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

Note: EPA no longer updates this information, but it may be useful as a reference or resource.

[Federal Register: April 28, 2006 (Volume 71, Number 82)]
[Rules and Regulations]
[Page 25327-25376]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28ap06-15]
[[Page 25328]]

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ENVIRONMENTAL PROTECTION AGENCY
40 CFR Parts 51, 52, 72, 73, 74, 78, 96, and 97
[EPA-HQ-OAR-2004-0076; FRL-8047-5]
RIN 2060-AM99

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

AGENCY: Environmental Protection Agency (EPA).
ACTION: Notice of final rulemaking (NFR).

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SUMMARY: Today, EPA is taking actions to address the interstate
transport of emissions of nitrogen oxides (NO_X) and sulfur
dioxide (SO₂) that contribute significantly to nonattainment
and maintenance problems with respect to the national ambient air
quality standards (NAAQS) for fine particulate matter
(PM_2.5) and 8-hour ozone. As one part of today's action, EPA
is providing its final response to a petition submitted to EPA by the
State of North Carolina under section 126 of the Clean Air Act (CAA).
The petition requests that EPA find that SO₂ and/or
NO_X emissions from electric generating units (EGUs) in 13
States are significantly contributing to PM_2.5 and/or 8-hour
ozone nonattainment and maintenance problems in North Carolina, and
requested that EPA establish control requirements to prohibit such
significant contribution. The EPA is denying the petition because, in
today's action, EPA is promulgating Federal implementation plans (FIPs)
for all jurisdictions covered by the Clean Air Interstate Rule (CAIR)
to address interstate transport.
The FIPs will regulate EGUs in the affected States and achieve the
emissions reductions requirements established by the CAIR until States
have approved State implementation plans (SIPs) to achieve the
reductions. As the control requirement for the FIPs, EPA is adopting
the model trading rules that EPA provided in CAIR as a control option
for States, with minor changes to account for Federal rather than State
implementation.
Today's action also revises CAIR SIP model trading rules in order
to address the interaction between the EPA-administered CAIR FIP
trading programs being promulgated today and the EPA-administered CAIR
State trading programs that will be created by any State that elects to
submit a SIP establishing such a trading program to meet the
requirements of the CAIR. In addition, EPA is taking final action on
our reconsideration of the definition of ``EGU'' as it relates to solid
waste incinerators.
Today's action also makes revisions to the Acid Rain Program in
order to make the administrative appeals procedures, which currently
apply to final determinations by the Administrator under the EPA-
administered CAIR State trading programs, also apply to the EPA-
administered trading programs under the FIP action. In addition, we are
making certain minor revisions to the Acid Rain Program that will apply
to all affected units.

DATES: This action is effective on June 27, 2006.

ADDRESSES: The EPA has established a docket for this action under
Docket ID No. EPA-HQ-OAR-2004-0076. All documents in the docket are
listed on the http://www.regulations.gov Web site. Although
listed in the index, some information is not publicly available, e.g.,
confidential business information (CBI) or other information whose
disclosure is restricted by statute. Certain other material, such as
copyrighted material, is not placed on the Internet and will be
publicly available only in hard copy form. Publicly available docket
materials are available either electronically through http://
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 and the telephone
number for the Air Docket is (202) 566-1742.

FOR FURTHER INFORMATION CONTACT: For general questions concerning
today's section 126 action, please contact Carla Oldham, U.S. EPA,
Office of Air Quality Planning and Standards, Air Quality Policy
Division, C504-05, Research Triangle Park, NC 27711, telephone (919)
541-3347, e-mail at oldham.carla@epa.gov. For general questions
concerning today's FIP action, please contact Tom Coda, U.S. EPA,
Office of Air Quality Planning and Standards, Air Quality Policy
Division, C539-01, Research Triangle Park, NC 27711, telephone (919)
541-3037, e-mail at coda.tom@epa.gov. For legal questions concerning
the section 126 action, please contact Steven Silverman, U.S. EPA,
Office of General Counsel, Mail Code 2344A, 1200 Pennsylvania Avenue,
NW., Washington, DC 20460, telephone (202) 564-5523, e-mail at
silverman.steven@epa.gov. For legal questions concerning the FIP
action, please contact Sonja Rodman, U.S. EPA, Office of General
Counsel, Mail Code 2344A, 1200 Pennsylvania Avenue, NW., Washington, DC
20460, telephone (202) 564-4097, e-mail at rodman.sonja@epa.gov. For
questions regarding the cap-and-trade programs and emissions budgets,
please contact Meg Victor, U.S. EPA, Office of Atmospheric Programs,
Clean Air Markets Division, Mail Code 6204J, 1200 Pennsylvania Avenue,
NW., Washington, DC 20460, telephone (202) 343-9193, e-mail at
victor.meg@epa.gov. For questions regarding the revisions to the CAIR
and Acid Rain Programs, please contact Dwight Alpern, U.S. EPA, Office
of Atmospheric Programs, Clean Air Markets Division, Mail Code 6204J,
1200 Pennsylvania Avenue, NW., Washington, DC 20460, telephone (202)
343-9151, e-mail at alpern.dwight@epa.gov.

