[Federal Register: February 13, 2003 (Volume 68, Number 30)]
[Proposed Rules]
[Page 7330-7337]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13fe03-9]
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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Part 52
[CA280-0390A ; FRL-7450-9]
Revisions to the California State Implementation Plan, San
Joaquin Valley Unified Air Pollution Control District
AGENCY: Environmental Protection Agency (EPA).
ACTION: Proposed rule.
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SUMMARY: EPA is proposing to approve the San Joaquin Valley Unified Air
Pollution Control District's (SJVUAPCD or District) revised permit
exemption and new source review (NSR) rules, Rules 2020 and 2201,
respectively, for stationary sources. The District has revised Rules
2020 and 2201 and submitted them to EPA as a revision to the California
State Implementation Plan (SIP). The revisions address deficiencies
identified in our July 19, 2001 limited approval and limited
disapproval of the previous version of these rules.
EPA is also publishing in today's Federal Register an interim final
determination that the District has corrected the deficiencies noted in
the limited disapproval. The interim final determination will stay the
sanctions clock triggered by the July 19, 2001 limited approval/limited
disapproval of the previous versions of Rules 2020 and 2201. If EPA
takes final action to approve these rules, the sanctions clock for this
action will be stopped.
DATES: Comments must be sent by March 17, 2003. EPA will respond to
comments in a final action on this proposed approval.
ADDRESSES: Send comments to: Ed Pike, Permits Office [AIR-3], Air
Division, U.S. Environmental Protection Agency, Region 9, 75 Hawthorne
Street, San Francisco, CA 94105-3901.
You can review and copy the submitted Rules 2020 and 2201, the
existing SIP rules, and EPA's Technical Support Document (TSD) at EPA's
Region 9 office from 8:30 am to 5 pm, Monday-Friday. A reasonable fee
may be charged for copying.
Copies of the submitted Rules are also available for inspection at
the following locations:
California Air Resources Board, Stationary Source Division, Rule
Evaluation Section, 1001 ``I'' Street, Sacramento, CA 95814.
San Joaquin Valley Unified APCD, 1990 E. Gettysburg Avenue, Fresno,
CA 93726.
FOR FURTHER INFORMATION CONTACT: Please call Ed Pike at (415) 972-3970
or send e-mail to pike.ed@epa.gov.
SUPPLEMENTARY INFORMATION: Throughout this document, ``we,'' ``us'' and
``our'' refer to EPA.
Table of Contents
I. What is EPA proposing to approve?
II. Background
A. History of SJVUAPCD NSR SIP revisions.
B. Deficiencies in SJVUAPCD NSR regulations and required action.
C. How has SJVUAPCD corrected these rule deficiencies?
1. Offset equivalency
a. What is the basis for allowing an annual offset equivalency
demonstration?
b. What is the offset equivalency tracking system in Rule 2201
and how does it satisfy the deficiency noted in the limited
disapproval?
c. Does the tracking system replace applicable NSR requirements?
d. What are the requirements for being an enforceable emission
reduction?
e. What kinds of emission reductions may be creditable?
f. Are pre-1990 emission reductions creditable?
2. Agricultural exemption
a. How has the District corrected this deficiency?
b. How is EPA addressing the State exemption?
3. Lowest Achievable Emission Rate Applicability
D. Summary
III. Statutory and Executive Order Reviews
A. Executive Order 12866, Regulatory Planning and Review
B. Regulatory Flexibility Act
[[Page 7331]]
C. Unfunded Mandates Reform Act
D. Executive Order 13132, Federalism
E. Executive Order 13175, Coordination with Indian Tribal
Governments
F. Executive Order 13045, Protection of Children from
Environmental Health Risks and Safety Risks
G. Executive Order 13211, Actions that Significantly Affect
Energy Supply, Distribution, or Use
H. National Technology Transfer and Advancement Act
I. What Is EPA Proposing To Approve?
EPA today proposes to approve revisions to the California SIP by
incorporating the submitted revised versions of District Rules 2020 and
2201 into the SIP. If EPA finalizes this proposed action after
considering public comment, the submitted versions of Rules 2020 and
2201 will replace the existing versions of those rules currently in the
SIP for the San Joaquin Valley Unified Air Pollution Control District,
which includes the following counties: Fresno, Kern,\1\ Kings, Madera,
Merced, San Joaquin, Stanislaus, and Tulare.
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\1\ For more information on the District and its jurisdiction
see 64 FR 51493 (Sept. 23, 1999).
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The submitted versions of Rules 2020 and 2201 were adopted by the
District on December 19, 2002, and submitted to EPA by the California
Air Resources Board (CARB) on December 23, 2002. EPA found the
submittal to be complete on December 30, 2002. EPA's Technical Support
Document (TSD) accompanying this proposed action describes the portions
of Rules 2020 and 2201 that were revised.
II. Background
A. History of SJVUAPCD NSR SIP Revisions
District Rule 2201 specifies the requirements for the review of new
and modified stationary sources and outlines the requirements to be
included in authorities to construct (ATCs) and permits to operate
(PTOs). Rule 2020 specifies the emission units that are not required to
obtain ATCs or PTOs. Together, these rules define the applicability and
requirements of the District's NSR program.
