Approval and Promulgation of Implementation Plans; California State Implementation Plan Revision, Bay Area Air Quality Management District

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[CA 102-0111; FRL-6185-9]

Approval and Promulgation of Implementation Plans; California

State Implementation Plan Revision, Bay Area Air Quality Management

District

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: EPA is proposing a limited approval and limited disapproval of

revisions to the California State Implementation Plan (SIP). This

revision concerns Rules 1, 2 and 4 of Regulation 2--Permits, for the

Bay Area Air Quality Management District (BAAQMD or the ``District'').

This State Implementation Plan (SIP) revision was submitted by the

State of California for the purpose of meeting the requirements of the

Clean Air Act (CAA), as amended in 1990, with regard to new source

review (NSR) in areas that have not attained the national ambient air

quality standards (NAAQS). This SIP revision was submitted by the State

to satisfy Federal requirements for an approvable nonattainment area

NSR SIP for the District.

The intended effect of proposing a limited approval and limited

disapproval of these rules is to strengthen the federally approved SIP

by incorporating these updated provisions. EPA's final action on this

proposal will incorporate the rules into the SIP. EPA is proposing a

simultaneous limited approval and limited disapproval under provisions

of the Act regarding EPA action on SIP submittals and general

rulemaking authority. While strengthening the SIP, this revision

contains deficiencies which the BAAQMD must address before EPA can

grant full approval under Section 110(k)(3).

DATES: Comments must be received on or before December 7, 1998.

ADDRESSES: Comments may be mailed to: John Walser, Permits Office [AIR-

3], Air Division, U.S. Environmental Protection Agency, Region IX, 75

Hawthorne Street, San Francisco, CA 94105-3901.

Copies of the state submittal and rules are available for public

inspection at EPA's Region IX office during normal business hours and

at the following locations: Bay Area Air Quality Management District,

939 Ellis Street, San Francisco, CA 94109. California Air Resources

Board, Stationary Source Division, Rule Evaluation Section, 2020 ``L''

Street, Sacramento, CA 95812.

FOR FURTHER INFORMATION CONTACT: John Walser, Permits Office, [AIR-3],

Air Division, U.S. Environmental Protection Agency, Region IX, 75

Hawthorne Street, San Francisco, CA 94105-3901, Telephone: (415) 744-

1257.

SUPPLEMENTARY INFORMATION:

I. Applicability

The rules proposed for limited approval and limited disapproval

into the California SIP are the District's Regulation 2 Permits, Rule 1

General Requirements, Rule 2 New Source Review, and Rule 4 Emissions

Banking. These rules were submitted by the California Air Resources

Board on behalf of the District to EPA on September 28, 1994.

II. Background

The air quality planning requirements for nonattainment NSR are set

out in part D of title 1 of the Clean Air Act. EPA has issued a

``General Preamble'' describing EPA's preliminary views on how EPA

intends to review SIPs and SIP revisions submitted under part D,

including those State submittals containing nonattainment NSR SIP

requirements [see 57 FR 13498 (April 16, 1992) and 57 FR 18070 (April

28, 1992)]. Because EPA is describing its interpretations here only in

broad terms, the reader should refer to the General Preamble for a more

detailed discussion. EPA has also proposed regulations to implement the

changes under the 1990 Amendments in the NSR provisions in parts C and

D of title 1 of the Act. [See 61 FR 38249 (July 23, 1996)]. Upon final

promulgation of those regulations, EPA will review those NSR SIP

submittals on which it has already taken final action to determine

whether additional SIP revisions are necessary.

Part D of the Clean Air Act (CAA), Sections 171 to 173, Section

182, Section 187, and Section 189, requires that States incorporate in

their State Implementation Plans an acceptable permitting program for

the construction and operation of new or modified major stationary

sources in nonattainment areas. The statutory permit requirements for

ozone nonattainment areas are generally contained in Section 173, and

in subpart 2 of part D. These are the minimum requirements that States

must include in an approvable

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implementation plan. EPA's requirements are contained in 40 CFR 51.165,

revised as of July 1, 1992, and the Emissions Trading Policy Statement,

published December 4, 1986 under 51 FR 43814. EPA relied upon the

following materials in its review of the District's NSR rules: CAA, as

amended, 40 CFR 51.160 through 51.165, Emissions Trading Policy

Statement, General Preamble to Title 1, and the December 15, 1992,

draft comprehensive SIP checklist for all Part D NSR requirements.

