Rule To Reduce Interstate Transport of Fine Particulate Matter and Ozone (Clean Air Interstate Rule): Reconsideration, 25304-25326 [06-2693]
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Federal Register / Vol. 71, No. 82 / Friday, April 28, 2006 / Rules and Regulations
ENVIRONMENTAL PROTECTION
AGENCY
40 CFR Parts 51 and 96
[OAR 2003–0053; FRL–8047–9]
RIN 2060–AN57
Rule To Reduce Interstate Transport of
Fine Particulate Matter and Ozone
(Clean Air Interstate Rule):
Reconsideration
Environmental Protection
Agency (EPA).
ACTION: Final notice of reconsideration.
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AGENCY:
SUMMARY: On May 12, 2005, EPA
published in the Federal Register the
final ‘‘Rule to Reduce Interstate
Transport of Fine Particulate Matter and
Ozone’’ (Clean Air Interstate Rule or
CAIR). The CAIR requires certain
upwind States to reduce emissions of
nitrogen oxides (NOX) and/or sulfur
dioxide (SO2) that significantly
contribute to nonattainment of, or
interfere with maintenance by,
downwind States with respect to the
fine particle and/or 8-hour ozone
national ambient air quality standards
(NAAQS). Subsequently, EPA received
12 petitions for reconsideration of the
final rule. On December 2, 2005, EPA
published a notice of its decision to
grant reconsideration of four issues
raised in the petitions for
reconsideration, and granted an
additional opportunity for public
comment. On December 29, 2005, EPA
published a notice of its decision to
grant reconsideration of an additional
issue raised by a petition for
reconsideration, and again granted an
additional opportunity for public
comment. In this notice, EPA is
announcing its final decisions on the
five specific issues addressed in the
December 2005 notices.
DATES: Effective Dates: This
reconsideration is effective June 27,
2006.
FOR FURTHER INFORMATION CONTACT: For
general questions concerning today’s
action, please contact Carla Oldham,
U.S. EPA, Office of Air Quality Planning
and Standards, Air Quality Strategies
and Standards Division, Mail Code
C504–03, Research Triangle Park, NC
27711, phone number (919) 54l–3347,
e-mail address oldham.carla@epa.gov.
For questions concerning the analyses
described in section III of this notice,
please contact Chitra Kumar, U.S. EPA,
Office of Atmospheric Programs, Clean
Air Markets Division, Mail Code 6204J,
1200 Pennsylvania Avenue, NW.,
Washington, DC 20460, telephone (202)
343–9128, e-mail address
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kumar.chitra@epa.gov. For legal
questions, please contact Sonja Rodman,
U.S. EPA, Office of General Counsel,
Mail Code 2344A, 1200 Pennsylvania
Avenue, NW., Washington, DC 20460,
telephone 202–564–4079, e-mail
address rodman.sonja@epa.gov.
SUPPLEMENTARY INFORMATION:
Does This Action Apply to Me?
The CAIR does not directly regulate
emissions sources. Instead, it requires
States to develop, adopt, and submit SIP
revisions that would achieve the
necessary SO2 and NOX emissions
reductions, and leaves to the States the
task of determining how to obtain those
reductions, including which entities to
regulate.
How Can I Get Copies of This
Document and Other Related
Information?
1. Docket. EPA has established a
docket for action related to the CAIR
under Docket ID No. EPA–HQ–OAR–
2003–0053. All documents in the docket
are listed in the https://
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 hard
copy. Publicly available docket
materials are available either
electronically in https://
www.regulations.gov or in hard copy at
the EPA Docket Center (Air Docket),
EPA/DC, EPA West, Room B102, 1301
Constitution Ave., NW., Washington,
DC. The Public Reading Room is open
from 8:30 a.m. to 4:30 p.m., Monday
through Friday, excluding legal
holidays. The telephone number for the
Public Reading Room is (202) 566–1744.
2. Electronic Access. You may access
this Federal Register document
electronically through the EPA Internet
under the ‘‘Federal Register’’ listings at
https://www.epa.gov/fedrgstr/. In
addition, the EPA has established a Web
site for the CAIR at https://www.epa.gov/
cleanairinterstaterule or more simply
https://www.epa.gov/cair/.
Outline
I. Background
II. Today’s Action
III. Discussion of Issues
A. SO2 Allocation Methodology in the
CAIR Model Trading Rules
B. Fuel Adjustment Factors Used to Set
State NOX Budgets
C. PM2.5 Modeling for Minnesota
D. Inclusion of Florida in the CAIR Region
for Ozone
E. Impact on CAIR Analyses of D.C. Circuit
Decision in New York v. EPA
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IV. Statutory and Executive Order Reviews
A. Executive Order 12866: Regulatory
Planning and Review
B. Paperwork Reduction Act
C. Regulatory Flexibility Act
D. Unfunded Mandates Reform Act
E. Executive Order 13132: Federalism
F. Executive Order 13175: Consultation
and Coordination With Indian Tribal
Governments
G. Executive Order 13045: Protection of
Children From Environmental Health
and Safety Risks
H. Executive Order 13211: Actions That
Significantly Affect Energy Supply,
Distribution or Use
I. National Technology Transfer
Advancement Act
J. Executive Order 12898: Federal Actions
to Address Environmental Justice in
Minority Populations and Low Income
Populations
K. Congressional Review Act
L. Judicial Review
I. Background
On May 12, 2005, the EPA (Agency or
we) published the final ‘‘Rule to Reduce
Interstate Transport of Fine Particulate
Matter and Ozone’’ (Clean Air Interstate
Rule or CAIR) (70 FR 25162). In this
action, EPA found that 28 States and the
District of Columbia contribute
significantly to nonattainment of, and
interfere with maintenance by,
downwind States with respect to the
NAAQS for fine particles (PM2.5) and/or
8-hour ozone. The CAIR requires these
upwind States to revise their State
implementation plans (SIPs) to include
control measures to reduce emissions of
SO2 and/or NOX. Sulfur dioxide is a
precursor to PM2.5 formation and NOX is
a precursor to PM2.5 and ozone
formation. By reducing upwind
emissions of SO2 and NOX, CAIR will
assist downwind PM2.5 and 8-hour
ozone nonattainment areas in achieving
the NAAQS.
The CAIR implements the ‘‘good
neighbor’’ provision of the Clean Air
Act (CAA), section 110(a)(2)(D), which
establishes State obligations to address
interstate transport of pollution. The
EPA conducted extensive air modeling
to determine the extent to which
emissions from certain upwind States
were impacting downwind
nonattainment areas. All States found to
contribute significantly to downwind
PM2.5 nonattainment and maintenance
problems are included in the CAIR
region for PM2.5 and are required to
reduce annual emissions of SO2 and
NOX. All States found to contribute
significantly to downwind 8-hour ozone
nonattainment and maintenance
problems are included in the CAIR
region for ozone and are required to
reduce NOX emissions during the
5-month ozone season (May–
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September). The CAIR establishes
regional emission reduction
requirements for annual SO2 and NOX
emissions and seasonal NOX emissions.
The reduction requirements are based
on performance of control technologies
which are known to be highly cost
effective for reducing emissions of
electric generating units (EGUs). The
first phase of NOX reductions starts in
2009 (covering 2009–2014) and the first
phase of SO2 reductions starts in 2010
(covering 2010–2014). The second phase
of both SO2 and NOX reductions starts
in 2015 (covering 2015 and thereafter).
Each State covered by CAIR may
independently determine which
emission sources to control, and which
control measures to adopt. States that
choose to base their programs on
emissions reductions from EGUs may
allow their EGUs to participate in an
EPA-administered cap and trade
program. The CAIR includes model
rules for multi-State cap and trade
programs for annual SO2 and NOX
emissions, and seasonal NOX emissions.
States may choose to adopt these rules
to meet the required emissions
reductions in a flexible and highly costeffective manner. To learn more about
the CAIR and its impacts, the reader is
encouraged to read the preamble to the
CAIR (70 FR 25162; May 12, 2005).
The CAIR was promulgated through a
process that involved significant public
participation. The EPA published a
notice of proposed rulemaking on
January 30, 2004 (69 FR 4566) and a
supplemental notice of supplemental
proposed rulemaking on June 10, 2004
(69 FR 32684). The EPA also published
a notice of data availability on August
6, 2004 (69 FR 47828). The Agency held
public hearings on the January 2004
proposed rule on February 25 and 26,
2004, and an additional hearing on the
supplemental proposal on June 3, 2004.
In addition, the EPA received thousands
of comments on the proposals. We
responded to all significant public
comments in the preamble to the final
rule and in the final response to
comments document available in the
CAIR docket (Docket No. OAR–2003–
0053–2172).
Following publication of the final
rule, the Administrator received twelve
petitions requesting reconsideration of
certain aspects of the final CAIR. These
petitions were filed pursuant to section
307(d)(7)(B) of the CAA. Under this
provision, the Administrator is to
initiate reconsideration proceedings if
the petitioner shows that an objection is
of central relevance to the rule and
either that it was impracticable to raise
the objection to the rule within the
public comment period, or that the
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grounds for the objection arose after the
end of the public comment period but
before the time for seeking judicial
review had expired. The petitions for
reconsideration of the CAIR asked EPA
to reconsider several specific aspects of
the final rule, and many of the petitions
made similar requests.
By letters dated August 1, 2005, EPA
granted reconsideration of the definition
of ‘‘electric generating unit’’ or ‘‘EGU’’
as it relates to solid waste incinerators
(and particularly municipal waste
incinerators).1 The EPA explained that
the issue would be addressed in the
proposed rule signed the same day. That
proposed rule, entitled ‘‘Rulemaking on
Section 126 Petition from North
Carolina to Reduce Interstate Transport
of Fine Particulate Matter and Ozone;
Federal Implementation Plans to Reduce
Interstate Transport of Fine Particulate
Matter and Ozone; Revisions to the
Clean Air Interstate Rule; Revisions to
the Acid Rain Program; Proposed Rule,’’
was published on August 24, 2005 (70
FR 49708). In that proposal, EPA
reconsidered the definition of ‘‘EGU’’ in
the final CAIR as it relates to solid waste
incinerators (70 FR at 49738). We
proposed revisions to the definition of
‘‘EGU’’ and requested comment on that
issue.
On December 2, 2005, EPA published
a notice of its decision to grant
reconsideration of four additional issues
presented in the petitions for
reconsideration, and solicited public
comment on those issues. On December
29, 2005, EPA published a notice of its
decision to grant reconsideration of one
additional issue raised by petition for
reconsideration, and again solicited
public comment on that issue. In those
two notices EPA did not propose any
modifications to the final CAIR, as we
did not believe that any of the
information that had been submitted
demonstrated that EPA’s final decisions
in the CAIR rulemaking were erroneous
or inappropriate.
The EPA requested comment only on
the issues specifically described in
Section III of each December 2005
notice. We did not reconsider or re-open
for further comment any other
provisions in the CAIR.
The EPA also received three limited
requests to stay CAIR. The
implementation of the CAIR in limited
geographic areas pending resolution of
this reconsideration process. One
petitioner requested a stay of
implementation of the CAIR in the State
of Florida, and one petitioner requested
a stay of implementation of the CAIR in
1 These letters are available in the CAIR Docket.
(OAR–2003–0053–2209 and 2210).
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the State of Minnesota, and one
petitioner requested a stay of CAIR for
a limited subset of affected sources. By
letter dated August 1, 2005, EPA
declined to stay implementation of the
CAIR in Florida.2
Finally, in addition to petitions for
reconsideration, fourteen petitions for
judicial review of the final rule were
filed with the U.S. Court of Appeals for
the District of Columbia.3 The fourteen
cases have been consolidated into a
single case, State of North Carolina v.
EPA (No. 05–1244) (D.C. Cir). Many of
the parties who petitioned EPA for
reconsideration of the CAIR also
petitioned for judicial review of the
rule.
II. Today’s Action
This notice addresses the five specific
issues upon which we granted
reconsideration and solicited comment
in the December 2, 2005 and December
29, 2005 notices. Today’s action is one
of three actions EPA is taking today to
resolve all remaining issues relating to
the petitions for reconsideration of
CAIR.
This notice takes action only with
respect to the five issues identified in
the December 2005 notices. In those
notices, we announced our decision to
grant reconsideration and solicited
comments on the specific issues to be
reconsidered. We did not, however,
propose any changes to the CAIR or reopen for comment any other issues
determined in the CAIR. In this action,
we take final action on the five issues
identified in the notices of
reconsideration and respond to
comments received during the
reconsideration process. The first issue
addressed in the December 2, 2005
notice relates to analyses done by EPA
to address petitioner’s claims regarding
alleged inequities arising from the
application of the SO2 allowance
allocation approach to be used by States
choosing to participate in the EPAadministered SO2 trading program. The
second issue relates to EPA’s use of
specific fuel adjustment factors to
establish NOX budgets for each State.
The third issue relates to modeling
2 This letter is also available in the CAIR Docket
(OAR–2003–0053–2208).
3 State of North Carolina v. EPA (No. 05–1244);
Minnesota Power v. EPA (No. 05–1246); ARIPPA v.
EPA (No. 05–1249); South Carolina Public Service
Authority et al. v. EPA (No. 05–1250); Entergy Corp.
v. EPA (No. 05–1251); Florida Ass’n of Electric
Utilities (No. 05–1252); FPL Group v. EPA (No. 05–
1253); Northern Indiana Public Service Co. v. EPA
(No. 05–1254); South Carolina Electric & Gas Co. v.
EPA (No. 05–1256); Integrated Waste Services Ass’n
v. EPA (No. 05–1257); AES Corp v. EPA (No. 05–
1259); City of Amarillo, Texas et al. v. EPA (No. 05–
1260); Appalachian Mountain Club et al. v. EPA
(No. 05–1246); Duke Energy v. EPA (No. 05–1246).
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inputs used by EPA to determine
whether emissions from Minnesota
should be included in the CAIR region
for PM2.5. The fourth issue relates to
EPA’s determination that the State of
Florida should be included in the CAIR
region for ozone. The issue raised in the
December 29, 2005 notice relates to the
potential impact of a recent judicial
opinion, New York v. EPA, 413 F.3d 3
(D.C. Cir. 2005), certain analyses done
for the CAIR relating to the
identification of highly cost-effective
controls and the timing of CAIR
deadlines. New York v. EPA, 413 F.3d
3 (D.C. Cir. 2005) was decided on June
24, 2005—after the final CAIR was
published but before the time for
judicial review of the rule had run. Each
issue is described in greater detail in
Section III of this notice.
EPA also is taking two additional
actions relating to the petitions for
reconsideration of CAIR. First, EPA is
sending nine separate letters to the
petitioners with outstanding requests for
reconsideration. These letters address
their requests that EPA reconsider the
following ten issues: (1) The 0.2µg/m3
threshold used to determine if a state’s
emissions contribute significantly to
PM2.5 nonattainment and maintenance
problems in downwind states (multiple
requests for reconsideration arguing
both that the threshold is too high and
that it is two low); (2) the inclusion of
the full state of Florida in the CAIR
region for PM2.5 (two requests for
reconsideration challenging EPA’s
decision to determine significant
contribution on a statewide basis); (3)
the inclusion of the full state of Texas
in the CAIR region for PM2.5 (two
requests for reconsideration challenging
EPA’s decision to determine significant
contribution on a statewide basis); (4)
the NOX budget allocated to the State of
Connecticut (two requests for
reconsideration); (5) the treatment of
previously allocated 2009 NOX Budget
Trading Program allowances; (6) the SO2
retirement ratio for Title IV allowances
as applied to units that receive, through
2009, ‘‘bonus’’ allocations under section
405(a)(2) of the Clean Air Act; (7) the
phase I NOX compliance date of 2009;
(8) EPA’s interpretation of the ‘‘interfere
with maintenance’’ prong of section 110
of the Clean Air Act; (9) the method
used to identify downwind
nonattainment areas; and (10) the
creation of a compliance supplement
pool for the annual NOX trading
program. Finally, the petitions for
reconsideration contain two outstanding
requests to stay CAIR: One asking for
CAIR to be stayed in the state of
Minnesota and one asking that CAIR be
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stayed only for the subset of sources that
has either already received 2009 NOX
Budget Trading Program allowances or
is currently receiving ‘‘bonus’’
allowances under section 405(a)(2) of
Title IV of the Clean Air Act.
EPA has carefully considered each of
these requests for reconsideration. We
have concluded that reconsideration of
these issues is not warranted under
section 307(d)(7)(B) of the Clean Air
Act. EPA is therefore denying all
remaining requests for reconsideration.
In addition, EPA is denying the
remaining requests to stay CAIR. These
decisions are fully explained in the
letters to petitioners which are available
in the CAIR docket (EPA–HQ–OAR–
2005–0053). In a separate action signed
today, EPA is taking final action on the
request for reconsideration discussed in
the August 1, 2005 Federal Register
notice. This action is taken as part of
our final action responding to North
Carolina’s section 126 petition and
promulgating Federal implementation
plans for all states in the CAIR regions.
In that action, we also take final action
on the request reconsider EPA’s
treatment in CAIR of solid waste
incinerators (particularly municipal
waste combustors), and finalize the
revisions to the definition of ‘‘EGU’’
proposed in response to that request.
This action, titled ‘‘Rulemaking on
Section 126 Petition from North
Carolina to Reduce Interstate Transport
of Fine Particulate Matter and Ozone;
Federal Implementation Plans to Reduce
Interstate Transport of Fine Particulate
Matter and Ozone; Revisions to the
Clean Air Interstate Rule; Revisions to
the Acid Rain Program,’’ 4 will be
published shortly in the Federal
Register.
III. Discussion of Issues
A. SO2 Allowance Allocation (& State
Budget) Approach in the CAIR Model
Trading Rules
As noted above, EPA decided to grant
reconsideration on six issues related to
the final CAIR. The first of these issues
relates to the SO2 allocation approach in
the CAIR model rules. EPA received one
petition for reconsideration that asked
EPA to reconsider the SO2 allocation
approach to be used by States
participating in the EPA-administered
CAIR SO2 trading program. This
petitioner argued that the SO2 allowance
allocation approach is unreasonable and
inequitable. The petitioner argued that
the approach is unreasonable because
other approaches would be more
4 See https://www.regulations.gov, Docket ID No.
EPA–HQ–OAR–2003–0053.
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appropriate. According to the petitioner,
the approach is inequitable because it
results in owners of units that have
historically lower emission rates being
forced to buy allowances from
historically higher emitting units that
install new emission controls. The
petitioner asked EPA to establish a
different approach. As described in the
Notice of Reconsideration, EPA does not
agree with petitioner’s conclusions
about this issue. EPA continues to
believe that the approach selected is
reasonable for the reasons explained in
the CAIR final rule and further
discussed below. Furthermore,
numerous opportunities for public
comment on this issue were provided,
and a full discussion of the allowance
allocation options occurred during the
rule development process. Nonetheless,
given the intense public interest in this
issue, EPA decided to grant the petition
for reconsideration insofar as it raised
issues regarding alleged inequities
resulting from the application of EPA’s
SO2 allowance allocation approach.
In the Notice of Reconsideration, EPA
announced its decision to reconsider
this issue and solicited additional
public input. EPA also solicited
comment on additional analyses it
conducted in response to the petition
for reconsideration concerning the
impact of the SO2 allowance allocation
approach adopted in the CAIR model
trading rule. This additional analysis
compared the SO2 allocation approach
in CAIR to various alternatives EPA also
considered during the rulemaking
process. In response to comment on the
Notice of Reconsideration, EPA has
further refined some of its analyses and
carefully considered the arguments of
the petitioner. EPA continues to believe
that these analyses show that EPA’s
selected approach to SO2 allowance
allocations is appropriate, given the
objectives of CAIR and other relevant
considerations. Moreover, EPA believes
that the Agency’s approach produces a
reasonable result in terms of equity.
Therefore, in this Notice of Final Action
on Reconsideration, EPA is not altering
the approach taken in CAIR for SO2
allowance allocation. EPA’s response to
public comments on the analyses
presented in the Notice of
Reconsideration and further discussion
of the petitioner’s concerns are provided
below (and in the Technical Support
Document, ‘‘CAIR SO2 Allocation
Approach Analysis’’ and the Response
to Comments).
Considerations Relevant To Choosing an
Allocation Approach
While EPA did not explicitly define a
distinct set of principles that should be
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used in developing State budgets under
a region-wide cap and trade program,
EPA has made it clear throughout this
process that it has relied upon several
consistent, important factors in
developing both the SO2 and NOX
budgets.
The first is the impact of allowance
allocations on the specific
environmental objectives and overall
cost of the rule, as well as any potential
adverse effects. In general, while the
chosen allocation or State budget
calculation approach can affect the
distribution of compliance costs under a
cap-and-trade program, it will have little
effect on overall compliance costs or
environmental outcome. This is because
the incentives provided by cap-andtrade encourage economically efficient
compliance over the entire region.
However, this may not always hold
where there are interactions with
existing environmental policies. In the
case of NOX, EPA did not find this
consideration to be restrictive because
there was not an existing annual NOX
trading program and the SIP Call ozone
season trading program could be easily
integrated into the CAIR ozone season
trading program. As a result, a number
of budget methodologies were
compatible. For SO2, this consideration
played a larger role because depending
upon how the program was integrated
within the existing Title IV structure, it
could impact emissions before the
program went into effect as well as
emissions in regions not affected by the
program.
Another important consideration is
that an allocation methodology must be
consistent with the existing regulatory
and legislative structure. Once again for
NOX, this consideration could be
satisfied with a wide range of budget
methodologies. However, for SO2,
reductions for EGUs using Title IV
allowances is necessary in order to
ensure the preservation of a viable Title
IV program (70 FR 72272). Linking the
two programs maintains the trust and
confidence that has developed in the
functioning market for title IV
allowances. The EPA recognizes this
familiarity and confidence (especially in
a market-based approach) as a key
source of the program’s success.
A third factor is equity. In the absence
of other considerations, EPA believes
that it is in the public interest that the
distribution of allowances under a cap
and trade program be as equitable as
possible. For NOX, since the other
considerations could be satisfied with a
number of different methodologies, this
factor was the primary one. For SO2,
where the other considerations were
more limiting, this factor was not as
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central to our decisions, especially since
the Title IV allocation structure was
erected by Congress for the long term.
Title IV and CAIR
The CAIR model SO2 trading program
relies on the use of title IV SO2
allowances for compliance with the
allowance-holding requirements of
CAIR. Title IV SO2 allowances have
already been allocated on a unit-by-unit
basis in perpetuity, based on formulas
set forth in sections 405 and 406 of the
Clean Air Act (CAA), which EPA
implemented through final regulations
issued in 1998 (See 42 U.S.C. 7651d and
7651e; and 18 CFR 73.10(b)). The
statutory formulas for allocation of title
IV SO2 allowances were based on unit
data for 1985–1987 and, for some units,
data for years up to 1995. For the title
IV SO2 trading program, each allowance
authorizes one ton of SO2 emissions.
For the CAIR SO2 trading program,
SO2 reductions will be achieved by
generally requiring CAIR sources to
retire more than one title IV allowance
of 2010 and later vintages for each ton
of SO2 emissions in 2010 and thereafter.
Specifically, each title IV SO2 allowance
issued for 2009 or earlier will be used
for compliance by CAIR sources at a
ratio of one allowance per ton of SO2
emissions and would authorize one ton
of SO2 emissions. Each title IV
allowance of vintage 2010 through 2014
will be used for compliance under CAIR
at a two-to-one ratio and authorize 0.5
tons of SO2 emissions. Each title IV
allowance of vintage 2015 and later will
be used at a 2.86-to-1 ratio and
authorize 0.35 tons of SO2 emissions.
