[Federal Register: March 4, 2008 (Volume 73, Number 43)] [Proposed Rules] [Page 11565-11575] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr04mr08-23] ----------------------------------------------------------------------- ENVIRONMENTAL PROTECTION AGENCY 40 CFR Part 52 [EPA-R05-OAR-2007-1096; FRL-8536-9] Approval and Promulgation of Implementation Plans; Illinois; Voluntary Nitrogen Oxides Controls AGENCY: Environmental Protection Agency (EPA). ACTION: Proposed rule. ----------------------------------------------------------------------- SUMMARY: On May 1, 2001, the Illinois Environmental Protection Agency (Illinois EPA) submitted a request for EPA approval of regulations governing Nitrogen Oxides (NOX) emission allowances granted for the implementation of voluntary control of NOX emissions from sources not otherwise covered under other Illinois NOX emission control regulations. Illinois requested incorporation of these voluntary NOX emission control and NOX emission allowance regulations into the Illinois State Implementation Plan (SIP). We are proposing to disapprove these regulations as an amendment of the Illinois SIP. DATES: Comments must be received on or before April 3, 2008. Submit your comments, identified by Docket ID No. EPA-R05-OAR-2007-1096, by one of the following methods: http://www.regulations.gov: Follow the online instructions for submitting comments. E-mail: mooney.john@epa.gov. Fax: (312) 886-5824. Mail: John M. Mooney, Chief, Criteria Pollutant Section, (AR-18J), U.S. Environmental Protection Agency, 77 West Jackson Boulevard, Chicago, Illinois 60604. Hand Delivery: John M. Mooney, Chief, Criteria Pollutant Section, (AR-18J), U.S. Environmental Protection Agency, 77 West Jackson Boulevard, Chicago, Illinois. Such deliveries are only accepted during the Regional Office's normal hours of operation, and special arrangements should be made for deliveries of boxed information. The Regional Office's official hours of operation are Monday through Friday, 8:30 a.m. to 4:30 p.m., excluding Federal holidays. Instructions: Direct your comments to Docket ID No. EPA-R05-OAR- 2007-1096. EPA's policy is that all comments received will be included in the public docket without change and may be made available online at http://www.regulations.gov, including any personal information provided, unless the comment includes information claimed to be Confidential Business Information (CBI) or other information whose disclosure is restricted by statute. Do not submit information that you consider to be CBI, or otherwise protected, through http:// www.regulations.gov or e-mail. The http://www.regulations.gov Web site is an ``anonymous access'' system, which means EPA will not know your identity or contact information unless you provide it in the body of your comment. If you send an e-mail comment directly to EPA without going through http://www.regulations.gov your e-mail address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electronic comment, EPA recommends that you include your name and other contact information in the body of your comment and with any disk or CD-ROM you submit. If EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, EPA may not be able to consider your comment. Electronic files should avoid the use of special characters and any form of encryption, and should be free of any defects or viruses. Docket: All documents in the docket are listed in the http:// www.regulations.gov index. Although listed in the index, some information is not publicly available, e.g., CBI or other information whose disclosure is restricted by statute. Certain other material, such as copyrighted material, will be publicly available only in hardcopy. Publicly available docket materials are available either electronically at http://www.regulations.gov or in hardcopy at the Environmental Protection Agency, Region 5, Air and Radiation Division, 77 West Jackson Boulevard, Chicago, Illinois 60604. This facility is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding Federal holidays. It is recommended that you telephone Edward Doty, Environmental Scientist, at (312) 886-6057, before visiting the Region 5 office. FOR FURTHER INFORMATION CONTACT: Edward Doty, Environmental Scientist, Criteria Pollutant Section, Air Programs Branch (AR-18), Environmental Protection Agency, Region 5, 77 West Jackson Boulevard, Chicago, Illinois 60604, (312) 886-6057, doty.edward@epa.gov. SUPPLEMENTARY INFORMATION: Throughout this document whenever ``we,'' ``us,'' or ``our'' is used, we mean the EPA (or U.S. EPA). This supplementary information section is arranged as follows: [[Page 11566]] I. What Action Are We Proposing for Illinois' Voluntary NOX Emissions Reduction Rule and Requested SIP Revision? II. Background III. Summary of the State's Submittal A. What are the components and requirements of the subject rule? B. What is Illinois' basis for supporting approval of the subject rule as a SIP revision? C. How does the subject rule interface with or relate to other Illinois NOX rules? IV. EPA Technical Review of the Subject Rule and SIP Revision Request A. Is the Subpart X rule specifically required by any EPA regulations or policies or requirements of the Clean Air Act? B. What EPA policies and requirements are applicable to the subject rule? C. Is the subject rule allowed under EPA policy and requirements? D. What are the differences in the monitoring requirements of Subpart X and those of the NOX SIP call? E. Are there any source categories not covered by 40 CFR part 75 that are covered by Subpart X? F. What technical problems and issues of concern have we found for the subject rule? G. What are our proposed actions regarding the approvability of the subject rule? V. Statutory and Executive Order Reviews I. What Action Are We Proposing for Illinois' Voluntary NOX Emissions Reduction Rule and Requested SIP Revision? Based on technical deficiencies and other technical concerns noted below for the Subpart X rule (35 Illinois Administrative Code (IAC), part 217, subpart X), we are proposing to disapprove the Subpart X rule as a revision to the Illinois SIP. II. Background On October 27, 1998 (63 FR 57356), EPA published a finding of significant contribution of ozone and ozone precursor transport for 22 States and the District of Columbia, and established state-specific NOX emission budgets for these States (the final EPA rule is referred to as the NOX SIP call). The October 27, 1998, final rule also established part 75 Continuous Emission Monitoring (CEM) requirements and part 96 NOX emission trading program provisions under Volume 40 of the Code of Federal Regulations (CFR) Illinois is included in the list of States covered by the NOX SIP call, and as such, has been assigned a NOX emissions budget for 2007 and subsequent years. Illinois, as required, has submitted a NOX SIP with NOX emission control regulations for Electrical Generating Units (EGUs), major non-EGU (industrial) boilers and turbines, and major cement kilns \1\ to achieve the NOX emission reduction needed to achieve the State's NOX emission budget. The State also established regulations to implement a NOX emissions cap-and-trade program and to provide for NOX emissions credit trading in a National NOX emissions trading program (the NOX Budget Trading Program). --------------------------------------------------------------------------- \1\ EPA approved Illinois' EGU NOX rule on November 8, 2001 (66 FR 56454) and Illinois' NOX rules for major non-EGU boilers and turbines and major cement kilns on November 8, 2001 (66 FR 56449). --------------------------------------------------------------------------- As part of its efforts to comply with the NOX SIP call, Illinois has established procedures for