SUPPLEMENTARY INFORMATION:

I. Does This Action Apply to Me?

Categories and entities potentially regulated by this action
include the following:

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NAICS Examples of potentially
Category code \1\ regulated entities
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Industry.......................... 221112 Fossil fuel-fired
electric utility steam
generating units.
Federal government................ \2\ Fossil fuel-fired
221122 electric utility steam
generating units owned
by the Federal
government.
State/local/Tribal government..... \2\ Fossil fuel-fired
221122 electric utility steam
generating units owned
by municipalities.

[[Page 25329]]

921150 Fossil fuel-fired
electric utility steam
generating units in
Indian Country.
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\1\ North American Industry Classification System.
\2\ Federal, State, or local government-owned and operated
establishments are classified according to the activity in which they
are engaged.

This table is not intended to be exhaustive, but rather provides a
guide for readers regarding entities likely to be regulated by this
action. To determine whether your facility is affected by this action,
you should examine the definitions and applicability criteria in
Sec. Sec. 72.2, 72.6, 72.7, 72.8, and 74.2 for purposes of the Acid
Rain Program revisions and Sec. Sec. 97.102, 97.104, 97.105, 97.202,
97.204, 97.205, 97.302, 97.304, and 97.305 for purposes of the FIP
action. If you have any questions regarding the applicability of this
action to a particular entity, consult the person listed in the
preceding section under FOR FURTHER INFORMATION CONTACT.

II. Availability of Related Information

The EPA has conducted separate rulemakings that contain actions and
information related to today's action. The final ``Rule to Reduce
Interstate Transport of Fine Particulate Matter and Ozone (Clean Air
Interstate Rule)'' was published on May 12, 2005 (70 FR 25162) (see
also proposal at 69 FR 4566, January 30, 2004; supplemental proposal at
69 FR 32684, June 10, 2004; and notice of data availability at 69 FR
47828, August 6, 2004). The EPA subsequently reconsidered several
aspects of the final CAIR (see 70 FR 72268; December 2, 2005 and 70 FR
77101; December 29, 2005) and is taking final action on reconsideration
in a separate action today. In addition, the EPA issued a proposal to
include Delaware and New Jersey in CAIR for PM_2.5 (70 FR
25408, May 12, 2005) and is finalizing that rulemaking today, also in a
separate action. Documents related to the CAIR, including the actions
on reconsideration and to include Delaware and New Jersey in CAIR for
PM_2.5, are available for inspection in docket EPA-HQ-OAR-
2003-0053 at the address and times given above. The EPA has established
a website for the CAIR at http://www.epa.gov/cleanairinterstaterule
or more simply http://www.epa.gov/cair/ which also includes information on
the section 126 rulemaking. The rulemaking docket for the CAIR contains
information and analyses that are relied upon in today's actions.
Therefore, EPA is including by reference the entire CAIR record for
purposes of the section 126 and FIP rulemakings.

