Approval and Promulgation of Implementation Plans; New York; Nitrogen Oxides Budget and Allowance Trading Program

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[Region II Docket No. NY33-1-197, FRL-6457-3]

Approval and Promulgation of Implementation Plans; New York;

Nitrogen Oxides Budget and Allowance Trading Program

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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

SUMMARY: The Environmental Protection Agency proposes approval of New

York's State Implementation Plan (SIP) revision for ozone. This SIP

revision relates to New York's portion of the Ozone Transport

Commission's September 27, 1994 Memorandum of Understanding, which

includes a regional nitrogen oxides budget and allowance

(NOX Budget) trading program that will significantly reduce

NOX emissions generated within the Ozone Transport Region.

Today's action proposes approval of New York's regulations which

implement Phase II of the NOX Budget Trading Program to

reduce NOX, and intends to help meet the national ambient

air quality standard for ozone.

DATES: EPA must receive written comments on or before November 15,

1999.

ADDRESSES: Address all comments to: Raymond Werner, Acting Chief, Air

Programs Branch, Environmental Protection Agency, Region II Office, 290

Broadway, 25th Floor, New York, New York 10007-1866.

Copies of the state submittal and supporting documents are

available for inspection during normal business hours, at the following

addresses:

Environmental Protection Agency, Region II Office, Air Programs Branch,

290 Broadway, 25th Floor, New York, New York 10007-1866.

New York State Department of Environmental Conservation, Division of

Air Resources, 50 Wolf Road, Albany, New York 12233.

FOR FURTHER INFORMATION CONTACT: Richard Ruvo, Air Programs Branch,

Environmental Protection Agency Region II, 290 Broadway, 25th Floor,

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

SUPPLEMENTARY INFORMATION:

Overview

The Environmental Protection Agency (EPA) proposes approval of the

New York State Department of Environmental Conservation's (New York's)

Nitrogen Oxides Budget and Allowance (NOX Budget) Trading

Program.

The following table of contents describes the format for this

SUPPLEMENTARY INFORMATION section:

EPA's Action

What Action Is EPA Proposing Today?

Why is EPA Proposing this Action?

What is a Budget and Allowance Trading Program?

What Guidance did EPA Use to Evaluate New York's Program?

What is EPA's Evaluation of New York's Program?

New York's NOX Budget Trading Program

What is the Ozone Transport Commission's Memorandum of

Understanding (OTC MOU)?

Which States Signed the OTC MOU?

What Does the OTC MOU Require?

How Did States Meet the OTC MOU?

How Did New York Meet the OTC MOU?

How Does New York's Program Protect the Environment?

How Will New York and EPA Enforce the Program?

When Did New York Propose and Adopt the Program?

When Did New York Submit the Program to EPA and What Did it

Include?

What Other Significant Items Relate to New York's Program?

Conclusion

Administrative Requirements

EPA's Action

What Action Is EPA Proposing Today?

EPA proposes approval of a revision to New York's ozone State

Implementation Plan (SIP) which New York submitted on April 29, 1999.

This SIP revision relates to New York's new Subpart 227-3, ``Pre-2003

Nitrogen Oxides Emissions Budget and Allowance Program'' regulation for

New York's NOX Budget Trading Program.

Why Is EPA Proposing This Action?

EPA is proposing this action to:

Give you the opportunity to submit written comments on

EPA's proposed action, as discussed in the DATES and ADDRESSES sections

Fulfill New York's and EPA's requirements under the Clean

Air Act (the Act)

Make New York's NOX Budget Trading Program

federally-enforceable and available for credit toward the attainment

SIP.

What Is a Budget and Allowance Trading Program?

Air emissions trading uses market forces to reduce the overall cost

of compliance for sources, such as a power plant, while maintaining

emission reductions and environmental benefits. One type of market-

based program is an

[[Page 55668]]

emissions budget and allowance trading program, also commonly referred

to as a cap and trade program.

In a budget and allowance trading program, the state or EPA set a

regulatory limit, or budget, on mass emissions from a specific group of

sources. The state or EPA assigns or allocates allowances to the

sources, authorizing emissions up to the level of the budget. Sources

may sell or trade allowances with other sources, cost-effectively

complying with the budget. The budget limits the total number of

allocated allowances. The total effect is to reduce emissions. An

example of a budget and allowance trading program is EPA's Acid Rain

Program for reducing sulfur dioxide emissions.

What Guidance Did EPA Use To Evaluate New York's Program?