NOX emission allowance trading, and has established a set-aside of a portion of the State's total NOX emission allowances for new sources. To allow for additional NOX emissions growth and to provide additional emission allowances for existing sources and new sources, the State has established a rule to provide for NOX emissions control and NOX emission allowance generation through the voluntary implementation of emission controls on various NOX sources. The rule covering the NOX emissions control and the generation of NOX emission credits for sources voluntarily seeking these NOX emission credits is referred to by the State as the ``Subpart X Voluntary NOX Emissions Reduction Program,'' (35 IAC part 217, subpart X), the subject rule of this proposed action and referred to here simply as the Subpart X rule. This rule was submitted to the EPA on May 1, 2001, for approval into the Illinois SIP. III. Summary of the State's Submittal The Subpart X rule covers the State's voluntary NOX emission control and emissions credit program for sources not covered in the State's other NOX emission control rules. Generally, sources that elect to be covered under the Subpart X rule are smaller NOX sources with relatively low NOX emissions during the ozone control period (May through September). A. What are the components and requirements of the subject rule? The Subpart X rule is divided into the following sections, whose requirements and provisions are summarized here. Section 217.800 Purpose The purpose of the Subpart X rule is to provide a method (procedure) and source requirements by which ``additional'' NOX emission allowances may be generated for use (through the NOX Budget Trading Program) by emission units subject to the requirements of 35 IAC part 217, subpart U (NOX Control and Trading Program For Specified NOX Generating Units) and subpart W (NOX Trading Program For Electrical Generating Units). Note that Subpart X sources would not be opt-in sources covered under Subpart U or Subpart W, which must meet different requirements. Sources subject to the Subpart X rule would generate additional NOX emission allowances through NOX emission reductions not otherwise required in Illinois' NOX control rules. See additional discussions of this issue below. Section 217.805 Emission Unit Eligibility This section allows any owner or operator of a stationary NOX source (with the exceptions/exclusions noted below) to submit a proposal for voluntarily reducing NOX emissions during the ozone control period. The emission units seeking the NOX emission reduction credits must meet the following criteria: (1) They must discharge their NOX emissions through a stack(s); (2) They must be fossil fuel-fired; (3) They must not be subject to the requirements of 35 IAC part 217, subparts T, U, V, or W; (4) They must not be retired units pursuant to 40 CFR 96.5; (5) Their owners/operators must not have elected to make the units ``opt-in units'' pursuant to 35 IAC part 217, subpart W; and, (6) they may not be stationary internal combustion engines that emit more than 1 ton of NOX per day during the ozone control period. Section 217.810 Participation Requirements Any owner or operator of a NOX emissions unit meeting the source requirements of 35 IAC section 217.805 that seeks voluntary NOX emission reduction allowances under this rule must: (1) Submit a NOX emission reduction proposal that meets the requirements of section 217.835; (2) Request a NOX emissions cap for all NOX emission units at the source facility that are not subject to the requirements of 217 IAC part 217, subpart U or subpart W and that are that are of the same or similar source type as the units for which voluntary emission reduction allowances are sought. The owner or operator, however, may submit a demonstration that any emission unit(s) should not be included in the NOX emission cap; [[Page 11567]] (3) Obtain a source permit, or an amendment to an existing source permit, for the emission source (collection of applicable emission units to be included in the emissions cap), with Federally enforceable conditions, containing the commitments in the NOX emissions reduction proposal and implementing the emissions cap by the later of May 1, 2003, or the date on which the reduction in NOX emissions will commence. If the emission reduction allowance will be generated by ceasing operation of a unit, the owner or operator must withdraw the applicable source permit for the unit or must request a revision to the source permit to reflect the shutdown of the unit by the later of May 1, 2003, or the date specified in the NOX emission reduction proposal; (4) Submit an emission baseline determination for each emissions unit subject to the NOX emissions cap in compliance with the requirements of 35 IAC section 217.820; and, (5) Meet the following monitoring requirements: (a) Each emission reduction unit must comply with the monitoring requirements in 35 IAC section 217.850; (b) The emission measurements recorded and reported (to the State) will be used to determine compliance of the emission reduction unit with the emission limitation specified in the source's emission reduction proposal, with the source's emission reduction proposal, and with the Federally enforceable permit conditions for the unit; and, (c) The emission measurements recorded and reported will be used to determine compliance by the source with the emissions cap set forth in the NOX emission reduction proposal and with the Federally enforceable permit conditions for the source facility. The owner or operator of the emission reduction source facility must submit an annual certification to the Illinois Environmental Protection Agency (Illinois EPA) that demonstrates that the source facility has complied with the NOX emissions cap and that the source facility has complied with the requirements of 35 IAC section 217.850. Section 217.815 NOX Emission Reductions and the Subpart X NOX Trading Budget NOX emission reductions credited under the Subpart X rule must be quantifiable, verifiable, and Federally enforceable, and must meet one or more of the following criteria: (1) NOX emissions from the emission reduction unit for any ozone control period beginning in 2003 or after the implementation of the voluntary NOX emission control, whichever comes later, are lower than the unit's NOX emissions baseline. The amount of NOX emissions reduction must be determined in compliance with 35 IAC section 217.820, and the amount of creditable NOX emission reduction must be determined to be in compliance with 35 IAC section 217.825; (2) The emission reduction unit is permanently shut down after January 1, 1995, and the owner or operator requests a revision to the source operating permit to reflect the unit shutdown; or, (3) During any ozone control period beginning in 2003, the emission reduction unit's control period (ozone control period) NOX emission rate or hours of operation is reduced pursuant to Federally enforceable conditions in a source permit for such unit, resulting in an actual NOX emission reduction relative to the unit's NOX emissions baseline. In the Federal NOX Budget Trading Program, the EPA must adjust the State's trading portion of the State's NOX emissions budget, as established in the NOX SIP call, and create allowances for the creditable portion or the NOX emissions reduction. NOX emission allowances generated by Subpart X will be allocated to the recipient emission source facilities in accordance with Subpart X. The Illinois EPA will submit an allocation to the EPA, and this allocation may be used for the purposes of demonstrating compliance with the requirements of 35 IAC part 217, subparts U and W. In other words, a source can trade allocated emission