III. Judicial Review

Under CAA section 307(b), judicial review of this final action is
available only by filing a petition for review in the U.S. Court of
Appeals for the District of Columbia Circuit on or before June 27,
2006. Under CAA section 307(d)(7)(B), only those objections to the
final rule that were raised with specificity during the period for
public comment may be raised during judicial review. Moreover, under
CAA section 307(b)(2), the requirements established by today's final
rule may not be challenged separately in any civil or criminal
proceedings brought by EPA to enforce these requirements.
Section 307(d)(7)(B)also provides a mechanism for the EPA to
convene a proceeding for reconsideration if the petitioner demonstrates
that it was impracticable to raise an objection during the public
comment period or if the grounds for such objection arose after the
comment period (but within the time for judicial review) and if the
objection is of central relevance to the rule. Any person seeking to
make such a demonstration to EPA should submit a Petition for
Reconsideration, clearly labeled as such, to the Office of the
Administrator, U.S. EPA, Room 3000, Ariel Rios Building, 1200
Pennsylvania Ave., Washington, DC 20460, with a copy to the Associate
General Counsel for the Air and Radiation Law Office, Office of General
Counsel, Mail Code 2344A, U.S. EPA, 1200 Pennsylvania Ave., NW.,
Washington, DC 20460.

Outline

I. Background and Summary of Rule
A. Summary of Rule
B. General Background on PM_2.5 and Ozone
1. The PM_2.5 Problem
2. The 8-Hour Ozone Problem
3. Other Environmental Effects Associated With SO₂
and NO_X Emissions
C. What Is the Statutory and Regulatory Background for Today's
Action?
1. What Is the ``Good Neighbor'' Provision?
2. What Is the CAA Section 126 Provision?
3. What Is EPA's Previous Section 126 Rulemaking?
4. What Is the Clean Air Interstate Rule?
5. What Are the Findings of Failure to Submit for the Section
110(a)(2)(D) Plans?
6. What Are the Petitions for Reconsideration of the CAIR?
D. Summary of North Carolina's Section 126 Petition
1. What Sources Does the Petition Target?
2. What Control Remedy Does the Petition Request?
3. What Is the Technical Support for the Petition?
E. What Is the Consent Decree on the Section 126 Rulemaking Schedule?
II. What Is EPA's Legal and Analytical Approach for the Section 126
Petition?
III. What Is EPA's Final Action on the Section 126 Petition?
A. What Is EPA's Final Action With Respect to the 8-Hour Ozone NAAQS?
B. What Is EPA's Final Action With Respect to the
PM_2.5 NAAQS?
IV. What Is the Federal Implementation Plan for the CAIR?
A. What Is the Legal Framework for the FIPs?
B. What Is the Timing and Scope of the CAIR FIP Actions?
C. What Are the FIP Control Measures?
D. When and How Will EPA Remove the FIP Requirements if EPA
Approves a SIP to Meet the CAIR?
V. Emission Reduction Requirements for the CAIR FIP
A. Introduction
B. Regionwide SO₂ and NO_X Caps
C. State SO₂ Emission Budgets
D. State NO_X Annual and NO_X Ozone Season
Emission Budgets
E. State NO_X Annual Compliance Supplement Pool
VI. CAIR FIP NO_X and SO₂ Cap-and-trade Programs for EGUs
A. Purpose of CAIR FIP NO_X and SO₂ Cap-
and-trade Programs and Relationship to the CAIR
B. Relationship of Emissions Trading Programs to Section 126 Relief
C. Abbreviated SIP Revisions Covering Elements of the CAIR FIP
Cap-and-trade Programs
D. Overall Structure of the CAIR FIP Cap-and-trade Programs
1. SO₂ Annual Program
2. NO_X Annual Program
3. NO_X Ozone Season Program
E. Sources Subject to the CAIR FIP Cap-and-trade Programs
F. Allocation of NO_X Emission Allowances to Sources
1. Schedule for Determining and Recording NO_X Allocations
2. Method for Allocating NO_X Allowances
G. Allocation of SO₂ Allowances to Sources
H. Allowance Banking
I. Incentives for Early Reductions
1. SO₂ Annual Program
2. NO_X Annual Program
3. NO_X Ozone Season Program
J. Monitoring and Reporting Requirements
K. Interactions with Other CAA Programs

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VII. What are the Revisions of the CAIR SIP Rule, Including the CAIR
Model Cap-and-trade Rules?
VIII. What Are the Revisions of the Acid Rain Program Regulations?
IX. 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