See discussion in the preamble to the
final CAIR in section VII (70 FR 25255–
25273) and section IX (70 FR 25290–
25291).
Response to Comments on EPA’s
Statutory Authority
Several commenters expressed
support of EPA’s chosen allocation
approach, arguing that EPA was entirely
within its legal authority to use title IV
allowances to implement the SO2
trading program under CAIR. These
commenters generally argued that EPA’s
use of title IV allowances to implement
CAIR reductions was necessary to
maintain the viability of the program
and continued confidence in cap-andtrade programs.
A few commenters on the Notice of
Reconsideration assert that EPA has
exceeded its statutory authority under
title IV of the CAA by tying CAIR SO2
allocations to title IV allowances. In
addition, a few commenters argue that
EPA’s final CAIR SO2 allocation
approach unlawfully limits States’
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discretion under section 110 of the CAA
to determine how to meet their ‘‘good
neighbor’’ obligations and to meet
national ambient air quality standards.
These same concerns were also raised
during the CAIR rulemaking process
and EPA provided a detailed
justification for its use of title IV
allowances under CAIR, including
direct responses to these comments in
the CAIR preamble (70 FR 25290–
25296). EPA maintains that its approach
of using title IV allowances in the CAIR
SO2 trading program and imposing an
allowance-retirement requirement on
States that do not adopt the CAIR SO2
trading program is within its statutory
authority and is a reasonable exercise of
that authority. Additionally, there is
nothing in section 110 of the CAA that
would bar the use of title IV allowances
to accomplish attainment goals under
110(a)(2)(d).
One commenter suggests that EPA’s
SO2 allocation approach using title IV
allowances is in violation of CAA
section 110(a)(2)(d) because it
distributes allowances among States in
a way that would effectively result in
different emissions rates among States,
and different resulting control costs.
The commenter argues for an approach
that results in an equal effective
emissions rate across States. The
commenter then cites section 102(a) of
the CAA, arguing that the provision
‘‘directs EPA to promote the
development of air pollution control
laws at the state and local level that are
as ‘uniform’ from jurisdiction to
jurisdiction as practicable.’’ The
commenter then proceeds to argue that
EPA’s use of title IV allowance
allocations for SO2 allowance
allocations under CAIR violates this
notion of parity without reason and is
therefore unlawful.
EPA disagrees with the commenter’s
interpretation of these two CAA
provisions. First, nothing in section
110(a)(2)(d) indicates how EPA should
allocate allowances under a cap-andtrade program. Second, while the
commenter suggests that an allocation
approach that results in a uniform
effective emissions rate across all States
would remedy the inequities the
commenter perceives in EPA’s
application of 110(a)(2)(d), the
allocation approach that the commenter
actually recommends does not result in
this outcome. Third, section 102(a) of
the CAA indicates that ‘‘The
Administrator shall * * * encourage
the enactment of improved and, so far
as practicable in the light of varying
conditions and needs, uniform State and
local laws relating to the prevention and
control of air pollution’’. As is discussed
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throughout this section of the CAIR
Notice of Final Action on
Reconsideration, the existence of title IV
creates a set of conditions under which
it is not ‘‘practicable’’ to create a new set
of allowance allocations for SO2 for the
purposes of CAIR. Finally, the use of the
phrase ‘‘The Administrator shall
encourage’’ in section 102(a) indicates
that this provision is in no way a
directive that requires the Agency to
obtain any specific result during its
rulemakings. Finally, the use of a capand-trade program assures that the
marginal cost paid for a ton of emission
reduction should be close to the
observed allowance price, assuring a
uniform marginal cost from State to
State.
SO2 Allocation Options Discussed in
CAIR
EPA considered and analyzed a
variety of SO2 allowance allocation
methodologies during the CAIR
rulemaking process. After careful
analysis, EPA decided to use the
allocation approach chosen by Congress
in title IV of the Clean Air Act. EPA also
considered the following alternative
approaches, which are explained in the
final CAIR ‘‘Corrected Response to
Significant Public Comments on the
Proposed Clean Air Interstate Rule,’’
Corrected April 2005 (Docket Number
OAR–2003–0053):
—Allocations based on historic tons of
actual emissions from more recent
years;
—Allocations based on heat input (with
alternatives based on heat input from
all fossil generation, and heat input
from coal- and oil-fired generation
only); and
—Allocations based on electricity
output (with alternatives based on all
generation and all fossil-fired
generation).
In addition to these alternatives, EPA
has analyzed other heat input-based
allocation approaches in the
reconsideration process, explained
below. Each allocation approach
suggested by the petitioner and other
commenters during the CAIR
rulemaking and reconsideration process
has advantages and disadvantages for
different companies and States.
However, as explained in the final
CAIR, EPA believes that the approach
used in the final CAIR is the most
appropriate among the alternatives for
several reasons.
First, EPA believes—based on strong
policy and air quality concerns—that it
is necessary to use the existing title IV
allowances in order to preserve the
viability and emissions reductions of
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the highly successful title IV program.
The disruption of the title IV SO2
trading program would also potentially
result in increased emissions outside of
the CAIR region starting in 2010
because, with title IV allowances having
little or no value, the title IV program
would no longer constrain SO2
emissions in those States. Further, if
title IV allowances are not used for
compliance in the CAIR SO2 trading
program, the likely result will be: a
significant surplus of title IV
allowances; a collapse of the price of
title IV allowances; and a title IV SO2
trading program that, contrary to
Congressional intent, no longer provides
incentives to minimize emissions
control costs and encourage pollution
prevention and innovation.
If EPA adopts an approach that does
not preserve the structure of the title IV
allowance market and the value of those
allowances, the confidence in the capand-trade policy instrument and
allowance markets in general, and in the
CAIR cap-and-trade programs in
particular, would likely decline. Such
an outcome could result in a reduced
willingness of the owners of sources in
cap-and-trade programs to invest in
control technologies that would
generate excess allowances for sale, or
to purchase allowances for compliance,
for fear that the rules might change. If
owners were to ignore the incentives
provided by cap-and-trade in such a
manner, efficiency and cost-savings
provided by these programs would be
lost. The preservation of title IV
allowances for use in CAIR, then, is
integral to the viability and effectiveness
of both title IV and the CAIR trading
programs. See discussion in preamble to
the final CAIR in section IX (70 FR
25293–25295).
Second, EPA relied on the permanent
allocation methodology established by
Congress in title IV for purposes of
reducing SO2 emissions. Congress chose
a policy of not revisiting and revising
these allocations and, apparently,
believed that its allocation methodology
for title IV allowances would be
appropriate for future time periods.
Third, title IV allowance allocations
provide a logical and well understood
starting point from which additional
electric generation unit (EGU) SO2
emission reductions can be achieved for
Acid Rain units, which account for over
90 percent of the SO2 emissions from
CAIR EGUs.
Finally, in response to comments on
the proposed CAIR, EPA performed an
analysis comparing the title IV
methodology to other methodologies. At
the outset, EPA notes that the objective
of CAIR is not to ensure that each State
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receives the maximum amount of SO2
allowances possible under any
approach. The goal of CAIR is to achieve
the SO2 emissions reductions through
the region-wide budgets. As EPA has
noted, selecting the most appropriate
SO2 allowance allocation approach for
CAIR has required addressing a number
of different considerations. The policy
and air quality concerns specific to the
CAIR SO2 trading program and noted by
EPA above necessitate that EPA
implement the CAIR SO2 program using
the existing structure of title IV.
Nevertheless, EPA has analyzed the
impact of using title IV allocations on
States relative to other possible
allocation approaches, and found that
this approach produces a reasonable
result (See CAIR Corrected Response to
Comments, section X.A.26, Docket #:
EPA–HQ–OAR–2003–0053–2172, and
‘‘CAIR SO2 Allocation Approach
Analysis’’ Technical Support Document
available in the docket).
In summary, EPA’s use of title IV
allowances in the CAIR SO2 trading
program is supported by: (1) EPA’s
determination that this approach is
necessary to maintain the efficacy of the
title IV program and to prevent erosion
of confidence in cap-and-trade programs
in general; and (2) EPA’s analysis
showing that the allocations resulting
from this approach are reasonable.
Nevertheless, as a part of this
reconsideration, EPA performed
additional analyses, explained below, to
evaluate the SO2 allocation approach in
the final CAIR in light of the petitioner’s
concerns.
Equitability of CAIR SO2 Allocation
Approach
While the petitioner stated that the
CAIR final allocation approach is
‘‘inequitable’’ because lower emitting
units would buy allowances from higher
emitting units that install emission
controls, it is unclear why such a result
would actually be inequitable. On the
contrary, the owner of each of the units
involved would be choosing to adopt
the most economic compliance strategy
in light of the unit’s emission control
costs and the market value of
allowances. The ability of the owners to
make such choices reflects the
flexibility, inherent cost-effectiveness,
and promotion of least-cost compliance
for all program participants provided by
a cap-and-trade program.
Response to Comments on the
Equitability of CAIR SO2 Allocation
Approach
One commenter argued that EPA
should use the same metrics and
methodologies used to evaluate NOX
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allowance allocation approaches to
evaluate SO2 allowance allocation
approaches. The commenter suggests
that the metrics by which EPA assessed
NOX allocations included (1) whether
the EPA method avoids penalizing coalfired generation units that already have
installed emissions controls and (2)
whether, relative to the alternative
allocation approaches, the EPA method
better minimizes for each State the
disparity between allowances provided
and projected emissions, and argued
that EPA cites these rationales in
justifying its chosen NOX allocation
approach. This commenter also suggests
that EPA’s use of title IV allowances
penalizes new units and independent
power producers (IPPs) and results in
large wealth transfers from low-emitting
to high-emitting States.
While EPA agrees that the Agency
considered these factors (among several
others) in choosing its allocation
approach under the CAIR NOX trading
programs, EPA does not fully agree with
the commenter’s characterization of
EPA’s considerations. EPA believes that
the commenter has omitted some of the
significant context and caveats that were
included in the discussion of NOX
allocations and the use of fuel
adjustment factors in the
reconsideration notice, as well as a
number of other factors that EPA must
consider, particularly in the context of
SO2 allocations. First, EPA noted in the
June 10, 2004 Supplemental Notice of
Proposed Rulemaking and in the Notice
of Reconsideration that, ‘‘in contrast to
allocations based on historic emissions,
the factors would also not penalize coalfired plants that have already installed
pollution controls’’ (69 FR 32869, 70 FR
72276, emphasis added). This language
explains that NOX allocations using
historic heat input adjusted for fuel
type, while providing additional
allowances to coal-fired units that will
likely install controls under CAIR,
would not simultaneously penalize
coal-fired units that had already made
investments in emissions controls. An
approach based on historic emissions,
on the other hand, would also provide
additional allowances to units that
would likely have to install controls, but
would simultaneously penalize units
that had already done so. While EPA
makes this argument in support of its
chosen approach for NOX allocations,
the Agency does not raise this point to
establish a criterion for evaluating
allowance allocation approaches.
Rather, it simply notes that its chosen
approach for NOX allocations can
provide an advantage to one set of coal-
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fired units without disadvantaging
another set of coal-fired units.
Second, while the commenter is
correct in noting that EPA stated in its
discussion of NOX allocations in the
Notice of Reconsideration that it is in
the public interest to attempt to
minimize the disparity between
individual State budgets and projected
emissions for each State, EPA did not
set this goal as one of only two primary
criteria for adoption of a given
allocation strategy, as the commenter
suggests. Rather, EPA notes that ‘‘In the
absence of other considerations, EPA
believes that it is in the public interest
to reduce the disparity between the
number of allowances in a State budget
and total projected State EGU
emissions’’ (70 FR 72276, emphasis
added). As EPA has noted, the Agency
had to weigh many considerations in
choosing an SO2 allowance allocation
approach. In particular, unlike in the
case of NOX, EPA had to consider an
existing, nationwide trading program
implemented by statute in the case of
SO2.
Third, as EPA discussed in the CAIR
Response to Comments, while
commenters express concern about the
availability of allowances for non-Acid
Rain units, it should be noted that not
all sources covered under the Acid Rain
program received allowances. By the
design of the title IV program (as
outlined by Congress), because of the
permanent allocation of allowances,
new units beginning commercial
operation after 1995 or beginning
construction after 1990 did not receive
title IV allowances. Thus, Congress
recognized that, over time, new units
would be built and covered under the
program, but felt it reasonable that such
units would obtain title IV allowances
either through the auction or from the
market. Under the auction, 250,000 title
IV allowances are be auctioned annually
(half for the current compliance year
and half for the compliance year seven
years in advance), and these allowances
can be used for compliance with CAIR.
The availability of these allowances
ensures that all sources, including new
units and non-title IV sources, will have
access to a pool of allowances. Finally,
IPPs have the option of opting in to title
IV until their exemption expires in
order to obtain title IV allowances. EPA
addresses other issues specific to IPPs in
section VI.E of today’s CAIR FIP Notice
of Final Rulemaking preamble.
Fourth, while the commenter asserts
that EPA’s use of title IV allowances in
the CAIR SO2 trading program will
result in significant wealth transfers
from low-emitting to high-emitting
States, EPA’s analysis of SO2 coverage
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25309
ratios (the ratio of allowances to
projected emissions, discussed to some
degree in this section and presented in
the ‘‘CAIR SO2 Allocation Approach
Analysis’’ Technical Support Document,
available in the docket), is not
suggestive of this trend. In fact, looking
at the differences in States’ projected
emissions and coverage ratios between
the base case and CAIR, it becomes
evident that both lower- and higheremitting States are projected to make
investments in emissions controls under
CAIR, reducing their demand for
allowances, or freeing up allowances for
sale, in the process. States that might be
categorized as high-emitting are not
always projected to be net sellers of
allowances, and States that might be
categorized as low-emitting are not
always projected to be net purchasers of
allowances.
Another commenter argues that
smaller units would be forced to
purchase SO2 allowances from the
market in order to comply with CAIR.
This commenter argues that the SO2
allowance market is not efficient and
subjects some participants to endure an
undue amount of financial burden and/
or risk. EPA believes that the
commenter’s claims about the state of
the SO2 allowance market are
unfounded. As is discussed in the Acid
Rain Program Report (EPA 43–R–05–
012, October 2005), about 20,000
allowance transactions, affecting about
15.3 million allowances were recorded
in the EPA Allowance Tracking System
in 2004. In addition, title IV compliance
costs have been much lower than
projected and allowance prices in the
SO2 allowance market have generally
reflected this. Finally, as discussed
earlier in this section, sources have the
option of purchasing allowances
directly from the annual auction.
Further, in raising equity concerns, a
couple of commenters argue for
conflicting measures of equity within
their own comments. These commenters
argue that an equitable emissions
allocation approach will result in an
equivalent effective emissions rate
across States. These commenters then
point to EPA’s chosen CAIR NOX
emissions allocation approach as an
exemplary allocation approach because
it limits the disparity between
individual State budgets and projected
emissions. However, the commenters
fail to realize that EPA’s NOX
allocations approach does not actually
result in an equivalent emissions rate
across States. In other words, choosing
a CAIR SO2 allocation approach with
the goal of minimizing the disparities
between State budgets and projected
emissions would result in the selection
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of a different approach than would the
goal of equating effective emissions
rates across States.
Finally, some commenters argued that
the use of title IV allowance allocations
penalizes sources who have already
installed scrubbers prior to the start of
the Acid Rain Program. This is because,
in general, allowances under title IV
were allocated to units that had not
installed controls at a higher rate
relative to units that had installed
controls. The title IV approach, in that
sense, is somewhat similar to the
approach taken for NOX under CAIR, in
that it provides additional allowances
for units expected to install controls
under the rule. EPA believes that the
commenters’ arguments that the
continued use of title IV allowances
penalizes sources that installed controls
prior to the Acid Rain Program are
unfounded. First, these controls were
installed over 20 years ago and were
completed within a regulated electricity
sector, such that in most cases the cost
of installing these controls should have
been recovered through electricity price
rate increases. Second, these controls
were installed in response to
requirements separate from both CAIR
and the Acid Rain Program. Third,
Congress was clearly aware of the issues
raised by commenters when designing
the SO2 trading program in 1990, and
consciously used a formula for future
allocations for the length of time it
believed was reasonable. In general, the
Acid Rain Program has enjoyed 10 years
of operation without substantial concern
over this issue and with industry atlarge appreciating the program’s merits
in providing a cost-effective, flexible,
and balanced way to provide
environmental protection. Finally,
analysis by one of these two
commenters, which estimates the
windfall of allowances that a
hypothetical unscrubbed coal-fired unit
would attain by installing a scrubber
and reducing emissions, neglects the
fact that this unit would have to bear the
costs of installing controls. Thus, the
ostensible windfall would be
significantly smaller than was suggested
by the commenter.
Analysis of SO2 Allocation Options
Presented in the Notice of
Reconsideration
In the Notice of Reconsideration, EPA
compared three alternative SO2
allowance allocation methodologies to
the approach in the final CAIR. In these
analyses, EPA examined how
allowances would be distributed to
individual companies instead of
examining how they would be
distributed to States. According to the
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petitioner, the allowance distribution
will result in the petitioner’s relatively
low-emitting units being forced to buy
allowances from other companies’
relatively high-emitting units. The
petitioner thus argues the allocation
approach used in CAIR is per se
inequitable and unreasonable. To
evaluate this concern, EPA compared
projected allocations not to individual
units, but to individual parent and
operating companies who own these
units under various methodologies
relative to projected SO2 emissions of all
the units owned by those companies.
Figures and tables from the analysis
presented in the Notice of
Reconsideration can be found in the
docket, EPA–HQ–OAR–2003–0053,
‘‘SO2 Allowance Allocation
Methodology Comparative Analysis
Data Files’’).
The three alternative allowance
allocation methodologies EPA analyzed
were suggested by various commenters
during the rulemaking process and this
reconsideration process. These
methodologies are:
—Allocating allowances based on more
recent heat input data;
—Allocating allowances based on more
recent heat input data adjusted for
fuel type (e.g., coal, oil and gas); and
—Allocating allowances based on more
recent heat input data adjusted both
for fuel type and for coal type (e.g.,
bituminous, sub-bituminous and
lignite).
In comparing the CAIR SO2 allocation
approach and the three alternative
methodologies, EPA took into account
certain factors that are applicable to the
CAIR final allocation approach but not
to the three alternative methodologies.
For all four methodologies, EPA
analyzed the resulting total allowance
allocations, and the total projected
emissions, for companies’ sources
located in the States subject to CAIR. In
addition, for all the methodologies, EPA
analyzed the relationship between
allowances and emissions in two ways.
First, EPA calculated the ratio of
allowances to total projected emissions
before CAIR controls (base case
emissions). This provides a reasonable
estimate of the extent to which each
company’s future emissions will exceed
its allowances and, thus, indicates how
much effort a company must expend for
compliance either by purchasing
allowances or installing controls.
Second, EPA calculated the ratio of
allowances to total projected emissions
after the installation of CAIR controls
(control case emissions). This provides
a reasonable estimate of the number of
allowances a company would need to
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purchase or would be able to sell after
any controls are installed. Some
companies with low-emitting units may
have excess allowances to sell even if no
controls are installed.
In its analysis of the CAIR approach,
EPA also considered both the allowance
allocations and the emissions for
companies’ units both within the CAIR
region and outside the CAIR region.
EPA believes that this is appropriate
because, under the CAIR approach, if a
company’s units outside the CAIR
region have more title IV allowances
than needed to cover their emissions
under the Acid Rain Program, the
company might be able to transfer, at
little or no net cost, excess allowances
to the company’s units in the CAIR
region for use to cover emissions under
the CAIR trading program. Under the
three alternative methodologies, all of
which would require creating new CAIR
SO2 allowances independent of the
existing title IV allocations, CAIR
sources could not use title IV
allowances held for sources outside (or
inside) the CAIR region for compliance
with the CAIR SO2 allowance holding
requirement.
Further, in the analysis of the CAIR
approach, EPA considered the
allocation of title IV allowances to CAIR
units that are not currently in the Acid
Rain Program but that could opt in to
the Acid Rain Program and receive title
IV allowances (see 42 U.S.C. 7651i and
18 CFR part 74 and the discussion
below concerning the ability of units to
opt in). This analysis assumed that
companies owning non-Acid Rain units
subject to CAIR would elect to opt in to
the Acid Rain Program because they
would receive title IV allowances to
cover a portion of the units’ emissions
under CAIR. EPA believes this
assumption is reasonable because any of
these units has the option of becoming
an Acid Rain Program opt-in unit and
thereby providing the company
additional allowances at little or no
additional cost, and the value of title IV
allowances could be substantial. In
contrast, the analysis of the three
alternative methodologies did not
consider the impact of Acid Rain
Program opt-ins because these
approaches do not use title IV
allowances for CAIR compliance.
EPA’s analysis indicated that while
allocations vary from company to
company under the four methodologies,
overall the distributions of allowances
that companies received relative to their
projected emissions for the CAIR control
case are very similar. EPA came to
similar conclusions when looking at the
base case.
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Response to Comments on EPA’s
Analysis
EPA received several comments on
various aspects of the SO2 allocation
analyses presented in the Notice of
Reconsideration. A few commenters
claimed that EPA should have focused
its analyses on State budgets rather than
on projected allocations to companies
because, with an alternative allocation
approach, States would have the
responsibility for allocating allowances
to their respective affected sources and
could meet control requirements
differently than assumed in EPA’s
analyses. Further, these commenters
claimed a State-by-State analysis is
more consistent with the analysis of
NOX allocation methodologies in the
Notice of Reconsideration and the final
CAIR itself. Finally, one commenter
noted that company-specific analysis
can obscure state-by-state variation and
may not be reliable given continual
shifts in ownership structure.
EPA agrees with the commenters that
one method of evaluating the
reasonableness of SO2 allocation
approaches is (in addition to companyby-company analyses) to compare State
budgets calculated according to various
methodologies. Despite one
commenter’s assertion that companylevel analysis is made unreliable by
constantly changing corporate
structures, EPA believes that such an
analysis remains instructive. A Statelevel analysis provides additional
perspective on the impact of various
25311
allocation approaches, though it will, of
course, obscure some of the potential
company-level variability among
allowance approaches.
EPA presented such a State-by-State
analysis in the final CAIR RTC (final
CAIR ‘‘Corrected Response to
Significant Public Comments on the
Proposed Clean Air Interstate Rule,’’
Corrected April 2005 (Docket Number
OAR–2003–0053)). EPA recognizes that
the analysis prepared for the CAIR RTC
did not consider two of the alternative
allocation approaches discussed above.
For today’s notice, EPA has analyzed
State budgets calculated under eight
different approaches (title IV and seven
alternatives). These eight approaches are
described in Table IIIA.1, below.
TABLE III.A.1.—DESCRIPTION OF ALLOCATION APPROACHES INCLUDED IN EPA ANALYSIS
Approach name
Description of approach
EPA Title IV ....................................
Title IV allocations adjusted for the 2 to 1 allowance retirement ratio in 2010–2014 and the 2.86 to 1 allowance retirement ratio in 2015 and thereafter. EPA’s chosen approach.
For each State, calculates the average heat input over the years 1999–2002. Apportions the region-wide
SO2 cap to individual States based on each State’s share of the total region-wide average for those
years.
