Approval and Promulgation of Implementation Plans; Emission Trade to Meet Reasonably Available Control Technology for the State of New York

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[Region II Docket No. NY27-1-178, FRL-6101-5]

Approval and Promulgation of Implementation Plans; Emission Trade

to Meet Reasonably Available Control Technology for the State of New

York

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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

SUMMARY: The EPA is proposing approval of a revision to the New York

State Implementation Plan for ozone. This revision proposes to

establish and require an emission trade between Niagara Mohawk Power

Corporation and Champion International Paper Corporation which will

result in both sources meeting the requirements of Reasonably Available

Control Technology for oxides of nitrogen. The intended effect of this

proposed action is to approve source-specific permit conditions,

requiring the sources to trade emissions in accordance with

requirements of the Clean Air Act, and resulting in emission reductions

which will help toward attaining the national ambient air quality

standards for ozone.

DATES: Comments must be received on or before June 22, 1998.

ADDRESSES: All comments should be addressed to: Ronald Borsellino,

Chief, Air Programs Branch, U.S. EPA, Region II Office, 290 Broadway,

25th Floor, New York, New York 10007-1866. Copies of the state

submittal and other information are available for public inspection

during normal business hours, by appointment, at the Air Programs

Branch, U.S. EPA, Region II Office, 290 Broadway, 25th Floor, New York,

New York; as well as the New York State Department of Environmental

Conservation, Division of Air Resources, 50 Wolf Road, Albany, New York

12233.

FOR FURTHER INFORMATION CONTACT: Richard Ruvo, Environmental Engineer,

Air Programs Branch, U.S. EPA, Region II Office, 290 Broadway, 25th

Floor, New York, New York 10007-1866; (212) 637-4014.

SUPPLEMENTARY INFORMATION:

I. Background

The Clean Air Act (the Act) requires that States develop Reasonably

Available Control Technology (RACT) regulations for all major

stationary sources of oxides of nitrogen (NOX) in areas

which have been classified as ``moderate,'' ``serious,'' ``severe,''

and ``extreme,'' ozone nonattainment areas, and in all areas of the

Ozone Transport Region (OTR). The EPA has defined RACT as the lowest

emission limitation that a particular source is capable of meeting by

the application of control technology that is reasonably available

considering technological and economic feasibility (44 FR 53762, Sept.

17, 1979). This requirement is established by sections 182(b)(2),

182(f), and 184(b) of the Act. The Act's NOX requirements

are further described in more detail in ``The General Preamble for

Implementation of Title I of the Clean Air Act Amendments,'' (57 FR

13498, April 16, 1992) and ``The NOX Supplement to the

General Preamble'' (57 FR 55620, November 25, 1992).

The entire State of New York is included in the OTR, therefore RACT

must be applied to all major stationary sources of NOX

emissions. New York State has defined a major stationary source for

NOX as a source in the New York City metropolitan area and

the lower Orange County metropolitan area which has the potential to

emit 25 tons per year (TPY) and as a source in the rest of the State

which has the potential to emit 100 TPY.

New York State adopted its NOX RACT regulation, part

227-2, on January 19, 1994. Part 227-2, section 2.5(b) allows for

system-wide emissions averaging as a compliance strategy. The average

must be weighted so the mass emission rate of the units in operation is

equivalent to the mass emission rate that would be achieved if each

operating unit individually met the applicable RACT emission limit.

Averaging may include units owned and operated by the same person.

II. State Submittal

On November 8, 1995, New York proposed for comment special permit

conditions for the Niagara Mohawk Power Corporation and the Champion

International Paper Corporation for an emission trade to meet the

NOX RACT requirements of part 227-2. New York approved the

special permit conditions on December 14, 1995, having received no

public comments. On April 9, 1996, New York State submitted the special

permit conditions to EPA as a source-specific revision to the State

Implementation Plan (SIP) for ozone. New York submitted additional

technical information on April 30, 1996, October 17, 1996 and December

5, 1996. The SIP revision was reviewed by EPA in accordance with the

completeness criteria found at Title 40, part 51, appendix V of the

Code of Federal Regulations. EPA determined the SIP revision to be

administratively and technically complete in a June 4, 1996 letter to

New York.