I. Background and Summary of Rule

A. Summary of Rule

In this rule, EPA is taking two final actions related to the
interstate transport of emissions of NO_X and SO₂
that contribute significantly to nonattainment and maintenance problems
with respect to the NAAQS for PM_2.5 and 8-hour ozone. First,
EPA is providing its final response to the petition submitted to EPA by
the State of North Carolina under section 126 of the CAA. Second, EPA
is promulgating FIPs for all jurisdictions covered by the CAIR. The EPA
is also making revisions to the final CAIR to clarify certain
provisions, to correct minor errors, and to take final action on
reconsideration of the definition of ``EGU'' as it relates to solid
waste incinerators. Finally, EPA is making minor revisions to the Title
IV Acid Rain Program.
The North Carolina petition requests that EPA establish control
requirements for EGUs in 13 States based on findings that these sources
are significantly contributing to PM_2.5 and/or 8-hour ozone
nonattainment and maintenance problems in North Carolina. (See
Petition, Docket No. EPA-HQ-OAR-2004-0076-0002.)
The EPA's response (as well as the petition itself) is based on
extensive analyses conducted for the CAIR (70 FR 25162; May 12, 2005).
The EPA is denying the petition in full. For sources in States not
shown in the final CAIR to be linked to (that is, to significantly
contribute to) nonattainment and maintenance problems in North
Carolina, the lack of significant contribution to North Carolina is the
basis for this denial. For sources in States that are linked to North
Carolina under the CAIR for the PM_2.5 NAAQS, EPA is denying
the petition because, concurrently with the section 126 response, EPA
is promulgating FIPs that require elimination of the significant
contribution. The FIPs will control the significant transport from
sources in States named in the petition as well as from sources in the
other CAIR States, in the event that the States do not have timely,
approved SIPs meeting the CAIR requirements. The States named in the
petition with respect to the PM_2.5 NAAQS are: Alabama,
Georgia, Illinois, Indiana, Kentucky, Michigan, Ohio, Pennsylvania,
South Carolina, Tennessee, Virginia, and West Virginia. Of these,
Illinois and Michigan are not linked to North Carolina in the final CAIR.
The States named in the petition with respect to the 8-hour ozone
NAAQS are: Georgia, Maryland, South Carolina, Tennessee, and Virginia.
There are no States linked to North Carolina under the CAIR for the 8-
hour ozone NAAQS because North Carolina is projected to be in
attainment in the 2010 baseline for the analyses.
As mentioned above, in today's action, EPA is also promulgating
FIPs to address interstate transport of NO_X and
SO₂ under section 110(a)(2)(D) for all jurisdictions that
are covered by the CAIR. In the CAIR, EPA determined that 28 States and
the District of Columbia contribute significantly to nonattainment of
the NAAQS for PM_2.5 and/or 8-hour ozone in downwind States.
The CAIR explains EPA's basis for determining significant contribution
to downwind nonattainment and maintenance problems. In that rule, the
EPA required the affected upwind States to revise their SIPs to include
control measures to reduce emissions of SO₂ and/or
NO_X. Sulfur dioxide is a precursor to PM_2.5
formation, and NO_X is a precursor to both ozone and
PM_2.5 formation.
In an action published on the same day as the final CAIR, EPA
proposed to find that Delaware and New Jersey contribute significantly
to PM_2.5 nonattainment and maintenance problems in downwind
States considering these States as a single entity (70 FR 25408; May
12, 2005). These States were included in the final CAIR only with
respect to their impacts on downwind 8-hour ozone nonattainment and
maintenance problems. Today, in a separate action, EPA is issuing the
final rule to include Delaware and New Jersey in the CAIR region for
PM_2.5. Therefore, today's FIP rule includes emissions
reductions requirements for Delaware and New Jersey to address their
significant contribution to nonattainment or maintenance problems for
the PM_2.5 NAAQS.
The FIPs will regulate EGUs in the affected States and achieve the
emissions reductions required by the CAIR until States have approved
SIPs to achieve the reductions. The CAIR emissions budgets were based
on control requirements that are highly cost effective for EGUs.
The EPA intends the CAIR FIPs to address the requirements of
section 110(a)(2)(D)(i) to prevent interstate transport that
contributes significantly to nonattainment or interferes with
maintenance in downwind areas and to provide a Federal backstop for
CAIR. In no way should the FIPs for CAIR be viewed as a sign of any
concern about States meeting their SIP responsibilities under CAIR.
There are no sanctions associated with these FIPs and EPA does not
intend for CAIR FIPs to have any negative consequences for the affected
States. The EPA is providing FIP approaches that are flexible and
intended to provide States options for getting their SIPs in place.
As the control requirement for the FIPs, EPA is adopting the model
trading rules that EPA provided in CAIR as a control option for States,
with minor changes to account for Federal rather than State
implementation. The CAIR FIP NO_X and SO₂ trading
programs provide emissions reductions equal to those required under the
CAIR in affected States.
These trading programs provide emissions reductions equal to those
required under CAIR in the affected States. The CAIR FIP trading
programs are integrated with the EPA-administered State CAIR trading
programs that are based on the model rules so that sources can trade
with one another under the respective emissions caps. The EPA
emphasizes that the FIPs do not limit the options available to States
to meet the requirements of the CAIR. We do not intend to record
NO_X allocations in sources' allowance accounts (or take any
other steps to implement FIP requirements that could impact a State's
ability to regulate their sources in a different manner) until a year
after the CAIR SIP submission deadline.\1\ This will allow EPA time to