On March 3, 1978, EPA promulgated a list of ozone nonattainment

areas under the provisions of the 1977 Clean Air Act (1977 CAA or pre-

amended Act), that included the San Francisco Bay Area (43 FR 8964). On

May 26, 1988, EPA notified the Governor of California, pursuant to

section 110(a)(2)(H) of the pre-amended Act, that the Bay Area Air

Quality Management District's portion of the SIP was inadequate to

attain and maintain the ozone standard and requested that deficiencies

in the existing SIP be corrected (EPA's SIP-Call). On November 15,

1990, amendments to the 1977 CAA were enacted. Pub. L. 101-549, 104

Stat. 2399, codified at 42 U.S.C. 7401-7671q.

On November 12, 1993, BAAQMD submitted a request for redesignation

to attainment of the ozone standard. Subsequently, EPA approved

BAAQMD's request and the San Francisco Bay Area was reclassified as an

attainment area. 40 CFR 81.305. Subsequently, on July 10, 1998, EPA

revoked the Bay Area's attainment status and reclassified the area back

to nonattainment for ozone. 63 FR 37258. The Bay Area was redesignated

under Subpart 1 of Part D of the Act, and for this reason does not have

a classification. However, for purposes of the new source review and

Title V programs, moderate area requirements apply to the Bay Area

based on its design value of .138 ppm. See 62 FR 66581, December 19,

1997. Because the District is currently designated as nonattainment for

ozone and attainment or unclassifiable for NO2, PM-10, Pb,

CO, and SO2, the District's nonattainment rules must be

applied to all major new or modified stationary sources proposing to

emit ozone precursors, namely VOC and NOX.

This document addresses EPA's proposed action for BAAQMD Regulation

2 Permits, Rules 1, 2 and 4. The BAAQMD adopted these rules on June 15,

1994. These submitted rules were found to be complete on November 22,

1994, pursuant to EPA's completeness criteria that are set forth in 40

CFR Part 51, Appendix V;1 and are being proposed for limited

approval and limited disapproval.

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\1\ EPA adopted completeness criteria on February 16, 1990 (55

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

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

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BAAQMD Regulation 2 clarifies the terms and requirements that apply

to the District's NSR regulation and emissions banking program. BAAQMD

Regulation 2 was originally adopted as part of BAAQMD's effort to

achieve the National Ambient Air Quality Standard (NAAQS) for ozone.

The following is EPA's evaluation and proposed action for BAAQMD

Regulation 2, Rules 1, 2 and 4.

III. EPA Evaluation and Proposed Action

In determining the approvability of a rule submittal, EPA must

evaluate the rule for consistency with the requirements of the CAA and

EPA regulations, as found in section 110 of the CAA and 40 CFR Part 51

(Requirements for Preparation, Adoption, and Submittal of

Implementation Plans).

The statutory requirements for nonattainment NSR SIPs and

permitting are found in sections 172 and 173 of the Act. The Act

requires States to address a number of nonattainment NSR provisions in

a SIP submittal to meet the requirements of part D of title 1 of the

Act.

EPA has evaluated District Rules 1, 2 and 4 of Regulation 2 and has

determined that the rules contain deficiencies and are not fully

consistent with CAA requirements, EPA regulations and EPA policy. A

more detailed analysis is contained in the Technical Support Document

for this submittal which is available for inspection at the Region IX

address listed above.

The following six items are issues that EPA has identified as

significant deficiencies (approvability issues) in BAAQMD Regulation 2.

1. Interpollutant Trading

Regulation 2, Rule 2 Sections 302.1, 302.2 and 303.1

Section 302.1 states that emission reduction credits (ERCs) of

nitrogen oxides (NOX) may be used to offset increased

emissions of precursor organic compounds (POC) at the offset ratio

specified in Section 2-2-302 (generally 1.15 to 1.0). Section 302.2

allows for emission reduction credits of POC to be used to offset

increased emissions of NOX at the offset ratio specified in

Section 302.2, and Section 303.1 allows ERCs of NOX and/or

sulfur dioxide (SO2) to be used to offset increased

emissions of particulate matter (PM10) at ratios deemed appropriate by

the Air Pollution Control Officer.

