in response to this SIP call. For
example, a State would not have to submit an annual report for
NOX emissions for a cement kiln which was controlled prior
to 1998 for RACT purposes. However, if the State chose to go beyond
RACT requirements for the cement kiln in order to meet its budget, the
State would have to report annually the emissions for the source.
Emissions inventory reports are to be submitted according to the
Reporting Schedule Section below.
a. Point Sources.9 The EPA proposes that States be
required to report NOX emissions annually for all point
sources that are subject to regulations specifically for the purpose of
meeting the NOX budgets proposed in this SIP call. The State
must report emissions from such point sources both for the whole year
and for the ozone season (May 1 to September 30). The direct reporting
from sources to EPA of data used for compliance with the requirements
of a trading program meeting the requirements of 40 CFR Part 96 can be
used to satisfy this requirement. The EPA is also taking comment on
requiring electrical generating units and large industrial boilers to
use the monitoring provisions in 40 CFR Part 75 to account for their
emissions. This topic is more thoroughly discussed in Section IV.A.3,
Approvability Criteria.
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\9\ The EPA is proposing to define point source for this rule as
a non-mobile source which emits 100 tons or more per year of
NOX emissions. Non-mobile sources which emit less than
100 tons per year of NOX would be considered area
sources. This definition of point source is consistent with current
reporting requirements for NOX emissions.
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b. Area Sources. The EPA proposes that the State determine area
source NOX ozone season emissions for source categories that
are controlled beyond otherwise applicable Federal, State or local
measures to meet the NOX budget and report these annually to
EPA. A State need not report annually the emissions from an area source
sector if the State does not require additional NOX
reductions from that sector in order to meet the transport rule's
NOX budget.
c. Mobile Sources. The EPA proposes that a State determine
statewide mobile source NOX ozone season emissions and
report these to EPA annually if the State is requiring additional
controls for purposes of meeting the NOX budget. Reductions
from Federal measures are already assumed in the budget. A State need
not report annually the emissions from mobile sources if the State does
not require additional NOX reductions from that sector in
order to meet the transport rule's NOX budget.
[[Page 25917]]
6. Reporting Every Third Year (3-Year Cycle or Triennial Reporting)
Consistent with current 3-year reporting requirements, EPA proposes
that for every third year, starting in 2002, States would be required
to submit to EPA statewide NOX emissions data from all
NOX sources (point, area, and mobile) within the
State.10 These data would include data from all source
categories in the State regardless of whether those sources are being
controlled to meet the requirements of the transport rulemaking. For
triennial reporting for area and mobile sources, only ozone season
emissions must be reported. For triennial reporting for point sources,
both ozone season and annual emissions must be reported.
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\10\ The actual submittal of data by the State would only be
required 12 months after the end of 2002. The data should be
submitted according to the schedule in the Reporting Schedule
Section.
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7. 2007 Report
The EPA proposes that in 2007, States submit to EPA statewide
NOX emissions data from all NOX sources (point,
area, and mobile) within the State. This would include data from all
source categories in the State regardless of whether those sources are
being controlled to meet the requirements of the transport rulemaking.
For the 2007 report, only ozone season emissions must be reported for
area and mobile sources, while both ozone season and annual emissions
must be reported for point sources. The data reporting requirements are
identical to the reporting requirements for the 3-year cycle
inventories, and this reporting requirement is being proposed to allow
evaluation of whether budget requirements are met for 2007. This one-
time special inventory is necessary because the ordinary 3-year
reporting cycle does not fall in the year 2007. States which must
submit the 2007 inventory may project incremental changes in emissions
from 2007 to 2008 to allow the 2008 inventory requirement to be more
easily met and to reduce the burden on States which must submit full
NOX inventories in consecutive years, i.e., 2007 and 2008.
8. Ozone Season Reporting
The EPA is proposing that the States provide ozone-season
inventories for the sources for which the State reports annual,
triennial and 2007 emissions. The ozone season emissions may be
calculated from annual data by prorating emissions from the ozone
season by utilization factors that must be reported and that are
further defined in 40 CFR 51.122. For area and mobile sources, only
ozone season data must be reported for the annual, triennial, and 2007
inventories. For point sources, the State must report emissions for the
whole year, as well as for the ozone season, since States are already
required under other existing inventory provisions to submit the data
for the whole year. For the annual report, emissions need only be
reported for source categories that a State chooses to regulate
specifically for the purpose of meeting the NOX budgets
proposed in the SIP call. This would include all NOX sources
within the State which are subject to measures included by the State in
its transport SIP revision in response to this SIP call. For the
triennial and 2007 reports, ozone season emissions from all
NOX source categories within the State, controlled or
uncontrolled, must be reported. The EPA is proposing that each State
provide its ozone season calculation method to EPA for approval.
9. Data Reporting Procedures
When submitting a formal NOX budget emissions report and
associated data, the State should formally notify the appropriate EPA
Regional Office of its activities. The EPA proposes that States would
be required to report emissions data in an electronic format to the
location given below. Several options are available for data reporting.