[[Page 25331]]

take rulemaking action to approve timely SIPs before implementation of
FIP requirements occurs. In addition, States could replace the FIP
requirements at a later time.
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\1\ The CAIR requires affected sources to begin monitoring 1
year before the initial control periods (i.e., sources begin
monitoring in 2008 for the NO_X programs and begin
monitoring in 2009 for the SO₂ program). Note that EPA
will take any necessary actions to implement the monitoring
provisions of the FIP trading rules in time for monitoring to begin
in 2008. To the extent that a State chooses to control EGUs to meet
its CAIR obligations, the monitoring requirements will be identical
whether EPA regulations EGUs through the Federal trading programs or
the State regulates EGUs through its SIP.
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In today's action, EPA is also making revisions to the CAIR in
order to address the interaction of EPA-administered NO_X and
SO₂ trading programs under the CAIR and under the FIP
action. In addition, EPA is making revisions to the CAIR in order to
clarify certain provisions and to correct certain minor errors and
taking final action on reconsideration of the definition of ``EGU'' as
it relates to solid waste incinerators.
The EPA is also revising the Title IV Acid Rain Program in order to
make the administrative appeals procedures (in 40 CFR part 78), which
currently apply to final determinations by the Administrator under the
EPA-administered State CAIR trading programs, also apply to the EPA-
administered trading programs under the FIPs. In addition, EPA is
making minor revisions that would apply to all affected units under the
Acid Rain Program.