These sections of Regulation 2, Rule 2 are not approvable in their

current form because they do not contain adequate safeguards to ensure

an overall air quality benefit from this type of trading. For example,

as currently drafted, the rule allows for the same trading ratio for

POC to POC trades as it does for POC for NOX trades, without

any demonstration that such trades will result in an equal air quality

benefit. EPA continues to discourage interpollutant trading due to the

scientific uncertainty of acceptable pollutant trading ratios. However,

if the District wishes to allow interpollutant trading, the rule must

be consistent with EPA guidance.2 For instance, the rule

must restrict interpollutant trading to precursor pollutants

contributing to the same secondary non-attainment pollutant (such as

trading POC for NOX). The District must either perform

adequate modelling studies to include a scientifically determined

pollutant trading ratio and define that ratio in the rule, or perform a

case-by-case analysis of the ratio, and state in the rule that the

ratio will be determined after adequate modelling, public notice, and

EPA concurrence.

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\2\ See letter from Dave Howekamp to Dan Speer of the San Diego

Air Pollution Control District dated April 13, 1995.

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Additionally, the District's interpollutant trading provisions may

allow inter-District trading without regard to the attainment status of

the District where the ERCs are created and used, because the rule is

silent on this issue. Therefore, the rule must be revised to prohibit

this type of trading, or be revised to explicitly include the

provisions of 173(c)(1) of the Clean Air Act.

2. Exemption List

Regulation 2 Permits, Rule 1 General Requirements

Sections 2-1-114 to 128, provide that ``any equipment that produces

air contaminants in excess of 150 lb/day of any single pollutant is not

exempt'' from permit review. EPA is concerned that the District

interprets this language to apply on an individual emissions unit

basis, rather than a facility-wide basis.

EPA's fundamental requirements with respect to permit exemptions

are threefold. First, the exemptions must not keep a major source from

appearing to be major. That is, emissions from

[[Page 59926]]

exempt equipment must be included in the determination of whether a

source is major (or whether a modification is major), whether for NSR

or Title V purposes. Second, emissions from exempt equipment must be

included in determining the offset liability for a source. Third,

substantive requirements, such as BACT, must generally apply to all

emissions units.

EPA continues to believe that if the 150 lb/day cap on exemptions

applies to any group of emissions units or pieces of equipment, and not

just to a single piece of equipment, the District is likely to be able

to satisfy the above requirements. For example, the District may be

able to argue that 150 pounds a day is de minimus from a BACT

standpoint. Also, a maximum 150 pound per day facility wide exemption

could be factored into offset requirements.

In addition, Regulation 2, Rule 1 exempts equipment such as

internal combustion engines or gas turbines of less than 250 horsepower

rating (Section 2-1-115.2) from authority to construct and permit to

operate requirements, and exempts certain other sources subject to

generally applicable requirements. These sources may have high

emissions and a greater likelihood of violating emission standards and

for these reasons should not be included on an exemptions list.

3. Functionally Identical Replacement

Regulation 2, Rule 2-NSR, Dated 6/15/94, Sections 2-2-225.4, 2-2-313,

2-2-241 and 2-2-608: Replacement Sources

EPA does believe that the sections in Regulation 2, Rule 2

concerning functionally identical replacement may not fully meet the

federal requirements found at 40 CFR 51.165. Specifically, section

51.165(a)(1)(v)(A) defines ``major modification'' as any physical

change in or change in the method of operation of a major stationary

source that would result in a significant net emissions increase of any

pollutant subject to regulation under the Act. Section 51.165

(a)(1)(v)(C)(1) excludes ``routine maintenance, repair and

replacement'' from the definition of physical or operational change.

Such assessments should be made on a case-by-case basis, but would

generally not include replacement of emissions units (``sources'' in

BAAQMD's nomenclature), or life extension projects.