The State may choose to continue reporting to the EPA Aerometric
Information Retrieval System (AIRS) using the AIRS facility subsystem
(AFS) format for point sources. (This option will continue for point
sources for some period of time after AIRS is reengineered (before
2002), at which time this choice may be discontinued or modified.) A
second option is for the State to convert its emissions data into the
Emission Inventory Improvement Program/Electronic Data Interchange
(EIIP/EDI) format. This file can then be made available to any
requestor, either using E-mail, floppy disk, or value added network, or
can be placed on a file transfer protocol (FTP) site. As a third
option, the State may submit its emissions data in a proprietary format
based on the EIIP data model. For the last two options, the terms
``submitting'' and ``reporting'' data are defined as either providing
the data in the EIIP/EDI format or the EIIP based data model
proprietary format to EPA, Office of Air Quality Planning and
Standards, Emission Factors and Inventory Group, directly or notifying
that group that the data are available in the specified format and at a
specific electronic location (e.g., FTP site). A fourth option for
annual reporting (not for third year reports) is to have sources submit
the data directly to EPA. This option will be available to any source
in a State that is both participating in a trading program meeting the
requirements of 40 CFR part 96 and that has agreed to submit data in
this format. The EPA will make both the raw data submitted in this
format and summary data available to any State that chooses this
option. The EPA also solicits comment on whether this option should be
expanded to additional stationary sources.
For the latest information on data reporting procedures, call the
EPA Info Chief help desk at (919) 541-5285 or email to
[email protected].
10. Reporting Schedule
The EPA is proposing that States submit the required annual and
triennial emissions inventory reports no later than 12 months after the
end of the calendar year for which the data are collected. Because
downwind nonattainment areas will be relying on the upwind
NOX reductions to assist them in reaching attainment by the
required dates, EPA believes it is important that data be submitted as
soon as practicable to verify that the necessary emissions reductions
are being achieved. Early reports will allow States to more quickly
respond to implementation problems detected by the reports. States
should formally notify the appropriate EPA Regional Office when making
the submittals.
In a related rulemaking effort, EPA is currently developing the
consolidated emissions inventory reporting rule. Among other things,
the rule will be proposing that all States in the Nation submit
statewide inventories of ozone precursors (NOX, VOC, CO)
every 3 years beginning with 1999 data. The third year reporting
requirement for the transport rule has been developed to be consistent
with that reporting cycle. However, the proposed 2002 start date for
the transport rule emissions reports is 3 years later than the start
date for the consolidated rule reports. The EPA is considering an 18-
month reporting schedule for the latter rule. The EPA expects that, as
States gain experience in developing statewide emissions inventories,
less time will be needed to gather and quality assure the data. Once
States have completed the first cycle of reporting for 1999 under the
consolidated rule, they may have sufficient procedures in place to
allow for an accelerated reporting schedule. Therefore, because of the
importance of the NOX inventory reports for determining
compliance with the NOX budgets, EPA believes it is
appropriate
[[Page 25918]]
to require a 12-month reporting schedule for the transport rulemaking.
The EPA recognizes that there are different constraints on data
collection for the point, mobile, and area source categories.
Therefore, EPA is also soliciting comment on whether different
reporting schedules should be established for the different source
categories, such that data that can be obtained more readily should be
submitted sooner. For example, because point sources are already known
to State agencies, and their operating parameters will not change
significantly from year to year, the time needed to collect and quality
assure data may be shorter than for the other categories. The new data
submission procedures discussed above may allow further reductions in
the reporting time. The EPA is soliciting comment on whether the State
reporting time for point source emissions should be shortened to no
later than 6 or 9 months after the end of the calendar year for which
the data are collected.
For mobile and area sources, the necessary reporting time frames
may be longer than for point sources due to the delay in obtaining
activity data from information sources outside the inventory preparing
agency. In many cases, surveys to collect new activity data are
required by the inventory preparing agency to be able to calculate
emissions estimates. As with point sources, the new data submission
procedures may allow reductions in the reporting time. The EPA is
soliciting comment on whether no later than 6 or 9 months after the end
of the applicable calendar year would be a feasible time frame for
submitting mobile and area source emissions inventory reports.
If different reporting schedules are established for the different
source categories in the final rule, the EPA is proposing that, for the
third year complete statewide inventory, States submit a summary report
identifying the separate submittals and totaling the statewide
NOX ozone season emissions to demonstrate progress toward,
and ultimately compliance with, their NOX budget.
11. Confidential Data
Emissions data being requested in today's proposal would not be
considered confidential by the EPA (See 42 U.S.C. 7414). However, some
States may restrict the release of certain types of data, such as
process throughput data. Where Federal and State requirements are
inconsistent, the EPA Regional Office should be consulted for final
reconciliation.
12. Data Elements To Be Reported
In addition to reporting ozone season NOX emissions, the
State should report other critical data necessary to generate and
validate these values. This includes data used to identify source
categories such as site name, location and (source classification code)
SCC codes. It also includes data used to generate the NOX
emissions values such as fuel heat content and activity level. The
specific data elements required for each source category are further
defined in 40 CFR 51.122.