B. General Background on PM_2.5 and Ozone

1. The PM_2.5 Problem
In an action published on July 18, 1997, we revised the NAAQS for
particulate matter (PM) to add new standards for fine particles, using
as the indicator particles with aerodynamic diameters smaller than a
nominal 2.5 micrometers, termed PM_2.5 (62 FR 38652). We
established health- and welfare-based (primary and secondary) annual
and 24-hour standards for PM_2.5. The annual standard is 15
micrograms per cubic meter, based on the 3-year average of annual mean
PM_2.5 concentrations. The 24-hour standard is 65 micrograms
per cubic meter, based on the 3-year average of the annual 98th
percentile of 24-hour concentrations. The annual standard is generally
considered the more limiting value.\2\
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\2\ The EPA recently proposed to amend the NAAQS for
PM_2.5 (71 FR 2620; Jan. 17, 2006). The EPA is scheduled
to take final action on this proposal by September 27, 2006. These
actions are not relevant to this rulemaking because all of the
actions herein concern the existing NAAQS.
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Fine particles are associated with a number of serious health
effects including premature mortality, aggravation of respiratory and
cardiovascular disease (as indicated by increased hospital admissions,
emergency room visits, absences from school or work, and restricted
activity days), lung disease, decreased lung function, asthma attacks,
and certain cardiovascular problems. (See EPA, Air Quality Criteria for
Particulate Matter (EPA/600/P-99/002bF, October 2004) at 9.2.2.3).) The
EPA has estimated that attainment of the current PM_2.5
standards would prolong tens of thousands of lives and would prevent,
each year, tens of thousands of hospital admissions as well as hundreds
of thousands of doctor visits, absences from work and school, and
respiratory illnesses in children.
Individuals particularly sensitive to fine particle exposure
include older adults, people with heart and lung disease, and children.
More detailed information on health effects of fine particles can be
found on EPA's Web site at:
http://www.epa.gov/ttn/naaqs/standards/pm/s_pm_index.html.
The secondary or welfare-based PM_2.5 standards are
designed to protect against major environmental effects caused by PM
such as visibility impairment, soiling, and materials damage.
As discussed in other sections of this preamble, SO₂ and
NO_X emissions both contribute to fine particle
concentrations. In addition, NO_X emissions contribute to
ozone concentrations, described in the next section.
The PM_2.5 ambient air quality monitoring for the 2001-
2003 period shows that areas violating the standards are located across
much of the eastern half of the United States and in parts of
California and Montana. The EPA published the PM_2.5
attainment and nonattainment designations on January 5, 2005 (70 FR
944) and issued supplemental amendments on April 14, 2005 (70 FR 19844).
2. The 8-Hour Ozone Problem
In an action published on July 18, 1997, we promulgated identical
revised primary and secondary ozone standards that specified an 8-hour
ozone standard of 0.08 parts per million (ppm). Specifically, under the
standards, the 3-year average of the fourth highest daily maximum 8-
hour average ozone concentration may not exceed 0.08 ppm. In general,
the revised 8-hour standards are more protective of public health and
the environment and more stringent than the pre-existing 1-hour ozone
standards.
Short-term (1- to 3-hour) and prolonged (6-to 8-hour) exposures to
ambient ozone have been linked to a number of adverse health effects.
At sufficient concentrations, short-term exposure to ozone can irritate
the respiratory system, causing coughing, throat irritation, and chest
pain. Ozone can reduce lung function and make it more difficult to
breathe deeply. Breathing may become more rapid and shallow than
normal, thereby limiting a person's normal activity. Ozone also can
aggravate asthma, leading to more asthma attacks that may require a
doctor's attention and the use of additional medication. Increased
hospital admissions and emergency room visits for respiratory problems
have been associated with ambient ozone exposures. Longer-term ozone
exposure can inflame and damage the lining of the lungs, which may lead
to permanent changes in lung tissue and irreversible reductions in lung
function. A lower quality of life may result if the inflammation occurs
repeatedly over a long time period (such as months, years, or a
lifetime). There is also recent epidemiological evidence suggesting
that there may be a correlation between short-term ozone exposure and
premature mortality.
People who are particularly susceptible to the effects of ozone
include people with respiratory diseases, such as asthma. Those who are
exposed to higher levels of ozone include adults and children who are
active outdoors.
In addition to causing adverse health effects, ozone affects
vegetation and ecosystems, leading to reductions in agricultural crop
and commercial forest yields; reduced growth and survivability of tree
seedlings; and increased plant susceptibility to disease, pests, and
other environmental stresses (e.g., harsh weather). In long-lived
species, these effects may become evident only after several years or
even decades and have the potential for long-term adverse impacts on
forest ecosystems. Ozone damage to the foliage of trees and other
plants can also decrease the aesthetic value of ornamental species used
in residential landscaping, as well as the natural beauty of our
national parks and recreation areas. More detailed information on
health effects of ozone can be found at the following EPA Web site:
http://www.epa.gov/ttn/naaqs/standards/ozone/s_o3_index.html.
Presently, wide geographic areas, including most of the nation's
major population centers, experience ozone levels that violate the
NAAQS for 8-hour ozone. These areas include much of the eastern part of
the United States and large areas of California. The EPA published the
8-hour ozone attainment and nonattainment designations in the Federal
Register on April 30, 2004 (69 FR 23858).

[[Page 25332]]

3. Other Environmental Effects Associated With SO₂ and
NO_X Emissions
In addition to the enumerated human health and welfare benefits
resulting from reductions in ambient levels of PM_2.5 and
ozone, reductions in NO_X and SO₂ will contribute
to substantial visibility improvements in many parts of the eastern
United States. Reductions in these pollutants will also reduce
acidification and eutrophication of water bodies in the region. In
addition, reducing emissions of NO_X and SO₂ from
EGUs can be expected to reduce emissions of mercury. Reduced mercury
emissions in turn may reduce mercury loadings in lakes and thereby
potentially decrease both human and wildlife exposure to fish
containing mercury.