On July 19, 2001, EPA finalized a limited approval and limited
disapproval of previous versions of Rules 2020 and 2201.\2\ 66 FR
37587. EPA's final action in July 2001 was a limited disapproval
because three provisions in the previous versions of the rules did not
comply with the CAA and were not approvable. Because of these three
deficiencies, the rules failed to satisfy the requirements of sections
172(c)(5) and 173 of the CAA, EPA finalized a limited disapproval of
the previous version of Rules 2020 and 2201 under section 110(k)(3) and
part D of CAA title I. EPA's final limited disapproval in July 2001,
triggered the sanctions (the ``sanctions clock'') in section 179 of the
CAA.
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\2\ The previous version of Rule 2020 acted upon in the July 19,
2001 final action was the version adopted by the District on
September 17, 1998. The previous version of 2201 was the version
adopted by the District on August 20, 1998.
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Under section 179(a)(2), if the Administrator disapproves a
submission under section 110(k)(3) for an area designated nonattainment
because of the submission's failure to meet one or more of the elements
required by the Act, the Administrator is required to apply one of the
sanctions set forth in section 179(b) if the deficiency has not been
corrected within 18 months of such disapproval. Section 179(b) provides
two sanctions available to the Administrator: limitations on projects
and grants for which the Department of Transportation may approve
federal highway funding (``highway sanction'') and increasing the NSR
offset requirements (``offset sanction''). By regulation, EPA
established that we will apply the offset sanction 18 months after rule
disapproval and the highway sanction 6 months after the offset
sanction. 40 CFR 52.31. The CAA also provides that final disapproval
under section 110(k)(3) triggers the federal implementation plan (FIP)
requirement. CAA Section 110(c). The 18 month period referred to in
section 179(a) and 40 CFR 52.31, began on August 20, 2001, which was
the effective date of EPA's final limited disapproval, and will expire
on February 20, 2003.
With the limited disapproval, the July 19, 2001 action
simultaneously finalized a limited approval of Rules 2020 and 2201. EPA
finalized the limited approval under section 110(k)(3) in light of
EPA's authority pursuant to section 301(a) to prescribe regulations
necessary to further air quality by strengthening the SIP. Because
Rules 2020 and 2201 strengthened the District's NSR program despite the
three cited rule deficiencies, EPA's limited approval incorporated
Rules 2020 and 2201 into the SIP subject to the section 179 mandatory
sanctions triggered by EPA's limited disapproval.
B. Deficiencies in SJVUAPCD NSR Regulations and Required Action
EPA's limited disapproval cited three deficiencies in the previous
versions of Rules 2020 and 2201. First, EPA determined that the
previous version of Rule 2201 was not approvable because its offset
tracking equivalency system failed to contain a mandatory remedy. We
also found the previous version of Rule 2201 deficient because it did
not require all sources making modifications that result in a
significant increase in emissions to meet the Lowest Achievable
Emission Rate (LAER). Finally, we concluded the previous version of
Rule 2020 was not approvable because section 4.5 of the rule exempted
agricultural sources from permitting. For a more detailed discussion of
these three rule deficiencies please see our final limited approval and
limited disapproval, 66 FR 37587 (July 19, 2001), and the accompanying
Technical Support Document dated August 30, 1999 (``1999 TSD'').
EPA's July 2001 limited disapproval informed the District that the
following actions were required to correct the rule deficiencies:
1. The District must revise Rule 2201 to provide a mandatory,
enforceable and automatic remedy to cure any annual shortfall and, in
the future, prevent shortfalls in the District's New Source Review
Offset Equivalency Tracking System.
2. The District must remove the agricultural exemption from
District Rule 2020.
3. The District must revise Rule 2201 to ensure that all sources
meet LAER \3\ if they are allowed to make a significant increase in
their actual emissions rate.
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\3\ Many California Districts use the term ``Best Available
Control Technology'' (BACT) with a definition equivalent to LAER.
Please see the TSD for additional information on the District's
definition of BACT.
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See 66 FR at 37590.
C. How Has SJVUAPCD Corrected These Rule Deficiencies?
1. Offset Equivalency
a. What is the basis for allowing an annual offset equivalency
demonstration?
Section 173(a)(1)(A) provides that new and modified stationary
sources seeking to commence operating in a nonattainment area must be
required by the state permitting program to obtain sufficient
offsetting emission reductions (``offsets'') such that, ``the total
allowable emissions from existing sources in the region, from new or
modified sources which are not major emitting facilities, and from the
proposed source will be sufficiently less than total emissions from
existing sources * * * so as to represent reasonable further progress *
* *.'' In our July 19, 2001 final action, we explained that this
statutory focus on total regional emissions supported the approval of a
District offset program that
[[Page 7332]]
ensured equivalency with the federal requirements on an annual
aggregate basis. 66 FR at 37588-89.\4\ Thus, we explained that an
offset equivalency tracking system with a requirement for a mandatory
and enforceable remedy for any shortfall would comply with the
requirements of the Act. Id. at 37588.\5\
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\4\ We relied on this statutory interpretation, in part, in
approving the RECLAIM Trading Program in the South Coast Air Quality
Management District. See 61 FR 64291 (Dec. 4, 1996).
\5\ We have also noted the ability of States to implement
accounting or tracking systems to demonstrate annual aggregate
equivalency with federal requirements for surplus adjusting. See
Memo from John S. Seitz, Dir., Office of Air Quality Planning and
Standards (OAQPS) to David Howekamp, Dir., Region IX Air and Toxics
Div. (Aug. 26, 1994) (``1994 Seitz Memo'').