In the process of its review of the April 9, 1996 SIP revision, EPA

noted deficiencies in the special permit conditions. In a February 6,

1997 letter, EPA requested New York to correct these deficiencies,

delaying review of the SIP revision. New York re-proposed for comment

the special permit conditions for the emission trade on September 24,

1997. New York approved the special permit conditions on December 2,

1997, having received no public comments. On February 2, 1998, New York

submitted to EPA the December 2, 1997 special permit conditions. The

February 2, 1998 submittal supplemented the original April 9, 1996 SIP

revision.

For a more detailed discussion of New York's SIP submittal and

EPA's proposed action, the reader is referred to the Technical Support

Document (TSD) which was developed as part of this action. Copies of

the TSD are found at the previously mentioned addresses.

III. Analysis of State Submittal

A. Facility Descriptions

Niagara Mohawk Power Corporation (NMPC) operates four fossil fuel-

fired utility plants in New York State; the

[[Page 27898]]

Oswego, Albany, C.R. Huntley, and Dunkirk Steam Stations. There are two

Titles of the Act which impose NOX emission limits on NMPC's

fossil fuel-fired generating plants. All of NMPC's fossil units became

subject to the Title I NOX RACT requirements as of May 31,

1995. NMPC's coal-fired units are also subject to the Title IV Acid

Rain requirements for NOX. However, the Title I

NOX RACT requirements established by New York in part 227-2

are currently more restrictive on NMPC's units than the emission limits

established by the Title IV rules. NMPC has developed a plan to comply

with the NOX RACT emission limits through the installation

of air pollution control technology. In addition to these controls,

NMPC uses a system-wide averaging scheme as a fallback to meeting the

NOX RACT requirements.

Champion International Paper Corporation (Champion) owns and

operates two coal-fired boilers at its paper mill in Deferiet,

Jefferson County. Under part 227-2, the two boilers are subject to the

NOX RACT emission limit of 0.5 lbs/MMBtu (pounds per million

British Thermal Units). Stack tests completed in October 1995 and May

1997 indicated average NOX emissions ranging from 0.665 lbs/

MMBtu to 0.893 lbs/MMBtu.

Champion determined it would be technically infeasible for the two

boilers to meet the NOX RACT emission limit with

conventional NOX control technologies. Champion initially

planned to meet the NOX RACT requirements through the

compliance option of repowering. However, after discussions with NMPC

and New York, Champion decided to achieve compliance with RACT, as

prescribed by part 227-2, by utilizing beyond-RACT emission reductions

from the NMPC system-wide averaging plan.

B. Special Permit Conditions for the Emission Trade

New York has modified the permits for both NMPC and Champion in

order to allow the implementation of the emission trade. For NMPC,

which is creating the emission reductions, the special permit

conditions require emissions of NOX to be reduced below

RACT-allowable emissions by the amount to be traded. For Champion,

which will be using NMPC's emission reductions, the special permit

conditions allow emissions of NOX to be emitted in excess of

the RACT-allowable emissions, but only by 90% of the amount to be

traded.

The special permit conditions for NMPC, allow compliance to be

demonstrated on either a unit-by-unit basis or on a system-wide

average. Surplus NOX reductions, in pounds, are calculated

as the difference between the amount of NOX allowed to be

emitted by a given unit (lbs/MMBtu) and the actual amount of

NOX emitted by the unit (lbs/MMBtu), multiplied by the

actual heat input, in MMBtu. Surplus NOX reductions are

calculated each hour for each unit. Compliance on a daily basis is

determined by summing the surplus NOX reductions created by

each unit for each 24-hour period. From September 16 of each year to

April 30 of the following year, compliance is based on a 30-day rolling

average (Btu-weighted). The special permit conditions include example

spreadsheets and tables to be used in tracking the surplus

NOX reductions for each unit and for the entire system and

demonstrating compliance. The TSD includes a step-by-step example of an

emission averaging calculation.