Additionally, Section 2-2-313 of Regulation 2 states that offset

requirements for replacement sources of POC and NOX shall be

met either in accordance with Section 2-2-302 Offset Requirements, or

2-2-608 Alternate Emission Calculation Procedures, Replacement Sources,

which is an alternative to the calculation procedures outlined in

Section 2-2-605. EPA believes that the alternate emission calculation

procedures outlined in Section 2-2-608 may allow replacement sources to

construct without fully applying offsets that would be required by

Section 2-2-605, and by the federal regulations at 40 CFR 51.165. As

drafted, the rule does not require the replacement source to consider

the operating history of the replaced source, which could have been

operating at a capacity well below its maximum allowable limits (e.g.,

actual emissions 50 percent of potential emissions). Therefore, the

calculation appears to use a potential to potential emissions test, and

as a result no offsets would be needed. EPA's regulations and policy

(Emission Trading Policy Statement, FR 51 43838 and 40 CFR 51.165)

require an actual to potential test for determining emission changes,

and, consequently, offset requirements.

4. Ensuring Offsets Are Surplus When Used

Both Regulation 2, Rule 2 and Regulation 2, Rule 4 are silent

regarding the requirement to ensure that ERCs are surplus at the time

of use. All ERCs must be adjusted at the time of use pursuant to the

requirements of Sections 173 (a), 173 (c)(1) and 173 (c)(2) of the

Clean Air Act (``Act''). EPA has provided flexibility in the

implementation of these requirements in the August 26, 1994 memo from

John Seitz to David Howekamp entitled, ``Response to Request for

Guidance on Use of Pre-1990 ERCs and Adjusting for RACT at Time of

Use.'' For example, if an ERC is created and approved this year, but

the District subsequently proposes, passes and includes (implicitly or

explicitly) in its plan a control measure related to the source

category of the creator of the ERC, the District must, upon use of the

ERC, evaluate the effect the control measure would have had on the

source that created the reduction, and reduce the amount of the ERC

appropriately. Section 173 (a) of the Act requires that offsetting

emission reductions be federally enforceable at the time an NSR permit

is issued, and in effect by the time the source commences operation

(Section 173 (c)(1)). In addition, Section 173 (c)(2) requires that

offsets be surplus of all other requirements of the Act. The District

must adjust all emission reductions to ensure that the surplus

requirement of Section 173(c)(2) is met at the time that the reductions

are used to meet the offset requirements of Section 173 (a) and (c).

5. Exemption, Emissions From Abatement Equipment

Section 2-2-112 in Regulation 2, Rule 2

This section states that BACT requirements shall not apply to

emissions of secondary pollutants which are the direct result of the

use of an abatement device which complies with the BACT or BARCT

requirements for control of another pollutant. On July 1, 1994, EPA

issued guidance from John Seitz, Director of the Office of Air Quality

Planning and Standards, entitled ``Pollution Control Projects and New

Source Review (NSR) Applicability'', which states that a source must

secure offsetting reductions in the case of a pollution control project

which will result in a significant increase in nonattainment

pollutants.

Section 2-2-112 in Regulation 2, Rule 2 must be revised to make it

clear that significant emissions of secondary pollutants which result

from control devices or requirements are subject to the requirement to

obtain offsets.

6. Prevention of Significant Deterioration

EPA suggests that the District add lead to the PSD pollutant list

in Regulation 2, Rule 2, Sections 2-2-304, 2-2-305 and 2-2-306. The

rule lists CO, PM10, SO2, POC and NOX

as PSD pollutants, but excludes lead. EPA realizes that the District

has a 0.6 ton/yr BACT threshold for lead, and in Regulation 2, Rule 1,

Section 111.1 a 0.3 lb/day lead exemption threshold for authorities to

construct or permits to operate. However, the PSD pollutant list must

include all criteria pollutants, including lead.

Because the rule deficiencies described above are inappropriate for

inclusion in the SIP, EPA cannot grant full approval of this rule under

section 110(k)(3). Also, because the submitted rule is not composed of

separable parts which meet all the applicable requirements of the CAA,

EPA cannot grant partial approval of the rule under section 110(k)(3).

However, EPA may grant a limited approval of the submitted rule under

section 110(k)(3) in light of EPA's authority pursuant to section

301(a) to adopt regulations necessary to further air quality by

strengthening the SIP. The approval is limited because EPA's action

also contains a simultaneous limited disapproval. In order to

strengthen the SIP, EPA is proposing a limited approval of BAAQMD's

submitted

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Regulation 2 under sections 110(k)(3) and 301(a) of the CAA.