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The goal of the District's offset equivalency tracking system,
therefore, is to show that, notwithstanding certain differences between
the District and federal NSR programs, the District's rules would
require offsets that are, in the aggregate, equivalent to offsets
required under the federal program.\6\ In the 1999 TSD for the proposed
limited approval/limited disapproval, 65 FR 58252 (Sept. 28, 2000), we
identified areas where the District rules may require fewer offsets
than the federal NSR regulations and directed the District to track
these sources of potential shortfalls. See 1999 TSD at 15-17; see also
66 FR at 37588 n.3.\7\ In general these differences fall into two
categories: (1) Differences in the quantity of offsets required in the
first instance and (2) differences in the way the value of emission
reductions used to satisfy offset requirements is calculated. Thus, to
demonstrate equivalency, the District's rule needs to track and report
on both of these categories of differences. Likewise, if the remedy is
to cure and prevent future shortfalls, the rule must be tailored to
address the root cause of the shortfalls.\8\
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\6\ See 65 FR 58252, 58253 (Sept. 28, 2000) (``The District
committed to demonstrate equivalency by calculating on an annual
basis the quantity of offsets that would be required under federal
nonattainment NSR regulations (i.e. the quantity of offsets that
meet all Clean Air Act requirements) and the quantity of offsets
required under the District program.'').
\7\ For example, the District does not require sources to offset
the entire quantity of emissions increases (Rule 2201, section 4.5)
and, in certain situations, does not impose the minimum offset ratio
required under the CAA (Rule 2201, section 4.8).
\8\ In our final limited approval/limited disapproval, we noted
that the District had identified different remedies to address
potential shortfalls including ``using EPA requirements for
calculating offset baselines and quantities'' (which could address
shortfalls related to differences in the quantity of offsets
required in the first instance) and ``using credits that are surplus
at the time of use'' (which could address shortfalls related to
differences in the valuation of emission reductions used to meet
offset requirements). See 66 FR at 37590.
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b. What is the offset equivalency tracking system in Rule 2201 and
how does it satisfy the deficiency noted in the limited disapproval?
Section 7.0 of the revised District Rule 2201 (adopted Dec. 19,
2002) provides for a system to track and demonstrate the equivalency of
the District's NSR offset requirements to the offset requirements of
the federal NSR program. There are three basic components of the
tracking system provisions. Section 7.1 outlines the parameters to be
tracked by the District on an annual basis. Sections 7.2 and 7.3
describe how equivalency is to be demonstrated each year. Section 7.4
describes the remedies to take effect to cure any annual shortfall and
prevent future shortfalls. While the District action required in EPA's
final limited approval/limited disapproval was ``to provide a mandatory
and enforceable remedy to cure any annual shortfall and, in the future
prevent shortfalls,'' as noted above, the provisions for tracking and
demonstrating equivalency are critical for ensuring that the remedy is
applied automatically and addresses the cause for the shortfall. Thus,
each of the components provided in section 7.0 is necessary to ensure
the remedy provision satisfies this deficiency.
The District's tracking system requires two demonstrations to be
included in the annual report. First, the District is to track and
compare on an annual basis the aggregate quantity of offsets required
under Rule 2201 and the quantity of offsets that would have been
required under the federal NSR provisions. Rule 2201, section 7.2.1.
This comparison will show whether the District rule requires as many
offsets as the federal rules, regardless of the ``creditable'' value of
the actual emission reduction used to meet the offset requirements.
Should there be a shortfall the rule provides for two stages of remedy.
The District may first retire unused emission reduction credits that
meet federal requirements to make up for the shortfall. Rule 2201,
section 7.4.1.1. If sufficient emission reduction credits are not
available, the District must apply federal offset requirements to all
permits issued after the annual demonstration deadline until the
District amends its NSR provisions to require equivalent offsets. Rule
2201, section 7.4.1.2. These remedies reasonably address the source of
the demonstrated shortfall and satisfy our requirement for a mandatory,
enforceable and automatic remedy.
The second piece of the annual demonstration addresses whether the
District's overall approach is equivalent, including the District's
decision not to adjust the creditable value of emission reductions at
time of use (``surplus adjusting'' or ``discounting'' at time of use).
The District will determine the creditable surplus value of the
emission reductions actually used each year by applying federal
creditability criteria, and compare this adjusted aggregate number to
the number of offsets that would have been required under the federal
NSR program. The District shall provide an annual report to demonstrate
that, in the aggregate, it is achieving an equivalent number of
creditable emission reductions as would be achieved under the federal
program. Rule 2201, section 7.2.2. If a shortfall is found in this
comparison, and it is not the result of different offset requirements
identified in the first piece of the demonstration described above, the
cause of the shortfall must be related to differences in the way the
District determines the creditable value. As a result, the remedy for
such a shortfall is to apply federal creditability criteria, including
discounting at time of use. In the event of a shortfall in this portion
of the annual demonstration, section 7.4.2 will automatically require
all ATCs issued after the annual report deadline to ensure emission
reductions used to satisfy offset requirements are creditable and that
the surplus value of those reductions is determined at the time of ATC
issuance. EPA proposes to conclude that this remedy reasonably meets
the EPA requirement for a mandatory, enforceable and automatic remedy
to cure any shortfall and prevent future shortfalls.
c. Does the tracking system replace applicable NSR requirements?