For each State, calculates the average adjusted heat input over the years 1999–2002. Adjusts heat input
using factors of 1.0 for coal, 0.009 for natural gas, and 0.3 for oil. Apportions the region-wide SO2 cap to
individual States based on each State’s share of the total region-wide average adjusted heat input for
those years.
For each State, calculates the average adjusted heat input over the years 1999–2002. Adjusts heat input
using factors of 2.6 for bituminous coal, 1.0 for subbituminous and lignite coals, 0.2 for natural gas, and
0.7 for oil. Apportions the region-wide SO2 cap to individual States based on each State’s share of the
total region-wide average adjusted heat input for those years.
For each State, calculates the average heat input from coal- and oil-fired units over the years 1999–2002.
Apportions the region-wide SO2 cap to individual States based on each State’s share of the total regionwide average heat input from these units for those years.
For each State, calculates the average emissions over the years 1999–2002. Apportions the region-wide
SO2 cap to individual States based on each State’s share of the total region-wide average emissions for
those years.
For each State, calculates the average output over the years 1999–2002. Apportions the region-wide SO2
cap to individual States based on each State’s share of the total region-wide average output for those
years.
For each State, calculates the average output from fossil fuel-fired units over the years 1999–2002. Apportions the region-wide SO2 cap to individual States based on each State’s share of the total region-wide
average output from these units for those years.
Average 1999–2002 (Pure) Heat
Input.
1999–2002 Heat Input w/Fuel Factors.
1999–2002 Heat Input w/Fuel Factors & Coal Type.
Average 1999–2002
Coal + Oil.
Heat
Input
Average 1999–2002 SO2 Emissions
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Average 1999–2002 Generation
Output (all sources fossil and
non-fossil).
1999–2002
Generation
Output
(Fossil-fuel-fired units only).
As is shown in Table III.A.2, the first
component of EPA’s State-level analysis
compared the individual State shares of
total region-wide SO2 allocations under
the various approaches. The revised
analysis is consistent with EPA’s
original findings. As can be seen from
Table III.A.2, 80 percent of States get
neither the most nor the least
allowances relative to what they receive
under the other allocation approaches,
under the title IV approach. (See ‘‘Sulfur
Dioxide Allowance Allocation
Methodology Comparative Analysis’’
Technical Support Document (Docket
ID: EPA–HQ–OAR–2003–0053)).
Furthermore, when compared
specifically to the methods supported
by commenters (pure heat input, heat
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input with fuel factors, heat input with
fuel factors and coal type, coal and oil
heat input and average output all),
distribution of State budgets using title
IV allocations results in an individual
State receiving its smallest or greatest
share of total SO2 allocations relative to
what the individual State receives under
the alternative approaches the same
number of times as the pure heat input
methodology and fewer times than the
other methodologies supported by
commenters (see the last three rows of
Table III.A.2). Such results support
EPA’s argument that its chosen
allocation approach is reasonable. While
the coal and oil heat input approach
appears to perform best in this analysis,
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this approach received more limited
commenter support.
In examining the results of this
analysis for the States where
commenters that submitted adverse
comments on the use of title IV own
generating units (FL, IN, MD, MN, NY,
NC, PA, SC, TX), it becomes apparent
that each allocation approach makes
some States better off and others worse
off. (See ‘‘CAIR SO2 Allocation
Approach Analysis’’ Technical Support
Document available in the docket.) 5
5 Also, it is worth noting that these many of the
commenters are all in cost-of-service States, where
they should be able to pass through costs. In other
words, sources in these States are likely to recover
their cost of compliance, and the rate impact in
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While using a heat input with fuel
factors approach would provide an
advantage to many of the States that
provided adverse comments on title IV,
shifting to this approach would
disadvantage 10 of the 23 States (DC is
not counted) relative to the title IV
approach.
TABLE III.A.2.—STATES SHARE OF BUDGET UNDER VARIOUS ALLOCATION APPROACHES
EPA title IV
Average
1999–2002
(pure) heat
input
1999–2002
Heat input
w/fuel factors
1999–2002
Heat input
w/fuel factors & coal
type
Average
1999–2002
heat input
coal + oil
Average
1999–2002
emissions
Average
1999–2002
output all
Average
1999–2002
output fossil
AL .....................................
DC ....................................
FL .....................................
GA ....................................
IA ......................................
IL ......................................
IN ......................................
KY ....................................
LA .....................................
MD ....................................
MI .....................................
MN ....................................
MO ...................................
MS ....................................
NC ....................................
NY ....................................
OH ....................................
PA ....................................
SC ....................................
TN ....................................
TX .....................................
VA ....................................
WI .....................................
WV ...................................
4.4%
0.0%
7.0%
5.9%
1.8%
5.3%
7.0%
5.2%
1.7%
2.0%
4.9%
1.4%
3.8%
0.9%
3.8%
3.7%
9.2%
7.6%
1.6%
3.8%
8.9%
1.8%
2.4%
6.0%
4.3%
0.0%
7.7%
4.1%
1.9%
4.7%
6.5%
4.9%
3.3%
1.8%
4.2%
1.9%
3.6%
1.4%
3.7%
4.0%
6.4%
6.0%
2.0%
3.0%
15.3%
2.3%
2.5%
4.4%
4.9%
0.0%
5.6%
4.7%
2.4%
5.4%
7.9%
6.0%
1.6%
1.9%
4.4%
2.3%
4.3%
1.0%
4.5%
2.2%
7.9%
7.1%
2.3%
3.7%
9.4%
2.5%
2.9%
5.4%
5.2%
0.0%
6.7%
5.3%
1.2%
4.4%
7.9%
7.3%
1.0%
2.3%
3.7%
1.1%
2.3%
1.0%
5.5%
2.7%
9.6%
8.4%
2.9%
4.4%
5.5%
3.1%
1.8%
6.7%
4.7%
0.0%
7.3%
4.5%
2.3%
5.2%
7.5%
5.8%
1.5%
2.0%
4.3%
2.2%
4.1%
1.1%
4.3%
3.4%
7.5%
6.9%
2.2%
3.5%
9.0%
2.5%
2.8%
5.2%
5.0%
0.0%
6.0%
5.2%
1.4%
4.7%
8.6%
5.8%
1.1%
2.7%
3.7%
1.0%
2.4%
1.2%
4.7%
2.7%
12.2%
9.5%
2.1%
4.0%
6.0%
2.3%
2.0%
5.8%
4.7%
0.0%
7.2%
4.5%
1.5%
6.6%
4.6%
3.5%
3.4%
1.9%
4.1%
1.9%
2.9%
1.6%
4.5%
5.3%
5.4%
7.4%
3.4%
3.5%
13.9%
2.8%
2.2%
3.4%
4.2%
0.0%
7.7%
4.2%
1.8%
4.4%
6.2%
4.5%
3.6%
1.7%
4.2%
1.7%
3.4%
1.6%
3.8%
3.9%
6.5%
6.1%
2.0%
3.0%
16.6%
2.3%
2.2%
4.5%
Total ..........................
Number of times method
provides least allowances ............................
Number of times method
provides most allowances ............................
100%
100%
100%
100%
100%
100%
100%
100%
3
4
1
7
0
2
4
4
2
1
5
6
0
4
4
4
Total (most + least) ...
5
5
6
13
0
6
8
8
State
Source: EPA, 2006.
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Note: For NOX, EPA calculated a separate
region-wide budget for New Jersey and
Delaware using the same approach that was
used to calculate the larger CAIR region-wide
budget. This region-wide budget was then
apportioned to individual State budgets
using the same approach used in CAIR.
Because New Jersey and Delaware were
treated separately in the context of NOX
allocations, EPA has not included them in
the SO2 analysis.
Two commenters performed
alternative analyses of State budgets,
modeled after the calculations done for
the CAIR Reconsideration related to
NOX budgets (CAIR Statewide NOX
Budget Calculations, EPA Docket
Number OAR–2003–0053, December
2005). The commenters claim that their
analysis proves that EPA’s SO2
allowance allocation approach is
inferior to a fuel-adjusted heat input
method, such as the allocation approach
used in the CAIR NOX model trading
rule. They assert that EPA’s analysis of
NOX allocation methodologies is also
the appropriate way to compare the
reasonableness of the SO2 allocation
alternatives.
As EPA explained in the Technical
Support Document for the Agency’s
NOX budget analysis (‘‘CAIR Statewide
NOX Budget Calculations,’’ available in
the docket), to quantitatively evaluate
whether the fuel factor approach is
providing States with annual NOX
budgets that more closely reflected their
projected emissions, EPA calculated the
arithmetic mean of the (absolute)
difference between the ratio of each
State’s allowance allocation under each
approach to its projected emissions
under CAIR (coverage ratio), and 1.0
(i.e., the value representing a State’s
projected emissions matching the State’s
CAIR NOX budget). In other words, EPA
calculated how far off the State’s
coverage ratio was from 1.0, and then
determined the average value of this
difference for each approach.
One commenter performed a similar
analysis of State budgets, comparing
each State’s projected emissions to its
projected allowances under each
allocation approach. The commenter
analyzed the results in relation to a
coverage ratio of 1.0 (as EPA did in its
these States, spread over all generation,
transmission, and distribution is likely to be
minimal. EPA’s Regulatory Impact Analysis for
CAIR forecasts an increase of only about 2.0 percent
and 2.7 percent in average electricity prices in the
CAIR region in 2010 and 2015, respectively. Florida
is projected to experience an increase in retail
electricity prices of 0.8 percent in 2010 and 1.4
percent in 2015. Also, the region containing North
Carolina and South Carolina is forecast to have
retail electricity price increases lower than the
regional average increases under CAIR in 2010 and
2015.
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NOX analysis) and averaged the values
for each approach. Another commenter
performed a similar analysis but
presented the results as the cumulative
value (sum) of absolute differences
between the coverage ratios and 1.0.
EPA disagrees with the commenter’s
assertion that the methodology that the
Agency used to evaluate State NOX
allocations should be the primary means
by which to evaluate the reasonableness
of the SO2 allocation methodology. As
explained in the CAIR preamble, in the
case of SO2, EPA needs to balance
various considerations, including the
need to allocate SO2 allowances in a
way that is less disruptive to the title IV
program. In light of these
considerations, minimizing the
disparity between a State’s allocation
and projected emissions cannot be the
primary objective. For SO2, there is a
pre-existing national trading program
(the Acid Rain SO2 trading program)
that Congress intended to continue as a
viable program into the future and
under which allowances have been
allocated in perpetuity. For NOX, there
is no pre-existing national trading
program where efficiency and
effectiveness would be jeopardized by
creating new CAIR NOX allowances.
There is, of course, a pre-existing
regional NOX ozone-season program
covering a portion of the CAIR region
(the NOX Budget Trading Program,
established by regulation, rather than
directly by Congress). Under the
existing NOX ozone-season program, no
State has allocated allowances past 2009
(and only a handful of States have
allocated allowances past 2008).
Therefore, in contrast with EPA’s
determination concerning SO2
allocations, evaluation of potential
approaches to NOX allocations did not
involve concerns about Congressional
intent to preserve an existing trading
program and about preserving the value
of allowances already allocated in
perpetuity. For NOX, EPA does not need
to consider other important policy
concerns that are important for SO2.
While the methodology used by EPA
to evaluate NOX allocation
methodologies for CAIR can be applied
to analysis of SO2 allocations, EPA
believes that the commenters performed
their State-by-State analyses incorrectly,
overlooking a fundamental difference
between the CAIR NOX and SO2 trading
programs, which is the existence of a
significant bank of pre-2010 allowances
that will be eligible for use for
compliance with CAIR. Because of the
existence of a SO2 allowance bank, EPA
believes that the commenter’s
comparison of allocation approaches
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using a coverage ratio of 1.0, which
would assume that in a given year total
SO2 emissions in the region are equal to
the total region-wide SO2 budget, is not
appropriate for evaluating the SO2 State
budgets resulting from the various SO2
allocation methodologies. A State that
had a coverage ratio of 1.0 would have
enough allowances to cover its
emissions, and, while this ratio would
be a meaningful target in the context of
the CAIR NOX trading program, it is not
for SO2, because 2010 and 2015
emissions will be higher than the
region-wide cap due to the use of
banked allowances. For SO2, the regionwide ratios of allowances to projected
emissions are 0.70 for 2010 and 0.60 for
2015. On average, one would expect
States to have coverage ratios similar to
the region-wide average.
While in both the NOX annual and
NOX ozone season trading programs
some allowances beyond the State
Budgets (i.e., compliance supplement
pool allowances in the annual program
and banked allowances from the NOX
Budget Trading Program in the ozoneseason program) will be available to
sources, the amount of these extra
allowances will be too small to affect
the State-by-State NOX analysis.
Consequently, EPA believes that a more
appropriate way to evaluate SO2
allocation methods is to use the 0.70 (for
2010) and 0.60 (for 2015) coverage
ratios, rather than a ratio of 1.0. Further,
because each allocation approach
results in allocations that are
advantageous for different companies
and States, EPA believes that the
reasonableness of a given allocation
approach should be judged by its overall
impact on companies and States, not its
specific impact on any single company
or State or on a few companies or States.
EPA has redone the commenters’
analysis, using the methodology used by
EPA in its analysis of NOX allocations
and corrected coverage ratios described
above. This analysis is presented in the
‘‘CAIR SO2 Allocation Approach
Analysis’’ Technical Support Document
available in the docket. While the title
IV SO2 allocation approach does not
perform the best of the allocation
approaches considered using this
metric, the differences observed among
the approaches are of a lower magnitude
than those suggested by the
commenters. The commenters did not
provide any benchmark in their analysis
for assessing whether or not a given
allocation approach was reasonable.
Further, although the commenters
discuss some of the implications of the
differences observed between an
allocation approach based on fuel
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25313
factors and the allocation approach
based on title IV, they do not conclude
their analyses with any meaningful
arguments that EPA’s approach is not
reasonable.
As EPA noted earlier in this section,
there are a number of ways by which to
assess the equitability of a given
allowance allocation approach. For a
further understanding of the overall
relative impacts of the various
allocation approaches, EPA believes that
it is useful to apply the statistical
concepts of (1) bias and (2) consistency.
EPA determined that an appropriate
statistic for examining the bias of a
given allocation approach is the average
difference between a State’s coverage
ratio and the coverage ratio for the
entire region (e.g., 0.70 for 2010 or 0.60
for 2015). The degree of bias inherent in
a given allocation approach cannot be
discerned from the absolute value
statistic, because it ignores the degree to
which positive and negative differences
cancel each other out. A perfectly
unbiased distribution under a given
allocation approach would be one that
resulted in an average difference of zero,
meaning that on average a State-by-State
coverage ratio higher than the regional
coverage ratio is balanced out by a ratio
below. Another useful statistic is the
percent of instances in which the
allocation approach yields a State
coverage ratio that is high (or low)
relative to the regional coverage ratio.
Lack of bias would be indicated if 50
percent of the State coverage ratios are
higher than the regional coverage ratio
and 50 percent are lower.
EPA evaluated the four allocation
approaches considered during the CAIR
rulemaking (title IV, pure heat input,
heat input with fuel-factors, and heat
input with fuel factors and coal type
factors) along these metrics. From EPA’s
calculations (Table III.A.3), all the
approaches are biased high for 2010 and
all but one is biased high for 2015 (with
CAIR controls). The average differences
for EPA’s approach, 0.06 in 2010 and
0.17 in 2015, are among the closest to
zero compared to the alternatives
examined. The one approach (heat input
with fuel and coal adjustment factors)
that exhibits less bias than the title IV
approach in 2010 exhibits bias of the
same magnitude (but opposite direction)
as the title IV approach in 2015. In
addition, the percent of positive
differences for EPA’s approach for 2010
and 2015 are near 50 percent and do not
greatly vary from the alternative
methods analyzed. This demonstrates
that EPA’s approach provides a
reasonable result.
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TABLE III.A.3.—EVALUATION OF BIAS AND CONSISTENCY OF FOUR DIFFERENT SO2 ALLOCATION APPROACHES, 2010 AND
2015
2010
2015
EPA title IV
Average
1999–2002
(pure) heat
input
1999–2002
heat input
w/fuel
factors
1999–2002
heat input
w/fuel
factors &
coal type
0.06
43%
0.11
39%
0.06
52%
0.05
48%
Average Difference ..........
Percent Positive ...............
EPA title IV
Average
1999–2002
(pure) heat
input
1999–2002
heat input
w/fuel factors
1999–2002
heat input
w/fuel factors & coal
type
0.17
43%
0.18
43%
0.14
43%
¥0.17
52%
Source: EPA 2006.
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Potential for Regional Emissions
Increases
As discussed above and in the CAIR
preamble, another important reason for
use of the title IV allowances is to avoid
SO2 emissions increases in 2010 and
thereafter in non-CAIR States. If title IV
allowances were not used in the CAIR
SO2 trading program, the resulting
reduction in the value of title IV
allowances would result in an increase
in emissions in non-CAIR States. EPA
estimates that emissions ‘‘leakage’’ of
title IV allowances from the CAIR region
into the non-CAIR region would be
approximately 260,000 tons annually in
2010 and thereafter (See 70 FR 25293).
One commenter argues that EPA has
not sufficiently evaluated and compared
the impact of the potential for increases
in CAIR region emissions under the
approach of using title IV allowances
that could result from allocations to title
IV opt-in units and title IV allowances
traded into the CAIR region from nonCAIR States to the potential for
emissions increases in non-CAIR States
from ‘‘leakage’’ of title IV allowances
from CAIR States to non-CAIR States
under an allocation approach that does
not rely on title IV.
EPA has, in fact, considered the issue
of emissions ‘‘leakage’’ outside of the
CAIR region throughout its analysis of
CAIR and has also analyzed the
potential increases outside of the CAIR
region if EPA were to not use an
allocation system based on title IV. EPA
estimates, based on its CAIR analysis,
that title IV allowances from the nonCAIR region equivalent to about 150,000
tons of SO2 emissions may be traded
into the CAIR region in 2010, which
represent about 4 percent of the
projected CAIR region emissions in
2010. This compares to approximately
260,000 title IV allowances,
representing that many tons of SO2
emissions, that sources in non-CAIR
States would have incentive to use to
cover emissions at little to no cost, if we
chose an alternative system that is not
based on title IV (an increase equal to
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about 30 percent of the 0.9 million tons
of emissions EPA projects for non-CAIR
region). This increase would occur
because title IV allowances would have
no economic value.
EPA has also considered the impact of
opt-in unit allocations and projects that
in 2010 allowances equivalent to
approximately 25,000 tons could be
generated by units opting into the Acid
Rain Program and used for compliance
in the CAIR SO2 trading program. This
is less than one percent of the projected
CAIR region-wide emissions in 2010.
(See the spreadsheet ‘‘SO2 Allocation
Analysis Data—Owner and Parent
Comparison’’ available in the docket).
Thus, EPA believes that the effect of
selecting the title IV allocation approach
for SO2 under CAIR will not
significantly affect the overall SO2
emission reduction objectives of the
rule.
It should also be noted that an
alternative to including non-title IV
sources under CAIR and allowing them
to use opt-in allowances from title IV
would be excluding these units
altogether from CAIR. In choosing to opt
into title IV to provide allowances for
use under CAIR, these units would have
to reduce emissions from the baseline at
which they were allocated in order to
generate excess title IV allowances.
Thus, actual cumulative net emissions
increases within the CAIR region from
title IV opt-in sources subject to CAIR
are unlikely. Alternatively, excluding
these units from CAIR and keeping the
same SO2 allowance retirement ratios
(and the same State budgets) would
achieve many, but not all, of the highly
cost-effective SO2 reductions and could
result in emissions leakage within the
CAIR region at these sources, as
generation (and thus emissions) shift
from the EGUs covered by the cap to
EGUs not covered by the cap.
Opting Into the Acid Rain Program
As discussed above, EPA’s analyses of
the distribution of allowances under
EPA’s allocation approach included
allowances allocated to CAIR units that
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can opt into the title IV Acid Rain
Program. The statutory and regulatory
provisions governing Acid Rain Program
opt-in units allow units that are subject
to CAIR, but not to the Acid Rain
Program, to opt into the Acid Rain
Program. Under section 410(a) of the
Clean Air Act, the owner or operator of
any unit that emits SO2 and ‘‘is not, nor
will become, an affected unit’’ under the
general applicability provisions of CAA
title IV (i.e., starting in 2000, CAA
sections 403(e)(for new units) and 405
(for existing units)) may apply to have
the unit become an opt-in unit under
the Acid Rain Program. 42 U.S.C.
7651i(a). (The separate treatment of
‘‘process sources’’ under sections 410(a)
and (e) is not applicable to electric
generating units covered by CAIR.)
Section 410 was added to the Clean Air
Act by the Clean Air Act Amendments
of 1990, which were enacted on
November 15, 1990.
EPA interprets section 410(a) to allow
any SO2-emitting unit not currently
covered by the general applicability
provisions to opt into the Acid Rain
Program and receive SO2 allowances,
provided that certain requirements (e.g.,
emissions monitoring and reporting
requirements under part 75 of the Acid
Rain regulations) are met. The use of
two separate terms, one to refer to a unit
that ‘‘is not’’ an affected unit, and the
other to refer to a unit that ‘‘will not
become’’ an affected unit reflects the
fact that there are two separate
applicability provisions, section 405
applying to units in existence and
generating electricity for sale when the
CAA Amendments were enacted and
section 403(e), applying to units to be
constructed at some later date. In short,
section 410(a) included language using
both a verb in the present tense (i.e., ‘‘is
not’’) to refer to existing units and a verb
in the future tense (i.e., ‘‘nor will
become’’) to refer to begin generation or
begin construction in the future. EPA
does not interpret the term ‘‘nor will
become’’ to bar, from opting in,
currently operating units that are not
covered by the generally applicability
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provisions but that may become subject
to those provisions sometime in the
future. Consequently, a unit that
currently has an exemption from the
general applicability provisions (e.g., an
exempt cogeneration unit under CAA
section 402(17)(C) or 405(g)(6)(A)), may
opt in under section 410(a)) even if the
exemption may be lost sometime in the
future. Such a unit may become and
remain an opt-in unit until the unit
loses its exemption.
This interpretation of section 410(a) is
reflected in the implementing
regulations. For example, § 74.2 states
that the opt-in regulations apply to units
that ‘‘are not affected units under § 72.6
[the general applicability provisions]
* * * and that are operating and are
located in the 48 contiguous States of
the District of Columbia’’. 40 CFR 74.2.
The opt-in regulations do not exclude
operating units that are currently
exempt from the general applicability
provisions but that may subsequently
lose their exemption. Moreover,
§ 74.46(b)(iii) specifically addresses how
to treat opt-in allowance allocations for
operating units that opt in but
subsequently become subject to the
general applicability provisions. The
provision explains how to treat such
allowance allocations for the year in
which the units lose their exemption
and for subsequent years. This supports
EPA’s interpretation that currently
exempt units may become opt-in units
even though they may lose their
exemption in the future.
EPA notes that the additional cost for
CAIR units of opting into the Acid Rain
Program will be minimal. The major
cost for any unit to opt in is the cost of
meeting emissions monitoring and
reporting costs under part 75. Whether
or not they become Acid Rain Program
opt-in units, all units under CAIR
already have to meet, and incur the
costs of, part 75 emissions monitoring
and reporting requirements. EPA also
notes that currently under the Acid Rain
Program only a small number of units
have opted into the program. Because
EPA anticipates that the existence of the
CAIR program will result in more units
opting in, EPA will work with potential
opt-in sources to consider opportunities
to improve the opt-in program.