In 1994, EPA issued Economic Incentive Program (EIP) rules and

guidance (40 CFR part 51, subpart U), that outlines requirements for

establishing EIPs in cases where the Act requires States adopt EIPs to

meet the ozone and carbon monoxide standards in designated

nonattainment areas. There is no requirement for New York to submit an

EIP. However, since subpart U also contains guidance on the development

of voluntary EIPs, New York followed the EIP guidance in the

development and submittal of its NOX Budget Trading Program.

EPA evaluated New York's NOX Budget Trading Program to

determine whether the Program meets the SIP requirements described in

section 110 of the Act. EPA also evaluated the Program using the EIP of

1994 as guidance for voluntary EIPs, in coordination with other

guidance documents.

What Is EPA's Evaluation of New York's Program?

EPA determined New York's new Subpart 227-3 regulation for New

York's NOX Budget Trading Program is consistent with EPA's

guidance. Specifically, New York's NOX Budget Trading

Program is consistent with EPA's EIP guidance of 1994.

New York's Subpart 227-3 contains provisions for definitions,

program applicability, opt-ins, annual allowance allocation,

permitting, allowance transfer, allowance banking, early reduction

credits, the NOX Allowance Tracking System, monitoring,

recordkeeping, reporting, end-of-season reconciliation, compliance

certification, excess emissions deduction, the program audit, and

penalties.

Given the documentation in the SIP submittal and the provisions of

New York's NOX Budget Trading Program, and New York's

commitment for a periodic program audit, EPA determined New York will

continue to meet the reasonable further progress and SIP attainment

requirements.

Also, EPA has determined that the amendments and administrative

changes made to Part 200, Subpart 227-1, and Subpart 227-2 are

consistent with Subpart 227-3, and EPA's guidance.

A Technical Support Document (TSD), prepared in support of this

proposed action, contains the full description of New York's submittal

and EPA's evaluation. A copy of the TSD is available upon request from

the EPA Regional Office listed in the ADDRESSES section.

New York's NOX Budget Trading Program

What Is the Ozone Transport Commission's Memorandum of Understanding?

The Ozone Transport Commission (OTC) adopted a Memorandum of

Understanding (MOU) on September 27, 1994, which committed the

signatory states to the development and proposal of a region-wide

reduction in NOX emissions, with one phase of reductions by

1999 and another phase of reductions by 2003. Since the Act required

reasonably available control technology (RACT) to reduce NOX

emissions by May of 1995, the OTC MOU refers to the reduction in

NOX emissions by 1999 as Phase II and the reduction in

NOX emissions by 2003 as Phase III.

Which States Signed the OTC MOU?

The OTC states include Maine, New Hampshire, Vermont,

Massachusetts, Connecticut, Rhode Island, New York, New Jersey,

Pennsylvania, Maryland, Delaware, the northern counties of Virginia and

the District of Columbia. All of the OTC jurisdictions, with the

exception of the Commonwealth of Virginia, signed the September 27,

1994 MOU.

What Does the OTC MOU Require?

The OTC MOU requires a reduction in ozone season (May 1 to

September 30) NOX emissions from utility and large

industrial combustion facilities within the Ozone Transport Region.

This reduction furthers the effort to achieve the health-based national

ambient air quality standard for ozone. In the MOU, the OTC states

agreed to propose regulations for the control of NOX

emissions according to the following guidelines:

The level of required NOX reductions is from a

1990 baseline emissions level

The reduction would vary by location, or zone, and use a

two-phase region-wide trading program

The reduction required by May 1, 1999 is the less

stringent of the following:

a. The affected facilities in the inner zone will reduce their

NOX emission rate by 65% from the 1990 baseline, or emit

NOX at a rate no greater than 0.20 pounds per million Btu

b. The affected facilities in the outer zone will reduce their

NOX emission rate by 55% from the 1990 baseline, or emit

NOX at a rate no greater than 0.20 pounds per million Btu

The reduction required by May 1, 2003 is the less

stringent of the following:

c. The affected facilities in the inner and outer zones will reduce

their NOX emission rate by 75% from the 1990 baseline, or

emit NOX at a rate no greater than 0.15 pounds per million

Btu

d. The affected facilities in the northern zone will reduce their

NOX emission rate by 55% from the 1990 baseline, or emit

NOX at a rate no greater than 0.20 pounds per million Btu.

The inner zone consists of all contiguous moderate and above

nonattainment areas in the OTC, except those located in Maine. The

outer zone consists of the remainder of the OTC, except the northern

zone. The northern zone consists of Maine, Vermont and New Hampshire

(except for its moderate and above nonattainment areas) and the

northeastern attainment portion of New York.