The source of the data used to calculate NMPC's NOX

emissions (lbs/MMBtu and heat input) will be the Continuous Emissions

Monitors that have been installed pursuant to 40 CFR part 75. All of

NMPC's fossil fired units are subject to the monitoring requirements of

40 CFR part 75. NMPC will submit quarterly compliance reports to New

York to meet the NOX RACT reporting requirements, showing

the amount of NOX generated each hour for each unit, and a

summary of exceedances, should they occur.

In order for NMPC to demonstrate RACT compliance and to apply

additional surplus NOX reductions toward RACT compliance at

the Champion Deferiet facility, NMPC will calculate the net amount of

surplus NOX reductions that were created by the NMPC system.

The special permit conditions also require NMPC to hold at least 1.4

tons (2,800 pounds) of surplus NOX reductions at the end of

each 30-day rolling period, from September 16 to April 30, inclusive.

From May 1 to September 15, NMPC must hold at least 1.3 tons (2,600

pounds) of surplus NOX reductions at the end of each 24-hour

period. In the event that less than 1.3 tons are held from May 1 to

September 15, NMPC must notify New York and within five days must hold

surplus NOX reductions equal to the shortfall, multiplied by

1.10. Failure to hold the appropriate amount of surplus NOX

reductions, based on the time of the year, is considered a violation of

the permit.

Champion's special permit conditions determine compliance using two

formulas, depending on the time of year. Both formulas ensure

Champion's boilers will not exceed 0.50 lbs/MMBtu, by subtracting the

surplus NOX reductions received from NMPC, in pounds, from

Champion's daily NOX emissions, in pounds, then dividing

that by the daily heat input in MMBtu. Compliance with the 30-day

rolling average will be determined by adding the amount of

NOX, in pounds, emitted during the previous 29 days (minus

the amount of surplus NOX reductions available for

compliance) to the NOX emitted during the most recently

completed day (minus the amount of surplus NOX reductions

available for compliance that day), and dividing that sum by the sum of

the daily heat inputs for the most recently completed 30 days.

The actual NOX emissions rate for Champion's boilers

will be determined through annual emissions testing as the average of

three runs at maximum load. Such testing will be conducted using EPA

Test Method 7E, with State oversite. Emission results will be used to

calculate NOX mass emissions for the period following

testing, not to be applied for the previous year. Champion must

maintain records for a period of at least five years of the (1)

quantity of coal burned each day, (2) stack test reports, (3) daily

total steam flow for each boiler, (4) daily prorated NOX

rate for the combined boilers, and (5) records of surplus

NOX reductions, creditable surplus NOX reductions

and the 10% set-aside.

For Champion, the amount of surplus NOX reductions

available from NMPC for compliance is 1.3 tons or 1.4 tons per day,

depending on the time of year, therefore the amount of surplus

NOX reductions needed for compliance will not exceed 1.3 or

1.4 tons per day. From May 1 to September 15, creditable surplus

NOX reductions will be generated daily and defined as the

daily difference between the surplus NOX reductions

generated by NMPC and those needed by Champion. In the event NMPC is

unable, on a daily basis, to generate surplus NOX reductions

sufficient to satisfy Champion's need, the difference will be deducted

from the creditable surplus NOX reductions accumulated

during the previous 30-day period. In the event NMPC notifies Champion

that surplus NOX reductions will be unavailable for a period

of 30 consecutive days or more, Champion must submit an alternative

NOX RACT Compliance Plan to New York within 60 days. The

Compliance Plan shall include the use of any or all creditable surplus

NOX reductions to remain in compliance with part 227-2 until

implementation of the alternative NOX RACT Compliance Plan.

The Compliance Plan will include a plan to comply with the provisions

of part 227-

[[Page 27899]]

2, a schedule for implementing RACT, and the use of creditable surplus

NOX reductions to offset emissions during the interim period

of submittal and implementation of the RACT plan.

The special permit conditions also require Champion to set aside

10% of the 497.2 TPY received from NMPC for use by Champion as a

benefit to the environment. Therefore only 447.48 TPY will be used by

Champion for compliance purposes, while 49.72 TPY will be retired to

benefit the environment.