allowances to sources needing such emission allowances to meet the requirements of the State's NOX SIP and EPA's NOX SIP call and emissions trading program. If EPA adjusts or fails to adjust the NOX emissions trading budget for any applicable emission reduction unit, the Subpart X Section 217.820 Baseline Emission Determination An emission unit's NOX emissions baseline will be determined by using one of the following procedures: (1) By multiplying the unit's actual NOX emissions during the 1995 calendar year by 5/12ths; or, (2) If the NOX emissions from the unit were not characterized in the annual emissions report for 1995, by determining the base-case amount included for such unit in EPA's NOX SIP call emissions inventory, as specified in the ``Technical Support Document for Illinois Statewide NOX Budget'' (63 FR 17349). If the NOX baseline emissions for the 1995 ozone control period cannot be determined by either of the above methods, the emissions baseline will be determined based on the average emissions rate multiplied by the average number of hours of operation from two of the three ozone control periods, as selected by the emission reduction source owner/operator, prior to the year the emission reduction proposal is effective. The NOX emission rate and hours of operation shall be determined based on the source unit's reported NOX emission rate and hours of operation in the most recent annual emissions reports for the source unit. Section 217.825 Calculation of Creditable NOX Emission Reductions The gross amount of ozone control period actual NOX emission reductions will be determined pursuant to Section 217.820 (discussed above). Eighty percent of the actual NOX emissions reduction achieved will be ``creditable.'' Twenty percent of the actual NOX emission reduction will be retired (non- creditable) for the benefit of air quality. Section 217.830 Limitations on NOX Emission Reductions Each NOX emission allowance issued is a limited authorization to emit one (1) ton of NOX in accordance with the Federal NOX Trading Program as set forth in 35 IAC part 217, subpart U. Either the EPA or the State has the authority to terminate or limit the issuance of such an emission allowance. Such an emission allowance does not constitute a property right for the source facility. Section 217.835 NOX Emission Reduction Proposal The NOX emission reduction proposal, to be filed by the owner or operator of the emission reduction unit must include the following in the emission reduction proposal: (1) Information identifying each NOX emissions unit at the source facility and the baseline NOX emissions for each unit subject to the NOX emissions cap; (2) Information identifying each emission reduction unit for which the emission reductions have been or will be achieved; (3) An explanation of the methods used to achieve the NOX emission reductions; (4) Documentation of the NOX emission reductions, including supporting calculations and input data; (5) Identification of the emission units subject to the NOX emissions cap, and, [[Page 11568]] if all like-kind or same-type emission units are not to be included in the emissions cap, an explanation of how the owner/operator will ensure that production shifting will not occur to interfere with the emission reductions at the capped units; (6) The ozone control period NOX emission cap to be achieved by the source facility, including the baseline NOX emissions for each emission reduction unit and the NOX emission reduction for each emission reduction unit; (7) The name and address of the owner or operator of each NOX emission unit to which the NOX emission allowances will be allocated, the subpart of 35 IAC part 217 to which each NOX emission unit is subject, and the account number (NOX trading account number) of the account representative for each such unit; and, (8) Certification that the emission reductions specified in the proposal have been or will be achieved. The owner or operator of an emission reduction unit must notify the Illinois EPA in writing within 30 days of any event or circumstance that makes the NOX emission reduction proposal incorrect or incomplete. The owner or operator of a source facility with an approved emission reduction proposal may request to withdraw the emission reduction proposal and to cease the creation of NOX emission reduction allowances, and must comply with the following: (1) Submit to the Illinois EPA a written request to withdraw from participation and to withdraw or revise the applicable source permit effective as of a specified date between (and not including) September 30 and May 1 (outside of the ozone control period). This submission requesting to withdraw must be made no later than 90 days prior to the requested effective date of the withdrawal; (2) Submit to the Illinois EPA an annual compliance certification report for the control period immediately before the withdrawal is to be effective; (3) The emission reduction source that withdraws from the requirements of Subpart X must comply with all requirements under its approved emission reduction proposal and Federally enforceable source permit for all years during which the emission reduction source is in the program, even if such requirements arise or must be complied with after the withdrawal takes effect; (4) The effective date of the withdrawal will be specified by the State and will be prior to May 1 or after September 30 (the source withdrawal will not be made effective during an ozone control period); (5) If the State denies the request to withdraw, the owner or operator of the affected source may submit another request to withdraw in accordance with subsections (a) and (b) of 35 IAC section 217.835; and, (6) Upon successful withdrawal from the program (from the voluntary emission reduction program and from the NOX trading program), the source facility shall no longer be subject to the requirements of Subpart X. Section 217.840 Agency Action The Illinois EPA will notify the owner/operator of an affected source facility in writing of its decision with respect to the NOX reduction proposal within 90 days after receipt of the proposal. The NOX emissions reduction proposal will not be effective until: (1) After the owner/operator of the emission reduction unit has obtained a source permit with Federally enforceable conditions addressing the requirements of Subpart X; or, (2) If the NOX emission reductions are being obtained by the shutdown of a unit, the owner/operator has either obtained a source permit with Federally enforceable conditions addressing the requirements of Subpart X or withdrawn the applicable source permit and the Illinois EPA has provided the EPA with a copy of the proposal and notice of Illinois EPA's proposed approval of the emission reduction proposal (and EPA has not disapproved such proposal) and has provided an opportunity for public comment on the permit withdrawal and on the State's proposed approval of the emission reduction proposal. Emission allowances generated pursuant to the Subpart X rule will be issued to the recipient emission unit identified in the proposal for each ozone/emission control period in which the NOX emission reductions are verified and the requirements of Subpart X continue to be met. The emission allowances shall be issued by May 1 after the ozone control period in which the NOX emission reduction has occurred, and may be used (traded or sold) in any future emission control period. Note that the emission allowances are not granted and used until after the emission reductions have actually occurred. Section 217.845 Emissions Determination Methods The owner or operator of an emission reduction unit must demonstrate that the source facility has obtained the planned NOX emission