V. NOX Budget Trading Program
In the November 7, 1997 proposed rulemaking to reduce the transport
of ozone and facilitate attainment of the NAAQS for ozone, EPA offered
to develop and administer a multistate NOX trading program
to assist States in the achievement of these goals; today's notice
proposes such a program. The trading program being proposed employs a
cap on total emissions in order to ensure that emissions reductions
under the proposed transport rulemaking are achieved, while providing
the flexibility and cost effectiveness of a market-based system. This
Section provides background information and a description of the
NOX Budget Trading Program, as well as an explanation of how
the trading program would interface with other State and Federal
programs. In addition, a model rule for the trading program is
proposed. States can voluntarily choose to participate in the
NOX Budget Trading Program by adopting the model rule, which
is a fully approvable control strategy for achieving emissions
reductions required under the proposed transport rulemaking.
Should the States voluntarily choose to participate in the
NOX Budget Trading Program by adopting the model rule, EPA's
authority to cooperate with and assist the States in the implementation
of the trading program resides in both State law and the CAA. With
respect to State law, any State which elects to adopt the model rule as
part of its transport SIP will be authorizing EPA to assist the State
in implementing the trading program with respect to the sources in that
State. With respect to the CAA, EPA believes that the Agency's
assistance to those States that choose to participate in the trading
program will facilitate the implementation of the program and minimize
any administrative burden on the States. One purpose of title I of the
CAA is to offer assistance to States in implementing title I air
pollution prevention and control programs (42 U.S.C. 101(b)(3)). In
keeping with that purpose, section 103(a) and (b) generally authorize
EPA to cooperate with and assist State authorities in developing and
implementing pollution control strategies, making specific note of
interstate problems and ozone transport. Finally, section 301(a) grants
EPA broad authority to prescribe such regulations as are necessary to
carry out its functions under the CAA. Taken together, EPA believes
that these provisions of the Act authorize EPA to cooperate with and
assist the States in implementing the NOX Budget Trading
Program in the ways set forth in the model rule.
A. Program Summary
1. Purpose of the NOX Budget Trading Program
The OTAG concluded that an emissions trading program could
facilitate cost effective emissions reductions from large combustion
sources (for more information on OTAG, see Section V.B.1.). When
designed and implemented properly, a market-based program offers many
advantages over its traditional command-and-control counterpart. The
OTAG articulated five principal advantages of market-based systems: (1)
Reduced cost of compliance; (2) creation of incentives for early
reductions; (3) creation of incentives for emissions reductions beyond
those required by regulations; (4) promotion of innovation; and (5)
increased flexibility without resorting to waivers, exemptions and
other forms of administrative relief (OTAG 1997 Executive Report, pg.
57). These benefits result primarily from the flexibility in compliance
options available to sources and the monetary reward associated with
avoided emissions in a market-based system. The cost of compliance in a
market-based program is reduced because sources have the freedom to
pursue various compliance strategies, such as switching fuels,
installing pollution control technologies, or buying authorizations to
emit from a source that has over-complied. Since an emission rate or
emissions level below the level mandated allows the generation of
credits or allowances that may be sold on the market, pollution
prevention becomes more cost effective, and innovations in less-
polluting alternatives and control equipment are encouraged.
A market system that employs a fixed tonnage limitation (or cap)
for a source or group of sources provides the greatest certainty that a
specific level of emissions will be attained and maintained since a
predetermined level
[[Page 25919]]
of reductions is ensured. With respect to transport of pollution, an
emissions cap also provides the greatest assurance to downwind States
that emissions from upwind States will be effectively managed over
time. The capping of total emissions of pollutants over a region and
through time ensures achievement of the environmental goal while
allowing economic growth through the development of new sources or
increased use of existing sources. In an uncapped system, (where, for
example, sources are required only to demonstrate that they meet a
given emission rate), the addition of new sources to the regulated
sector or an increase in activity at existing sources can increase
total emissions even though the desired emission rate control is in
effect.
In the NOX Budget Trading Program, EPA proposes to
implement jointly with participating States, a capped market-based
program for certain combustion sources to achieve and maintain an
emissions budget consistent with the proposed transport rulemaking. An
emissions cap or budget trading program for large combustion sources is
a proven and cost-effective method for achieving emissions reductions
while allowing regulated sources compliance flexibility.
Although participation in the NOX Budget Trading Program
is discretionary, EPA encourages States to participate in the trading
program as a cost-effective way of meeting their emissions reductions
obligations under the proposed transport rulemaking. Specifically,
today's proposal is designed to assist States in: (1) Achieving,
through a program covering certain large stationary combustion sources,
emissions reductions required under the proposed transport rulemaking;
(2) ensuring flexibility for regulated sources; (3) reducing compliance
costs for sources; and (4) reducing administrative costs to States.
Adoption of the NOX Budget Trading Rule would ensure
consistency in certain key operational elements of the program among
participating States, while allowing each State flexibility in other
important program elements. Uniformity of the key operational elements
across the NOX Budget Trading Program region is necessary to
ensure a viable and efficient trading program with low transaction
costs and minimum administrative costs for sources, States, and EPA.