New York must meet the requirements for the inner, outer and

northern zones.

How Did States Meet the OTC MOU?

First, after consideration of the reductions required in the OTC

MOU, the OTC States developed a 1990 baseline emission level and the

emission budgets for 1999 and 2003. The NOX Budget Trading

Program caps NOX emissions in the Ozone Transport Region at

219,000 tons in 1999 and 143,000 tons in 2003, less than half of the

1990 baseline emission level of 490,000 tons.

Then, the OTC charged a Task Force of representatives from the OTC

States, organized through the Northeast States for Coordinated Air Use

Management (NESCAUM) and the Mid-Atlantic Regional Air Management

Association (MARAMA), with the task of developing a model rule to

implement the program defined by the OTC MOU. During 1995 and 1996, the

NESCAUM/MARAMA NOX Budget Task Force worked with

[[Page 55669]]

EPA, as well as representatives from industry, utilities, and

environmental groups, and developed a model rule as a template for OTC

states to adopt their own rules to implement the OTC MOU. EPA's EIP

rules formed the general regulatory framework for the model rule. The

OTC issued the model rule on May 1, 1996. The model rule was intended

to be used by the OTC states to implement the Phase II reductions

called for in the MOU. The model rule does not specifically include the

implementation of Phase III.

How Did New York Meet the OTC MOU?

In accordance and consistent with the NESCAUM/MARAMA NOX

Budget model rule issued in May 1996, New York developed their

regulation, new Subpart 227-3 ``Pre-2003 Nitrogen Oxides Emissions

Budget and Allowance Program.''

Subpart 227-3 includes reduction requirements to implement Phase II

of the OTC's MOU. The regulation includes provisions for a regional

NOX Budget Trading Program, and establishes NOX

emission allowances for each NOX control period beginning

May 1, 1999 through the NOX control period ending September

30, 2002 (Phase II). New York's SIP submittal identifies the budget

sources and their initial NOX allowance allocations.

How Does New York's Program Protect the Environment?

Specific to New York, the NOX Budget Program will result

in NOX emissions reductions during the ozone season of 46%

between 1990 and 2002 from applicable sources. In 1990, NOX

emissions from NOX Budget sources totaled more than 82,000

tons during the ozone season. In 1995, following New York's

NOX RACT rules, emissions of NOX were reduced to

about 52,300 tons during the ozone season. The adopted NOX

Budget Program rules will further reduce NOX emissions to

46,959 tons during the ozone seasons from 1999 through 2002. The

NOX Budget Program accounts for an additional 64 tons per

day of NOX reductions beyond NOX RACT in 1999 and

76 tons per day in 2002.

In addition to contributing to attainment of the ozone standard,

decreases of NOX emissions will also likely help improve the

environment in several important ways. On a national scale, decreases

in NOX emissions will also decrease acid deposition,

nitrates in drinking water, excessive nitrogen loadings to aquatic and

terrestrial ecosystems, and ambient concentrations of nitrogen dioxide,

particulate matter and toxics. On a global scale, decreases in

NOX emissions will, to some degree, reduce greenhouse gases

and stratospheric ozone depletion.

How Will New York and EPA Enforce the Program?

Under New York's NOX Budget Trading Program, New York

allocates allowances to budget sources. Each allowance permits a source

to emit one ton of NOX during the seasonal control period.

For each ton of NOX discharged in a given control period,

EPA will remove one allowance from the source's allowance account. The

source, or any other source will never use this allowance again for

compliance. This is known as a retirement of the allowance.

Allowances may be bought, sold, or banked. Unused allowances may be

banked for future use, with limitation. Each budget source must comply

with the program by demonstrating at the end of each control period

that actual emissions do not exceed the amount of allowances held for

that period. However, regardless of the number of allowances a source

holds, it cannot emit at levels that would violate other federal or

state limits, for example, RACT, new source performance standards, or

Title IV.

The State and EPA will determine compliance by ensuring that

allowances held by a source at the end of each control period meet or

exceed the emissions for that source for the given control period.

Source owners will monitor emissions by certified monitoring systems

and must report resulting data to EPA. Violations are also possible for

not adhering to monitoring, reporting and record keeping requirements.

Lastly, the federally-enforceable operating permits for budget sources

contain the applicable requirements of the NOX Budget

Program.

When Did New York Propose and Adopt the Program?

New York proposed their NOX Budget Trading Program on

September 16, 1998 and held public hearings on November 2 and 4, 1998.