The tracking system does not replace the applicable requirements of
Rule 2201. It is important to clarify that while the tracking system
allows EPA to approve the District NSR provisions of Rule 2201
notwithstanding specific differences between the District's rules and
federal NSR requirements, nothing in section 7.0 of the rule relieves
sources from the obligation to comply with the other requirements of
Rule 2201. For example, sources must continue to obtain offsets in
compliance with section 4.5 of Rule 2201. Emission reductions used to
meet these offset requirements must continue to be ``real, enforceable,
quantifiable, surplus, and permanent.'' Rule 2201, section 3.2.1.
Therefore, a source could not rely on the annual aggregate
demonstration to cure the use of unenforceable (or otherwise non-
creditable) emission reductions to meet the District's offset
requirements. Such use would be a violation of the
[[Page 7333]]
District's rules and may be subject to enforcement by the District or
EPA even if the District is otherwise required to make up for this
shortfall through the offset tracking system.
Major sources (and major modifications) should therefore ensure
that the emission reductions used to satisfy offset requirements meet
federal creditability criteria.\9\ The one potential exception is with
regard to the federal requirement to determine the surplus value of an
emission reduction at time of use. Rule 2201 allows the surplus value
to be determined at the time the ATC for an emission reduction or the
application for an emission reduction credit (ERC) is deemed complete.
Rule 2201, section 3.2.2. With our final approval of the District
tracking system, EPA will allow the District to forgo the federal
surplus adjusting requirement and sources will be able to rely on
emission reductions EPA might otherwise not consider surplus. This
flexibility, however, is only available for sources covered by the
District's tracking system. The tracking system only covers permits for
sources with ATC applications that were not deemed complete before
August 20, 2001. See Rule 2201, section 7.3.1. Sources with ATC
applications deemed complete before August 20, 2001 must meet all
federal creditability criteria including the requirement that the
surplus value of emission reductions be discounted at time of use
(i.e., at time ATC is issued).
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\9\ The District's amendments to Rule 2201 reiterate these
criteria in section 7.1.5. These criteria derive directly from the
offset requirements of the CAA section 173(c). See 1994 Seitz Memo;
see also 51 FR 43814 (Dec. 4, 1986) (``Emissions Trading Policy
Statement''). As such, EPA will interpret the District requirement
in accordance with our federal policy and guidance on creditability.
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Because the criteria for determining the creditability of an
emission reduction will continue to be important both for sources
seeking permits and for the District in implementing the tracking
system,\10\ the following sections discuss particular creditability
issues that have recently been raised by the District and others.
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\10\ Section 7.1.5 of Rule 2201 expressly notes that the
creditability of a given emission reduction included in the annual
demonstration may be subject to EPA review.
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d. What are the requirements for being an enforceable emissions
reduction?
CAA sections 173(a) and (c)(1), require emission reductions to be
federally enforceable before a construction permit may be issued, and
in effect and enforceable by the time a new or modified source
commences operation. EPA has explained that the District can make
emission reductions enforceable by modifying the permit for the source
reducing emissions or by obtaining SIP approval of the rules that
result in the emission reduction. EPA has also explained that while the
emission reduction need not occur before the new or modified source
commences operation, the specific emission reduction credits to be used
by the source under review must be identified and enforceable before
the authority to construct may be issued. See 57 FR at 13553; see also
Memo from John S. Seitz, Dir. OAQPS to Regional Air Dirs (June 14,
1994) (``Offsets Required Prior to Permit Issuance''). Thus, even
though the emissions reduction may not have occurred by the time the
ATC is issued (e.g., the revised permit does not call for the source to
actually reduce emissions until a later date), the new or modified
source must identify the source of the emissions reduction to be used
to meet the offset requirements, must provide an opportunity for review
of the proposed emission reduction credits and, once the ATC is issued,
cannot change the emission reduction credits unless a new ATC is
proposed identifying the new emission reduction credits to be relied
upon.
e. What kinds of emission reductions may be creditable?
Section 7.2.2.2 of Rule 2201 allows the District to include in the
annual equivalency demonstration, ``the surplus value of additional
creditable emission reductions that have not been used as offsets and
have been banked or have been generated as a result of permitting
actions.'' These unused ``additional credits'' may include emission
reductions from a number of actions. Examples of such additional
credits include emission reductions used to meet offset requirements by
non-major sources and the 10 percent Air quality Improvement Deduction
applied under section 4.12 of Rule 2201 for newly banked credits.\11\
This section addresses a few other issues the District has raised
regarding the creditability of other actions that might be considered
to generate ``additional credits.''
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\11\ These additional credits must of course meet the
creditability criteria described herein. This is expressly required
by Rule 2201, section 7.4.1.1. The 1999 TSD provides additional
discussion on the availability of these additional credits.
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The central issue for determining the creditability of a particular
action often will be whether the reduction is surplus. The surplus
requirement derives from section 173(c)(2) of the Act, which provides,
``Emission reductions otherwise required by this Act shall not be
creditable as emissions reductions for purposes of any such offset
requirement.'' To be creditable, a particular emission reduction must
not be required by the Act or otherwise relied upon to meet a
requirement of the Act. Thus, District requirements that are more
stringent than an express requirement of the Act may generate surplus
credits as long as the emission reductions are not relied upon
elsewhere to comply with a requirement of the Act (e.g., to achieve the
National Ambient Air Quality Standards (NAAQS)).\12\
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\12\ The District has asked whether implementation of District
rules that are not yet in the SIP could be counted as generating an
ERC. Such rules, used to generate innovative offsets, must satisfy
EPA requirements for Economic Incentive Programs (see EPA's guidance
document entitled, ``Improving Air Quality with Economic Incentive
Programs'' (January 2001)). EPA would not consider as creditable,
emission reductions achieved through early implementation of rules
that do not meet these requirements. In addition, any credits
generated through these programs must continue to meet the basic
criteria for creditability (e.g., permanent, surplus, quantifiable
and enforceable).