The special permit conditions will terminate if the Champion

Deferiet facility permanently shuts down or if NMPC and Champion

terminate their agreement. The special permit conditions will also

terminate if New York approves an alternate means for Champion to

comply with RACT, such as, some other emission trade subject to EPA

approval, or direct compliance with part 227-2 through the

implementation of NOX control technologies and strategies.

C. Consistency of the Emission Trade With Part 227-2 and EPA's Emission

Trading Guidance Documents

The special permit conditions for NMPC and Champion include

formulas to provide that the emission trade is on a Btu-weighted basis.

These formulas ensure that the generation and calculation of surplus

NOX reductions are based on the units in operation during

the compliance period. The formulas also ensure the mass emission rate

of the units in operation is equivalent to the mass emission rate that

would be achieved if each operating unit individually met the

applicable RACT emission limit. The NMPC and Champion compliance plans

clearly indicate which units at which facility will be included with

the emission trade. Since the emission trade includes units owned and

operated by two different persons, New York submitted this emission

average as a source-specific SIP revision. Lastly, the affected

facilities are located in Upstate New York, outside of the New York

City severe nonattainment area. Therefore, it is not necessary to

include any geographical constraints in the special permit conditions

with respect to trades outside severe nonattainment areas, pursuant to

part 227-2, section 2.5(b).

The April 9, 1996 submittal letter provides the evidence that New

York has the legal authority under State law to approve and implement

the compliance plan. The special permit conditions were processed in

accordance with part 621.14 for inclusion in the Certificate to

Operate. New York proposed approval of the SIP revision pursuant to

part 227-2. Any violation of the special conditions of each source's

permit will be enforced as prescribed by Chapter 19 of the New York

State Environmental Conservation Law. The emission trade is enforceable

through appropriate averaging times, test methods, compliance

schedules, and reporting and recordkeeping requirements and is

acceptable to the Agency. To verify compliance, NMPC and Champion are

required to calculate daily averaged NOX emissions records

and submit these records in quarterly reports as prescribed by the

special permit conditions. These conditions ensure compliance on a

daily basis and include data obtained exclusively during operating

hours to establish the average daily NOX emissions.

Overall, part 227-2 provides a compliance option for owners of

multiple affected units to choose cost-effective control options to

meet an overall equivalent emission limit, in order to comply with part

227-2. Should a source not comply with this provision it would

constitute a violation of part 227-2 and would subject the source owner

or operator to civil and applicable criminal penalties. EPA believes

this is sufficient to ensure that sources comply and should EPA have to

take enforcement action, it could use the same provision to obtain

compliance.

Since the 1970's, EPA has developed several emission trading

programs and guidance documents to allow industry and States more

flexibility in meeting statutory requirements of the Act. Overall, New

York's emission trade between NMPC and Champion to meet the

NOX RACT requirements is consistent with EPA's emission

trading guidance.

EPA's ``Emissions Trading Policy Statement'' (51 FR 43814, December

4, 1986) provides the Agency's historical guidance on emission trading

programs (bubbles, netting, offsets and banking) to allow more

flexibility in meeting Act requirements. The 1986 Policy discusses how

only emission reductions which are surplus, quantifiable, enforceable

and permanent may be used in an emission trade.

NMPC's NOX emission reductions are surplus because the

formulas in the special permit conditions are based on the difference

between the amount of NOX allowed to be emitted by RACT and

the actual amount of NOX emitted. Therefore, only those

NOX emission reductions below the RACT-allowable limits are

considered surplus and available for use by Champion.

NMPC's NOX emissions (lbs/MMBtu and heat input) are

quantifiable through the Continuous Emissions Monitors that have been

installed pursuant to 40 CFR part 75.

The legally-enforceable vehicles for the emission trade are the

special permit conditions for NMPC and Champion, approved by New York

on December 2, 1997.

NMPC's emission reductions used by Champion are considered

permanent because NMPC's special permit conditions require NMPC to hold

at least 1.3 or 1.4 tons of surplus NOX reductions depending

on the time of year. NMPC's NOX emission reductions are also

considered permanent because they are based on the implementation of

various control strategies.