The effect of NOX emissions on air quality in down wind
nonattainment areas depends, in part on the distance between sources
and receptor areas. Sources that are closer to the nonattainment area
tend to have much larger effects on air quality than sources that are
far away. In light of this, and as discussed in Section VII, the Agency
plans to evaluate alternative approaches in developing the final rule.
The Agency solicits comments on whether a trading program should
factor in differential effects of NOX emissions in an
attempt to strike a balance between achieving the cost savings from a
broader geographic scope of trading and avoiding the adverse effects on
air quality that could result if the geographic domain for trading is
inappropriately large or trades across areas are not appropriately
adjusted to reflect differential environmental effects. The Agency
could consider establishing ``exchange ratios'' for tons traded between
areas. The large number of areas in the region violating the standards
and the several different weather patterns associated with summertime
ozone pollution episodes complicate the development of a stable set of
trading ratios. Alternatively, the Agency could consider establishing
subregions for trading within the 23-jurisdiction area and apply a
discount to or prohibit trades between regions.
The Agency solicits comments on this issue. If after review of
alternative approaches (including sub-regional modeling analysis
submitted by the States and other commenters), EPA concludes that an
alternative approach is appropriate, EPA will issue a SNPR.
2. Emissions Reductions Required by the Proposed Transport Rulemaking
Each of the 22 States and the District of Columbia, determined by
EPA in the proposed transport rule to make a significant contribution
to nonattainment or interfere with maintenance in another jurisdiction,
has been assigned a statewide NOX emissions budget. Each of
these States must submit a SIP revision delineating the controls that
will be implemented to meet its specified budget. Each State has
complete discretion to develop and adopt a mix of control measures
appropriate for meeting its assigned emissions budget. Today's proposal
assumes that compliance with the emissions reductions requirements for
the transport rulemaking will begin on May 1, 2003, as proposed in the
transport rulemaking. If a different compliance deadline is required in
the final transport rulemaking, the deadlines in the proposed trading
rule will be adjusted accordingly.
In the proposed transport rulemaking, EPA calculated seasonal
NOX emissions budgets for States, assuming activity growth
levels through 2007 and the application of reasonable, cost-effective
controls that are currently available to achieve NOX
reductions. The statewide budgets were developed by applying
appropriate controls to each sector of the total State emissions
inventory: large electricity generating devices, point sources other
than large electricity generators, nonroad engines, highway vehicles,
and area sources. The statewide NOX budget development
process is fully described in Section III.B. of the November 7, 1997
proposal (62 FR 60346).
As outlined in the proposed transport rulemaking, budget levels
calculated for nonroad engine, highway vehicle, and area source
inventory sectors assume continued application of controls already
required for those source sectors in addition to implementation of
Federal measures, such as the National Low Emissions Vehicle Program.
The statewide seasonal NOX budgets proposed for the large
electricity generating source sector (fossil-fuel burning electricity
utility units and nonutility units serving electricity generators
greater than 25 MWe) were based on applying a uniform NOX
emission rate of 0.15 lb/mmBtu to projected generating activity levels.
Budget estimates for States' nonutility point source sector were
developed assuming a 70 percent reduction from future emissions levels
of large sources (greater than 250 mmBtu/hour), and application of RACT
to medium sized sources (100-250 mmBtu/hour) in this category.
Though States are free to independently determine their control
strategies to achieve their statewide budgets, several Federal and/or
State programs are already under way or planned for most of the
inventory source sectors to assist States in meeting their budgets. For
example, meeting individual budget components for highway vehicles and
nonroad engines can be achieved through Federal programs without
adopting additional new control strategies. In addition, EPA is
offering to administer certain aspects of today's proposed regional
NOX Budget Trading Program in order to assist States in
developing a regulatory strategy for large stationary combustion
sources.
3. Benefits of Participating in the NOX Budget Trading
Program
Participation in the NOX Budget Trading Program would
enable States that have been identified in the proposed transport
rulemaking to achieve the required emissions reductions from stationary
combustion sources while minimizing the
[[Page 25920]]
administrative burden faced by both States and sources. The SIP
revision process required by the proposed transport rulemaking would be
significantly streamlined for States choosing to include the
NOX Budget Trading Program as a part of the SIP. The EPA
proposes that adoption of the model rule will be considered a SIP-
approvable control strategy for the proposed transport rulemaking.
States electing to participate in the trading program may either adopt
the model rule by reference or develop State regulations that are in
accordance with the model rule.
The permitting process under the trading program would be
significantly streamlined since there will be no need for enforceable
compliance plans and few circumstances necessitating permit revisions.
Emissions monitoring, a central requirement of the trading program, as
well as the availability to the public of emissions data, allowance
data, and annual reconciliation information, would ensure that
participating States and the public have confidence that the required
emissions reductions are being achieved.
Cost savings for sources in States included in the trading program
are projected to be substantial. As estimated in the ``Proposed Ozone
Transport Rulemaking Regulatory Analysis'' (September 1997 docket #
III-B-01), annual incremental costs for a rate-based control approach
(at 0.15 lbs/mmBtu) are estimated to be $501 million higher in 2005
than the costs of participating in the NOX Budget Trading
Program (assuming the same emission rate) for the 23 jurisdictions in
the proposed transport rulemaking. Moreover, the annual average cost
effectiveness of emissions reductions achieved through a regional
trading program for the electric power industry is projected to be
approximately $1,250 per ton by 2010, while the cost effectiveness of
the rate-based approach is projected to be $2,050 per ton by 2010
(pages 2-24 through 2-27).