New York requested public comments by November 9, 1998. New York

adopted the NOX Budget Trading Program on January 12, 1999

with an effective date of March 5, 1999.

When Did New York Submit the Program to EPA and What Did It Include?

New York submitted its NOX Budget Trading Program SIP

revision to EPA on April 29, 1999. EPA determined the submittal

administratively and technically complete on June 18, 1999.

New York's NOX Budget Trading Program SIP revision

included the following elements:

New Subpart 227-3

Amended Part 200, Subpart 227-1 and 227-2

Source List and Allowance Allocation File, as supporting

information

Opt-in application and early reduction credit

applications, as supporting information.

What Other Significant Items Relate to New York's Program?

New York's NOX Budget Trading Program SIP

revision also fulfills the State's commitments to adopt the

NOX Budget Program with respect to the Alternative Ozone

Attainment Demonstration submittals sent to EPA on September 4, 1997

and November 27, 1998.

New York's Subpart 227-3 currently contains the

NOX emissions budget and allocation only for 1999 through

the ozone season of 2002, referred to as ``Phase II'' of the

NOX Budget Trading Program.

However, the OTC MOU obligates New York to require its allowance

program sources to make specific additional NOX reductions

by May 1, 2003 and continue to make reductions thereafter, i.e.,

``Phase III.'' Additionally, New York's attainment demonstrations will

rely on the NOX reductions associated with the OTC program

in 2003 and beyond to achieve attainment with the one hour ozone

standard.

In the response to comments, January 27, 1999 adoption documents,

New York said it remains committed to the OTC MOU Phase III emissions

reductions beginning in 2003. New York committed to implementing Phase

III in its ``April 1998 SIP submittal'' to EPA. New York commits to

implementing NOX control measures at least as stringent as

those called for in Phase III.

In its current form, Subpart 227-3 is approvable for 1999, 2000,

2001, and 2002. However, in order to meet the interstate MOU and for

New York to meet its attainment demonstration commitments, New York

will need to amend their regulations to establish the NOX

caps in the State during 2003 and beyond.

In September 1998, EPA issued the final Regional Transport of Ozone

Rule (``NOX SIP Call'') requiring 22 eastern States and the

District of Columbia to submit SIP's to address the regional transport

of ground-level ozone through reductions in NOX. New York

did not submit the April 29, 1999 SIP revision for Subpart 227-3 to

satisfy the requirements of the NOX SIP Call.

[[Page 55670]]

Therefore, in order to meet EPA's NOX SIP Call, New York

will need to submit an additional SIP revision that establishes the

NOX caps for the State during 2003 and beyond.

Conclusion

EPA proposes approval of the New York SIP revision for Subpart 227-

3, which implements Phase II of the OTC's MOU to reduce NOX.

This SIP revision implements New York's NOX Budget Trading

Program.

EPA requests public comment on the issues discussed in today's

action. EPA will consider all public comments before taking final

action. Interested parties may participate in the Federal rulemaking

procedure by submitting written comments to the EPA Regional office

listed in the ADDRESSES section.

Administrative Requirements

Executive Order 12866

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

regulatory action from review under Executive Order (E.O.) 12866,

entitled ``Regulatory Planning and Review.''

Executive Order on Federalism

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.

On August 4, 1999, President Clinton issued a new executive order

on federalism, Executive Order 13132, [64 FR 43255 (August 10, 1999),]

which will take effect on November 2, 1999. In the interim, the current

Executive Order 12612, [52 FR 41685 (October 30, 1987),] on federalism

still applies. This rule will not have a substantial direct effect on

States, on the relationship between the national government and the

States, or on the distribution of power and responsibilities among the

various levels of government, as specified in Executive Order 12612.

The rule affects only one State, and does not alter the relationship or

the distribution of power and responsibilities established in the Clean

Air Act.

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 is not an

economically significant regulatory action as defined by E.O. 12866,

and it does not address environmental health or safety risk that would

have a disproportionate effect on children.

Executive Order 13084

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

required by statute, that significantly 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, E.O. 13084 requires EPA to develop an

effective process permitting elected officials 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. Accordingly, the requirements

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

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 proposed 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).

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 proposed approval action does not

[[Page 55671]]

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,

Intergovernmental relations, Nitrogen dioxide, Ozone, Reporting and

recordkeeping requirements, Volatile organic compounds.

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

Dated: September 30, 1999.

William J. Muszynski,

Acting Regional Administrator, Region 2.

[FR Doc. 99-26856 Filed 10-13-99; 8:45 am]

BILLING CODE 6560-50-U