B. Fuel Adjustment Factors Used to Set
State NOX Budgets
As described in the December 2, 2005
Notice of Reconsideration for CAIR,
EPA received several petitions for
reconsideration asking EPA to
reconsider its decision to use fuel
adjustment factors (FAF) to establish
NOX budgets for State in the CAIR
region. Petitioners contended that the
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Agency did not provide adequate notice
and that the use of the FAF approach
adversely impacted States with large
gas- and oil-fired generation portfolios.
Given the significant public interest in
this issue, EPA granted reconsideration
and solicited additional public
comment on this issue.
The Notice of Reconsideration
explained that EPA believes that it
provided adequate notice both that the
fuel adjustment factors might be used
and of the calculation procedures that it
would use to determine the specific
factors. Nevertheless, in light of the
significant public interest in this issue,
EPA granted reconsideration on the the
use FAFs (i.e., 1.0 for coal, 0.4 for gas,
and 0.6 for fuel oil) in the development
of statewide NOX budgets. The Notice of
Reconsideration provided an additional
opportunity for public comment on the
issue and presented additional analysis
that EPA conducted to further explain
the impact of these factors on State
annual NOX budgets. That additional
analysis demonstrated that the factors
selected are reasonable and decrease the
disparity between most States’ projected
electric generation unit (EGU) emissions
and their State NOX budgets. The Notice
of Reconsideration did not propose to
change any aspect of how the CAIR
apportions the regionwide NOX budget
among States.
Today’s action responds to public
comment received on the Notice of
Reconsideration and presents some
additional analysis that supports the
analysis presented in the Notice of
Reconsideration.
Background on the Use of NOX FAFs in
the Statewide NOX Budgets
The CAIR establishes regional
emission budgets for annual and
seasonal NOX emissions. These regional
budgets are then further divided into
State budgets, with a share of each total
regionwide budget apportioned to each
State in the corresponding CAIR region.
The CAIR determines each State’s prorata share of the regionwide budget by
using that State’s share of the
regionwide heat input, as adjusted by
the FAFs (i.e., 1.0 for coal, 0.4 for gas,
and 0.6 for fuel oil). Petitioners asked
EPA to reconsider this methodology.
As explained in the Notice of
Reconsideration, States choosing to
participate in the trading program may
allocate their statewide budgets to
sources in their respective State. In a
cap-and-trade system, however, the
methodology used to allocate
allowances in any given year would not
affect where control technologies are
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installed.6 Rather, the determinant
would be the cost of adding controls
compared to the cost of buying, or the
profit from selling, allowances. Controls
are expected to be installed where it is
relatively less expensive, without regard
to which units received the initial
allocation of allowances. Further, the
total cost to industry of controlling
emissions and the total amount of
reductions achieved would not be
affected by the allocation methodology
in a given year (for a permanent system).
The allocation method, however, could
have financial impacts on individual
units and companies. A unit that
receives more allocations than it has
emissions would get a benefit at the
expense of a unit that does not receive
enough allocations to cover its
emissions. While States choosing to
participate in the cap-and-trade program
can determine how to allocate
allowances among their units,
companies in States whose budgets
exceed projected EGU emissions would
likely receive a financial benefit while
companies in States whose budgets are
lower than their EGU emissions would
likely incur additional costs. In the
absence of other considerations, EPA
believes that it is in the public interest
to reduce the disparity between the
number of allowances in a State budget
and total projected State EGU emissions.
In the case of NOX allowances, there are
no considerations that offset the
desirability of reducing the disparity
between a State’s budget and projected
emissions. This contrasts with the case
of SO2 allowances, as described above,
where there are counter-balancing
considerations, such as the importance
of preserving the efficacy of the existing
title IV SO2 trading program.
1. Summary of Additional Analysis
Presented in the Notice of
Reconsideration
The Notice of Reconsideration
presented two analyses that EPA
conducted to evaluate the potential
impact of using the adjusted heat input
method versus the simple heat input
method on State annual NOX budgets:
one regionwide analysis and a second
State-by-State analysis.
The regionwide analysis of the
potential impacts compared regionwide
budgets using both approaches (i.e.,
simple heat input and fuel factor) to the
6 A permanent allocation approach, such as the
CAIR allocation methodology in the model trading
rules, should not affect where controls are installed.
This is true regardless of the type of approach used
to permanently allocate allowances (e.g., heat input,
adjusted heat input, or output). The use of an
updating allocation system, on the other hand,
could have some impact future generation.
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regionwide projected emissions of units
fired with that fuel.7 That analysis
illustrated that: under either approach,
the portion of the State budgets derived
from the heat input from the gas-fired
units generally exceeds both the
historical and the future projected
emissions from these units; the fuel
factor approach generally provides
additional allowances to States with
large amounts of coal-fired units that are
making the majority of the investments
in emission control measures and
technologies; and, using the fuel factor
approach, the disparity between the
number of allowances provided to each
type of fossil fuel-fired electric
generation and the projected emissions
for each fossil fuel type is less than
under the simple heat input method.
The second analysis presented in the
Notice of Reconsideration examined the
potential impacts of the two approaches
for developing Statewide budgets (i.e.,
simple heat input and fuel factor) on a
State-by-State basis. That analysis
showed that States receiving fewer
allowances using a fuel factor approach,
generally still receive Statewide budgets
that are greater than their projected
emissions in 2009 and 2015. This
results because a substantial portion of
their generation portfolio consists of
gas-fired sources with generally low
NOX emission levels. More specifically,
the analysis illustrated that while States
dominated by gas-fired generation (i.e.,
District of Columbia, Florida, Louisiana,
Mississippi, New York, and Texas)
receive fewer allowances under a fuel
factor approach, they are provided with
reasonable Statewide budgets that are
comparable to their projected emissions
in 2009 and 2015. In addition, this
analysis shows that, relative to the
simple heat input method, the fuel
factor method reduces the disparity
between projected State emissions and
State budgets, e.g., allocating State
budgets that are generally closer to
projected State emissions.
EPA conducted the same analyses for
the annual NOX programs proposed for
Delaware and New Jersey, which are
being included in the CAIR PM2.5
finding of significant contribution in a
separate rulemaking published today.
This analysis showed results similar to
that found for the other CAIR PM2.5
States.
Finally, to ensure that our estimates
appropriately reflect the distribution of
emissions in the case of higher
7 It should be noted that simple heat input or
adjusted heat input are used to set State budgets
and do not imply that States would allocate
allowances to units in that manner. In the proposal,
EPA gives States flexibility in the distribution of
allowances.
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electricity demand and increased gas
and oil prices, the Notice of
Reconsideration presented EPA analysis
based upon a sensitivity run using EIA’s
forecast of higher electricity demand
and gas and oil prices. This run
produced very similar emissions results
to the original NOX analysis, showing
that EPA’s original analysis is robust
enough to support the fuel adjusted heat
input approach finalized in CAIR. (See
the ‘‘CAIR Statewide NOX Budget
Calculations Technical Support
Document, EPA 2005, for additional
discussion of the analysis.)
2. Public Comments on Analysis
Presented in the Notice of
Reconsideration
Many commenters supported the EPA
analysis presented in the Notice of
Reconsideration that demonstrated that:
• Under either approach, the portion
of the State budgets derived from the
heat input from the gas-fired units
generally exceeds both the historical
and the future projected emissions from
these units;
• The fuel factor approach generally
provides additional allowances to States
with large amounts of coal-fired units
that are making majority of the
investments in emission control
measures and technologies; and
• Using the fuel factor approach, the
disparity between the number of
allowances provided and the emissions
is less than under the simple heat input
method.
Adverse Comments on the Notice of
Reconsideration
a. Comments on EPA’s
Characterization of Operational Costs
for Low-Emitting Generation in Analysis
Some commenters contended that
EPA analysis of the projected impacts
on different types of power generation
(i.e., coal-fired, gas- and oil-fired units)
was inaccurate because it did not reflect
inherent differences in the cost (e.g.,
fuel costs) to operate each type of unit.
Specifically, the commenters claim that
gas-fired units ‘‘have incurred historical
costs to burn a cleaner but higher-priced
fuel.’’ The commenter continues with
‘‘while gas-fired plants have continually
paid the price for cleaner fuels, under
CAIR these owners may be penalized
with additional costs of purchasing
allowances.’’ The commenters believed
that, as a result, EPA analysis of the
potential impacts of using the FAF
approach—which was based on
comparing CAIR NOX allowances to the
projected emissions—has not properly
considered the economic impacts to
these units and their customers.
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EPA disagrees that higher fuel costs of
oil- and gas-fired units are not properly
considered in the analysis of potential
impacts of using the FAF method in
developing statewide NOX budgets. In
projecting which sources would install
advanced controls under CAIR, EPA
modeling factored-in the operating
characteristics of each source, including
fuel costs.8 This modeling showed that
coal-fired units—not gas- and oil-fired
units—would make the significant
investment in advanced controls in
order to achieve the CAIR mandated
emission reductions. The commenter
did not demonstrate that EPA modeling,
used in the development of CAIR and
the Notice of Reconsideration analysis,
mischaracterized the operating costs of
these units. Further, the commenter did
not explain how a decision to build a
gas-or oil-fired unit prior to CAIR that
has high operating costs, warrants an
award of valuable allowances to offset
operating costs that they would have
with or without CAIR. Notably,
although natural gas inherently burns
with lower NOX emissions, its choice in
the CAIR region historically is based
much more on the economics to meet
electric demand requirements—electric
generation from natural gas has been the
cheapest approach.
In addition, it is not clear why the
commenter believes that using the FAF
approach would result in gas-fired units
having to purchase NOX allowances.
Analysis presented in the Notice of
Reconsideration showed that, in
general, States with predominantly gasand oil-fired generation are provided
with reasonable statewide budgets that
are comparable to their projected
emissions in 2009 and 2015. If the
States were to directly pass through
allowances to their gas-fired units, these
units would still have excess
allowances. Furthermore in most cases,
these States still receive a larger budget
than they need to cover their projected
emissions.
In conclusion, EPA believes the
projected emission levels used in EPA’s
analysis of the potential impacts of
using a FAF method to apportion
statewide NOX budgets appropriately
considers the operational costs of oiland gas-fired units.
b. Comments on EPA Projections of Oiland Gas-Fired Boilers Retirement and
Impacts on Analysis
A few commenters believed that EPA
inaccurately accounted for their
projected emissions because the IPM
modeling did not consider
8 IPM modeling uses ‘‘model plants’’ to represent
the characteristics of a group of actual facilities.
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requirements, outside of environmental
regulatory programs, to maintain reserve
electricity generation capacity. The
commenter claims that, as a result, there
are oil-fired units that would continue
to operate even though IPM projects that
they would retire because they are no
longer economical to run. The
commenter believes that this potential
underestimation of projected NOX
emissions is significant enough to
change the outcome of EPA’s analysis
which demonstrated that predominantly
gas-fired States would receive CAIR
NOX allowances sufficient to account
for their future NOX emissions.
EPA disagrees with the commenters’
contention that the potential
underestimation of emissions for oilfired boilers would significantly impact
the EPA’s analysis comparing
apportioning statewide NOX budgets
using simple heat input and the FAF
approach. The EPA analysis showed
that Florida, the State of concern to the
commenter, has coverage ratios (i.e., the
ratio of the statewide NOX budget and
the projected NOX emissions) of 1.45
and 1.35 under CAIR in 2009 and 2015,
respectively. In other words, the
statewide NOX budget provides 145
percent of the allowances that Florida
sources would need to account for their
projected emissions.
EPA modeling projected that
approximately 11 percent of the oil- and
gas-fired generation capacity (other than
coal-fired generation and combinedcycle turbines) would retire early in
both 2009 and 2015, respectively. These
retirements comprise 4 and 5 percent of
Florida’s total capacity in 2009 and
2015, respectively. Even if it was
necessary for all of these units to remain
in operation to comply with
requirements for reserve capacity, it is
not clear that this relatively small
portion of the total capacity would emit
enough NOX to significantly change the
outcome of the EPA analysis. Should all
or some portion of these units remain in
service, Florida’s NOX budget—which is
45 percent and 35 percent above their
projected emissions according to EPA
analysis—would have a surplus of
allowances that it could provide to these
units to offset emissions. Further, these
units could choose to reduce their
emissions using a range of advanced
control options that, in some cases,
achieve greater emission reduction
levels than found in coal-fired units.
budgets. Many of these commenters also
supported the analysis EPA presented in
the Notice of Reconsideration
(discussed below.)
Other commenters maintained that
the final CAIR did not provide sufficient
notice on the use of the FAF approach
to developing statewide budgets. The
methodology used for developing the
statewide budgets, the FAFs, and the
actual statewide budgets were discussed
in detail in the CAIR NFR (70 FR 25230)
and supporting documentation.9 By
granting reconsideration and, thereby,
requesting public comment on this issue
in response to the Notice of
Reconsideration, the Agency has
provided an additional opportunity for
public involvement. As a result, EPA
believes that it provided ample notice
and opportunity for comment on the use
of fuel adjustment factors, the
calculation procedures used to
determine the specific factors, and the
specific factors themselves.
3. Public Comment on the Notice of
Reconsideration Discussion of Notice
Several commenters supported EPA’s
position that adequate notice was
provided on the use of FAFs in the
development of the statewide NOX
9 Both the ‘‘Corrected Response to Significant
Public Comments on the Proposed Clean Air
Interstate Rule’’ (pp. 520–576) and the ‘‘Technical
Support Document for the Clean Air Interstate Rule
Notice of Final Rulemaking, Regional and State SO2
and NOX Emissions Budgets’’ include information
on the use of FAFs for developing the statewide
NOX budgets.
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4. Use of FAF Approach To Determining
Statewide NOX Budgets in the Final
CAIR
Today’s action does not change the
use of the FAF methodology to
determine the statewide NOX budgets
for the CAIR. While EPA believes that
adequate notice was provided on the
use of the FAF approach and the
specific FAFs, EPA granted the petitions
on this issue in consideration of general
public interest in the matter. EPA
believes that today’s action, in
conjunction with the Notice of
Reconsideration, adequately responds to
concerns raised by the petitioners.
C. PM2.5 Modeling for Minnesota
One Petition for Reconsideration
asked EPA to reconsider whether
emissions from Minnesota significantly
contribute to downwind nonattainment
of the PM2.5 NAAQS. The petitioner
(Minnesota Power, or MP) asserted that
EPA’s modeling failed to account for
certain emissions reductions required
by State programs (especially those
required under the Minnesota Emissions
Reduction Program, or MERP). In
granting reconsideration, EPA explained
that it was aware of the emission
reductions in question when it made the
significant contribution determinations
in the final CAIR. EPA had accounted
for these reductions during the
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rulemaking by conducting a sensitivity
analysis (available in the CAIR docket),
but had not conducted revised air
quality modeling (70 FR at 72279–
72280). In response to the
reconsideration petition, EPA
conducted revised air quality modeling
which used the inputs reflecting
emission reductions required by the
MERP. This modeling showed
(consistent with the sensitivity analysis)
that Minnesota contributes a maximum
of 0.20 µg/m3 to the downwind PM2.5
nonattainment area of Chicago-GaryLake County, IL–IN. This modeling thus
supported EPA’s conclusion that
Minnesota’s contribution met the
criteria in CAIR for determining
‘‘significant contribution.’’ Id. This
revised air quality modeling used the
same modeling platform used for all of
the air quality modeling in CAIR. In the
Notice of Reconsideration, EPA solicited
comment on the inputs used to model
Minnesota emissions, but declined to
reconsider or reopen for public
comment issues relating to the air
quality modeling platform itself. Id. at
72280.
Most of the comments received on
this issue in response to the Notice of
Reconsideration supported EPA’s
conclusion. These include comments
from the Minnesota Pollution Control
Agency (MPCA), the entity with the
most direct knowledge of emission
reductions required by state programs.
EPA also received no adverse comments
from Xcel Energy, the entity that entered
into the MERP with the MPCA and
whose projected emission levels were
the centerpiece of the reconsideration
petition. In fact, no other power
generation source in Minnesota besides
Minnesota Power offered adverse
comments.10 EPA views these
comments as confirmation of the
reasonableness of the modeling
approach used by EPA to assess
significance of contribution of the State.
EPA also views these comments as
confirmation that its revised modeling
accurately accounts for the MERP
reductions.
Minnesota Power (MP) did not
comment on the revised emissions
modeling done for power sector units in
Minnesota and instead directed its
comments to the original emissions
modeling done for the Final CAIR that
did not fully account for the MERP
reductions. MP does not directly
challenge EPA’s conclusion that the
revised modeling accurately accounts
for the emission reductions required by
10 Another power company in the Midwest
region, Midwest Generation, supported EPA
emissions assessment for Minnesota.
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the MERP. MP claims, nonetheless, that
the model inputs for the final CAIR
modeling (not the modeling done for the
Notice of Reconsideration, as just noted)
contain errors. To the extent these
alleged errors relate to the MERP, EPA
has corrected the errors as explained
above.11 The additional ‘‘errors’’ of
which MP complains relate to inputs
regarding the projected 2010 emissions
for certain units in Minnesota. Although
MP states that EPA has mischaracterized
emissions from some units, EPA
believes that the emissions projections
done to provide inputs for the revised
air quality modeling described in the
Notice of Reconsideration are
appropriate.
EPA believes its method of projecting
power sector emissions for units in
Minnesota reflects a more accurate and
robust method for projecting emissions
than the method used by MP. MP
presents a method for projecting 2010
emissions for certain select units using
the combination of a 2001 emission rate
(based on Title IV data) and EPA’s
projected 2010 heat input projection
under the 2010 base case (no CAIR). MP
applies this method to several of its own
units and several owned by Xcel Energy.
MP claims that if these lower
emissions were used as inputs to the
PM2.5 modeling, that modeling would
show that Minnesota’s contribution is
below the PM2.5 significance threshold
of 0.2 µg/m3. However, the petitioner
was selective in its application of its
methodology for projecting emissions.
MP applies their method only for units
where that method results in emissions
projections that are lower than the
original EPA emissions projections.
Application of this approach to all
units in Minnesota would result in
emissions levels for several units in
2010 that are above EPA’s projections.
In such cases, however, MP relies upon
the lower EPA projections. It is also
11 The revised IPM modeling performed for the
reconsideration fully accounted for emission
reductions attributable to the MERP. These include
emission reductions from the repowering of the two
units at the Riverside plant from coal to natural gas
and the retirement of a third coal unit at the plant.
The inputs to the revised modeling for the Notice
of Reconsideration also accounted for emission
reductions from retrofit of the coal unit at the Allen
S. King plant with advanced pollution controls
(scrubber for SO2 removal and selective catalytic
reduction technology for NOX removal) and for
emission reductions from re-powering of two units
at the High Bridge plant that will be re-powered
from coal to natural gas. It should be noted that MP
has submitted revised projected emission levels for
certain Xcel units covered by the MERP. These
projections do not correspond precisely with the
projections EPA used in its revised modeling (but
are very similar). However, as explained below,
EPA believes the projections for these units used by
EPA are more accurate than the projections MP
suggests should be used.
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unclear why Minnesota Power used
2001 data to develop 2010 emission
levels, rather than 2004 data, for
example. Data from 2004 (as opposed to
2001 data), used in the manner MP has
done, would produce different
emissions levels of SO2 and NOX in
2010 for every unit in Minnesota.
Selectively developing projections in
this manner is an insufficient approach
for developing power sector forecasts
(see further discussion on IPM below).
MP also comments that ‘‘EPA had
erroneously assigned 2010 sulfur
dioxide emission rates on scrubbed
Minnesota units at values as much as
double that of the performance levels
posted in 2001.’’MP Comment p. 4.
After reviewing the modeling results,
EPA is unable to find any instances in
Minnesota where EPA projected SO2
emission rates of scrubbed units from
the revised power sector modeling that
are double that of the 2001 performance
level. Id. Although the emission rates
are higher in EPA 2010 projections for
the 3 Sherburne County Plant units than
2001 levels, they are well within
permitted levels at those units and
reflect projected changes in unit
operations to maximize efficiency (see
further discussion on IPM below).
MP also claims that ‘‘NOX emission
rates deviated between 2001 and 2010
without supportive operating rationale.’’
Id. The difference in NOX rates that MP
alludes to is again based upon the
modeling for the Final CAIR, not for the
Notice of Reconsideration. In addition,
MP’s characterization is inaccurate.
First and most important, EPA’s 2010
projections of NOX emission rates are
generally lower than 2001 NOX
emission rate data for Minnesota units.
EPA’s projections show that for the 7
non-MERP units in Minnesota where
MP provided revised NOX emission
estimates, 4 units have lower emission
rates in 2010 under EPA projections and
only 3 units will have higher emission
rates (compared to 2001 data). Of the 3
units where the 2010 emission rate
values are higher for those units in EPA
revised emissions modeling versus 2001
data, EPA finds that one unit is higher
by 2 percent and two units are higher by
about 7 percent. Differences in emission
rates of this magnitude can occur for a
variety of reasons and without
significant operational changes to a
particular unit. Also, the petitioner has
also failed to demonstrate that EPA’s
projected NOX emission rates are
inaccurate.
Another comment from MP stated that
‘‘the EPA IPM modeling had shifted
heat input from large, lower emission
units to higher emission units.’’ Id. A
comparison of the historical data from
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2001 with the revised emissions
modeling does not support this broad
conclusion. Heat input usage does not
change significantly, and although there
are some shifts in heat input usage
between 2010 EPA projections and the
2001 data, these shifts occur where the
IPM projects it will be cost-effective to
make relatively small changes to where
electricity is produced. In addition, EPA
does not accept the suggestion that
because a certain rate applied in 2001 it
should be applied in 2010. This
argument is not adequate and ignores
the many other factors that may change
in the future which could cause a
change in the way a unit produces
electricity. These include (among
others) fuel supply and demand
dynamics, the cost of technologies to
reduce emissions, relative performance
changes in power generation
technologies, and the price of an
allowance. EPA used a version of IPM
completed in 2004 that incorporated the
best available data for EPA’s power
sector database and the most recent cost
and performance of technologies at that
time, focusing on what emissions and
emission rates are likely to occur in
2010 with full consideration of all the
key factors of power plant operations
that can influence future emission
levels.
The power sector is a complicated,
interrelated, and interdependent system
of operation, and must be looked at
holistically to ascertain the sector’s
response to a certain set of conditions or
constraints. The petitioner’s approach
selectively chooses the methodology for
determining emissions at certain units
and ignores the changes that may occur
at other units as a result. In addition, it
is easy to question the choices or
assumptions that one makes for
selective forecasts of this nature, since
methodologies can be developed to
support foregone conclusions, like
lower emission levels in a future year.
For this reason, EPA uses the Integrated
Planning Model to develop its power
sector emissions projections.
IPM is a detailed, sophisticated, and
comprehensive electric power sector
model that is used to derive all manner
of projections for the power sector and
is used to develop the power sector
emissions projections that are used in
air quality modeling. The model
accurately reflects the power sector and
contains millions of variables to best
ascertain how specific facilities will
produce electricity to meet demand in
the most cost-effective manner possible.
The variables are based upon the best
available data, both current and
anticipated, and include permitted
emission rates for units, unit efficiency,
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cost data, and operational constraints.