Sources included in the trading program can also expect increased
compliance flexibility, as compared to a rate-based approach that
requires each affected source to comply with the 0.15 lbs/mmBtu
emission rate and necessitates installation of control equipment for
any affected source that cannot meet the limit. Participation in the
trading program provides sources the choice of numerous compliance
strategies. Moreover, sources can choose to over-comply and generate
excess allowances that can be sold on the market or, as discussed
below, possibly banked for future use. In addition, sources may change
their control approach at any time without regulatory agency approval.
4. EPA's Proposal
Initially, the following sources would be included in the
NOX Budget Trading Program: fossil fuel-fired units (i.e.,
stationary boilers, combustion turbines, and combined cycle systems)
that serve an electrical generator of capacity greater than 25 MWe; and
fossil fuel-fired units that do not serve a generator and that have a
heat input capacity greater than 250 mmBtu/hr. All such sources located
within a State that chooses to join the trading program would be
required to participate in the program. Conversely, sources located in
States that do not join the trading program would not be eligible to
participate. The NOX budget sources initially included in
the trading program represent about 80 percent of the point source
portion of the 2007 NOX baseline emissions inventory and
about 65 percent of the point source portion of the 2007 NOX
budget as proposed in the ozone transport rulemaking. Additionally,
these sources represent about 90 percent of the emissions reductions
required in the proposed ozone transport rulemaking. This core group of
sources, therefore, captures the majority of NOX emissions
from the point source sector. States, however, have the option of
extending the program to include additional point sources at their
discretion, provided these additional point sources can fulfill the
requirements set forth for the trading program in this proposal. The
EPA is also taking comment on allowing certain new and modified major
sources to participate in the trading program at their discretion as a
way of potentially meeting the new source offset provisions under
section 173 of the CAA, provided the source meets the permitting,
monitoring, and accountability requirements of the trading
program.11 The EPA requests comments on broadening the
applicability of this trading program to include more types of sources
such as process sources, mobile sources, or area sources. Commenters
should address each type of source that they recommend be included in
the applicability of this program. For each source type, commenters
should describe procedures for monitoring emissions and identify
responsible parties for the source type. Criteria for monitoring and
for responsible parties are outlined below. Additionally, comment is
requested on any other types of concerns or issues associated with
inclusion of these other source types (e.g., environmental justice; net
cost savings likely to accrue from trading; administrative costs for
sources, States, and EPA).
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\11\ For discussion on this subject, see Section F, below, that
addresses New Source Review.
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Sources in the trading program would be required to monitor and
report their emissions in accordance with relevant portions of 40 CFR
part 75, which is currently under revision to provide greater
flexibility to regulated sources. (40 CFR part 75 revisions will be
proposed in a notice entitled ``Acid Rain Program; Continuous Emission
Monitoring Revisions'' that will be published in the Federal Register
in the near future.) The monitoring of emissions is necessary for
accountability and to ensure that a ton from one source in one State is
equivalent to a ton from another source in the same or another State.
The NOX allowances--each allowance representing a
limited authorization to emit one ton of NOX--would be the
currency used in the trading program. An emissions budget and an
allowance-based system ensure achievement of environmental goals within
a cost-effective, market-based program and can be implemented through
existing infrastructure. A fixed number of NOX allowances
would be allocated to regulated sources in each State for each ozone
season in the amount of the NOX budget set for the trading
program in the State. States would have the responsibility for
allocating allowances among regulated sources. The proposed
NOX Budget Trading Rule establishes timing requirements for
the submission of NOX allowance allocations to EPA by
participating States for inclusion into the NOX Allowance
Tracking System (NATS), which would be operated by EPA.
In addition to timing requirements, today's proposal provides
options for a recommended methodology for States to allocate
NOX allowances to their sources covered by the
NOX Budget Trading Program. A specific recommendation would
be included in the final trading rule. States would have the
flexibility to deviate from EPA's recommendation as long as the timing
requirements (40 CFR 96.41) are met and total NOX allowances
allocated to regulated sources do not exceed the number of tons that
the State apportions to these sources in the SIP. This would help
ensure that the trading program can operate efficiently and effectively
across multiple States.
In addition to EPA's traditional role in the approval and oversight
of the SIP, EPA would be responsible for managing the emissions data
and market functions
[[Page 25921]]
of the program, as well as performing annual reconciliation of
monitored emissions and allowances. States choosing to join the trading
program would be responsible for promulgating the supporting State
regulations; submitting NOX allowance allocations to EPA for
inclusion in NATS; and enforcing the permitting, monitoring and excess
emissions requirements. As established in the proposed transport
rulemaking, the control period would extend from May through September.