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The emission reductions must also be real and quantifiable--actual
emissions to the air must be reduced. Paper reductions (i.e., changes
in a source's permitted emissions that do not require actual emissions
to decrease) are not creditable. Likewise, rules that limit the
increase in emissions do not generate real, quantifiable reductions in
emissions. For example, the District BACT requirements for
modifications to existing non-major sources may generate emission
reductions where the control requirement results in actual emissions
reductions as compared to pre-modification emission levels. By
contrast, BACT requirements for new non-major sources cannot generate
emission reduction credits because there has been no reduction in
actual emissions (instead actual emissions have increased).
It is not possible for EPA to predict the various potential claims
that will be made for emission reduction credits. Even for the examples
described in this section and in the TSD, case-specific facts may
affect the analysis on creditability. It is therefore critical for the
District to raise specific questions to EPA so that these issues can be
resolved on a case-by-case basis.
f. Are pre-1990 emission reductions creditable?
Pre-1990 emission reduction credits pose particular problems under
each of the criteria for creditability because of the age of these
credits. Information on their generation may be missing, making it
difficult to verify the quantity of emission reductions and ensure
their continued enforceability. These problems, however, can be
overcome if
[[Page 7334]]
detailed records are available to support the required findings on
creditability. The more difficult issues are related to the requirement
that emission reductions be surplus.
The basic purpose of the surplus requirement is to avoid ``double
counting'' emission reductions. Double counting can occur where
emission reductions are the result of, or would have been achieved by,
controls expressly required by the Act or controls used to satisfy
requirements of the Act. Double counting can also occur if credit for
emission reductions is claimed where the State's planning actions do
not recognize that the reduced emissions existed in the first place.
This is especially a concern for emission reductions that occurred long
ago.
To avoid potential double counting, EPA has issued guidance on how
emission reductions should be discounted at the time of use and the
planning assumptions an area must make to allow the use of pre-1990
credits to meet NSR offset requirements. The 1992 ``General Preamble
for the Implementation of title I of the Clean Air Act Amendments of
1990'' (``General Preamble'') describes the planning requirements of
the Act as amended in 1990. 57 FR 13498 (April 16, 1992). The General
Preamble addresses the issue of pre-1990 (or ``pre-enactment'')
emission reductions and how areas need to ensure the use of these does
not conflict with planning. The two types of planning actions that need
to reflect the use of pre-1990 credits are Rate of Progress (ROP) plans
and attainment demonstrations. See id. at 13508-509 and 13552-54; see
also 1994 Seitz Memo.
Section 172(c)(2) requires implementation plans for nonattainment
areas to include provisions requiring reasonable further progress
toward attainment. The 1990 Amendments added specific reduction
requirements necessary to satisfy the general reasonable further
progress requirement. For example, ozone areas classified as moderate
nonattainment and above must achieve a 15-percent reduction in volatile
organic compound (VOC) emissions from 1990 baseline levels within six
years of enactment of the CAA Amendments. CAA section 182(b)(1). Ozone
areas classified as serious and above must, in general, achieve an
additional 3-percent reduction every three years thereafter until the
attainment date. CAA section 182(c)(2)(B).
Because the baseline for measuring reasonable further progress is
the level of actual emissions from anthropogenic sources in 1990, pre-
1990 emission reductions generally are not included in the baseline.
Thus, to avoid giving credit for reductions that the baseline already
reflects, pre-1990 credits must be ``added back.'' The General Preamble
explains that the required emission reductions necessary to meet
reasonable further progress (e.g., 15 percent from 1990 levels) must be
net of growth and net of any pre-1990 emission reduction credits the
area plans to allow for use as offsets. 57 FR at 13508-509. This means
that the controls identified to achieve the target level of emissions
(e.g., 85 percent of the baseline levels) must also achieve reductions
to offset growth and the addition of any pre-1990 emission reduction
credits the area wishes to make available.\13\
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\13\ For example, assume the 1990 baseline emissions level is
100 tons per year (tpy) and the area anticipates 10 percent growth
and wishes to make available 5 tpy of pre-1990 credits. In order to
achieve the target level of 85 tpy (i.e., 15 percent reduction of
baseline emissions), the ROP plan will need to identify controls
that will achieve 30 tpy of reduction--15 tpy to demonstrate
reasonable further progress, 10 tpy to offset growth and 5 tpy to
offset the use of pre-1990 credits. This obviously is an overly
simplistic example and is intended only to show how these concepts
relate to one another.