reductions, and has not exceeded its NOX emission cap. If the NOX emission reduction is due to NOX emission reductions resulting from the use of emission reduction technology, the NOX emission rates for each emission reduction unit must be determined through the use of Continuous Emission Monitors (CEMs) in accordance with 35 IAC section 217.850 or through the use of any test methods or procedures provided in 40 CFR part 60 and approved by the Illinois EPA, or any method approved by the Illinois EPA when included as Federally enforceable conditions in a source permit issued or revised pursuant to Subpart X. If a test based on 40 CFR part 60 is to be used, an initial test must be conducted 90 days prior to the date the specified emission reductions will be obtained, or within 45 days of Illinois EPA's request for such test for NOX emission reductions already obtained. The owner or operator of the emission reduction unit must notify the Illinois EPA in writing of any test performed to comply with the requirements of Subpart X, and must make this notification at least 30 days prior to such test. If the NOX emission reduction is due to a reduction in operating hours or to a reduction of the NOX emission rate during the ozone control period, the owner/operator of the emissions unit must submit an initial compliance demonstration plan to the Illinois EPA 120 days prior to the date that the emission reduction will commence in compliance with the approved emission reduction proposal. Such a demonstration shall be based on the actual NOX emission rate measured in accordance with 35 IAC section 217.850. By November 1 following each ozone control period in which NOX emission reductions are generated, the owner/operator of the emission reduction source must submit to the Illinois EPA a compliance certification, including supporting data, and must monitor and report the NOX emissions during each ozone control period from all NOX emission units subject to the NOX emission cap. At least 120 days prior to the date that the emission reduction source will commence NOX emission reductions in compliance with its emission reduction proposal, the owner/operator of the source must submit to the Illinois EPA a performance evaluation of each CEM using the performance specifications given in 40 CFR part 60, appendix B. Section 217.850 Emissions Monitoring The owner/operator of an emission reduction source must install, calibrate, maintain, and operate CEMs during [[Page 11569]] each NOX control period, or an alternative approved by the Illinois EPA and included in a Federally enforceable permit, for measuring NOX emissions. The CEMs must be operated and data recorded during all periods of operation of the emission units. The owner/operator must also collect and record CEM quality assurance data during calibration checks and zero and span adjustments. The procedures under 40 CFR part 60.13 (incorporated by reference into Subpart X) must be followed in the installation, evaluation, and operation of each CEM. If NOX emission rates, in pounds/hour, are not obtainable during CEM breakdowns, repairs, calibration checks, or zero and span adjustments, NOX emission data must be obtained using the data substitution procedures contained in 40 CFR part 75, subpart D. If NOX emission rates, in pounds per million British thermal unit (Btu) of heat input, are not obtainable during CEM breakdowns, repairs, calibration checks, or zero and span adjustments, NOX emissions data must be obtained by using the rolling hourly average of the NOX emissions recorded for the previous 30 day period of operation if the data capture of such period is 95 percent or greater and the period of missing data is equal to or less than 24 consecutive hours. If the data capture for the previous 30 day period is less than 95 percent or the period of missing data is greater than 24 hours, the NOX emission data must be obtained using the highest hourly NOX emission average recorded during the previous 30 days of operation. The CEM data must be subject to the quality assurance procedures and requirements of 40 CFR part 60, appendix F. Section 217.855 Reporting By November 1 of each year beginning in the first year NOX emission reductions are generated, an owner/operator of an emission reduction unit must, as a seasonal component of the source facility's annual emission report, report to the Illinois EPA the total ozone control period NOX emissions for each NOX emission unit subject to the NOX emissions cap. Within 30 days after receipt of performance test data from initial performance tests for emission units and CEMs, the owner/operator of a subject emission source must report the test data to the Illinois EPA. Section 217.860 Recordkeeping For each NOX emission unit subject to a NOX emissions cap, the owner/operator must keep the following records: (1) Daily, monthly, and control period operating hours; (2) Type and quantity of each fuel used daily during the ozone control period; (3) Ozone control period capacity of fuels fired; (4) Monitoring records; and, (5) The performance test data from the initial performance test for emission reduction unit and the performance evaluation for each CEM. The owner/operator of an emission reduction source must maintain records of the following information for each operating day and for each NOX emissions unit subject to a NOX emissions cap: (1) Date; (2) Average hourly NOX mass emissions rate in pounds per hour; (3) Control period total NOX mass emissions to date; (4) Identification of periods when emission data have been excluded from the calculation of NOX mass emissions, the reasons for excluding the data, and corrective actions taken; (5) Identification of the time when the NOX emissions concentrations exceeded the full spans of the CEMs; (6) Descriptions of any modifications of the CEMs that could affect the ability of the CEMs to comply with performance specifications; and, (7) Results of daily CEM drift tests and quarterly accuracy assessment as required under 40 CFR part 60, subpart F. The owner/operator of any NOX emission reduction source subject to the CEM requirements of Subpart X must submit a compliance certification by November 1 following each ozone control period in which NOX emission reductions are generated. Data records are to be maintained for a period of 5 years after their creation. Section 217.865 Enforcement If a NOX emission reduction source experiences excess NOX emissions during an ozone control period, the owner/ operator of the source must purchase NOX emission allowances through the NOX trading program to compensate for the excess NOX emissions. The following NOX allowance purchase levels are required: (1) For one control period of excess NOX emissions, the owner/operator must purchase NOX emission allowances to cover two (2) times the NOX emission excess; (2) For two control periods of excess NOX emissions, the owner/operator must purchase NOX emission allowance to cover three (3) times the total NOX emission excess for the two control periods; and, (3) For three control periods of excess NOX emissions, the owner/operator must purchase NOX emission allowances to cover four (4) times the total NOX emission excess for the three control periods. The purchased NOX emission allowances must be surrendered to the Illinois EPA by December 31 following the ozone control period in which the emission reduction source has excess NOX emissions. After three consecutive ozone control periods of excess NOX emissions, the source may not generate NOX emission reduction credits to qualify for NOX emission reduction allowances. All surrendered NOX emission allowances are retired for the benefit of air quality. B. What is Illinois' basis for supporting approval of the subject rule as a SIP revision? On October 26, 2001, EPA met with the Illinois EPA to discuss a number of pending issues. Included in this discussion was a discussion concerning the basis for supporting the approval of the Subpart X rule as a SIP revision. The following presents points raised by the Illinois EPA to support the approval of the Subpart X rule. General Points The Illinois EPA notes that the Subpart X rule is an innovative regulatory effort to obtain additional NOX emission reductions from sources that would otherwise not be controlled. This will provide for more reductions in regional NOX emissions than would otherwise be obtained solely through compliance with Illinois' other NOX emission control rules under the NOX SIP call. The Illinois EPA expects Subpart X to provide NOX emission reductions within the State of Illinois even though sources complying with Subpart X will be able to trade away the granted NOX emission allowances. This is due to the retirement of 20 percent of the Subpart X NOX emission reductions as a benefit for improved air quality.