Based on results presented in the regulatory analysis for the proposed
transport rule that suggest no significant changes in the location of
emissions reductions resulting from an unrestricted trading program
with a consistent control level (``Proposed Ozone Transport Rulemaking
Regulatory Analysis,'' September 1997, pages 2-20 and 2-23, docket #
III-B-01), trading could occur across participating States free from
restrictions (other than the requirement to comply with existing
emissions limits under title I and title IV of the Act). These and
other program parameters, however, are predicated on the proposed
transport rule and may be modified if the final transport rule differs
from the proposal.
B. Evolution of the NOX Budget Trading Program
Market-based systems to control NOX emissions have been
developed within the United States, including: The South Coast Air
Quality Management District's Regional Clean Air Incentives Market
(RECLAIM) and the Ozone Transport Commission's (OTC) NOX
Budget Program. Today's proposed NOX Budget Trading Program
builds directly upon the OTC program and recommendations from OTAG. In
addition, EPA held two public workshops in November and December of
1997 specifically to solicit input on the development of the trading
program. The proceedings of these workshops are also summarized in this
Section.
1. OTC's NOX Budget Program
The goals and implementation strategy of the OTC's NOX
Budget Program are similar to those of the proposed transport rule and
today's proposed NOX Budget Trading Program. Taking into
account the work that has been done by the OTC, EPA has tried to
develop a proposal that will minimize conflicts between the two
programs by building upon the terms and provisions in the OTC program.
Section V.E of this preamble further discusses the integration issues
for the two programs.
On September 27, 1994, the OTC adopted a Memorandum of
Understanding (MOU) committing the signatory States to the development
and proposal of regionwide NOX emissions reductions in two
phases beginning in 1999 and 2003. The signatory States were Maine, New
Hampshire, Vermont, Massachusetts, Connecticut, Rhode Island, New York,
New Jersey, Pennsylvania, Maryland, Delaware, and the District of
Columbia.
The OTC MOU requires reductions in ozone season NOX
emissions from utility and large industrial combustion facilities in
order to further the effort to achieve the health-based NAAQS for
ozone. These emissions reduction requirements will be implemented
through a regionwide cap-and-trade program. The OTC States, in
collaboration with EPA, industry, and environmental groups, drafted and
approved a model rule in May 1996. This model rule serves as a template
for States to adopt their own rules to implement the budget program
defined by the OTC MOU. In addition to adopting rules, States in the
OTC program are responsible for allocating NOX allowances
among regulated sources, certifying monitors and monitoring plans,
auditing and recertifying sources, and enforcing the provisions of
their State rules. In addition to EPA's traditional role in the
approval and oversight of the SIP, EPA serves as the administrator for
the NATS and the Emissions Tracking System (ETS), the data systems used
to implement the OTC program. This entails issuing NOX
allowances and opening accounts, processing transfers and quarterly
emissions reports, conducting annual reconciliation of emissions and
allowances, and providing technical assistance to States and sources as
needed.
To implement the program, the OTC MOU emissions reduction
requirements were applied to a 1990 baseline for NOX
emissions in the Ozone Transport Region (OTR) to create an emissions
budget for each of the 2 target years: 1999 (Phase II) and 2003 (Phase
III). (Phase I required the installation of RACT by May 1995.) This
budget was apportioned among all the States; each State is responsible
for allocating its budget to regulated sources in its State. Sources
are allowed to buy, sell, or trade NOX allowances, and
ultimately must hold allowances sufficient to cover all NOX
emitted during the ozone season. Beginning in 1999, the total
NOX emissions from regulated sources cannot exceed the
number of allowances allocated in the OTR.
In order to ensure that NOX emissions reductions are
achieved and allowances are fungible, budget sources are required to
monitor and report their NOX emissions. Most sources use
CEMS, as approved by EPA under 40 CFR Part 75. For smaller oil-and gas-
burning units, alternative monitoring methods are available.
At the conclusion of each ozone season, sources have an opportunity
to evaluate their reported emissions and obtain any additional
NOX allowances they may need to offset their emissions
during the ozone season. By December 31 of each year, a regulated
source submits a compliance certification report. Should a source lack
sufficient allowances to offset emissions for the season, the OTC model
rule requires subtraction of allowances from that source's allocation
for the following year. If enough NOX allowances are not
held, an automatic offset will be imposed during the following year's
ozone season where an amount of NOX allowances will be
deducted from the source in an amount equaling three NOX
allowances for each ton of excess emissions. The source is also subject
to the application of existing State and Federal enforcement protocols
and penalties.
The NOX allowances that are not used are automatically
carried over into the following year as banked allowances. The banking
provisions of the OTC model rule provide for unlimited banking of
allowances with a ``progressive flow control'' management scheme to
control the withdrawal and use of banked allowances. (For a more
detailed discussion of banking, see Section V.E.). Explicit program
audit provisions are established in the OTC model rule to ensure that
the use of banked NOX allowances does not threaten the
integrity of the system.
Finally, the OTC model rule makes provisions for possible rule
modifications in the future. This ``mid-course correction'' provides an
opportunity to revise the 2003 emissions reduction target and budget
and to modify the OTC model rule in response to refined air quality
modeling or other altered circumstances.