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There are different ways that areas can include pre-1990 credits in
ROP plans. EPA has explained, ``A State may choose to show that the
magnitude of pre-1990 ERC's (in absolute tonnage) was included in the
growth factor, or the State may choose to show that it was not included
in the growth factor, but in addition to anticipated growth.'' 1994
Seitz Memo. Under either approach, the quantity of pre-1990 credits
added to or included in the growth factor must be distinguishable and
identifiable. Id. If the addition of pre-1990 credits cannot be
distinguished from general growth, EPA will not be able to determine
whether the growth factor used in the plan is reasonable or to compare
the actual use of pre-1990 credits to the cap assumed in the plan.\14\
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\14\ EPA addressed similar concerns in its 1986 Emissions
Trading Policy Statement. 51 FR 43814 (Dec. 4, 1986). In that
guidance, EPA described the need to distinguish between shutdowns to
be used to generate credits to meet offset requirements and
shutdowns built into assumptions on growth. We explained, ``In all
cases where net turnover reductions have been quantified and relied
on as part of attainment demonstrations, states which seek to grant
shutdown credit for use in trading must be prepared to show clearly
and unequivocally on the basis of SIP documents or tracking that the
credit has not been double-counted or otherwise relied on for SIP
planning purposes.''
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Pre-1990 credits must also be accounted for in an area's attainment
demonstration. 57 FR 13509 and 13553; see also 1994 Seitz Memo. In
addition to demonstrations of reasonable further progress, the Act
requires areas to submit a demonstration that the SIP, as revised, will
provide for attainment of the NAAQS by the applicable attainment date
(``attainment demonstration''). See, e.g., CAA section 182(c)(2)(A)
(attainment demonstration required for serious ozone nonattainment
areas). Attainment demonstrations, in very general terms, require areas
to use modeling or other approved analytical techniques to determine
the level of emissions required to achieve the NAAQS and to provide
projections of emissions inventories to show how the area will control
sources to achieve the necessary level of emissions. Because new and
modified major sources are required to offset their emissions increases
by obtaining emission reductions from other sources, there should be no
net effect on emissions inventories from construction or modification
of a major source if the emissions reduced are included in the
inventory. This means pre-1990 emissions reductions, which would
otherwise not be included in inventories of emissions in 1990 and
beyond, must be added back into the area's inventories as if these
emissions were still in the air in order to be used as offsets and
ensure no net effect on emission inventories. See 62 FR at 13509 and
13553; see also 1994 Seitz Memo.
There are multiple ways that these pre-1990 emissions can be
included in the inventories. The simplest would be to include a line
item for the emissions to be added for use as potential offsets. No
matter what approach an area uses, the demonstration must clearly
identify these emissions so that the reasonableness of the approach can
be evaluated and the actual use of these pre-1990 credits can be
compared to the assumptions in the demonstration.
To date, SJVUAPCD has failed to adequately account for the use of
pre-1990 emission reduction credits in its planning activities. As a
result, EPA does not consider these reductions to be surplus creditable
reductions that can be used to meet federal offset requirements within
the District.
The San Joaquin Valley was originally classified as moderate for
the PM-10 NAAQS following enactment of the 1990 Clean Air Act
Amendments. The District submitted a moderate area plan in December
1991, but this plan was never approved by EPA and, in any event, did
not support the use of pre-1990 credits by including these credits in
the plan's inventories as emissions in the air. On January 8, 1993, EPA
reclassified the San Joaquin Valley as serious for PM-10. 58 FR 3334.
The attainment deadline for serious PM
[[Page 7335]]
nonattainment areas was December 31, 2001. CAA section 188(c)(2). The
attainment demonstration, due with the serious area plan on February 8,
1997, was withdrawn by the District on February 26, 2002. On July 23,
2002, EPA issued a finding that the San Joaquin Valley failed to attain
the PM-10 NAAQS by the applicable deadline. In accordance with CAA
section 189(d), the State was required to submit by December 31, 2002,
a new attainment demonstration for San Joaquin Valley, along with
measures sufficient to achieve an annual reduction in PM-10 or PM-10
precursor emissions of not less than 5 percent. This new demonstration
has not been submitted. The District, because it failed to attain the
PM standard by the statutory deadline and has not submitted required
progress and attainment plans, has failed to show how the use of pre-
1990 emission reductions would be consistent with the need for
expeditious attainment of the PM NAAQS.\15\
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\15\ This conclusion is consistent with our policy regarding the
use of shutdown credits as offsets. Memo from John S. Seitz, Dir.,
OAQPS to Regional Air Dirs (July 21, 1993). Under the policy
described in the 1993 memo, we explained that the use of shutdown
credits as offsets was limited to ensure that reductions came out of
the area's existing emissions and thus assured reasonable further
progress. Before 1990, this could only be accomplished if the area
had a demonstration of attainment that made this showing. After
1990, because the deadlines for submitting attainment demonstrations
had been extended by the Clean Air Act Amendments, we decided that
an attainment demonstration should not be required before shutdown
credits could be used. We added, however, ``This policy cannot be
extended to situations where an attainment demonstration is
lacking.'' Thus if any of the required planning submittals is
delinquent, deemed incomplete or disapproved, shutdown credits
cannot be used to meet offset requirements.
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The San Joaquin Valley is currently designated as a severe
nonattainment area for the 1-hour ozone NAAQS. 66 FR 56476 (Nov. 8,
2001). EPA approved a serious area plan (the ``1994 ozone plan'') for
the District on January 8, 1997. 62 FR 1150. The plan included a
demonstration that the area would attain the ozone NAAQS by 1999. The
attainment demonstration in the 1994 ozone plan did not specifically
identify and account for the possible use of pre-1990 emission
reductions. The area failed to attain the ozone standard in 1999, and
as a result EPA reclassified the area to severe on November 8, 2001. 66
FR 56476. The severe area plan was due on May 31, 2002. 66 FR at 56481.