This model has been used to support the
development of Title IV of the Clean Air
Act (the Acid Rain Program), the NOX
SIP Call, the Clean Air Interstate Rule,
the Clean Air Mercury Rule, and the
Clean Air Visibility Rule. In addition, it
is used by the Federal Energy
Regulatory Commission, private sector,
non-profits, research groups, States, and
regional planning organizations for
power sector projections. The model has
undergone extensive peer-review and
scrutiny, and EPA believes it is an
appropriate tool for use in developing
power sector emission projections and
better accounts for the many dynamics
that exist in the power sector (https://
www.epa.gov/airmarkets/epa-ipm/
index.html).
MP does not challenge the use of IPM
for developing power sector emission
projections for certain units, but
comments that at other units, a revised
methodology should be used. EPA
believes that a holistic approach is
necessary and using a modeling tool
that reflects the integrated nature of the
power sector as accurately as possible is
the most rational approach to
forecasting emissions for all units
comprehensively.
To its credit, MP also points out that
emissions from the Taconite Harbor
Facility (a facility that was recently
converted from an industrial source to
an electricity generating source) were
not included by EPA in either the power
sector emissions data or in other
emissions inventory used for CAIR
modeling. EPA will include the facility
in the next version of the IPM. If the
facility had been included in the
inventory, emissions in Minnesota
would have been higher by almost 2,000
tons of SO2 and about 1,150 tons NOX
than what EPA projected (according to
the commenter). Since EPA did not
include this facility, EPA believes that
its own projections of emissions in
Minnesota underestimate likely future
emissions.
MP also stated that it is ‘‘noteworthy
that there are other reductions that
Minnesota Power has not modeled that
should warrant consideration by EPA,
including those resulting from emission
controls provided on Minnesota BART
eligible units for the regional haze
program.’’ MP Comment p. 6. The
Regional Haze program requires Best
Available Retrofit Technology or BART
to be installed and operational on
sources that the State finds subject to
BART within five years after EPA
approves a State’s regional haze SIP.
These SIPs are due in December 2007.
EPA does not believe that States will
require the installation or operation of
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BART controls before 2010. Thus, it is
highly unlikely that 2010 emissions
would be affected by the BART
requirements. In addition, MP does not
quantify any reductions it believes will
occur due to the application of BART in
Minnesota. Thus, MP has not
established that there will be additional
reductions due to BART that must be
taken into account when projecting
2010 emissions for units in MN. It is
also important to note that EPA has
determined that CAIR achieves greater
progress than BART, and may be used
by States in the CAIR region as an
alternative to BART.
In sum, EPA continues to believe its
emission projections have reasonably
accounted for emission trends within
Minnesota and fully account for
emission reductions attributable to the
MERP. EPA believes the inputs used for
the modeling discussed in the Notice of
Reconsideration are reasonable and
rational projections of 2010 emissions in
Minnesota.12 For these reasons, EPA is
not making any additional changes to
the inputs to the PM2.5 modeling for
Minnesota, beyond those changes
described in the Notice of
Reconsideration.
For more detail on EPA’s
characterization of power sector units in
Minnesota and power sector emission
inputs to the air quality modeling,
please see the Technical Support
Document titled ‘‘Emissions in
Minnesota: Additional Analysis as Part
of the CAIR Reconsideration’’ that is
part of the record for this proceeding.
Minnesota Power also raised a new
issue in its comments on the Notice of
Reconsideration, which is that EPA
should use a more recent version of its
modeling platform to conduct air
quality modeling. MP argues that if EPA
had done so, Minnesota would be below
the PM2.5 significance threshold. EPA’s
modeling for the entire final CAIR (as
well as the revised Minnesota air quality
analysis) used the Community
Multiscale Air Quality (CMAQ) model
4.3. Minnesota Power, however,
advocates use of the post-CAIR CMAQ
4.5. The commenter states that the
CMAQ 4.5 includes corrections to a
mass stability problem in the version
(4.3) used by EPA.
As noted earlier, EPA stated when
granting reconsideration that it was not
reopening any issues dealing with the
modeling platforms used for the revised
Minnesota modeling. We reiterate that
position here. EPA used CMAQ 4.3 for
all of the air quality analyses conducted
12 Another power company in the Midwest
region, Midwest Generation, supported EPA
emissions assessment for Minnesota.
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for the final CAIR, and provided full
notice and opportunity to comment on
the appropriateness of the model. See 69
FR 47828 (August 6, 2004) (announcing
plan to use CMAQ 4.3 for the final rule);
see also 70 FR 25234–36 (summarizing
the use of CMAQ 4.3). There was ample
opportunity to comment on any issues
regarding the adequacy of the model
during the rulemaking. Nor is the
existence of a new iteration of the model
‘‘grounds for * * * objection ar[ising]
after the period for public comment’’
(CAA section 307(d)(7)(B)). Predictive
models are of course open to the
possibility of updating and so are often
adjusted. Such adjustments do not
normally occasion new opportunities
for comment, particularly after the close
of a rulemaking. Indeed, doing so would
create a perverse incentive to leave
models unadjusted. The ultimate issue
is whether the model used in the
rulemaking bears a ‘‘rational
relationship to the characteristics of the
data to which it is applied’’.
Appalachian Power v. EPA, 249 F. 3d
1032, 1052 (D.C. Cir. 2001). There has
already been full opportunity to
comment on this issue.
Accordingly, after careful
examination of Minnesota Power’s
petition, as well as all comments
submitted in response to EPA’s notice,
EPA continues to find that Minnesota
emissions contribute significantly to
downwind nonattainment of the PM2.5
NAAQS. EPA is therefore not amending
the rule to remove Minnesota from the
CAIR PM2.5 region.
D. Inclusion of Florida in the CAIR
Region for Ozone
Several petitioners sought
reconsideration of EPA’s determination
to include Florida within the CAIR
ozone region. Although there were
substantial arguments that EPA had
already provided adequate notice on
this issue (see 70 FR at 72280; several
commenters also indicated that this
issue had already been noticed), EPA
decided to grant the petition.
EPA included Florida within the
CAIR ozone region because emissions
passed all of the contribution metrics
EPA uses to evaluate significance of
contribution for ozone, and because
highly cost effective controls are
available to control NOX emissions from
the state. Specifically, Florida
contributes significantly to
nonattainment of the 8-hour ozone
NAAQS in Fulton County, Georgia
(which includes Atlanta). See 70 FR at
25249 (Table VI–9).
Many commenters agreed with EPA’s
analysis. The petitioners and other
commenters argued that Florida should
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not be included within the CAIR ozone
region at all, or that at most, only the
northern portion of the State should be
included. Although the reconsideration
petitions originally challenged EPA’s
factual basis for including Florida
within the CAIR ozone region, the
petitioners were able to duplicate EPA’s
modeling results relating to magnitude
of contribution, frequency of
contribution, and relative amount of
contribution (the three factors EPA
evaluated in determining whether an
upwind State’s contribution to a
downwind State could be considered
significant), and therefore are not
pursuing this claim. ‘‘Assessment of the
Contribution of Florida Emissions to
Ozone Nonattainment Under EPA’s
Clean Air Interstate Rule’’ (Morris, Tai,
Tesche, and McNally) (October, 2005)
(‘‘Ozone Report’’) at pp. 4–6 to 4–7; see
also Supplemental Brief of Florida
Power and Light in North Carolina v.
EPA (D.C. Cir. No. 05–1244) at p. 9;
Supplemental Brief of Florida Electric
Utilities in the same case at pp. 5–6.
Rather, the commenters are now
challenging how to interpret the relative
amount of contribution factor, which is
one of the initial screening factors used
by EPA to assess if it is appropriate to
further analyze the significance of a
State’s contribution to downwind ozone
nonattainment areas.
In assessing relative amount of
contribution, EPA stated that the
amount would not be considered to
contribute significantly if it was ‘‘less
than one percent of total nonattainment
in the downwind area’’. 70 FR at 25191
(at 70 FR 25175 and 70 FR 25246, EPA
incorrectly described the metric as ‘‘the
average contribution is greater than one
percent’’; the correct formulation is as
quoted above).13 The average percent
contribution of Florida to nonattainment
in Fulton County is 0.81%. Document
OAR–2003–0053–2214.14 Commenters
13 See also CAIR Air Quality Modeling Technical
Support Document at 32 (‘‘[t]his initial screening
was based on * * * a percent of total
nonattainment of less than 1 percent’’).
14 There are three parts to the calculation of the
average percent of nonattainment metric. In step 1,
the ozone values for each of the exceedance periods
in a particular downwind area (here, Fulton Co.) are
summed over the three episodes. In step 2, the total
ozone from the previous step that is due to
anthropogenic sources is calculated based on the
source apportionment results. In step 3, the
contributions from a given source region to this
downwind area are summed over the exceedance
periods. The total contribution calculated in step 3
is then divided by the total nonattainment ozone
resulting from manmade sources in step 2 to
determine the fraction of ozone that is due to
emissions from the upwind source area. The
fractional value is multiplied by 100 to express the
metric in terms of percent. The values in steps 1
and 2 are reported to the nearest integer. The value
in step 3 is reported with one digit to the right of
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argued that because 0.81% is less than
one percent, the relative amount of
contribution is too small and therefore
should not create a significant
contribution linkage.
For all relative amount of contribution
calculations (not just those involving
Florida and Fulton County), EPA
rounded the average percent of
contribution figure up or down to the
nearest integer value, so that values
0.5% and higher were rounded up to
one percent, and values less than 0.5%
were rounded down to zero.15 EPA
agrees with the petitioners (and other
commenters) that it would have been
preferable if EPA had stated this
rounding protocol explicitly.16 That
the decimal place. The final average percent of
nonattainment value is reported to the nearest
integer.
Applied to Florida NOX emissions to Fulton
County, this methodology yields the following:
Step 1: Over the three episodes modeled, there
was 120,511 ppb of ozone greater than or equal to
85.0 ppb (the level of the 8-hour NAAQS) in Fulton
County.
Step 2: From source apportionment modeling,
96,067 ppb of the ozone in Fulton Co. was
determined to be of anthropogenic origin.
Step 3: 781.0 ppb of the 8-hour ozone greater than
or equal to 85.0 ppb was determined via the source
apportionment approach to be from emissions in
Florida. Thus the average percent nonattainment is
0.81 percent. This value was rounded to 1 percent.
See generally the spreadsheet found in Document
OAR–2003–0053–2214.
15 These commenters also correctly identified a
small discrepancy in the final rule’s technical
analysis for assessing significance of upwind states’
contribution to downwind states’ ozone
nonattainment. However, as we now explain, this
discrepancy does not affect the ultimate
conclusions as to which States should be included
in the CAIR ozone control region. Values of the
average percent contribution metric that were less
than 1% after rounding to the nearest integer were
determined not to be significant and were dropped
from further evaluation. For the final CAIR
modeling, values of this metric were calculated to
one place to the right of the decimal, after rounding.
In a later step of the process, EPA then rounded
these data to the nearest integer. The net effect was
an inappropriate ‘‘double rounding’’ for values that
were between 0.450 and 0.499 percent. EPA has
recalculated the values for the average percent
contribution metric without the inappropriate
double rounding. Twenty upwind State-todownwind nonattainment area linkages had average
percent contribution values between 0.450 and
0.499 percent that were erroneously rounded to 1%
(rather than 0%). Of these twenty linkages, 19 did
not pass other screening criteria, so the linkages
were correctly categorized as not significant despite
the ‘‘double rounding’’ in the calculation of the
average percent contribution metric. The remaining
linkage (Mississippi’s contribution to Fulton Co.,
GA) did pass the other screening tests, but was
subsequently determined in the post-screening
aggregate determination of significance not to be
significant based on EPA’s evaluation of all of the
contribution metrics. EPA has corrected the ozone
contribution metrics tables in Appendix G of the
CAIR Air Quality Modeling Technical Support
Document.
16 Nor is this the only instance of where EPA used
the rounding protocol in applying the average
percent of contribution metric. In total, nine of the
226 significant linkages in the entire CAIR ozone
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being said, however, it is commonplace
to round fractions up or down to the
nearest integer.
These same commenters argued that
due to the rounding convention, EPA’s
screening criteria was really .5% rather
than one per cent and that this is too
low a level to be considered significant.
This comment appears to misapprehend
critical aspects of EPA’s significance
determination process. As described on
pp. 32–35 of the CAIR Air Quality
Modeling Technical Support Document,
this process contains four steps: (1)
Evaluation of contributions against
screening criteria, (2) evaluation of
contributions from zero out modeling,
(3) evaluation of contributions from
source apportionment modeling, and (4)
a final aggregate determination of
significance. The average percent
contribution metric is an initial
screening step (a step to screen out
contributions that are ‘‘clearly small’’,
see id. at 32), which does not by itself
identify a contribution as significant but
rather determines whether further
analysis of significance is justified. It is
customary and appropriate for such
initial screening steps to be
conservative, that is, to cast a wider net,
with further winnowing to occur in the
subsequent steps when more detailed
analysis is applied. EPA views the
average percent of contribution
screening level of one percent, with
customary rounding, as reasonable to
serve this screening function. This is
confirmed by the further analysis
applied to assess Florida contributions
to nonattainment of the 8-hour NAAQS
in Fulton County. In the case of the
Florida contribution, steps 2 and 3 of
the determination process indicated that
there are large and frequent
contributions from that State to elevated
ozone concentrations in Fulton Co.
EPA’s CAIR modeling estimates that
Florida can contribute as much as 3—
5 ppb, depending on the modeling
technique, toward modeled eight hour
ozone exceedance periods in Fulton Co.
Further, it was determined that between
10—13 percent of the modeled periods
above 85 ppb in Fulton Co. were
affected by at least 2 ppb of ozone that
resulted from emissions from Florida.17
This means that emissions from Florida
can cause as much as 6 percent (5 ppb/
region using this metric had average percent
contributions greater than or equal to 0.5 and less
than 1.0 percent. Two of these nine linkages,
involving Massachusetts’ average percent
contribution, were between 0.5 and 1.0 percent and,
like Florida’s, were rounded up to 1 percent. See
Revised Appendix G to Air Quality Modeling TSD.
17 The criteria used to distinguish which values
comprise a significant contribution are set out at p.
40 of the Air Quality Modeling TSD.
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85 ppb) of the ozone in Fulton County
during an exceedance period, and these
emissions contribute at least 2 ppb
during 10 per cent or more of Fulton
County’s exceedance periods, a
contribution that reasonably can be
regarded as significant. Accordingly,
based on the magnitude and frequency,
but not the relative amount of
contribution, EPA determined that
Florida’s contribution to nonattainment
in Fulton County, Georgia is
significant.18
Commenters further argued that EPA
was applying the rounding protocol
inconsistently because in other
instances, which they view as
comparable, EPA truncates fractional
digits (i.e. simply eliminates them),
rather than rounds them. The examples
given are the ozone magnitude of
contribution metric (actual amount of
ozone contributed by emissions in the
upwind State to nonattainment in the
downwind area), and the annual average
PM2.5 contribution threshold.
EPA does truncate when applying
each of these metrics. The ozone
magnitude of contribution metric
quantifies a maximum impact (in parts
per billion) on predicted exceedances
for a downwind nonattainment area.
The exceedance level—i.e. the level of
the standard—for the 8-hour ozone
NAAQS is 85 parts per billion (‘ppb’)
which is obtained by ‘‘report[ing] parts
per million values to the third decimal
place, with additional digits to the right
being truncated’’. 40 CFR part 50 App.
I (‘‘Interpretation of the 8-Hour Primary
and Secondary National Ambient Air
Quality Standard for Ozone’’) at 2.1.1.
The truncation protocol used in the
magnitude of contribution metric is thus
directly related to the form of the
NAAQS itself. Because the magnitude of
contribution metric is tied directly to
the 8-hour NAAQS exceedance level,
EPA uses the identical truncation
protocol as is used in the NAAQS. In
contrast, the average percent of
nonattainment metric is not directly
related to the form of the 8-hour ozone
NAAQS (indeed, it is not related at all).
As stated earlier, and illustrated in note
14 above, the metric assesses overall
impacts which are expressed by
aggregating all the impacts of a State on
a downwind receptor divided by the
total impacts from all anthropogenic
18 As explained on p. 33 of the Air Quality
Modeling TSD, for linkages in which the three
contribution factors were not unanimous, we
required that two of the three factors had to indicate
high magnitude, frequent, and/or relatively large
contributions in order to find that the linkage was
significant. EPA applied this approach consistently
to each of the linkages for which it made a
significance determination.
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emissions. Since there is no direct
comparison with the ozone NAAQS,
there is no reason to utilize the
conventions used in expressing that
NAAQS.
The comments also maintain that EPA
used a different protocol to evaluate
when an upwind State’s contribution to
downwind nonattainment of the PM2.5
NAAQS is significant. EPA’s metric for
determining significant contribution to
PM2.5 NAAQS nonattainment is 1 % of
the standard, or .15 µg/m3 which EPA
rounds up to 0.2 µg/m3. 70 FR at 25191.
EPA took this step to avoid expressing
the contribution metric using a greater
level of precision (i.e. a greater number
of digits) than is used in the NAAQS
itself. Id. Since the PM2.5 contribution
metric is expressed as a direct
percentage of the NAAQS itself, it is
appropriate that it conform to the form
of the NAAQS. The percent of
nonattainment metric at issue here, as
explained above, is not directly related
to the form of the 8-hour ozone NAAQS,
so there is no reason to adopt the
conventions which are part of that form.
For the same reason, there is no
inconsistency in EPA’s approach in
choosing for purposes of PM
contribution expressed in terms of a
percent of the PM2.5 NAAQS to use the
conventions used in the form of that
NAAQS.
The comments go on to say that even
if it is reasonable to include Florida
within the CAIR ozone region, only a
portion of the state (the northern portion
as delineated in the comments) should
be included rather than the entire state.
The commenters have the burden of
demonstrating that EPA’s approach of
assessing significant contribution based
on the collective emissions from the
entire state lacks rationality.
Appalachian Power v. EPA, 249 F. 3d
1032, 1050 (D.C. Cir. 2001); see also
State of Michigan v. EPA, 213 F. 3d 663,
683–84 (D.C. Cir. 2000) (burden is on
the party seeking to exclude a portion of
a State to demonstrate that the portion
is ‘‘innocent of material contribution’’).
As EPA explained in responding to
these same commenters’ motions for a
stay of the rule in the D.C. Circuit
(which response is part of the
administrative record for this
proceeding), not only have the
commenters failed to carry their burden,
but their modeling confirms that Florida
represents a classic instance of
collective contribution to downwind
nonattainment. The commenters’ report
shows that both the (posited) northern
and southern regions contribute
substantial portions of the total ozone
loading from Florida to Fulton County,
namely 69 percent from the northern
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25321
region and 31 percent from the southern
region. Ozone Report at 5–3. Nor does
there appear to be any basis for the
north-south divisions put forward in the
comments. Not only does the report
underlying the comments itself concede
that there are a multitude of potential
divisions (the Report suggests six ozone
subregions in various permutations, and
the Report further states that ‘‘clearly
numerous other ones could be also be
constructed’’ (Ozone Report at 5–1)), but
that the ones put forward were done so
essentially to show that the (posited)
northern portion met significance
criteria but the (posited) southern
portion(s) does not. Ozone Report at 3–
2. Accordingly, EPA does not agree with
the commenters’ arguments that
contribution must be assessed on a
different basis than EPA used in the
rule.
E. Impact on CAIR Analyses of D.C.
Circuit Decision in New York v. EPA
As described in the December 29,
2005 CAIR Supplemental Notice of
Reconsideration, ‘‘Rule To Reduce
Interstate Transport of Fine Particulate
Matter and Ozone (Clean Air Interstate
Rule): Supplemental Notice of
Reconsideration’’ (70 FR 77101–77113),
EPA decided to grant Petitioner’s
request that EPA reconsider the impact
of New York v. EPA, 413 F.3d 3 (D.C.
Cir. 2005) on certain analyses prepared
for the final CAIR. One petitioner
claimed that this June 2005 opinion of
the D.C. Circuit raised questions about
the sufficiency of certain analyses
prepared for the CAIR. Among other
things, the opinion vacated a provision
of the New Source Review (NSR)
regulations, commonly known as the
pollution control project (PCP)
exclusion. The CAIR Supplemental
Notice of Reconsideration explained
that EPA reviewed the petition for
reconsideration and analyzed the
potential impact of New York v. EPA on
CAIR analyses regarding costeffectiveness and timing. This analysis
indicated that, as a result of the New
York v. EPA decision, some electric
generating units (EGUs) that install SO2
and/or NOX controls for CAIR may incur
relatively minor additional costs and a
few such units may be subject to
additional permitting requirements, but
that these potential impacts will neither
affect the highly cost-effective
determination that the Agency made in
CAIR nor impact the timeframe for CAIR
reductions.
The CAIR Supplemental Notice of
Reconsideration presented this and
concluded that the potential impacts of
the D.C. Circuit Decision in New York
v. EPA do not alter the final highly cost-
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effective determination made in the
final CAIR and do not affect the
feasibility of implementing the CAIR
reductions in the required timeframe.
Thus, the CAIR Supplemental Notice of
Reconsideration did not propose any
modifications to the final CAIR.
Today’s action finalizes EPA’s
determination that no modifications to
the final CAIR are needed to address
this issue and responds to public
comments received on the CAIR
Supplemental Notice of
Reconsideration.
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1. Background on the Impact on CAIR
Analyses of D.C. Circuit Decision in
New York v. EPA
For background information on this
issue, please refer to the CAIR
Supplemental Notice of Reconsideration
(70 FR 77103–77113).
2. Additional Analysis on the Impact on
CAIR Analyses of D.C. Circuit Decision
in New York v. EPA Presented in the
CAIR Supplemental Notice of
Reconsideration
The CAIR Supplemental Notice of
Reconsideration presented analysis that
EPA conducted to evaluate the potential
impact on CAIR Analyses of the D.C.
Circuit Decision in New York v. EPA.
The analysis first examined the
potential cost and timing impacts of the
decision, assuming units would take
measures to mitigate any potential
significant collateral increases in
emissions of NSR-regulated pollutants.
Then, the analysis examined the
potential impact of NSR permitting on
the CAIR cost-effectiveness and timing
analyses.
First, the analysis looked at the
potential costs and timing implications
of measures that could be taken to
mitigate collateral emission increases
and thus avoid NSR permitting. As part
of the analysis, EPA made several
assumptions it believes to be generally
very conservative. However, the
analysis still showed that the potential
impacts would neither affect the highly
cost-effective determination that the
Agency made in the CAIR nor impact
the timeframe for CAIR reductions. (See
70 FR 77105–77109).
Second, the analysis examined the
potential impact of NSR permitting. It
showed that, although sources installing
controls for CAIR generally will have
options to avoid triggering NSR for
collateral increases, some sources may
conduct projects that could result in a
net emissions increase despite possible
mitigation measures. These sources
might therefore apply for and obtain the
necessary NSR permits to address such
increase. EPA’s analysis showed,
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however, that the impact of permitting
of such sources on EPA’s CAIR analyses
is minimal. The Agency believes that
the impacts of choosing to undertake
NSR for these units are not substantial
enough to affect the CAIR highly costeffective determination or the feasibility
and timing analysis. (See 70 FR 77109–
77111).
Overall, the analysis presented in the
CAIR Supplemental Notice of
Reconsideration showed that the
decision to vacate the PCP exclusion
under NSR does not require any
modification of the final CAIR. The
Notice thus did not propose any
changes to the CAIR.
3. Public Comment on the CAIR
Supplemental Notice of Reconsideration
EPA received several comments on
the Supplemental Notice of
Reconsideration.19 Most of the
commenters supported the conclusions
in EPA’s analysis regarding the impact
of the New York v. EPA decision on
both the cost-effectiveness analysis and
timing analysis prepared for CAIR.