2. OTAG Process
The OTAG, a partnership among the 37 easternmost States and the
District of Columbia, EPA, industry representatives and environmental
groups, was charged with assessing the significance of ozone transport
and with recommending to EPA control strategies for reducing this
transport. The OTAG's initial meetings were in May and June of 1995,
and its final recommendations were issued to
[[Page 25922]]
EPA on July 8, 1997 (see 62 FR 60376, Appendix B). The OTAG completed
an extensive and comprehensive analysis of ozone transport and control,
and EPA has taken OTAG's work and conclusions into account in
developing this rulemaking.
The analysis and conclusions of the Trading and Incentives
Workgroup of OTAG are particularly relevant to EPA's creation of the
NOX Budget Trading Program. The Trading and Incentives
Workgroup was charged with designing market-based approaches to reduce
NOX emissions. This group identified two basic paths to
market system implementation--identified as ``Track One'' and ``Track
Two''--which could be used to facilitate achievement of the statewide
budgets delineated in the proposed transport rulemaking. ``Track One''
was defined as an interstate cap-and-trade program for stationary
sources, administered by a central regulatory authority, such as EPA.
``Track Two'' was defined as a market-based system without an emissions
cap. As discussed above, trading with a cap better ensures that
environmental goals will be met than trading without a cap. Therefore,
for the purposes of assisting State achievement of the statewide
budgets set forth in the proposed transport rulemaking, EPA is focusing
on implementing a ``Track One'' type of program with today's proposed
rule and is building upon OTAG's analysis and recommendations regarding
the development of Track One programs.
3. EPA Model Trading Program Workshops
The EPA held two public workshops to solicit comments and
suggestions from States and other stakeholders on a NOX cap-
and-trade program prior to developing today's proposed NOX
Budget Trading Rule. This Section describes the workshop process.
Greater detail regarding program development and feedback received
through the workshop process is provided within relevant Sections of
this preamble.
The trading rule workshops were held on November 4 and 5, 1997 in
Washington DC, and December 10 and 11, 1997 in Arlington, Virginia.
Written comments during this pre-proposal phase were welcomed through
December 31, 1997. Each workshop consisted of a 2-day forum: the first
day was devoted to EPA/State discussions, and the second day was open
to all interested parties. Over 150 people participated in each of the
workshops. To facilitate meaningful comments from these participants,
EPA developed working papers on critical issues that were made
available for review prior to each workshop. These papers discussed
major issues relevant to developing a NOX Budget Trading
Rule, delineated options and, in some cases, offered recommendations.
The issues associated with each working paper were presented at the
workshops, followed by open discussion periods allowing workshop
participants to comment and discuss each issue.
The first workshop, addressed the foundations of the NOX
Budget Trading Program development. To achieve the required
NOX emissions reductions in the most cost-effective manner,
the goals of the trading program were defined as meeting the budget,
facilitating trading, and creating a workable program. The necessity of
operating the NOX Budget Trading Program within the
framework of the proposed transport rulemaking dictated further
requirements, such as a seasonal control period. Four fundamental
trading rule components (applicability, monitoring, emissions
limitations, and banking) were discussed at length.
After broad concepts for the NOX Budget Trading Program
framework were introduced and discussed at the first workshop, EPA
revised and augmented the working papers in accordance with comments
and discussion. At the second workshop, EPA presented recommendations
and considerations of additional issues, seeking further input from
participants. The original working papers on applicability, monitoring,
emissions limitations, and banking were expanded, and new papers on the
use of output in allocations and the creation of an energy efficiency
set-aside were introduced in response to interest expressed at the
first workshop. In addition, a paper presenting a skeleton of all the
components of a model rule was presented to provide context for input
and an indication of how the NOX Budget Trading Rule as a
whole was evolving.
The EPA found the workshop process to be very helpful in generating
useful recommendations for developing the framework for the model rule.
Today's NOX Budget Trading Rule proposal incorporates
comments and suggestions raised at both workshops, along with nearly
fifty written comments received following the workshops. Listening to
issues important to States through the workshop process was essential
for EPA to develop a program that would meet States' needs. Since the
ultimate cost savings of the regional trading program will increase
with the number of participating States, it is advantageous to design a
regional trading program that will likely be adopted by the greatest
number of States. The workshops also served as a forum to discuss which
program elements should be consistent among participating States, since
consistency in State-adopted rules is essential for a viable regional
cap-and-trade program. Also of importance in the workshop process was
working with stakeholders, such as affected sources, in order to ensure
that the trading program offers the necessary flexibility, as well as
compatibility with other programs.
The working papers, a detailed summary of the input received during
both workshops, and written comments are included in the proposed
transport rulemaking docket (A-96-56, Section 2a).
4. RECLAIM Program
The RECLAIM program, which was adopted by the South Coast Air
Quality Management District in October, 1993, and began January 1,
1994, provides another example of a cap-and-trade market system. This
program regulates NOX and sulfur oxides (SOX)
emissions from facilities that generally emit four or more tons per
year of either pollutant from permitted equipment in the South Coast
Air Basin, centered in Los Angeles.12 The RECLAIM program
currently includes approximately 330 facilities.