``The NOX Supplement to the General Preamble'' (57 FR

55620, November 25, 1992) specifies that in cases where States adopt an

areawide averaging rule for a group of sources, the emission limits,

emission quantification methods, and monitoring and recordkeeping

requirements applicable to each owner/operator in the group must be

clearly specified. In addition, the rule must specify appropriate

penalties for violation of the various requirements. Also, SIP measures

must be converted into legally-enforceable vehicles such as a

regulation or permit. EPA's current thinking is to also allow trading

for other NOX source categories, either within one facility,

among several facilities or among several emission units at a facility.

While New York's averaging provision and this source-specific SIP

revision are not intended to be a generic areawide trading rule, the

Region believes this emission trade between NMPC and Champion is a

logical extension of the NOX Supplement. New York's emission

trade between NMPC and Champion is consistent with EPA's general

guidance (NOX Supplement) on trading to meet the

NOX RACT requirements. The legally-enforceable vehicles for

the emission trade are the special permit conditions for NMPC and

Champion, approved by the New York on December 2, 1997. The permits

clearly specify the emission limits, emission quantification methods,

testing, monitoring and recordkeeping requirements applicable to each

owner/operator in the trade. Civil and criminal sanctions associated

with a violation of the special permit conditions are found within

Article 71 of the State regulation.

EPA's Economic Incentive Program (EIP) Rules (40 CFR part 51,

subpart U) contain the rules and guidance for EIP's that a State may

choose to adopt for any criteria pollutant, as explicitly allowed for

in the Act. The EIP rules provide an opportunity to encourage the

[[Page 27900]]

development and early implementation of appropriate EIP's. Since the

EIP rules and guidance are broadly applicable to any kind of EIP, the

guidance generally covers the same type of emission trading programs

that have historically been addressed by the Emissions Trading Policy

Statement. Therefore, trades which fall under the Emissions Trading

Policy Statement represent one particular model for how States could

choose to design such a program that would be approvable under the EIP

rules.

Since the NMPC and Champion emission trade is consistent with the

provisions of the Emissions Trading Policy Statement, it is also

consistent with the EIP guidance. In addition to meeting the criteria

in the Emissions Trading Policy Statement, the NMPC/Champion emission

trade provides for additional emission reductions which meet the

``benefit-sharing'' goal of the EIP rules and guidance.

D. Summary

Major sources of NOX are numerous and varied. As a

result, New York has tried to allow for some flexibility in part 227-2.

Part 227-2 allows owners and operators of multiple units to average

emissions over all the units operated, with some appropriate

restrictions. The use of post combustion control is not precluded for

any source category. The owner or operator of a facility may choose to

use post combustion control as a cost-effective control strategy for a

particular application, as a means of ``over control'' for an averaging

scheme or for use in an emission offset plan.

The source-specific SIP revision provides an innovative way for an

affected source to achieve emission reductions (at less cost) equal to

or beyond the reductions required by NOX RACT. As a result

of the emission trade, NMPC is required to create emission reductions

of at least 1.3 or 1.4 tons of NOX per day. As mentioned in

its Fourth Quarter 1995 Compliance report, NMPC holds surplus

NOX reductions for Champion of 42 tons per 30-day rolling

period (1.4 tons/day x 30 days). The report shows NMPC's 30-day

compliance margin ranges from 323 to 543 tons, which is well beyond the

amount to hold for Champion. For Champion, the emission trade allows

the facility to exceed its NOX allowable emissions, but only

by the amount traded. For example, in a worst case scenario, emission

increases by Champion will be contemporaneously offset by equivalent

emission decreases at NMPC. Also, without the emission trade, Champion

would have requested a waiver from New York, which if granted would

have resulted in emission increases greater than 1.3 or 1.4 tons per

day. In addition, Champion is required to retire 10% of the surplus

NOX reductions it receives from NMPC as a benefit to the

environment.