\2\ --------------------------------------------------------------------------- \2\ Review of an Illinois Pollution Control Board (IPCB) hearing record also shows that the State also views the retirement of 20 percent of the generated NOX emission allowances as giving the EPA a further reason for accepting 40 CFR part 60 monitoring requirements for Subpart X sources in lieu of 40 CFR part 75 monitoring requirements, as required under the NOX SIP call. --------------------------------------------------------------------------- The Illinois EPA believes that Subpart X meets EPA's Economic Incentive Program (EIP) guidance (``Improving Air Quality with Economic Incentive Programs,'' EPA-452/R-01-001, January [[Page 11570]] 2001), and, therefore, is approvable based on this policy. The EIP guidance provides for the use of EIPs to comply with the NOX SIP call. The Illinois EPA notes that Subpart X has the potential to reduce costs of compliance for sources involved in the NOX trading program. Under the NOX trading program, some sources will be forced to purchase NOX emission allowances. Providing for additional tradable NOX emission allowances through Subpart X may provide lower cost NOX emission allowances than may be available from EGUs and major non-EGU sources participating in the NOX trading program. NOX Emission Reductions The Illinois EPA points out that Subpart X will benefit the environment by retiring 20 percent of the NOX emission reductions resulting from this rule. Sources complying with Subpart X will only be able to obtain tradable NOX emission allowances for 80 percent of the NOX emission reductions they have achieved. The NOX emission reductions must be quantifiable, verifiable, and Federally enforceable. This distinguishes Subpart X from the type of emission reduction program expected under EPA's stationary source voluntary measures policy. The Illinois EPA notes that the requirement for an emissions cap on ``similar'' units at a NOX emission reduction source is also a very important feature of the Subpart X rule. Since reduction of operating hours or shutdown of an emissions unit are an acceptable procedure for obtaining NOX emission reductions, the emissions cap prevents a source from shifting operations or production between source units, producing artificial emission reduction credits. The Illinois EPA also notes that the Subpart X emission reductions are Federally enforceable since all source-specific emission reduction plans must be incorporated into Federally Enforceable State Operating Permits (FESOPs). Adequate emission recordkeeping and reporting requirements are provided to allow such enforcement. Compliance and Enforcement Mechanisms The State asserts that non-compliance deterrence mechanisms are built into the Subpart X rule. These mechanisms include: (1) Sources subject to Subpart X must verify emission reductions at the end of each ozone control season; (2) The EPA must recognize the NOX emission reductions as real before it creates NOX emission allowances for the complying source's use in the NOX trading program; (3) NOX emission allowances granted by the EPA cannot be used until the ozone control period following their generation (the source cannot trade or use projected future NOX emission allowances); (4) Failure to comply leads to increasingly stringent penalties (each succeeding ozone control period of noncompliance leads to more stringent emission reduction penalties), including the surrendering of NOX emission allowances; and, (5) The State also has its standard mechanisms available to enforce the NOX emission reductions for sources complying with Subpart X. Subpart X Meets Requirements of EPA's EIP Guidance The Illinois EPA notes that there are three fundamental principles to all EIPs: Integrity; equity; and, environmental benefit. The Illinois EPA believes that the Subpart X rule complies with these principles, and, therefore, would qualify as an EIP. From the standpoint of integrity, the Illinois EPA notes that emission reductions resulting from an EIP emissions control program must be: Surplus; quantifiable; enforceable; and, permanent. The Illinois EPA believes that the Subpart X rule would produce NOX emission reductions meeting these requirements. The resulting NOX emission reductions are surplus because they are not otherwise relied on for attainment purposes in the SIP, and are not required by other SIP-related emission control requirements, consent decrees, or Federal rules or requirements. The NOX emission reductions that would result from the Subpart X rule are enforceable because: They are independently verifiable; program violations are defined through the identification of excess emissions and FESOP violations; those sources and owner/ operators liable for violations can be identified; both the State and EPA maintain the ability to apply penalties and secure appropriate corrective actions where applicable; citizens have access to all emissions-related information obtained from the sources; citizens can file suits against the sources; and, the NOX emission reductions are enforceable in accordance with other EPA guidance on practicable enforceability. The emission reductions are quantifiable because they can be reliably measured and determined. Subpart X requires source monitoring and recordkeeping of NOX emissions and NOX emission reductions. The Illinois EPA believes that the NOX emission reductions can be considered to be permanent if the State is able to ensure that no emission increases (compared to emissions if there was no EIP) occur over the time period defined in the SIP. The State believes that Subpart X sources are similar to opt-in units under the NOX Budget Trading Program, but with even more stringent requirements due to the emissions cap requirement of the Subpart X rule. Emission allowances are earned annually due to retrospective emission reductions (therefore, they are equivalent to permanent emission reductions). The NOX emission allowances to be traded by Subpart X sources are not based on ``future'' NOX emission reductions. Generated emission allowances are verified annually, and cannot be granted if the emission reductions have not already occurred. Withdrawal of a source from the program and its emission reductions are controlled by the State, who must approve such a withdrawal. A withdrawing source cannot generate new NOX emission allowances subsequent to withdrawal from the Subpart X program. Subpart X should most appropriately be viewed as a one-year emission reduction program that is subject to annual renewal. The State views the Subpart X rule as a compliance flexibility EIP. Thus, emission