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\12\ Some sources with annual emissions less than four tons are
included in the program by virtue of their inclusion in a SIC
category in which the majority of sources emit greater than four
tons per year.
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The RECLAIM program replaced command-and-control regulations with a
market program to provide facilities with added flexibility and lowered
compliance costs in achieving reductions required to meet State and
Federal requirements for clean air programs. Facilities in the program
are collectively required to cut their emissions by a specific amount
each year under the program, resulting in an almost 80 percent
reduction by 2003 for both SOX and NOX. Each
facility participating in RECLAIM is allocated RECLAIM trading credits
(RTCs) equal to its annual emissions limit. Initially, allocations are
based on past peak production and the requirements of existing rules
and control measures for each facility. Allocations decline annually
through the 2003 compliance year, then remain constant during
subsequent years. The RTCs, each representing the limited authorization
to emit one pound of pollutant, expire annually. Facilities may trade
these RTCs among themselves, providing that every quarter, each
facility holds credits
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equal to or greater than their actual emissions for that quarter.
In terms of NOX emitters, the RECLAIM program generally
requires stationary sources that emit ten or more tons of
NOX annually or which burn any solid fuels to use CEMS to
quantify their emissions. Smaller sources have additional monitoring
options. Sources that emit four or more tons of NOX and less
than ten tons may use default emission rates. They must demonstrate
that these rates are appropriate by monitoring process variables,
performing periodic emissions testing, and conducting periodic tune-ups
of equipment. The smallest sources in the RECLAIM program (those with
annual emissions of less than four tons) may choose to use default
emission rates that require less extensive testing and demonstration
than those available to the larger sources.
The program's annual report for 1996 concluded that RECLAIM was
continuing to meet its emissions reduction goals; an active trading
market had developed; and the compliance rate, once it is finalized for
the 1996 compliance year, will be in the 85 to 90 percent range.
C. NOX Budget Trading Program
1. General Provisions
Today's proposed NOX Budget Trading Rule will be
incorporated into the 40 CFR as a new part 96. The subparts of 40 CFR
part 96 are described below. The provisions of 40 CFR part 96 will
become effective and apply to sources only if a State incorporates 40
CFR part 96 by reference into the State's regulation or adopts
regulations that are in accordance with 40 CFR part 96.
a. Purpose. Subpart A of today's proposed NOX Budget
Trading Rule includes Sections describing: To whom the NOX
trading program would apply; the standard requirements for participants
in the program (permitting, NOX allowances, monitoring,
excess emissions, and liability provisions); exemptions for retired
units from the program requirements; definitions, measurements, and
abbreviations; and computation of deadlines stated within the proposal.
b. Definitions, Measurements, Abbreviations, and Acronyms.
Many of the definitions, measurements, abbreviations, and acronyms
are the same as those used in 40 CFR part 72 of the Acid Rain Program
regulations, in order to maintain consistency among programs. However,
additional terms specific to the NOX Budget Trading Program,
such as control period (the period beginning May 1 of each year and
ending on September 30 of the same year), NOX Budget unit (a
unit subject to the emissions limitation under the NOX
Budget Trading Program), and several others are added. Key definitions
are discussed in relevant Sections below describing the rule.
c. Applicability. The EPA proposes that the NOX Budget
Trading Rule be applicable to a core group of sources that includes all
fossil fuel-fired, stationary boilers, combustion turbines, and
combined cycle systems (i.e., ``units'') that serve an electrical
generator of capacity greater than 25 MWe and to any fossil fuel-fired,
stationary boilers, combustion turbines, and combined cycle systems not
serving a generator that have a heat input capacity greater than 250
mmBtu/hr. A unit is considered fossil fuel-fired if fossil fuels
account for more than 50 percent of the unit's heat input on an annual
basis. These sources represent about 80 percent of the point source
portion of the 2007 NOX baseline emissions inventory and
about 65 percent of the point source portion of the 2007 NOX
budget in the proposed ozone transport rulemaking. Additionally, these
sources represent about 90 percent of the emissions reductions required
in the proposed ozone transport rulemaking.
The EPA proposes the above core group of sources based on their
significant contribution of NOX emissions, range of cost-
effective emissions reduction options, ability to monitor emissions,
and ability to identify responsible parties. The following discussion
examines the monitoring and responsible party criteria for the
NOX Budget Trading Program's applicability. Additional
options for the trading program's applicability are also presented for
consideration. The EPA solicits comment on the appropriateness of
including all categories described above in the core group of sources,
whether the size cut-offs should be higher or lower for these source
categories, and the appropriateness of including other source
categories in the core group.
i. Monitoring. In general, sources that participate in a cap-and-
trade program must have the ability to accurately and consistently
account for their emissions. Accuracy is an important design parameter
because it ensures that emissions for all sources covered by the
trading program are within the cap. In addition, because each
NOX allowance will have economic value, it is important to
ensure that emissions (and thus allowances used) are accurately
quantified. Consistency is an important feature because it ensures that
accuracy is maintained from source to source and year to year. It also
ensures that the sources in the trading program are treated equitably.
Finally, consistency facilitates administration of the program for both
the regulated community and State and Federal agencies.
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