EPA has reviewed NMPC's and Champion's applications and New York's

source-specific SIP revision for completeness and approvability. EPA

agrees with New York's determination that the emission trade between

NMPC and Champion provides an innovative way for an affected source to

achieve emission reductions equal to or beyond the reductions required

by NOX RACT, at less cost to industry. While this emission

trade does not constitute traditional RACT, it does provide a

compliance option for owners of multiple affected units to choose cost-

effective control options to meet an overall emission reduction

equivalent to RACT. The permit conditions for the emission trade serve

as approved SIP emission limits for these facilities. Finally, EPA

believes these permit conditions address the criteria of surplus,

quantifiable, enforceable and permanent and therefore, proposes

approval.

It should be noted that New York, the other OTR States and EPA, are

developing future NOX trading rules which will have broader

applicability than this source-specific SIP revision. New York's

adoption of the OTR's NOX Budget Program and finalization of

EPA's ``Ozone Transport SIP Call'' may replace the emission trade

discussed in this proposed action, as well as establish an overall,

generic emission trading program.

Conclusion: EPA is proposing full approval of the source-specific

permit conditions requiring NMPC and Champion to trade emissions to

meet the requirements of NOX RACT. EPA is proposing approval

of these special permit conditions, as submitted by the State of New

York on April 9, 1996 and supplemented on February 2, 1998, as part of

the SIP.

Nothing in this action should be construed as permitting or

allowing or establishing a precedent for any future request for

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

the state implementation plan shall be considered separately in light

of specific technical, economic, and environmental factors and in

relation to relevant statutory and regulatory requirements.

IV. Administrative Requirements

A. Executive Order 12866

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

regulatory action from review under Executive Order 12866.

B. Regulatory Flexibility Act

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

must prepare a regulatory flexibility analysis assessing the impact of

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

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

significant impact on a substantial number of small entities. Small

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

and government entities with jurisdiction over populations of less than

50,000.

SIP approvals under section 110 and subchapter I, part D of the

Clean Air Act do not create any new requirements but simply approve

requirements that the State is already imposing. Therefore, because the

federal SIP approval does not impose any new requirements, I certify

that it does not have a significant impact on any small entities

affected. Moreover, due to the nature of the Federal-State relationship

under the CAA, preparation of a flexibility analysis would constitute

federal inquiry into the economic reasonableness of state action. The

Clean Air Act forbids EPA to base its actions concerning SIPs on such

grounds. Union Electric Co. v. U.S. EPA, 427 U.S. 246, 255-66 (1976);

42 U.S.C. 7410(a)(2).

C. Unfunded Mandates

Under section 202 of the Unfunded Mandates Reform Act of 1995

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

must prepare a budgetary impact statement to accompany any proposed or

final rule that includes a federal mandate that may result in estimated

annual costs to State, local, or tribal governments in the aggregate;

or to private sector, of $100 million or more. Under section 205, EPA

must select the most cost-effective and least burdensome alternative

that achieves the objectives of the rule and is consistent with

statutory requirements. Section 203 requires EPA to establish a plan

for informing and advising any small governments that may be

significantly or uniquely impacted by the rule.

EPA has determined that the approval action proposed does not

include a federal mandate that may result in estimated annual costs of

$100 million or more to either State, local, or tribal

[[Page 27901]]

governments in the aggregate, or to the private sector. This federal

action approves pre-existing requirements under State or local law, and

imposes no new requirements. Accordingly, no additional costs to State,

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

this action.

The Regional Administrator's decision to approve or disapprove the

SIP revision will be based on whether it meets the requirements of

section 110(a)(2)(A)-(K) and part D of the Clean Air Act, as amended,

and EPA regulations in 40 CFR part 51.

List of Subjects in 40 CFR Part 52

Environmental protection, Air pollution control, Incorporation by

reference, Intergovernmental relations, Nitrogen dioxide, Ozone,

Reporting and recordkeeping requirements.

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

Dated: May 13, 1998

Herbert Barrack,

Acting Regional Administrator for Policy and Management.

[FR Doc. 98-13610 Filed 5-20-98; 8:45 am]

BILLING CODE 6560-50-P