reductions are permanent if the State is able to ensure that no emission increases occur over the time period that Subpart X exists within the SIP. The State views Subpart X as providing equity. All segments of the population are protected from localized public health problems since the Subpart X rule applies throughout the State. No segment of the population receives a disproportionate share of the program's benefits and non-benefits. Sources will volunteer to provide the NOX emission reductions, and may potentially benefit economically from the sale of the NOX emission allowances, or, at minimum, defray emission control costs. The Subpart X rule will provide environmental benefits. The application of the rule will provide additional NOX emission reductions not already required by existing NOX control rules. Retiring 20 percent of the NOX emission reductions will provide additional environmental benefits. Application of the rule should reduce regional NOX [[Page 11571]] emissions within Illinois and ozone transport to downwind States. C. How does the subject rule interface with or relate to other Illinois NOX rules? Under Illinois' existing NOX control rules, EGUs and other covered sources may choose to reduce NOX emissions below State-required levels (below levels needed to meet the State's NOX emission budget) to produce tradable NOX emission allowances sold through EPA's NOX Budget Trading Program. Other EGUs may find it necessary to purchase NOX emission allowances through the trading program to meet Illinois' emission budget and facility-specific NOX emission limits. The sale and purchase of NOX emission allowances through the trading program allows a large number of sources to more economically meet NOX emission limits and allows the NOX SIP call (and CAIR) States to meet required NOX emission limits. As noted above, the Subpart X sources producing NOX emission allowances would be able to trade/sell the emission allowances to sources subject to Illinois' Subpart U and Subpart W NOX rules. The Subpart U and Subpart W sources would be able to use the purchased NOX emission allowances to meet the State's required NOX emission limits. To make sure that generated NOX emission allowances are truly surplus and not double counted, Subpart X sources may not be subject to the NOX emission control requirements of Illinois' Subparts T (Cement Kilns), U (NOX Control and Trading Program for Specified NOX Generating Units), V (Electric Power Generation), or W (NOX Trading Program for Electrical Generating Units) of 35 IAC part 217 (Nitrogen Oxides Emissions). Other than these source restrictions, Subpart X does not further limit the types of NOX sources that could be included under Subpart X (as long as the NOX emission reductions can be quantified, enforced, and can be demonstrated to exist throughout the ozone control periods). Subpart X requirements are clearly meant to provide supplemental NOX emission reductions aimed at compliance with EPA's NOX SIP call, and, thus, are directed at the control of inter-state transported ozone. Subpart X emission controls may also provide additional reductions of transported ozone and NOX within the State of Illinois, reducing peak ozone concentrations in Illinois' ozone nonattainment areas. This is particularly true if Subpart X sources trade generated NOX emission allowances to sources downwind of the ozone nonattainment areas (St. Louis/Metro-East St. Louis and Chicago) or located outside of the State of Illinois. Although the State intends to support the trading of NOX emission allowances generated under Subpart X to sources controlled under Subparts U and W of 35 IAC part 217, the State has placed no restrictions on the trading of Subpart X-generated NOX emission allowances to sources only within the State of Illinois. Subpart X sources are free to trade emission allowances to sources outside of Illinois. Such trades would benefit Illinois ozone nonattainment areas by effectively removing NOX emissions from the State of Illinois. IV. EPA Technical Review of the Subject Rule and SIP Revision Request A. Is the Subpart X rule specifically required by any EPA regulations or policies or requirements of the Clean Air Act? The subject rule is not needed to meet the requirements of an ozone attainment plan or to meet other specific NOX emission control requirements of the CAA or EPA regulations. B. What EPA policies and requirements are applicable to the subject rule? Review of the EPA NOX policies and the language and intent of the Subpart X rule and its supporting documentation shows that three separate EPA policies may be relevant to some extent in the review of the Subpart X rule. First, since the primary purpose of the Subpart X rule is to provide sources with tradable NOX emission allowances for participation in EPA's NOX Budget Trading Program, those portions of EPA's NOX SIP call policy dealing with NOX emission allowances and NOX allowance trading, as well as NOX SIP call source monitoring requirements, must be considered (Federal Register, ``40 CFR parts 51, 72, 75, and 96 Finding of Significant Contribution and Rulemaking for Certain States in the Ozone Transport Assessment Group Region for Purposes of Reducing Regional Transport of Ozone; Rule,'' 63 FR 57356, October 27, 1998). This policy has the most significant impact on our view of the approvability of the Subpart X rule. Second, since the Subpart X rule involves the voluntary control of stationary sources and the incorporation of that rule into the Illinois SIP, one must consider EPA's policy regarding the incorporation of voluntary stationary source emission reduction programs into SIPs (Memorandum, from John Seitz, Director, Office of Air Quality Planning and Standards, to Air Division Directors, Regions 1-10, United States Environmental Protection Agency, ``Incorporating Voluntary Stationary Source Emission Reduction Programs Into State Implementation Plans-- FINAL POLICY,'' January 19, 2001). It is concluded, however, that this policy is generally not applicable in this situation. The voluntary measures policy was designed with the assumption that the emission reduction credits would be applied to achieve compliance with SIP attainment, maintenance, and Rate-Of-Progress (ROP) requirements (particularly those for ozone SIPs), and that the voluntary measures program would provide emission reductions that are quantifiable, surplus, permanent, and enforceable (by the State). This policy, however, does not address the NOX emission reduction requirements of EPA's NOX SIP call. Therefore, this policy is of minimal relevance to the intended use of the Subpart X rule, and, therefore, to the Subpart X rule itself. Finally, as noted above, the Illinois EPA views Subpart X as a rule that provides for an EIP. Therefore, we need to consider EPA's policy addressing EIPs. Due to the real intent of Subpart X (to produce tradable NOX emission allowances for sale in EPA's NOX trading program), this policy is not as relevant as the NOX SIP call policy. Although the EIP policy clearly indicates that the EIPs may be used to comply with EPA's NOX SIP call policy, the EIP policy also clearly notes that the use of an EIP does not override the requirements of the NOX SIP call itself. Any requested NOX SIP revision failing to meet the requirements of the NOX SIP call would also fail to comply with the requirements of the EIP policy. In this case, the more critical policy/requirements of concern are those of the NOX SIP call itself rather than other aspects of the EIP policy. For this reason, the EIP policy is not given further consideration here. C. Is the subject rule allowed under EPA policy and requirements? As noted above, the NOX SIP call is the most relevant policy