Some commenters, however, did
disagree with some aspects of the
analysis that EPA performed in coming
to its conclusion.
One commenter, who generally agreed
with EPA’s conclusion that the potential
impacts of D.C. Circuit Decision in New
York v. EPA do not alter the final highly
cost-effective determination made in the
final CAIR and do not affect the
feasibility of implementing the CAIR
reductions in the required timeframe,
disagreed with several points in the
supporting analysis. First, the
commenter does not believe that the
emissions increases associated with coal
switching identified in two categories of
controls in EPA’s analysis would be
considered in calculating collateral
emission increases. While EPA agrees
that in most cases coal switching would
not be included in calculating collateral
emission increases for a PCP, this
inclusion/exclusion is dependent upon
the specific permit of the affected
source. In its analysis, EPA made the
conservative assumption that coal
switching would be included in
calculating collateral emission increases
for PCPs involving SCR and/or FGD
retrofits.
In its cost-effectiveness analysis, EPA
also made the conservative assumptions
that all EGUs that will install SCR and/
or wet FGD will experience a significant
emissions increase in sulfuric acid mist
and that all of those EGUs will install
a wet ESP to mitigate those emissions.
19 These documents are available in the docket for
the CAIR (EPA–OAR–2003–0053).
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The commenter believes these
assumptions are unrealistic. The Agency
agrees that these assumptions lead to an
overestimate of the cost impact of the
decision in New York v. EPA, since the
number of EGUs with collateral
increases in sulfuric acid mist will be
much smaller than the universe
assumed in EPA’s analysis and that the
BACT determinations in those cases
with significant increases in sulfuric
acid mist may not involve the
installation of wet ESP due to its high
cost. As mentioned in the CAIR
Supplemental Notice of
Reconsideration, historically, BACT for
sulfuric acid mist at combustion sources
generally has been switching to lower
sulfur coal or installation of wet FGD.
The commenter argued that EPA
improperly assumed that condensable
emissions are regulated as a component
of PM, and suggested that EPA’s
analysis was flawed in this respect. It
should also be noted that EPA is not
taking action to change the manner in
which EPA treats condensable
emissions. Further, the status of
condensable emissions as a regulated
NSR pollutant does not change the
outcome of the Agency analysis
discussed here. This analysis, which
assumed that sulfuric acid mist would
be regulated as a component of
particulates, concludes that the New
York v. EPA decision will not change
the conclusions of the cost-effectiveness
and timing analyses prepared for
CAIR.20 If EPA were to assume, as the
commenter suggests, that these
emissions are not regulated as NSR
pollutants, the conclusion of EPA’s
analysis would only be strengthened.21
The same commenter also suggested
that for some large EGUs burning high
sulfur coal and installing wet FGD,
sulfuric acid mist emissions may exceed
the NSR threshold. While this may be
true in some cases, EPA does not feel
that this will undermine the
conclusions of the analysis in the CAIR
Supplemental Notice of Reconsideration
because of the very conservative
assumptions made throughout the
analysis (For purposes of its cost
20 The commenter challenges these conclusions
and says they only hold true if condensables are not
regulated. However, the commenter offers no
analysis to support this assertion or to identify any
errors in EPA’s analysis to support this argument.
21 The commenter further notes that it would
disagree with the conclusions in EPA’s analysis if
it assumes condensables are regulated; however, it
does not provide any analysis to demonstrate that
EPA’s conclusions are flawed. As explained above
and in the Supplemental Notice of Reconsideration,
EPA’s analysis shows that, even when very
conservative assumptions are made, the court
decision does not alter the conclusions of the
analyses supporting the CAIR.
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analysis, EPA assumed that these units
installed wet ESP). It is difficult to
estimate the number of such units
without permit information for all units
at which this may occur. Further, as
mentioned in the CAIR Supplemental
Notice of Reconsideration, much of the
SO3 produced by SCR does not reach
the stack; SCR conditions favor a
reaction between SO3 and ammonia that
produces ammonia bisulfate, which
condenses to form solid PM, the
majority of which will be captured in
the unit’s particulate control device.
Thus, EPA does not feel that many such
units will reach the NSR threshold for
sulfuric acid mist.
Another commenter disagreed with
EPA’s assessment of potential collateral
increases in CO from low NOX burners
(LNB). While EPA believes that
installing combustion control systems
can lead to collateral increases in CO,
triggering NSR, generally LNB will not
significantly affect the combustion
process and production of CO. It is the
Agency’s position that increases in CO
can be minimized through adjustments
of combustion control systems (e.g.,
good combustion practices), and at this
time there are no other cost-effective
control options for reducing CO.
Therefore, even in cases where NSR is
triggered, no significant additional
control costs would be incurred.
A third commenter asserts that ‘‘based
upon EPA’s discussion in the
Reconsideration Decision, [the
commenter] understands that only those
analyses performed by EPA and
described in the Reconsideration
Decision are needed to assess whether a
PCP undertaken for CAIR compliance
would increase emissions of any NSR
regulated pollutant in an amount that
exceeds the applicable NSR significance
level. If there are other methods or
means by which EPA believes a PCP
performed for CAIR compliance would
trigger NSR, or if, using EPA emission
increase methodologies, EPA believes or
would find that other air pollutant
emissions would increase above an
applicable NSR significance level as a
result of PCPs that are expected to be
performed for CAIR compliance, then
the Reconsideration Decision is
deficient.’’
The analysis presented in the CAIR
Supplemental Notice of Reconsideration
addresses only those general categories
of projects that would have qualified as
PCPs under the NSR rules vacated by
the court and that we believe have the
potential to increase collateral
emissions of NSR regulated pollutants
enough to trigger NSR. It is not our
intent, nor is it within the scope of our
analysis, to consider at this time what
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permitting requirements might apply to
all categories of pollution control
activities (including those that were not
listed as a PCP under the NSR rules)
that might be undertaken by EGUs
attempting to comply with the CAIR
requirements. The analysis was
conducted to determine whether the
elimination of the PCP exemption
would impact the cost-effectiveness and
timing analyses for the CAIR. Potential
permitting requirements for categories
of activities that would not have been
subject to that exemption are not
relevant to that analysis.22
On all other major points,
commenters agreed with EPA’s analysis,
and half of the commenters also
explicitly agreed with EPA’s conclusion
that impacts of D.C. Circuit Decision in
New York v. EPA do not alter the final
highly cost-effective determination
made in the final CAIR and do not affect
the feasibility of implementing the CAIR
reductions in the required timeframe. It
should also be noted that other than the
four commenters, no other affected
parties offered problems associated with
the impacts of D.C. Circuit Decision in
New York v. EPA that might undermine
the final CAIR cost-effective
determination and timing of compliance
dates.
Today’s action does not modify the
final CAIR. In the CAIR Supplemental
Notice of Reconsideration, EPA
announced that it would reconsider the
impact of the New York v. EPA decision
on cost-effectiveness and timing
analyses prepared for the CAIR. The
EPA analyzed the potential impact of
the decision and solicited, considered
and responded to public comment on
that analysis. The EPA’s analysis shows
that the D.C. Circuit Decision in New
York v. EPA does not significantly
impact either the CAIR costeffectiveness determination or the
compliance dates. For that reason, EPA
has determined that modifications to the
final CAIR are not warranted. The
Agency believes that installation of
emission controls for CAIR, as well as
other programs, is extremely beneficial
and is working on ways to minimize
permitting issues associated with
installation of these devices in a way
that is consistent with the D.C. Circuit
Decision in New York v. EPA.
22 The analysis addresses all relevant categories of
PCPs of which EPA is currently aware. The
commenter failed to identify any concrete problems
that they were concerned about facing or other
relevant categories of PCPs. Moreover, in addressing
the relevant general categories of PCPs, EPA does
not purport to make determinations about whether
NSR would be triggered in any specific PCPs
undertaken to comply with the CAIR, EPA will
consider, and make determinations based on, the
specific circumstances of those projects.
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IV. Statutory and Executive Order
Reviews
A. Executive Order 12866: Regulatory
Planning and Review
Under Executive Order 12866 (58 FR
51735, October 4, 1993), the Agency
must determine whether the regulatory
action is ‘‘significant’’ and, therefore,
subject to Office of Management and
Budget (OMB) review and the
requirements of the Executive Order.
The Order defines ‘‘significant
regulatory action’’ as one that is likely
to result in a rule that may:
(1) Have an annual effect on the
economy of $100 million or more or
adversely affect in a material way the
economy, a sector of the economy,
productivity, competition, jobs, the
environment, public health or safety, or
State, local, or Tribal governments or
communities;
(2) Create a serious inconsistency or
otherwise interfere with an action taken
or planned by another agency;
(3) Materially alter the budgetary
impact of entitlements, grants, user fees,
or loan programs or the rights and
obligations of recipients thereof; or
(4) Raise novel legal or policy issues
arising out of legal mandates, the
President’s priorities, or the principles
set forth in the Executive Order.
Pursuant to the terms of Executive
Order 12866, OMB has determined that
this is a significant regulatory action in
view of its important policy
implications. As a result, this action was
submitted to OMB for review. However,
this action does not promulgate any
modifications to the CAIR. Therefore a
regulatory impact analysis was not
prepared.
B. Paperwork Reduction Act
This action does not promulgate
information collection request
requirements under the provisions of
the Paperwork Reduction Act, 44 U.S.C.
3501 et seq. Therefore, an information
collection request document is not
required.
Burden means the total time, effort, or
financial resources expended by persons
to generate, maintain, retain, or disclose
or provide information to or for a
Federal agency. This includes the time
needed to review instructions; develop,
acquire, install, and utilize technology
and systems for the purposes of
collecting, validating, and verifying
information, processing and
maintaining information, and disclosing
and providing information; adjust the
existing ways to comply with any
previously applicable instructions and
requirements; train personnel to be able
to respond to a collection of
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information; search data sources;
complete and review the collection of
information; and transmit or otherwise
disclose the information.
An agency may not conduct or
sponsor, and a person is not required to
respond to a collection of information
unless it displays a currently valid OMB
control number. The OMB control
numbers for EPA’s regulations in 40
CFR are listed in 40 CFR part 9.
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C. Regulatory Flexibility Act
EPA has determined that it is not
necessary to prepare a regulatory
flexibility analysis in connection with
this final rule.
For purposes of assessing the impacts
of today’s notice on small entities, small
entity is defined as: (1) A small business
that is a small industrial entity as
defined in the U.S. Small Business
Administration (SBA) size standards.
(See 13 CFR part 121.); (2) a
governmental jurisdiction that is a
government of a city, county, town,
school district or special district with a
population of less than 50,000; and (3)
a small organization that is any not-forprofit enterprise which is independently
owned and operated and is not
dominant in its field.
After considering the economic
impacts of today’s notice on small
entities, I have concluded that this
action will not have a significant
economic impact on a substantial
number of small entities. This notice
does not impose any requirements on
small entities. This notice does not
promulgate any modifications to the
CAIR.
D. Unfunded Mandates Reform Act
Title II of the Unfunded Mandates
Reform Act of 1995 (UMRA), Public
Law 104–4, establishes requirements for
Federal agencies to assess the effects of
their regulatory actions on State, local,
and Tribal governments and the private
sector. Under section 202 of the UMRA,
EPA generally must prepare a written
statement, including a cost-benefit
analysis, for proposed and final rules
with ‘‘Federal mandates’’ that may
result in expenditures by State, local,
and Tribal governments, in the
aggregate, or by the private sector, of
$100 million or more in any 1 year.
Before promulgating an EPA rule for
which a written statement is needed,
UMRA section 205 generally requires
EPA to identify and consider a
reasonable number of regulatory
alternatives and adopt the least costly,
most cost-effective, or least-burdensome
alternative that achieves the objectives
of the rule. The provisions of section
205 do not apply when they are
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inconsistent with applicable law.
Moreover, section 205 allows EPA to
adopt an alternative other than the leastcostly, most cost-effective, or leastburdensome alternative if the
Administrator publishes with the final
rule an explanation why that alternative
was not adopted. Before EPA establishes
any regulatory requirements that may
significantly or uniquely affect small
governments, including tribal
governments, it must have developed,
under section 203 of the UMRA, a small
government agency plan. The plan must
provide for notifying potentially
affected small governments, enabling
officials of affected small governments
to have meaningful and timely input in
the development of EPA’s regulatory
proposals with significant Federal
intergovernmental mandates, and
informing, educating, and advising
small governments on compliance with
the regulatory requirements.
The EPA has determined that today’s
notice does not contain a Federal
mandate that may result in expenditures
of $100 million or more for State, local,
and Tribal governments, in the
aggregate, or the private sector in any 1
year. Today’s notice does not add new
requirements that would increase the
cost of the CAIR. Thus, today’s notice is
not subject to the requirements of
sections 202 and 205 of the UMRA. In
addition, EPA has determined that
today’s notice does not significantly or
uniquely affect small governments
because it contains no requirements that
apply to such governments or impose
obligations upon them. Therefore,
today’s notice is not subject to section
203 of the UMRA.
E. Executive Order 13132: Federalism
Executive Order 13132, entitled
‘‘Federalism’’ (64 FR 43255, August 10,
1999), 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.’’
This action does not have federalism
implications. It would 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
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Executive Order 13132. The CAA
establishes the relationship between the
Federal Government and the States, and
this action would not impact that
relationship. Thus, Executive Order
13132 does not apply to this action.
F. Executive Order 13175: Consultation
and 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.’’
For the same reasons stated in the
final CAIR 23, today’s notice does not
have Tribal implications as defined by
Executive Order 13175. It does not have
a substantial direct effect on one or
more Indian Tribes, since no Tribe has
implemented a federally-enforceable air
quality management program under the
CAA at this time. Furthermore, this
action does not affect the relationship or
distribution of power and
responsibilities between the Federal
government and Indian Tribes. The
CAA and the Tribal Air Rule establish
the relationship of the Federal
government and Tribes in developing
plans to attain the NAAQS, and today’s
notice does nothing to modify that
relationship. Because this notice does
not have Tribal implications, Executive
Order 13175 does not apply.
If one assumes a Tribe is
implementing a Tribal implementation
plan, the CAIR could have implications
for that Tribe, but it would not impose
substantial direct costs upon the Tribe,
nor would it preempt Tribal Law.
Although Executive Order 13175 does
not apply to the CAIR or this notice of
final action on reconsideration of the
CAIR, EPA consulted with Tribal
officials in developing the CAIR.
G. Executive Order 13045: Protection of
Children From Environmental Health
and Safety Risks
Executive Order 13045: ‘‘Protection of
Children From Environmental Health
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
disproportionate effect on children. If
the regulatory action meets both criteria,
the Agency must evaluate the
23 https://www.epa.gov/cair.
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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 notice is not subject to Executive
Order 13045 because it does not involve
decisions on environmental health risks
or safety risks that may
disproportionately affect children. The
EPA believes that the emissions
reductions from the CAIR will further
improve air quality and children’s
health.
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H. Executive Order 13211: Actions That
Significantly Affect Energy Supply,
Distribution, or Use
Executive Order 13211 (66 FR 28355,
May 22, 2001) provides that agencies
shall prepare and submit to the
Administrator of the Office of
Regulatory Affairs, OMB, a Statement of
Energy Effects for certain actions
identified as ‘‘significant energy
actions.’’ Section 4(b) of Executive
Order 13211 defines ‘‘significant energy
actions’’ as ‘‘any action by an agency
(normally published in the Federal
Register) that promulgates or is
expected to lead to the promulgation of
a final rule or regulation, including
notices of inquiry, advance notices of
final rulemaking, and notices of final
rulemaking (1)(i) that is a significant
regulatory action under Executive Order
12866 or any successor order, and (ii) is
likely to have a significant adverse effect
on the supply, distribution, or use of
energy; or (2) that is designated by the
Administrator of the Office of
Information and Regulatory Affairs as a
significant energy action.’’ The final
CAIR is a significant regulatory action
under Executive Order 12866, and EPA
concluded that the final CAIR rule may
have a significant adverse effect on the
supply, distribution, or use of energy.
The impacts are detailed in the final
CAIR (70 FR 25315). Today’s notice is
a significant action under Executive
Order 12866, but it is not a rulemaking
action and does not revise the final
CAIR rule in any way. Therefore this
action does not change EPA’s previous
conclusions regarding the energy
impacts of CAIR. EPA’s analysis of these
impacts is explained in the preamble to
the CAIR (70 FR 25315–16) and in the
Regulatory Impact Analysis for the Final
CAIR (March 2005).
I. National Technology Transfer
Advancement Act
Section 12(d) of the National
Technology Transfer Advancement Act
of 1995, Public Law No. 104–113,
section 12(d) (15 U.S.C. 272 note)
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directs EPA to use voluntary consensus
standards in its regulatory activities
unless to do so would be inconsistent
with applicable law or otherwise
impractical. Voluntary consensus
standards are technical standards (e.g.,
materials specifications, test methods,
sampling procedures, and business
practices) that are developed or adopted
by voluntary consensus standards
bodies. The National Technology
Transfer Advancement Act of 1995
directs EPA to provide Congress,
through OMB, explanations when the
Agency decides not to use available and
applicable voluntary consensus
standards.
Today’s notice does not involve
technical standards. Therefore, the
National Technology Transfer and
Advancement Act of 1995 does not
apply.
J. Executive Order 12898: Federal
Actions To Address Environmental
Justice in Minority Populations and
Low-Income Populations
Executive Order 12898, ‘‘Federal
Actions to Address Environmental
Justice in Minority Populations and
Low-Income Populations,’’ requires
Federal agencies to consider the impact
of programs, policies, and activities on
minority populations and low-income
populations. According to EPA
guidance,24 agencies are to assess
whether minority or low-income
populations face risks or a rate of
exposure to hazards that are significant
and that ‘‘appreciably exceed or is likely
to appreciably exceed the risk or rate to
the general population or to the
appropriate comparison group.’’ (EPA,
1998).
In accordance with Executive Order
12898, the Agency has considered
whether the CAIR may have
disproportionate negative impacts on
minority or low income populations.
The EPA expects the CAIR to lead to
reductions in air pollution and
exposures generally. Therefore, EPA
concluded that negative impacts to
these sub-populations that appreciably
exceed similar impacts to the general
population are not expected. For the
same reasons, EPA is drawing the same
conclusion for today’s notice to
reconsider certain aspects of the CAIR.
K. Congressional Review Act
The Congressional Review Act, 5
U.S.C. 801 et seq., as added by the Small
Business Regulatory Enforcement
24 U.S.
Environmental Protection Agency, 1998.
Guidance for Incorporating Environmental Justice
Concerns in EPA’s NEPA Compliance Analyses.
Office of Federal Activities, Washington, DC, April,
1998.
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25325
Fairness Act of 1996, generally provides
that before a rule may take effect, the
agency promulgating the rule must
submit a rule report, which includes a
copy of the rule, to each House of the
Congress and to the Comptroller General
of the United States. The EPA will
submit a report containing this notice
and other required information to the
U.S. Senate, the U.S. House of
Representatives, and the Comptroller
General of the United States prior to
publication of the notice in the Federal
Register. A major rule cannot take effect
until 60 days after it is published in the
Federal Register. This action is not a
‘‘major rule’’ as defined by 5 U.S.C. 804.
L. Judicial Review
Section 307(b)(1) of the CAA indicates
which Federal Courts of Appeal have
venue for petitions of review of final
actions by EPA. This section provides,
in part, that petitions for review must be
filed in the Court of Appeals for the
District of Columbia Circuit if (i) the
agency action consists of ‘‘nationally
applicable regulations promulgated, or
final action taken, by the
Administrator,’’ or (ii) such action is
locally or regionally applicable, if ‘‘such
action is based on a determination of
nationwide scope or effect and if in
taking such action the Administrator
finds and publishes that such action is
based on such a determination.’’
Final actions described in this Notice
of Final Action on Reconsideration are
‘‘nationally applicable’’ within the
meaning of section 307(b)(1). This
Notice explains the final actions EPA is
taking on the petitions for
reconsideration of the CAIR. It describes
EPA’s final action on the six issues for
which EPA previously granted
reconsideration, and provides notice of
EPA’s decision to deny reconsideration
of several additional issues. EPA has
determined that all of these actions are
of nationwide scope and effect for
purposes of section 307(d)(1) because
the actions directly affect the CAIR,
which previously was found to be of
nationwide scope and effect. Thus, any
petitions for review of the final
described in this Notice must be filed in
the Court of Appeals for the District of
Columbia Circuit within 60 days from
the date this Notice is published in the
Federal Register.
List of Subjects
40 CFR Part 51
Administrative practice and
procedure, Air pollution control,
Intergovernmental relations, Nitrogen
oxides, Ozone, Particulate matter,
Regional haze, Reporting and
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recordkeeping requirements, Sulfur
dioxide.
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40 CFR Part 96
Administrative practice and
procedure, Air pollution control,
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Electric utilities, Nitrogen oxides,
Reporting and recordkeeping
requirements, Sulfur dioxide.
Dated: March 15, 2006.
Stephen L. Johnson,
Administrator.
[FR Doc. 06–2693 Filed 4–27–06; 8:45 am]
BILLING CODE 6560–50–P
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]]>Agencies
[Federal Register Volume 71, Number 82 (Friday, April 28, 2006)]
[Rules and Regulations]
[Pages 25304-25326]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-2693]
[[Page 25303]]
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Part III
Environmental Protection Agency
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40 CFR Parts 51 and 96
Rule To Reduce Interstate Transport of Fine Particulate Matter and
Ozone (Clean Air Interstate Rule): Reconsideration; Final Rule
Federal Register / Vol. 71, No. 82 / Friday, April 28, 2006 / Rules
and Regulations
[[Page 25304]]
-----------------------------------------------------------------------
ENVIRONMENTAL PROTECTION AGENCY
40 CFR Parts 51 and 96
[OAR 2003-0053; FRL-8047-9]
RIN 2060-AN57
Rule To Reduce Interstate Transport of Fine Particulate Matter
and Ozone (Clean Air Interstate Rule): Reconsideration
AGENCY: Environmental Protection Agency (EPA).
ACTION: Final notice of reconsideration.
-----------------------------------------------------------------------
SUMMARY: On May 12, 2005, EPA published in the Federal Register the
final ``Rule to Reduce Interstate Transport of Fine Particulate Matter
and Ozone'' (Clean Air Interstate Rule or CAIR). The CAIR requires
certain upwind States to reduce emissions of nitrogen oxides
(NOX) and/or sulfur dioxide (SO2) that
significantly contribute to nonattainment of, or interfere with
maintenance by, downwind States with respect to the fine particle and/
or 8-hour ozone national ambient air quality standards (NAAQS).
Subsequently, EPA received 12 petitions for reconsideration of the
final rule. On December 2, 2005, EPA published a notice of its decision
to grant reconsideration of four issues raised in the petitions for
reconsideration, and granted an additional opportunity for public
comment. On December 29, 2005, EPA published a notice of its decision
to grant reconsideration of an additional issue raised by a petition
for reconsideration, and again granted an additional opportunity for
public comment. In this notice, EPA is announcing its final decisions
on the five specific issues addressed in the December 2005 notices.
DATES: Effective Dates: This reconsideration is effective June 27,
2006.