It should be noted that the rules covered by this proposed

rulemaking have been adopted by the BAAQMD, subsequently revised, and

are currently in effect in the BAAQMD. EPA's final limited disapproval

action will not prevent the BAAQMD or EPA from enforcing this rule.

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 Executive Order (E.O.) 12866, entitled

``Regulatory Planning and Review.''

B. Executive Order 12875

Under E.O. 12875, EPA may not issue a regulation that is not

required by statute and that creates a mandate upon a state, local, or

tribal government, unless the Federal government provides the funds

necessary to pay the direct compliance costs incurred by those

governments. If the mandate is unfunded, EPA must provide to the Office

of Management and Budget a description of the extent of EPA's prior

consultation with representatives of affected state, local, and tribal

governments, the nature of their concerns, copies of written

communications from the governments, and a statement supporting the

need to issue the regulation. In addition, E.O. 12875 requires EPA to

develop an effective process permitting elected officials and other

representatives of state, local, and tribal governments ``to provide

meaningful and timely input in the development of regulatory proposals

containing significant unfunded mandates.''

Today's rule does not create a mandate on state, local or tribal

governments. The rule does not impose any enforceable duties on these

entities. Accordingly, the requirements of section 1(a) of E.O. 12875

do not apply to this rule.

C. Executive Order 13045

Protection of Children from Environmental Health Risks and Safety

Risks (62 FR 19885, April 23, 1997), applies to any rule that: (1) Is

determined to be ``economically significant'' as defined under E.O.

12866, and (2) concerns an environmental health or safety risk that EPA

has reason to believe may have a disproportionate effect on children.

If the regulatory action meets both criteria, the Agency must evaluate

the environmental health or safety effects of the planned rule on

children, and explain why the planned regulation is preferable to other

potentially effective and reasonably feasible alternatives considered

by the Agency.

This rule is not subject to E.O. 13045 because it does not involve

decisions intended to mitigate environmental health or safety risks.

D. Executive Order 13084

Under E.O. 13084, EPA may not issue a regulation that is not

required by statute, that significantly affects or uniquely affects the

communities of Indian tribal governments, and that imposes substantial

direct compliance costs on those communities, unless the Federal

government provides the funds necessary to pay the direct compliance

costs incurred by the tribal governments. If the mandate is unfunded,

EPA must provide to the Office of Management and Budget, in a

separately identified section of the preamble to the rule, a

description of the extent of EPA's prior consultation with

representatives of affected tribal governments, a summary of the nature

of their concerns, and a statement supporting the need to issue the

regulation. In addition, Executive Order 13084 requires EPA to develop

an effective process permitting elected and other representatives of

Indian tribal governments ``to provide meaningful and timely input in

the development of regulatory policies on matters that significantly or

uniquely affect their communities.''

Today's rule does not significantly or uniquely affect the

communities of Indian tribal governments. This action does not involve

or impose any requirements that affect Indian Tribes. Accordingly, the

requirements of section 3(b) of E.O. 13084 do not apply to this rule.

E. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) generally requires an agency

to conduct a regulatory flexibility analysis of any rule subject to

notice and comment rulemaking requirements unless the agency certifies

that the rule will not have a significant economic impact on a

substantial number of small entities. Small entities include small

businesses, small not-for-profit enterprises, and small governmental

jurisdictions. This final rule will not have a significant impact on a

substantial number of small entities because 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

create any new requirements, I certify that this action will not have a

significant economic impact on a substantial number of small entities.

Moreover, due to the nature of the Federal-State relationship under the

Clean Air Act, preparation of 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).

F. 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 promulgated does not

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

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

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

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

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

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

List of Subjects in 40 CFR Part 52

Environmental protection, Air pollution control, Hydrocarbons,

Incorporation by reference, Intergovernmental relations, Nitrogen

dioxide, Ozone, Particulate matter, Reporting and recordkeeping

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requirements, Sulfur oxides, Volatile organic compounds.

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

Dated: October 29, 1998.

Laura Yoshii,

Acting Regional Administrator, Region IX.

[FR Doc. 98-29818 Filed 11-5-98; 8:45 am]

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