The attainment deadline for severe areas is November 15, 2005. CAA
section 181(a)(1). The District failed to submit the required plan by
the May 2002 deadline and is now subject to the offset sanction
beginning March 18, 2004, for failure to submit the required plan. 67
FR 61784 (Oct. 2, 2002).
The 1994 ozone plan included ROP milestone provisions for 1996 and
1999. The plan, however, did not include pre-1990 credits in the ROP
provisions or attainment demonstration. The District has recently
prepared and adopted a ROP plan for the 2002 and 2005 milestones.\16\
We will review this ROP plan to determine if the District has properly
accounted for the use of pre-1990 credits and met applicable ROP
requirements, but this alone will not provide the necessary
demonstration that the use of these credits is consistent with the need
for the area to attain the ozone NAAQS as expeditiously as
possible.\17\ Unless and until the area submits a new attainment
demonstration that shows expeditious attainment can be achieved while
still allowing the use of these credits, EPA cannot reasonably conclude
that these pre-1990 reductions are surplus creditable reductions.
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\16\ The 2002 ROP Plan was adopted by the District Board on
December 19, 2002, and submitted to ARB. A copy of the Plan can be
found at the District's website at http://www.valleyair.org/Air_Quality_Plans/AQ_plans_Ozone.htm#Amendment
2002 and 2005 ROP 103.
\17\ The 1994 Seitz Memo explains that pre-1990 credits to be
used in an area ``must be contained in: (1) The current applicable
federally-approved RFP and ROP plans as growth, and (2) all
federally-required attainment demonstrations as emissions in the
air.'' While an argument could be made that inclusion of these
credits in the ROP and not in an attainment demonstration might be
sufficient to support their use where the attainment demonstration
is not yet due, this argument is not reasonable where, as here, the
area has not only failed to meet the plan submission deadlines but
has had to be reclassified because of the area's failure to attain
by the statutory deadlines.
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Based on these findings regarding the creditability of pre-1990
credits, EPA will consider the creditable value of these credits used
in the District's tracking system to be zero. EPA, therefore,
encourages the District and sources to avoid using these pre-1990
credits and, if problems arise, to work with EPA to explore options for
other sources of emission reduction credits.
2. Agricultural Exemption
a. How has the District corrected this deficiency?
On December 19, 2002, the District adopted a version of Rule 2020
that deleted section 4.5, and thereby eliminated any exemption in its
NSR rule for permitting a new or modified major stationary source of
air pollutants. The District's deletion of the exemption from its NSR
rule corrects the rule deficiency set out in our July 2001 limited
disapproval. Because the District removed the exemption from its rule
and for the reasons discussed below, EPA is proposing to find that the
District has corrected the deficiency and to approve Rule 2020 as
revised.
b. How is EPA addressing the State exemption?
EPA is aware, however, that California Health & Safety Code
42310(e) continues to preclude the District, as well as all other
districts in California, from permitting agricultural sources under
either title I or title V of the CAA. While the State is on notice of
the need to remove the exemption for major sources for purposes of
title V, the State must also remove the exemption for any major sources
for purposes of title I. Therefore, concurrent with today's proposed
approval of the District's revised version of Rule 2020 (deleting the
exemption), EPA is publishing in the Federal Register a proposal
pursuant to section 110(k)(5) of the CAA to find the California SIP is
substantially inadequate for all nonattainment air pollution control
districts in the State and for all attainment area districts that have
an approved Prevention of Significant Deterioration (PSD) program
because the State cannot provide ``necessary assurances'' that it or
the districts have authority to carry out the applicable nonattainment
NSR or PSD portions of the SIP.
This concurrent proposal will inform the Executive Officer of the
CARB that the California SIP is and will remain inadequate until the
California legislature amends Health & Safety Code section 42310(e) to
the extent necessary to allow the State of California through the air
districts to issue permits under title I, parts C and D, to all major
sources, including those involved in agriculture. This action proposes
to require the State to correct the inadequacy by November 23, 2003 to
avoid a finding under section 179 of the Act which would trigger
mandatory sanctions.\18\
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\18\ EPA is proposing this deadline to coincide with the
deadline for sanctions under title V to correct the agriculture
exemption in that program. See CAA Section 110(k)(5) (providing EPA
discretion to establish reasonable deadlines).
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3. Lowest Achievable Emission Rate Applicability
EPA determined that the previous version of District Rule 2201 did
not always require LAER for major modifications because it did not
require LAER if a modification resulted in an increase in actual
emissions but not an increase in the emission unit's permitted emission
rate. Therefore, EPA required the District to modify Rule 2201 to
ensure that all major
[[Page 7336]]
modifications as defined at 40 CFR 51.165(a)(1)(v) are subject to LAER.
The District has corrected this deficiency by adding a backstop in
addition to the current LAER applicability requirements. This backstop
requires that any major modifications, as defined at 40 CFR 51.165,
must meet LAER. See Rule 2201, sections 3.24 and 4.1.3. Sections 4.1.1
and 4.1.2 also continue to require LAER for minor sources regardless of
whether changes at those sources are defined as major modifications.
D. Summary
EPA is proposing to approve revised versions of SJVUAPCD Rules 2020
and 2201. The revisions to these rules satisfy the requirements
outlined in our July 19, 2001 limited approval/limited disapproval of
previous versions of these rules. EPA is simultaneously publishing an
interim final determination to stay the sanctions clock started by the
limited disapproval. Additional information on the amendments to Rules
2020 and 2201 is contained in the TSD for this proposal.