FOR FURTHER INFORMATION CONTACT: For general questions concerning
today's action, please contact Carla Oldham, U.S. EPA, Office of Air
Quality Planning and Standards, Air Quality Strategies and Standards
Division, Mail Code C504-03, Research Triangle Park, NC 27711, phone
number (919) 54l-3347, e-mail address oldham.carla@epa.gov. For
questions concerning the analyses described in section III of this
notice, please contact Chitra Kumar, U.S. EPA, Office of Atmospheric
Programs, Clean Air Markets Division, Mail Code 6204J, 1200
Pennsylvania Avenue, NW., Washington, DC 20460, telephone (202) 343-
9128, e-mail address kumar.chitra@epa.gov. For legal questions, please
contact Sonja Rodman, U.S. EPA, Office of General Counsel, Mail Code
2344A, 1200 Pennsylvania Avenue, NW., Washington, DC 20460, telephone
202-564-4079, e-mail address rodman.sonja@epa.gov.
SUPPLEMENTARY INFORMATION:
Does This Action Apply to Me?
The CAIR does not directly regulate emissions sources. Instead, it
requires States to develop, adopt, and submit SIP revisions that would
achieve the necessary SO2 and NOX emissions
reductions, and leaves to the States the task of determining how to
obtain those reductions, including which entities to regulate.
How Can I Get Copies of This Document and Other Related Information?
1. Docket. EPA has established a docket for action related to the
CAIR under Docket ID No. EPA-HQ-OAR-2003-0053. All documents in the
docket are listed in the https://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 hard copy. Publicly available docket materials are
available either electronically in https://www.regulations.gov or in
hard copy at the EPA Docket Center (Air Docket), EPA/DC, EPA West, Room
B102, 1301 Constitution Ave., NW., Washington, DC. The Public Reading
Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday,
excluding legal holidays. The telephone number for the Public Reading
Room is (202) 566-1744.
2. Electronic Access. You may access this Federal Register document
electronically through the EPA Internet under the ``Federal Register''
listings at https://www.epa.gov/fedrgstr/. In addition, the EPA has
established a Web site for the CAIR at https://www.epa.gov/
cleanairinterstaterule or more simply https://www.epa.gov/cair/.
Outline
I. Background
II. Today's Action
III. Discussion of Issues
A. SO2 Allocation Methodology in the CAIR Model
Trading Rules
B. Fuel Adjustment Factors Used to Set State NOX
Budgets
C. PM2.5 Modeling for Minnesota
D. Inclusion of Florida in the CAIR Region for Ozone
E. Impact on CAIR Analyses of D.C. Circuit Decision in New York
v. EPA
IV. Statutory and Executive Order Reviews
A. Executive Order 12866: Regulatory Planning and Review
B. Paperwork Reduction Act
C. Regulatory Flexibility Act
D. Unfunded Mandates Reform Act
E. Executive Order 13132: Federalism
F. Executive Order 13175: Consultation and Coordination With
Indian Tribal Governments
G. Executive Order 13045: Protection of Children From
Environmental Health and Safety Risks
H. Executive Order 13211: Actions That Significantly Affect
Energy Supply, Distribution or Use
I. National Technology Transfer Advancement Act
J. Executive Order 12898: Federal Actions to Address
Environmental Justice in Minority Populations and Low Income
Populations
K. Congressional Review Act
L. Judicial Review
I. Background
On May 12, 2005, the EPA (Agency or we) published the final ``Rule
to Reduce Interstate Transport of Fine Particulate Matter and Ozone''
(Clean Air Interstate Rule or CAIR) (70 FR 25162). In this action, EPA
found that 28 States and the District of Columbia contribute
significantly to nonattainment of, and interfere with maintenance by,
downwind States with respect to the NAAQS for fine particles
(PM2.5) and/or 8-hour ozone. The CAIR requires these upwind
States to revise their State implementation plans (SIPs) to include
control measures to reduce emissions of SO2 and/or
NOX. Sulfur dioxide is a precursor to PM2.5
formation and NOX is a precursor to PM2.5 and
ozone formation. By reducing upwind emissions of SO2 and
NOX, CAIR will assist downwind PM2.5 and 8-hour
ozone nonattainment areas in achieving the NAAQS.
The CAIR implements the ``good neighbor'' provision of the Clean
Air Act (CAA), section 110(a)(2)(D), which establishes State
obligations to address interstate transport of pollution. The EPA
conducted extensive air modeling to determine the extent to which
emissions from certain upwind States were impacting downwind
nonattainment areas. All States found to contribute significantly to
downwind PM2.5 nonattainment and maintenance problems are
included in the CAIR region for PM2.5 and are required to
reduce annual emissions of SO2 and NOX. All
States found to contribute significantly to downwind 8-hour ozone
nonattainment and maintenance problems are included in the CAIR region
for ozone and are required to reduce NOX emissions during
the 5-month ozone season (May-
[[Page 25305]]
September). The CAIR establishes regional emission reduction
requirements for annual SO2 and NOX emissions and
seasonal NOX emissions. The reduction requirements are based
on performance of control technologies which are known to be highly
cost effective for reducing emissions of electric generating units
(EGUs). The first phase of NOX reductions starts in 2009
(covering 2009-2014) and the first phase of SO2 reductions
starts in 2010 (covering 2010-2014). The second phase of both
SO2 and NOX reductions starts in 2015 (covering
2015 and thereafter).
Each State covered by CAIR may independently determine which
emission sources to control, and which control measures to adopt.
States that choose to base their programs on emissions reductions from
EGUs may allow their EGUs to participate in an EPA-administered cap and
trade program. The CAIR includes model rules for multi-State cap and
trade programs for annual SO2 and NOX emissions,
and seasonal NOX emissions. States may choose to adopt these
rules to meet the required emissions reductions in a flexible and
highly cost-effective manner. To learn more about the CAIR and its
impacts, the reader is encouraged to read the preamble to the CAIR (70
FR 25162; May 12, 2005).
The CAIR was promulgated through a process that involved
significant public participation. The EPA published a notice of
proposed rulemaking on January 30, 2004 (69 FR 4566) and a supplemental
notice of supplemental proposed rulemaking on June 10, 2004 (69 FR
32684). The EPA also published a notice of data availability on August
6, 2004 (69 FR 47828). The Agency held public hearings on the January
2004 proposed rule on February 25 and 26, 2004, and an additional
hearing on the supplemental proposal on June 3, 2004. In addition, the
EPA received thousands of comments on the proposals. We responded to
all significant public comments in the preamble to the final rule and
in the final response to comments document available in the CAIR docket
(Docket No. OAR-2003-0053-2172).
Following publication of the final rule, the Administrator received
twelve petitions requesting reconsideration of certain aspects of the
final CAIR. These petitions were filed pursuant to section 307(d)(7)(B)
of the CAA. Under this provision, the Administrator is to initiate
reconsideration proceedings if the petitioner shows that an objection
is of central relevance to the rule and either that it was
impracticable to raise the objection to the rule within the public
comment period, or that the grounds for the objection arose after the
end of the public comment period but before the time for seeking
judicial review had expired. The petitions for reconsideration of the
CAIR asked EPA to reconsider several specific aspects of the final
rule, and many of the petitions made similar requests.
By letters dated August 1, 2005, EPA granted reconsideration of the
definition of ``electric generating unit'' or ``EGU'' as it relates to
solid waste incinerators (and particularly municipal waste
incinerators).\1\ The EPA explained that the issue would be addressed
in the proposed rule signed the same day. That proposed rule, entitled
``Rulemaking on Section 126 Petition from North Carolina to Reduce
Interstate Transport of Fine Particulate Matter and Ozone; Federal
Implementation Plans to Reduce Interstate Transport of Fine Particulate
Matter and Ozone; Revisions to the Clean Air Interstate Rule; Revisions
to the Acid Rain Program; Proposed Rule,'' was published on August 24,
2005 (70 FR 49708). In that proposal, EPA reconsidered the definition
of ``EGU'' in the final CAIR as it relates to solid waste incinerators
(70 FR at 49738). We proposed revisions to the definition of ``EGU''
and requested comment on that issue.
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\1\ These letters are available in the CAIR Docket. (OAR-2003-
0053-2209 and 2210).
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On December 2, 2005, EPA published a notice of its decision to
grant reconsideration of four additional issues presented in the
petitions for reconsideration, and solicited public comment on those
issues. On December 29, 2005, EPA published a notice of its decision to
grant reconsideration of one additional issue raised by petition for
reconsideration, and again solicited public comment on that issue. In
those two notices EPA did not propose any modifications to the final
CAIR, as we did not believe that any of the information that had been
submitted demonstrated that EPA's final decisions in the CAIR
rulemaking were erroneous or inappropriate.
The EPA requested comment only on the issues specifically described
in Section III of each December 2005 notice. We did not reconsider or
re-open for further comment any other provisions in the CAIR.
The EPA also received three limited requests to stay CAIR. The
implementation of the CAIR in limited geographic areas pending
resolution of this reconsideration process. One petitioner requested a
stay of implementation of the CAIR in the State of Florida, and one
petitioner requested a stay of implementation of the CAIR in the State
of Minnesota, and one petitioner requested a stay of CAIR for a limited
subset of affected sources. By letter dated August 1, 2005, EPA
declined to stay implementation of the CAIR in Florida.\2\
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\2\ This letter is also available in the CAIR Docket (OAR-2003-
0053-2208).
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Finally, in addition to petitions for reconsideration, fourteen
petitions for judicial review of the final rule were filed with the
U.S. Court of Appeals for the District of Columbia.\3\ The fourteen
cases have been consolidated into a single case, State of North
Carolina v. EPA (No. 05-1244) (D.C. Cir). Many of the parties who
petitioned EPA for reconsideration of the CAIR also petitioned for
judicial review of the rule.
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\3\ State of North Carolina v. EPA (No. 05-1244); Minnesota
Power v. EPA (No. 05-1246); ARIPPA v. EPA (No. 05-1249); South
Carolina Public Service Authority et al. v. EPA (No. 05-1250);
Entergy Corp. v. EPA (No. 05-1251); Florida Ass'n of Electric
Utilities (No. 05-1252); FPL Group v. EPA (No. 05-1253); Northern
Indiana Public Service Co. v. EPA (No. 05-1254); South Carolina
Electric & Gas Co. v. EPA (No. 05-1256); Integrated Waste Services
Ass'n v. EPA (No. 05-1257); AES Corp v. EPA (No. 05-1259); City of
Amarillo, Texas et al. v. EPA (No. 05-1260); Appalachian Mountain
Club et al. v. EPA (No. 05-1246); Duke Energy v. EPA (No. 05-1246).
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II. Today's Action
This notice addresses the five specific issues upon which we
granted reconsideration and solicited comment in the December 2, 2005
and December 29, 2005 notices. Today's action is one of three actions
EPA is taking today to resolve all remaining issues relating to the
petitions for reconsideration of CAIR.
This notice takes action only with respect to the five issues
identified in the December 2005 notices. In those notices, we announced
our decision to grant reconsideration and solicited comments on the
specific issues to be reconsidered. We did not, however, propose any
changes to the CAIR or re-open for comment any other issues determined
in the CAIR. In this action, we take final action on the five issues
identified in the notices of reconsideration and respond to comments
received during the reconsideration process. The first issue addressed
in the December 2, 2005 notice relates to analyses done by EPA to
address petitioner's claims regarding alleged inequities arising from
the application of the SO2 allowance allocation approach to
be used by States choosing to participate in the EPA-administered
SO2 trading program. The second issue relates to EPA's use
of specific fuel adjustment factors to establish NOX budgets
for each State. The third issue relates to modeling
[[Page 25306]]
inputs used by EPA to determine whether emissions from Minnesota should
be included in the CAIR region for PM2.5. The fourth issue
relates to EPA's determination that the State of Florida should be
included in the CAIR region for ozone. The issue raised in the December
29, 2005 notice relates to the potential impact of a recent judicial
opinion, New York v. EPA, 413 F.3d 3 (D.C. Cir. 2005), certain analyses
done for the CAIR relating to the identification of highly cost-
effective controls and the timing of CAIR deadlines. New York v. EPA,
413 F.3d 3 (D.C. Cir. 2005) was decided on June 24, 2005--after the
final CAIR was published but before the time for judicial review of the
rule had run. Each issue is described in greater detail in Section III
of this notice.
EPA also is taking two additional actions relating to the petitions
for reconsideration of CAIR. First, EPA is sending nine separate
letters to the petitioners with outstanding requests for
reconsideration. These letters address their requests that EPA
reconsider the following ten issues: (1) The 0.2[mu]g/m3
threshold used to determine if a state's emissions contribute
significantly to PM2.5 nonattainment and maintenance
problems in downwind states (multiple requests for reconsideration
arguing both that the threshold is too high and that it is two low);
(2) the inclusion of the full state of Florida in the CAIR region for
PM2.5 (two requests for reconsideration challenging EPA's
decision to determine significant contribution on a statewide basis);
(3) the inclusion of the full state of Texas in the CAIR region for
PM2.5 (two requests for reconsideration challenging EPA's
decision to determine significant contribution on a statewide basis);
(4) the NOX budget allocated to the State of Connecticut
(two requests for reconsideration); (5) the treatment of previously
allocated 2009 NOX Budget Trading Program allowances; (6)
the SO2 retirement ratio for Title IV allowances as applied
to units that receive, through 2009, ``bonus'' allocations under
section 405(a)(2) of the Clean Air Act; (7) the phase I NOX
compliance date of 2009; (8) EPA's interpretation of the ``interfere
with maintenance'' prong of section 110 of the Clean Air Act; (9) the
method used to identify downwind nonattainment areas; and (10) the
creation of a compliance supplement pool for the annual NOX
trading program. Finally, the petitions for reconsideration contain two
outstanding requests to stay CAIR: One asking for CAIR to be stayed in
the state of Minnesota and one asking that CAIR be stayed only for the
subset of sources that has either already received 2009 NOX
Budget Trading Program allowances or is currently receiving ``bonus''
allowances under section 405(a)(2) of Title IV of the Clean Air Act.
EPA has carefully considered each of these requests for
reconsideration. We have concluded that reconsideration of these issues
is not warranted under section 307(d)(7)(B) of the Clean Air Act. EPA
is therefore denying all remaining requests for reconsideration. In
addition, EPA is denying the remaining requests to stay CAIR. These
decisions are fully explained in the letters to petitioners which are
available in the CAIR docket (EPA-HQ-OAR-2005-0053). In a separate
action signed today, EPA is taking final action on the request for
reconsideration discussed in the August 1, 2005 Federal Register
notice. This action is taken as part of our final action responding to
North Carolina's section 126 petition and promulgating Federal
implementation plans for all states in the CAIR regions. In that
action, we also take final action on the request reconsider EPA's
treatment in CAIR of solid waste incinerators (particularly municipal
waste combustors), and finalize the revisions to the definition of
``EGU'' proposed in response to that request. This action, titled
``Rulemaking on Section 126 Petition from North Carolina to Reduce
Interstate Transport of Fine Particulate Matter and Ozone; Federal
Implementation Plans to Reduce Interstate Transport of Fine Particulate
Matter and Ozone; Revisions to the Clean Air Interstate Rule; Revisions
to the Acid Rain Program,'' \4\ will be published shortly in the
Federal Register.
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\4\ See https://www.regulations.gov, Docket ID No. EPA-HQ-OAR-
2003-0053.
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III. Discussion of Issues
A. SO2 Allowance Allocation (& State Budget) Approach in the CAIR Model
Trading Rules
As noted above, EPA decided to grant reconsideration on six issues
related to the final CAIR. The first of these issues relates to the
SO2 allocation approach in the CAIR model rules. EPA
received one petition for reconsideration that asked EPA to reconsider
the SO2 allocation approach to be used by States
participating in the EPA-administered CAIR SO2 trading
program. This petitioner argued that the SO2 allowance
allocation approach is unreasonable and inequitable. The petitioner
argued that the approach is unreasonable because other approaches would
be more appropriate. According to the petitioner, the approach is
inequitable because it results in owners of units that have
historically lower emission rates being forced to buy allowances from
historically higher emitting units that install new emission controls.
The petitioner asked EPA to establish a different approach. As
described in the Notice of Reconsideration, EPA does not agree with
petitioner's conclusions about this issue. EPA continues to believe
that the approach selected is reasonable for the reasons explained in
the CAIR final rule and further discussed below. Furthermore, numerous
opportunities for public comment on this issue were provided, and a
full discussion of the allowance allocation options occurred during the
rule development process. Nonetheless, given the intense public
interest in this issue, EPA decided to grant the petition for
reconsideration insofar as it raised issues regarding alleged
inequities resulting from the application of EPA's SO2
allowance allocation approach.
In the Notice of Reconsideration, EPA announced its decision to
reconsider this issue and solicited additional public input. EPA also
solicited comment on additional analyses it conducted in response to
the petition for reconsideration concerning the impact of the
SO2 allowance allocation approach adopted in the CAIR model
trading rule. This additional analysis compared the SO2
allocation approach in CAIR to various alternatives EPA also considered
during the rulemaking process. In response to comment on the Notice of
Reconsideration, EPA has further refined some of its analyses and
carefully considered the arguments of the petitioner. EPA continues to
believe that these analyses show that EPA's selected approach to
SO2 allowance allocations is appropriate, given the
objectives of CAIR and other relevant considerations. Moreover, EPA
believes that the Agency's approach produces a reasonable result in
terms of equity. Therefore, in this Notice of Final Action on
Reconsideration, EPA is not altering the approach taken in CAIR for
SO2 allowance allocation. EPA's response to public comments
on the analyses presented in the Notice of Reconsideration and further
discussion of the petitioner's concerns are provided below (and in the
Technical Support Document, ``CAIR SO2 Allocation Approach
Analysis'' and the Response to Comments).
Considerations Relevant To Choosing an Allocation Approach
While EPA did not explicitly define a distinct set of principles
that should be
[[Page 25307]]
used in developing State budgets under a region-wide cap and trade
program, EPA has made it clear throughout this process that it has
relied upon several consistent, important factors in developing both
the SO2 and NOX budgets.
The first is the impact of allowance allocations on the specific
environmental objectives and overall cost of the rule, as well as any
potential adverse effects. In general, while the chosen allocation or
State budget calculation approach can affect the distribution of
compliance costs under a cap-and-trade program, it will have little
effect on overall compliance costs or environmental outcome. This is
because the incentives provided by cap-and-trade encourage economically
efficient compliance over the entire region. However, this may not
always hold where there are interactions with existing environmental
policies. In the case of NOX, EPA did not find this
consideration to be restrictive because there was not an existing
annual NOX trading program and the SIP Call ozone season
trading program could be easily integrated into the CAIR ozone season
trading program. As a result, a number of budget methodologies were
compatible. For SO2, this consideration played a larger role
because depending upon how the program was integrated within the
existing Title IV structure, it could impact emissions before the
program went into effect as well as emissions in regions not affected
by the program.
Another important consideration is that an allocation methodology
must be consistent with the existing regulatory and legislative
structure. Once again for NOX, this consideration could be
satisfied with a wide range of budget methodologies. However, for
SO2, reductions for EGUs using Title IV allowances is
necessary in order to ensure the preservation of a viable Title IV
program (70 FR 72272). Linking the two programs maintains the trust and
confidence that has developed in the functioning market for title IV
allowances. The EPA recognizes this familiarity and confidence
(especially in a market-based approach) as a key source of the
program's success.
A third factor is equity. In the absence of other considerations,
EPA believes that it is in the public interest that the distribution of
allowances under a cap and trade program be as equitable as possible.
For NOX, since the other considerations could be satisfied
with a number of different methodologies, this factor was the primary
one. For SO2, where the other considerations were more
limiting, this factor was not as central to our decisions, especially
since the Title IV allocation structure was erected by Congress for the
long term.
Title IV and CAIR
The CAIR model SO2 trading program relies on the use of
title IV SO2 allowances for compliance with the allowance-
holding requirements of CAIR. Title IV SO2 allowances have
already been allocated on a unit-by-unit basis in perpetuity, based on
formulas set forth in sections 405 and 406 of the Clean Air Act (CAA),
which EPA implemented through final regulations issued in 1998 (See 42
U.S.C. 7651d and 7651e; and 18 CFR 73.10(b)). The statutory formulas
for allocation of title IV SO2 allowances were based on unit
data for 1985-1987 and, for some units, data for years up to 1995. For
the title IV SO2 trading program, each allowance authorizes
one ton of SO2 emissions.
For the CAIR SO2 trading program, SO2
reductions will be achieved by generally requiring CAIR sources to
retire more than one title IV allowance of 2010 and later vintages for
each ton of SO2 emissions in 2010 and thereafter.
Specifically, each title IV SO2 allowance issued for 2009 or
earlier will be used for compliance by CAIR sources at a ratio of one
allowance per ton of SO2 emissions and would authorize one
ton of SO2 emissions. Each title IV allowance of vintage
2010 through 2014 will be used for compliance under CAIR at a two-to-
one ratio and authorize 0.5 tons of SO2 emissions. Each
title IV allowance of vintage 2015 and later will be used at a 2.86-to-
1 ratio and authorize 0.35 tons of SO2 emissions. See
discussion in the preamble to the final CAIR in section VII (70 FR
25255-25273) and section IX (70 FR 25290-25291).
Response to Comments on EPA's Statutory Authority
Several commenters expressed support of EPA's chosen allocation
approach, arguing that EPA was entirely within its legal authority to
use title IV allowances to implement the SO2 trading program
under CAIR. These commenters generally argued that EPA's use of title
IV allowances to implement CAIR reductions was necessary to maintain
the viability of the program and continued confidence in cap-and-trade
programs.
A few commenters on the Notice of Reconsideration assert that EPA
has exceeded its statutory authority under title IV of the CAA by tying
CAIR SO2 allocations to title IV allowances. In addition, a
few commenters argue that EPA's final CAIR SO2 allocation
approach unlawfully limits States' discretion under section 110 of the
CAA to determine how to meet their ``good neighbor'' obligations and to
meet national ambient air quality standards. These same concerns were
also raised during the CAIR rulemaking process and EPA provided a
detailed justification for its use of title IV allowances under CAIR,
including direct responses to these comments in the CAIR preamble (70
FR 25290-25296). EPA maintains that its approach of using title IV
allowances in the CAIR SO2 trading program and imposing an
allowance-retirement requirement on States that do not adopt the CAIR
SO2 trading program is within its statutory authority and is
a reasonable exercise of that authority. Additionally, there is nothing
in section 110 of the CAA that would bar the use of title IV allowances
to accomplish attainment goals under 110(a)(2)(d).
One commenter suggests that EPA's SO2 allocation
approach using title IV allowances is in violation of CAA section
110(a)(2)(d) because it distributes allowances among States in a way
that would effectively result in different emissions rates among
States, and different resulting control costs. The commenter argues for
an approach that results in an equal effective emissions rate across
States. The commenter then cites section 102(a) of the CAA, arguing
that the provision ``directs EPA to promote the development of air
pollution control laws at the state and local level that are as
`uniform' from jurisdiction to jurisdiction as practicable.'' The
commenter then proceeds to argue that EPA's use of title IV allowance
allocations for SO2 allowance allocations under CAIR
violates this notion of parity without reason and is therefore
unlawful.