considered here. The NOX SIP call does not specifically address SIP revisions that provide for voluntary NOX emission controls in the manner covered in Illinois' Subpart X rule. Nonetheless, the NOX SIP call does encourage States to use whatever NOX emission reductions they deem necessary to achieve their NOX state NOX emission budgets in a cost-effective and reasonable manner. In addition, the NOX SIP call does not rule out the possibility of achieving the NOX [[Page 11572]] emission reductions through the use of voluntary controls as long as such resulting emission reductions are quantifiable, monitorable, and achieve valid NOX emission reductions during the NOX control period. It is concluded that the NOX SIP call does not directly forbid the generation of NOX emission allowances using voluntary emission controls and, therefore, may allow such emission control measures. The monitoring aspects of Subpart X, as more thoroughly discussed below, are the main issue of interest and concern in this case. The NOX SIP call is very specific about the types of emissions monitoring and reporting that are required to meet the NOX SIP call and emissions trading requirements. Subpart X, as discussed below, contains monitoring requirements which differ from those discussed in 40 CFR part 75. D. What are the differences in the monitoring requirements of Subpart X and those of the NOX SIP call? As noted above, Subpart X requires major NOX emission sources to install and operate CEMs. Subpart X, however, would also allow sources to use alternative monitoring techniques approved by the State and included in Federally enforceable source permits. Subpart X requires the use of CEMs to follow requirements in 40 CFR part 60, and does not require the use and reporting of CEM data to comply with 40 CFR part 75. The failure of Subpart X to require strict adherence to the requirements of 40 CFR part 75 for CEM data is a significant shortfall in the rule. With regard to non-CEM monitoring techniques, 40 CFR part 75 does permit the use of an optional non-CEM approach to determine hourly sulfur dioxide, carbon dioxide, and NOX emissions based on default or fuel- and unit-specific emission rates (per unit of heat input) and hourly fuel usage (heat input) rates for low-mass emission units. This approach is not allowed for coal-fired (solid fuel-fired) units. For NOX, the ``low mass emissions unit'' cannot emit NOX at a level exceeding 50 tons annually and 25 tons during the ozone control period to qualify for the use of the non-CEM monitoring procedures. All coal-fired units, regardless of the NOX emission rates, must use CEMs meeting the requirements of 40 CFR part 75 to qualify for inclusion in the NOX Budget Trading Program. Subpart X places no emissions size limit on the sources seeking to use monitoring methods other than the use of CEMs. In addition, Subpart X would not restrict the use of alternative monitoring techniques to natural gas-fired or fuel oil-fired units as would 40 CFR part 75. Based on these observations, Subpart X could lead to monitoring techniques that are incompatible with the requirements of 40 CFR part 75 and may produce results which may not meet the expressed ``level playing field'' goal of the NOX SIP call and NOX Budget Trading program. With regard to the requirements for CEMs (assuming a source cannot find or chooses not to pursue an ``acceptable'' alternative), it is noted that the CEM requirements in 40 CFR part 60 are not as prescriptive as the CEM requirements in 40 CFR part 75. The 40 CFR part 60 CEM monitoring requirements are not directed at the needs of the NOX Budget Trading Program. Based on the restrictive wording of the NOX SIP call and 40 CFR part 96 regarding the need for monitoring, recordkeeping, and reporting to comply with the requirements of 40 CFR part 75, EPA believes that the monitoring requirements of Subpart X are not sufficient to assure the adequacy of the Subpart X NOX emission allowances meeting the requirements of the NOX allowance trading program as specified in 40 CFR part 96. The Illinois EPA has indicated that, given the relatively small source size of sources likely to pursue Subpart X NOX emission reductions and tradable NOX emission allowances, it is not cost-effective for these sources to be required to comply with the monitoring requirements of 40 CFR part 75. Information contained in an Illinois Pollution Control Board hearing record for Subpart X indicates that the State expects most Subpart X sources to have NOX emission levels at or below 25 tons per ozone season (April through October). Given the low NOX emissions expected, it is unclear why the State has not adopted the small-source procedures of 40 CFR part 75. It is recognized that some Subpart X sources would be coal-burning sources, and, thus, excluded from the use of the small-source provisions of 40 CFR part 75. Illinois has not provided cost-effectiveness estimates for these sources to demonstrate that the 40 CFR part 75 CEM requirements are significantly less cost-effective than the CEM requirements of 40 CFR part 60. Illinois has also not demonstrated that 40 CFR part 60 monitoring requirements would provide NOX emission estimates comparable to those of 40 CFR part 75. E. Are there any source categories not covered by 40 CFR part 75 that are covered by Subpart X? The requirements of 40 CFR part 75, and particularly those dealing with low mass emission sources, are primarily directed at sources that operate and generate tradable NOX emission allowances through emission reductions on a ongoing basis. The requirements of 40 CFR part 75 cannot be applied to the crediting of source closures as NOX emission allowances in the NOX trading program. Review of the Subpart X rule and documentation of the NOX emission allowances it would generate shows that Subpart X would produce such NOX emission allowances. A source category not addressed by 40 CFR part 75, but which may be addressed through Subpart X is NOX emission reductions resulting from NOX emission controls at small solid fuel- fired combustion units. The ``small source'' provisions of 40 CFR part 75 cannot be applied for such sources. It is not clear at this time what the total NOX emission reduction potential is for such sources. F. What technical problems and issues of concern have we found for the subject rule? 1. General Comments and Concerns We have several major areas of concern regarding the Subpart X rule and its intended use. First, the rule does not guarantee that NOX emission allowances would only be awarded for emission reductions that are real and that are additional NOX emission reductions beyond those that would have occurred anyway, i.e., even in the absence of Subpart X. By providing credit for source shutdowns or reduced utilization of units claiming credit under Subpart X (Subpart X units) and for NOX emission reductions made as long ago as 1996, the Subpart X rule would lead to NOX emission allowances for NOX emission reductions occurring before the Subpart X rule was adopted by the State. In addition, despite an emissions cap on all similar source units at a source facility, this rule could still allow NOX emission allowances for shifting of utilization/production from Subpart X units to unregulated units within the same source facility or to units in another source facility and so could lead to crediting of source changes with no real NOX emission reductions. Second, we are concerned that the Subpart X rule would not require the same level of monitoring required of sources participating in the NOX Budget Trading Program. This raises questions [[Page 11573]] concerning the equity of Subpart X-generated NOX emission allowances versus those generated by sources following