Concurrent with this proposal, we are also proposing to call in the
State to repeal or amend Health and Safety Code Section 42310(e). Once
EPA determines that the State has provided the necessary assurances
required under section 110(a)(2)(E), the NSR program for the SJVUAPCD
will fully meet the requirements of sections 172(c)(5), 173 and 182 of
the CAA.
III. Statutory and Executive Order Reviews
A. Executive Order 12866, Regulatory Planning and Review
The Office of Management and Budget (OMB) has exempted this
regulatory action from Executive Order 12866, entitled ``Regulatory
Planning and Review.''
B. 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 rule will not have a significant impact on a substantial
number of small entities because SIP approvals under section 110 and
title 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 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);
CAA section 110(a)(2).
C. Unfunded Mandates Reform Act
Under sections 202 of the Unfunded Mandates Reform Act of 1995
(UMRA), signed into law on March 22, 1995, EPA must prepare a budgetary
impact statement to accompany any proposed or final rule that includes
a Federal mandate that may result in estimated costs to State, local,
or tribal governments in the aggregate; or to the private sector, of
$100 million or more. Under section 205, EPA must select the most cost-
effective and least burdensome alternative that achieves the objectives
of the rule and is consistent with statutory requirements. Section 203
requires EPA to establish a plan for informing and advising any small
governments that may be significantly or uniquely impacted by the rule.
EPA has determined that the approval action proposed does not
include a Federal mandate that may result in estimated costs of $100
million or more to either State, local, or tribal governments in the
aggregate, or to the private sector. This Federal action proposes to
approve 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.
D. Executive Order 13132, Federalism
Federalism (64 FR 43255, August 10, 1999) revokes and replaces
Executive Orders 12612 (Federalism) and 12875 (Enhancing the
Intergovernmental Partnership). Executive Order 13132 requires EPA to
develop an accountable process to ensure ``meaningful and timely input
by State and local officials in the development of regulatory policies
that have federalism implications.'' ``Policies that have federalism
implications'' is defined in the Executive Order to include regulations
that have ``substantial direct effects on the 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.'' Under Executive Order 13132, EPA may not issue a
regulation that has federalism implications, that imposes substantial
direct compliance costs, and that is not required by statute, unless
the Federal government provides the funds necessary to pay the direct
compliance costs incurred by State and local governments, or EPA
consults with State and local officials early in the process of
developing the proposed regulation. EPA also may not issue a regulation
that has federalism implications and that preempts State law unless the
Agency consults with State and local officials early in the process of
developing the proposed regulation.
This rule will not have substantial direct effects on the 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 13132, because it
merely approves a state rule implementing a federal standard, and does
not alter the relationship or the distribution of power and
responsibilities established in the Clean Air Act. Thus, the
requirements of section 6 of the Executive Order do not apply to this
rule.
E. Executive Order 13175, Coordination With Indian Tribal Governments
Executive Order 13175, entitled ``Consultation and Coordination
with Indian Tribal Governments'' (65 FR 67249, November 9, 2000),
requires EPA to develop an accountable process to ensure ``meaningful
and timely input by tribal officials in the development of regulatory
policies that have tribal implications.'' This proposed rule does not
have tribal implications, as specified in Executive Order 13175. We are
merely proposing to approve a state rule implementing a federal
standard. EPA's action does not impose requirements on Tribes and the
rules being approved do not significantly or uniquely affect Tribes.
Thus, Executive Order 13175 does not apply to this rule.
EPA specifically solicits additional comment on this proposed rule
from tribal officials.
[[Page 7337]]
F. Executive Order 13045, Protection of Children From Environmental
Health Risks and Safety Risks
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
Executive Order 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 Executive Order 13045 because it does
not involve decisions intended to mitigate environmental health or
safety risks and is not a significant regulatory action.
G. Executive Order 13211, Actions That Significantly Affect Energy
Supply, Distribution, or Use
This rule is not subject to Executive Order 13211, ``Actions
Concerning Regulations That Significantly Affect Energy Supply,
Distribution, or Use'' (66 FR 28355, May 22, 2001) because it is not a
significant regulatory action under Executive Order 12866.
H. National Technology Transfer and Advancement Act
Section 12 of the National Technology Transfer and Advancement Act
(NTTAA) of 1995 requires Federal agencies to evaluate existing
technical standards when developing a new regulation. To comply with
NTTAA, EPA must consider and use ``voluntary consensus standards''
(VCS) if available and applicable when developing programs and policies
unless doing so would be inconsistent with applicable law or otherwise
impractical.
The EPA believes that VCS are inapplicable to this action. Today's
action does not require the public to perform activities conducive to
the use of VCS.
List of Subjects in 40 CFR Part 52
Environmental protection, Air pollution control, Incorporation by
reference, Intergovernmental relations, New Source Review, Nitrogen
dioxide, Ozone, Particulate matter, Reporting and recordkeeping
requirements, Volatile organic compounds.
Note: Incorporation by reference of the State Implementation
Plan for the State of California was approved by the Director of the
Federal Register on July 1, 1982.
Dated: January 31, 2003.
Wayne Nastri,
Regional Administrator, Region IX.
[FR Doc. 03-3418 Filed 2-12-03; 8:45 am]
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