EPA disagrees with the commenter's interpretation of these two CAA
provisions. First, nothing in section 110(a)(2)(d) indicates how EPA
should allocate allowances under a cap-and-trade program. Second, while
the commenter suggests that an allocation approach that results in a
uniform effective emissions rate across all States would remedy the
inequities the commenter perceives in EPA's application of
110(a)(2)(d), the allocation approach that the commenter actually
recommends does not result in this outcome. Third, section 102(a) of
the CAA indicates that ``The Administrator shall * * * encourage the
enactment of improved and, so far as practicable in the light of
varying conditions and needs, uniform State and local laws relating to
the prevention and control of air pollution''. As is discussed
[[Page 25308]]
throughout this section of the CAIR Notice of Final Action on
Reconsideration, the existence of title IV creates a set of conditions
under which it is not ``practicable'' to create a new set of allowance
allocations for SO2 for the purposes of CAIR. Finally, the
use of the phrase ``The Administrator shall encourage'' in section
102(a) indicates that this provision is in no way a directive that
requires the Agency to obtain any specific result during its
rulemakings. Finally, the use of a cap-and-trade program assures that
the marginal cost paid for a ton of emission reduction should be close
to the observed allowance price, assuring a uniform marginal cost from
State to State.
SO2 Allocation Options Discussed in CAIR
EPA considered and analyzed a variety of SO2 allowance
allocation methodologies during the CAIR rulemaking process. After
careful analysis, EPA decided to use the allocation approach chosen by
Congress in title IV of the Clean Air Act. EPA also considered the
following alternative approaches, which are explained in the final CAIR
``Corrected Response to Significant Public Comments on the Proposed
Clean Air Interstate Rule,'' Corrected April 2005 (Docket Number OAR-
2003-0053):
--Allocations based on historic tons of actual emissions from more
recent years;
--Allocations based on heat input (with alternatives based on heat
input from all fossil generation, and heat input from coal- and oil-
fired generation only); and
--Allocations based on electricity output (with alternatives based on
all generation and all fossil-fired generation).
In addition to these alternatives, EPA has analyzed other heat
input-based allocation approaches in the reconsideration process,
explained below. Each allocation approach suggested by the petitioner
and other commenters during the CAIR rulemaking and reconsideration
process has advantages and disadvantages for different companies and
States. However, as explained in the final CAIR, EPA believes that the
approach used in the final CAIR is the most appropriate among the
alternatives for several reasons.
First, EPA believes--based on strong policy and air quality
concerns--that it is necessary to use the existing title IV allowances
in order to preserve the viability and emissions reductions of the
highly successful title IV program. The disruption of the title IV
SO2 trading program would also potentially result in
increased emissions outside of the CAIR region starting in 2010
because, with title IV allowances having little or no value, the title
IV program would no longer constrain SO2 emissions in those
States. Further, if title IV allowances are not used for compliance in
the CAIR SO2 trading program, the likely result will be: a
significant surplus of title IV allowances; a collapse of the price of
title IV allowances; and a title IV SO2 trading program
that, contrary to Congressional intent, no longer provides incentives
to minimize emissions control costs and encourage pollution prevention
and innovation.
If EPA adopts an approach that does not preserve the structure of
the title IV allowance market and the value of those allowances, the
confidence in the cap-and-trade policy instrument and allowance markets
in general, and in the CAIR cap-and-trade programs in particular, would
likely decline. Such an outcome could result in a reduced willingness
of the owners of sources in cap-and-trade programs to invest in control
technologies that would generate excess allowances for sale, or to
purchase allowances for compliance, for fear that the rules might
change. If owners were to ignore the incentives provided by cap-and-
trade in such a manner, efficiency and cost-savings provided by these
programs would be lost. The preservation of title IV allowances for use
in CAIR, then, is integral to the viability and effectiveness of both
title IV and the CAIR trading programs. See discussion in preamble to
the final CAIR in section IX (70 FR 25293-25295).
Second, EPA relied on the permanent allocation methodology
established by Congress in title IV for purposes of reducing
SO2 emissions. Congress chose a policy of not revisiting and
revising these allocations and, apparently, believed that its
allocation methodology for title IV allowances would be appropriate for
future time periods.
Third, title IV allowance allocations provide a logical and well
understood starting point from which additional electric generation
unit (EGU) SO2 emission reductions can be achieved for Acid
Rain units, which account for over 90 percent of the SO2
emissions from CAIR EGUs.
Finally, in response to comments on the proposed CAIR, EPA
performed an analysis comparing the title IV methodology to other
methodologies. At the outset, EPA notes that the objective of CAIR is
not to ensure that each State receives the maximum amount of
SO2 allowances possible under any approach. The goal of CAIR
is to achieve the SO2 emissions reductions through the
region-wide budgets. As EPA has noted, selecting the most appropriate
SO2 allowance allocation approach for CAIR has required
addressing a number of different considerations. The policy and air
quality concerns specific to the CAIR SO2 trading program
and noted by EPA above necessitate that EPA implement the CAIR
SO2 program using the existing structure of title IV.
Nevertheless, EPA has analyzed the impact of using title IV allocations
on States relative to other possible allocation approaches, and found
that this approach produces a reasonable result (See CAIR Corrected
Response to Comments, section X.A.26, Docket : EPA-HQ-OAR-
2003-0053-2172, and ``CAIR SO2 Allocation Approach
Analysis'' Technical Support Document available in the docket).
In summary, EPA's use of title IV allowances in the CAIR
SO2 trading program is supported by: (1) EPA's determination
that this approach is necessary to maintain the efficacy of the title
IV program and to prevent erosion of confidence in cap-and-trade
programs in general; and (2) EPA's analysis showing that the
allocations resulting from this approach are reasonable. Nevertheless,
as a part of this reconsideration, EPA performed additional analyses,
explained below, to evaluate the SO2 allocation approach in
the final CAIR in light of the petitioner's concerns.
Equitability of CAIR SO2 Allocation Approach
While the petitioner stated that the CAIR final allocation approach
is ``inequitable'' because lower emitting units would buy allowances
from higher emitting units that install emission controls, it is
unclear why such a result would actually be inequitable. On the
contrary, the owner of each of the units involved would be choosing to
adopt the most economic compliance strategy in light of the unit's
emission control costs and the market value of allowances. The ability
of the owners to make such choices reflects the flexibility, inherent
cost-effectiveness, and promotion of least-cost compliance for all
program participants provided by a cap-and-trade program.
Response to Comments on the Equitability of CAIR SO2
Allocation Approach
One commenter argued that EPA should use the same metrics and
methodologies used to evaluate NOX
[[Page 25309]]
allowance allocation approaches to evaluate SO2 allowance
allocation approaches. The commenter suggests that the metrics by which
EPA assessed NOX allocations included (1) whether the EPA
method avoids penalizing coal-fired generation units that already have
installed emissions controls and (2) whether, relative to the
alternative allocation approaches, the EPA method better minimizes for
each State the disparity between allowances provided and projected
emissions, and argued that EPA cites these rationales in justifying its
chosen NOX allocation approach. This commenter also suggests
that EPA's use of title IV allowances penalizes new units and
independent power producers (IPPs) and results in large wealth
transfers from low-emitting to high-emitting States.
While EPA agrees that the Agency considered these factors (among
several others) in choosing its allocation approach under the CAIR
NOX trading programs, EPA does not fully agree with the
commenter's characterization of EPA's considerations. EPA believes that
the commenter has omitted some of the significant context and caveats
that were included in the discussion of NOX allocations and
the use of fuel adjustment factors in the reconsideration notice, as
well as a number of other factors that EPA must consider, particularly
in the context of SO2 allocations. First, EPA noted in the
June 10, 2004 Supplemental Notice of Proposed Rulemaking and in the
Notice of Reconsideration that, ``in contrast to allocations based on
historic emissions, the factors would also not penalize coal-fired
plants that have already installed pollution controls'' (69 FR 32869,
70 FR 72276, emphasis added). This language explains that
NOX allocations using historic heat input adjusted for fuel
type, while providing additional allowances to coal-fired units that
will likely install controls under CAIR, would not simultaneously
penalize coal-fired units that had already made investments in
emissions controls. An approach based on historic emissions, on the
other hand, would also provide additional allowances to units that
would likely have to install controls, but would simultaneously
penalize units that had already done so. While EPA makes this argument
in support of its chosen approach for NOX allocations, the
Agency does not raise this point to establish a criterion for
evaluating allowance allocation approaches. Rather, it simply notes
that its chosen approach for NOX allocations can provide an
advantage to one set of coal-fired units without disadvantaging another
set of coal-fired units.
Second, while the commenter is correct in noting that EPA stated in
its discussion of NOX allocations in the Notice of
Reconsideration that it is in the public interest to attempt to
minimize the disparity between individual State budgets and projected
emissions for each State, EPA did not set this goal as one of only two
primary criteria for adoption of a given allocation strategy, as the
commenter suggests. Rather, EPA notes that ``In the absence of other
considerations, EPA believes that it is in the public interest to
reduce the disparity between the number of allowances in a State budget
and total projected State EGU emissions'' (70 FR 72276, emphasis
added). As EPA has noted, the Agency had to weigh many considerations
in choosing an SO2 allowance allocation approach. In
particular, unlike in the case of NOX, EPA had to consider
an existing, nationwide trading program implemented by statute in the
case of SO2.
Third, as EPA discussed in the CAIR Response to Comments, while
commenters express concern about the availability of allowances for
non-Acid Rain units, it should be noted that not all sources covered
under the Acid Rain program received allowances. By the design of the
title IV program (as outlined by Congress), because of the permanent
allocation of allowances, new units beginning commercial operation
after 1995 or beginning construction after 1990 did not receive title
IV allowances. Thus, Congress recognized that, over time, new units
would be built and covered under the program, but felt it reasonable
that such units would obtain title IV allowances either through the
auction or from the market. Under the auction, 250,000 title IV
allowances are be auctioned annually (half for the current compliance
year and half for the compliance year seven years in advance), and
these allowances can be used for compliance with CAIR. The availability
of these allowances ensures that all sources, including new units and
non-title IV sources, will have access to a pool of allowances.
Finally, IPPs have the option of opting in to title IV until their
exemption expires in order to obtain title IV allowances. EPA addresses
other issues specific to IPPs in section VI.E of today's CAIR FIP
Notice of Final Rulemaking preamble.
Fourth, while the commenter asserts that EPA's use of title IV
allowances in the CAIR SO2 trading program will result in
significant wealth transfers from low-emitting to high-emitting States,
EPA's analysis of SO2 coverage ratios (the ratio of
allowances to projected emissions, discussed to some degree in this
section and presented in the ``CAIR SO2 Allocation Approach
Analysis'' Technical Support Document, available in the docket), is not
suggestive of this trend. In fact, looking at the differences in
States' projected emissions and coverage ratios between the base case
and CAIR, it becomes evident that both lower- and higher-emitting
States are projected to make investments in emissions controls under
CAIR, reducing their demand for allowances, or freeing up allowances
for sale, in the process. States that might be categorized as high-
emitting are not always projected to be net sellers of allowances, and
States that might be categorized as low-emitting are not always
projected to be net purchasers of allowances.
Another commenter argues that smaller units would be forced to
purchase SO2 allowances from the market in order to comply
with CAIR. This commenter argues that the SO2 allowance
market is not efficient and subjects some participants to endure an
undue amount of financial burden and/or risk. EPA believes that the
commenter's claims about the state of the SO2 allowance
market are unfounded. As is discussed in the Acid Rain Program Report
(EPA 43-R-05-012, October 2005), about 20,000 allowance transactions,
affecting about 15.3 million allowances were recorded in the EPA
Allowance Tracking System in 2004. In addition, title IV compliance
costs have been much lower than projected and allowance prices in the
SO2 allowance market have generally reflected this. Finally,
as discussed earlier in this section, sources have the option of
purchasing allowances directly from the annual auction.
Further, in raising equity concerns, a couple of commenters argue
for conflicting measures of equity within their own comments. These
commenters argue that an equitable emissions allocation approach will
result in an equivalent effective emissions rate across States. These
commenters then point to EPA's chosen CAIR NOX emissions
allocation approach as an exemplary allocation approach because it
limits the disparity between individual State budgets and projected
emissions. However, the commenters fail to realize that EPA's
NOX allocations approach does not actually result in an
equivalent emissions rate across States. In other words, choosing a
CAIR SO2 allocation approach with the goal of minimizing the
disparities between State budgets and projected emissions would result
in the selection
[[Page 25310]]
of a different approach than would the goal of equating effective
emissions rates across States.
Finally, some commenters argued that the use of title IV allowance
allocations penalizes sources who have already installed scrubbers
prior to the start of the Acid Rain Program. This is because, in
general, allowances under title IV were allocated to units that had not
installed controls at a higher rate relative to units that had
installed controls. The title IV approach, in that sense, is somewhat
similar to the approach taken for NOX under CAIR, in that it
provides additional allowances for units expected to install controls
under the rule. EPA believes that the commenters' arguments that the
continued use of title IV allowances penalizes sources that installed
controls prior to the Acid Rain Program are unfounded. First, these
controls were installed over 20 years ago and were completed within a
regulated electricity sector, such that in most cases the cost of
installing these controls should have been recovered through
electricity price rate increases. Second, these controls were installed
in response to requirements separate from both CAIR and the Acid Rain
Program. Third, Congress was clearly aware of the issues raised by
commenters when designing the SO2 trading program in 1990,
and consciously used a formula for future allocations for the length of
time it believed was reasonable. In general, the Acid Rain Program has
enjoyed 10 years of operation without substantial concern over this
issue and with industry at-large appreciating the program's merits in
providing a cost-effective, flexible, and balanced way to provide
environmental protection. Finally, analysis by one of these two
commenters, which estimates the windfall of allowances that a
hypothetical unscrubbed coal-fired unit would attain by installing a
scrubber and reducing emissions, neglects the fact that this unit would
have to bear the costs of installing controls. Thus, the ostensible
windfall would be significantly smaller than was suggested by the
commenter.
Analysis of SO2 Allocation Options Presented in the Notice
of Reconsideration
In the Notice of Reconsideration, EPA compared three alternative
SO2 allowance allocation methodologies to the approach in
the final CAIR. In these analyses, EPA examined how allowances would be
distributed to individual companies instead of examining how they would
be distributed to States. According to the petitioner, the allowance
distribution will result in the petitioner's relatively low-emitting
units being forced to buy allowances from other companies' relatively
high-emitting units. The petitioner thus argues the allocation approach
used in CAIR is per se inequitable and unreasonable. To evaluate this
concern, EPA compared projected allocations not to individual units,
but to individual parent and operating companies who own these units
under various methodologies relative to projected SO2
emissions of all the units owned by those companies. Figures and tables
from the analysis presented in the Notice of Reconsideration can be
found in the docket, EPA-HQ-OAR-2003-0053, ``SO2 Allowance
Allocation Methodology Comparative Analysis Data Files'').
The three alternative allowance allocation methodologies EPA
analyzed were suggested by various commenters during the rulemaking
process and this reconsideration process. These methodologies are:
--Allocating allowances based on more recent heat input data;
--Allocating allowances based on more recent heat input data adjusted
for fuel type (e.g., coal, oil and gas); and
--Allocating allowances based on more recent heat input data adjusted
both for fuel type and for coal type (e.g., bituminous, sub-bituminous
and lignite).
In comparing the CAIR SO2 allocation approach and the
three alternative methodologies, EPA took into account certain factors
that are applicable to the CAIR final allocation approach but not to
the three alternative methodologies. For all four methodologies, EPA
analyzed the resulting total allowance allocations, and the total
projected emissions, for companies' sources located in the States
subject to CAIR. In addition, for all the methodologies, EPA analyzed
the relationship between allowances and emissions in two ways. First,
EPA calculated the ratio of allowances to total projected emissions
before CAIR controls (base case emissions). This provides a reasonable
estimate of the extent to which each company's future emissions will
exceed its allowances and, thus, indicates how much effort a company
must expend for compliance either by purchasing allowances or
installing controls. Second, EPA calculated the ratio of allowances to
total projected emissions after the installation of CAIR controls
(control case emissions). This provides a reasonable estimate of the
number of allowances a company would need to purchase or would be able
to sell after any controls are installed. Some companies with low-
emitting units may have excess allowances to sell even if no controls
are installed.
In its analysis of the CAIR approach, EPA also considered both the
allowance allocations and the emissions for companies' units both
within the CAIR region and outside the CAIR region. EPA believes that
this is appropriate because, under the CAIR approach, if a company's
units outside the CAIR region have more title IV allowances than needed
to cover their emissions under the Acid Rain Program, the company might
be able to transfer, at little or no net cost, excess allowances to the
company's units in the CAIR region for use to cover emissions under the
CAIR trading program. Under the three alternative methodologies, all of
which would require creating new CAIR SO2 allowances
independent of the existing title IV allocations, CAIR sources could
not use title IV allowances held for sources outside (or inside) the
CAIR region for compliance with the CAIR SO2 allowance
holding requirement.
Further, in the analysis of the CAIR approach, EPA considered the
allocation of title IV allowances to CAIR units that are not currently
in the Acid Rain Program but that could opt in to the Acid Rain Program
and receive title IV allowances (see 42 U.S.C. 7651i and 18 CFR part 74
and the discussion below concerning the ability of units to opt in).
This analysis assumed that companies owning non-Acid Rain units subject
to CAIR would elect to opt in to the Acid Rain Program because they
would receive title IV allowances to cover a portion of the units'
emissions under CAIR. EPA believes this assumption is reasonable
because any of these units has the option of becoming an Acid Rain
Program opt-in unit and thereby providing the company additional
allowances at little or no additional cost, and the value of title IV
allowances could be substantial. In contrast, the analysis of the three
alternative methodologies did not consider the impact of Acid Rain
Program opt-ins because these approaches do not use title IV allowances
for CAIR compliance.
EPA's analysis indicated that while allocations vary from company
to company under the four methodologies, overall the distributions of
allowances that companies received relative to their projected
emissions for the CAIR control case are very similar. EPA came to
similar conclusions when looking at the base case.
[[Page 25311]]
Response to Comments on EPA's Analysis
EPA received several comments on various aspects of the
SO2 allocation analyses presented in the Notice of
Reconsideration. A few commenters claimed that EPA should have focused
its analyses on State budgets rather than on projected allocations to
companies because, with an alternative allocation approach, States
would have the responsibility for allocating allowances to their
respective affected sources and could meet control requirements
differently than assumed in EPA's analyses. Further, these commenters
claimed a State-by-State analysis is more consistent with the analysis
of NOX allocation methodologies in the Notice of
Reconsideration and the final CAIR itself. Finally, one commenter noted
that company-specific analysis can obscure state-by-state variation and
may not be reliable given continual shifts in ownership structure.
EPA agrees with the commenters that one method of evaluating the
reasonableness of SO2 allocation approaches is (in addition
to company-by-company analyses) to compare State budgets calculated
according to various methodologies. Despite one commenter's assertion
that company-level analysis is made unreliable by constantly changing
corporate structures, EPA believes that such an analysis remains
instructive. A State-level analysis provides additional perspective on
the impact of various allocation approaches, though it will, of course,
obscure some of the potential company-level variability among allowance
approaches.
EPA presented such a State-by-State analysis in the final CAIR RTC
(final CAIR ``Corrected Response to Significant Public Comments on the
Proposed Clean Air Interstate Rule,'' Corrected April 2005 (Docket
Number OAR-2003-0053)). EPA recognizes that the analysis prepared for
the CAIR RTC did not consider two of the alternative allocation
approaches discussed above. For today's notice, EPA has analyzed State
budgets calculated under eight different approaches (title IV and seven
alternatives). These eight approaches are described in Table IIIA.1,
below.
Table III.A.1.--Description of Allocation Approaches Included in EPA
Analysis
------------------------------------------------------------------------
Approach name Description of approach
------------------------------------------------------------------------
EPA Title IV...................... Title IV allocations adjusted for
the 2 to 1 allowance retirement
ratio in 2010-2014 and the 2.86 to
1 allowance retirement ratio in
2015 and thereafter. EPA's chosen
approach.
Average 1999-2002 (Pure) Heat For each State, calculates the
Input. average heat input over the years
1999-2002. Apportions the region-
wide SO2 cap to individual States
based on each State's share of the
total region-wide average for those
years.
1999-2002 Heat Input w/Fuel For each State, calculates the
Factors. average adjusted heat input over
the years 1999-2002. Adjusts heat
input using factors of 1.0 for
coal, 0.009 for natural gas, and
0.3 for oil. Apportions the region-
wide SO2 cap to individual States
based on each State's share of the
total region-wide average adjusted
heat input for those years.
1999-2002 Heat Input w/Fuel For each State, calculates the
Factors & Coal Type. average adjusted heat input over
the years 1999-2002. Adjusts heat
input using factors of 2.6 for
bituminous coal, 1.0 for
subbituminous and lignite coals,
0.2 for natural gas, and 0.7 for
oil. Apportions the region-wide SO2
cap to individual States based on
each State's share of the total
region-wide average adjusted heat
input for those years.
Average 1999-2002 Heat Input Coal For each State, calculates the
+ Oil. average heat input from coal- and
oil-fired units over the years 1999-
2002. Apportions the region-wide
SO2 cap to individual States based
on each State's share of the total
region-wide average heat input from
these units for those years.
Average 1999-2002 SO2 Emissions... For each State, calculates the
average emissions over the years
1999-2002. Apportions the region-
wide SO2 cap to individual States
based on each State's share of the
total region-wide average emissions
for those years.
Average 1999-2002 Generation For each State, calculates the
Output (all sources fossil and average output over the years 1999-
non-fossil). 2002. Apportions the region-wide
SO2 cap to individual States based
on each State's share of the total
region-wide average output for
those years.
1999-2002 Generation Output For each State, calculates the
(Fossil-fuel-fired units only). average output from fossil fuel-
fired units over the years 1999-
2002. Apportions the region-wide
SO2 cap to individual States based
on each State's share of the total
region-wide average output from
these units for those years.
------------------------------------------------------------------------
As is shown in Table III.A.2, the first component of EPA's State-
level analysis compared the individual State shares of total region-
wide SO2 allocations under the various approaches. The
revised analysis is consistent with EPA's original findings. As can be
seen from Table III.A.2, 80 percent of States get neither the most nor
the least allowances relative to what they receive under the other
allocation approaches, under the title IV approach. (See ``Sulfur
Dioxide Allowance Allocation Methodology Comparative Analysis''
Technical Support Document (Docket ID: EPA-HQ-OAR-2003-0053)).
Furthermore, when compared specifically to the methods supported by
commenters (pure heat input, heat input with fuel factors, heat input
with fuel factors and coal type, coal and oil heat input and average
output all), distribution of State budgets using title IV allocations
results in an individual State receiving its smallest or greatest share
of total SO2 allocations relative to what the individual
State receives under the alternative approaches the same number of
times as the pure heat input methodology and fewer times than the other
methodologies supported by commenters (see the last three rows of Table
III.A.2). Such results support EPA's argument that its chosen
allocation approach is reasonable. While the coal and oil heat input
approach appears to perform best in this analysis, this approach
received more limited commenter support.
In examining the results of this analysis for the States where
commenters that submitted adverse comments on the use of title IV own
generating units (FL, IN, MD, MN, NY, NC, PA, SC, TX), it becomes
apparent that each allocation approach makes some States better off and
others worse off. (See ``CAIR SO2 Allocation Approach
Analysis'' Technical Support Document available in the docket.) \5\
[[Page 25312]]
While using a heat input with fuel factors approach would provide an
advantage to many of the States that provided adverse comments on title
IV, shifting to this approach would disadvantage 10 of the 23 States
(DC is not counted) relative to the title IV approach.
---------------------------------------------------------------------------
\5\ Also, it is worth noting that these many of the commenters
are all in cost-of-service States, where they should be able to pass
through costs. In other words, sources in these States are likely to
recover their cost of compliance, and the rate impact in these
States, spread over all generation, transmission, and distribution
is likely to be minimal. EPA's Regulator