the monitoring requirements of 40 CFR part 75. Although the State has argued that the 20 percent set-aside of NOX emission reductions from Subpart X units to benefit the environment should offset this concern, we propose that the State has not provided a basis for concluding that the 20 percent set-aside actually addresses this deficiency. Finally, even though the State has argued that Subpart X constitutes an EIP and EIPs may be used to provide NOX SIP call emission credits, we again note that the EIP guidance also states that NOX SIP call requirements supersede EIP requirements. This means that rules meeting EIP requirements may not be adequate to meet NOX SIP call/NOX allowance trading requirements. We believe that this is the situation with the Subpart X rule. 2. Comments on Specific Subpart X Rule Provisions Section 217.810 This section provides for a source emission cap to prevent shifting of utilization from the Subpart X units to other units of the same type at the source facility. This emissions cap does not address shifting of utilization from the Subpart X unit(s) to other units at other source facilities or at the same facility. There is no basis for assuming that this type of shifting cannot occur, e.g., for small electric generating units not covered in the State's current NOX rules for electric generating units. In addition, the Subpart X rule provides for requests for exceptions from the requirement to include other units at the source facility in the emissions cap, but provides no standard for resolving such requests. (Section 217.835(a)(5) suggests what showing should be made, but does not make this the standard for approval.) Moreover, in light of the importance of not crediting utilization shifting, exceptions to inclusion in the source emissions cap allowed in this section is not acceptable because this section of the Subpart X rule does not require such exceptions to be approved by both the State and the EPA. The rule does not specify how the emissions cap is to be calculated. This needs to be specified explicitly or must be subject to State and EPA approval if done on a case-by-case basis. We believe that the rule errs in not requiring the use of the same methodology for setting the baseline for the Subpart X unit and for setting the emissions cap for all non-NOX SIP call units (all NOX emission units not covered by the State's NOX emission control rules in the State's NOX SIP) at the source facility. This section also provides for the crediting of NOX emission reductions resulting from source shutdowns. As noted in comments below regarding section 217.815 of the rule, we have serious concerns about granting such NOX emission allowances. Section 217.815 The rule allows for NOX emission reduction credits where a unit: uses an emission reduction technology; permanently shuts down; or reduces the NOX emission rate or operating hours where this is reflected in the unit's source permit. We have the following concerns about such NOX emission reduction credits: a. We believe that this section is unacceptable because it would result in the granting of emission credits for source shutdowns. The source shutdown credit would allow a source owner to shut down a unit and shift its utilization to another unit at a different source facility. The source emissions cap provision of the Subpart X rule does not address this potential. In addition, this section also would allow the source owner to shut down a unit that is at or near the end of its useful life and to get an emission reduction credit for every year after the shutdown of the unit. In this situation, it is likely that the source shutdown would have occurred even without the existence of the Subpart X rule. This is particularly problematic since the Subpart X baseline for NOX emission reduction credits resulting from source shutdowns is 1995. This means that units shut down prior to the State adoption of the Subpart X rule would be given NOX reduction credits. This is unacceptable; b. Credit for lowering the NOX emission rate is generally acceptable, provided that the total NOX emissions from a source facility actually decrease. This section is unacceptable, however, because it would result in the granting of NOX emission allowances even though a source owner/operator may simply shift utilization from the Subpart X unit to a unit at another facility. The source emission cap of Subpart X does not address this potential; c. The rule states that the NOX emission reductions must be quantifiable, verifiable, and Federally enforceable. It is unclear whether these requirements are in addition to other requirements in the rule, which, as discussed below, do not ensure that the NOX emission reductions are properly quantifiable and verifiable. In addition, the Subpart X rule does not specify what showing must be made by the source owner or operator to satisfy these requirements; and, d. The Subpart X rule states that credited NOX emission reductions (other than those due to unit shutdowns) may start in 2003. This is in conflict with the NOX Budget Trading Program and NOX SIP call requirements, which would not credit NOX emission reductions occurring prior to 2004. NOX emission credits should not be credited for NOX emission reductions occurring prior to the start of the NOX Budget Trading Program. Section 217.820 To establish the emissions baseline from which NOX emission reductions are determined, the rule allows the source owner/ operator to use the unit's 1995 NOX emissions multiplied by \5/12\ or its 1995 ozone season emissions as reflected in EPA's NOX SIP call emissions inventory. We consider this baseline period to be too far into the past. The rule fails to require the source owner/operator to use the most current unit emissions (those determined just prior to the implementation of the Subpart X NOX emission reduction) for the baseline emissions. We are concerned about this issue for the following reasons: a. Using a 1995 baseline allows the source owner/operator to get credit for NOX emission reductions that occurred several years in the past prior to the implementation of the State's NOX control rules and prior to the adoption of Subpart X. Allowing credit for NOX emission reductions that have already occurred and allowing these credits to be traded to sources that need such credits to meet NOX SIP call-based emission limits would jeopardize Illinois' ability to meet the NOX SIP call emission reduction requirements; b. Some NOX emission reductions from 1995 for EGUs and non-EGUs are already reflected in the State's NOX emission budget established in the NOX SIP call. For example, the State emissions budget for EGUs used 1995 heat input adjusted for growth, with growth reflecting new units and increases and decreases in heat input for existing units occurring through 2004, the implementation year for the NOX SIP call. Giving credit for NOX emission reductions since 1995 through Subpart X could double count emission reductions that are reflected in the State's NOX emission budget; and, c. It may be reasonable to allow some averaging of recent years' ozone season emissions data since the most recent year may not be representative of normal unit operation. The Subpart X [[Page 11574]] rule fails to specify a short period for such averaging, and errs in leaving the averaging period to the discretion of the source owner/ operator. Section 217.835 We believe that this section is deficient in that it does not require the source owner/operator to define how the source's emission cap is determined. The source owner/operator simply has to declare the emissions cap and which source units are covered by the emissions cap. Subsection (a)(7) of this rule section allows the source owner/ o