C. What Is the Statutory and Regulatory Background for Today's Action?

1. What Is the ``Good Neighbor'' Provision?
Following promulgation of new or revised NAAQS, the CAA requires
all areas, regardless of their designation as attainment,
nonattainment, or unclassifiable, to submit SIPs containing provisions
specified under section 110(a)(2). Among these requirements are those
specified by the so-called ``good neighbor'' provision section
110(a)(2)(D) which addresses interstate transport of air pollution.
Section 110(a)(2)(D) requires that a SIP contain adequate provisions--

(i) Prohibiting, consistent with the provisions of this title,
any source or other type of emissions activity within the State from
emitting any air pollutant in amounts which will--
(I) Contribute significantly to nonattainment in, or interfere
with maintenance by, any other State with respect to [any] national
primary or secondary ambient air quality standard, or
(II) Interfere with measures required to be included in the
applicable implementation plan for any other State under part C to
prevent significant deterioration of air quality or to protect visibility.
(ii) Insuring compliance with the applicable requirements of
sections 126 and 115 (relating to interstate and international
pollution abatement);

Section 126 is discussed in the following section and section II of
this preamble explains the relationship between CAA sections 110 and
126 with respect to our final response to the section 126 petition and
the CAIR FIPs.
2. What Is the CAA Section 126 Provision?
Subsection (a) of section 126 requires, among other things, that
SIPs require major proposed new (or modified) stationary sources to
notify nearby States for which the air pollution levels may be affected
by the fact that such sources have been permitted to commence
construction. Subsection (b) provides:

Any State or political subdivision may petition the
Administrator for a finding that any major source or group of
stationary sources emits or would emit any air pollutant in
violation of the prohibition of section 110(a)(2)(D)[(i)] [of] this
section* * *.
Subsection (c) of section 126 states that--
[I]t shall be a violation of this section and the applicable
implementation plan in such State [in which the source is located or
intends to locate]--
(1) For any major proposed new (or modified) source with respect
to which a finding has been made under subsection (b) to be
constructed or to operate in violation of this section and the
prohibition of section 110(a)(2)(D)[(i)] \3\ [of] this section, or
---------------------------------------------------------------------------

\3\ While the text of section 126 refers to section
110(a)(2)(D)(ii), this is a scrivener's error. Congress intended to
refer to section 110(a)(2)(D)(i). (See 64 FR 28267.) The EPA's
interpretation was upheld in Appalachian Power Co. v. EPA, 249 F. 3d
1032, 1040-44 (D.C. Cir. 2001).
---------------------------------------------------------------------------

(2) for any major existing source to operate more than three
months after such finding has been made with respect to it.

However, subsection (c) further provides that EPA may permit the
continued operation of such major existing sources beyond the 3-month
period, if such sources comply with EPA-promulgated emissions limits
within 3 years of the date of the finding.
3. What Is EPA's Previous Section 126 Rulemaking?
The EPA has previously taken action under section 126 to address
interstate ozone transport (64 FR 28250; May 25, 1999 and 65 FR 2674;
January 18, 2000). Because there are many parallels between that earlier
action and today's rule, we briefly discuss our earlier action here.
Like the present rulemaking, EPA's previous section 126 rulemaking,
dealing with interstate transport of NO_X, occurred
essentially in conjunction with an EPA rulemaking dealing with
interstate transport of the same pollutants, the NO_X SIP
Call (62 FR 60318; November 7, 1997). As in today's rule, EPA concluded
that section 126 and section 110(a)(2)(D)(i) are integrally connected
(due to the reference to the section 110(a)(2)(D)(i) prohibition found
in section 126 (b)). Thus, the interstate transport problem at issue
could be addressed under either provision, and once the underlying
section 110(a)(2)(D)(i) SIP deficiency is eliminated, there no longer
is a basis for EPA to make a positive finding under section 126. (See
sections II and III below for a more detailed discussion.) In the
earlier rulemaking, we therefore concluded that emissions reductions
sufficient to eliminate a section 110(a)(2)(D) SIP deficiency would
also be sufficient to satisfy section 126.
The NO_X SIP Call required SIP revisions eliminating the
amount of emissions that contribute significantly to nonattainment in
downwind States, the amount of emissions reductions corresponding to
the quantity of emissions that could be eliminated by the application
of highly cost-effective controls on specified sources in each upwind
State. The section 126 remedy consequently called for the same set of
highly cost-effective controls for the section 126 source categories,
based on the record of the NO_X SIP Call. We are adopting
this same conceptual approach in today's rulemaking.
There are also parallels between our earlier section 126 action and
this action with regard to timing of actions in the section 126
proceeding and in the closely-related interstate transport proceeding
under section 110(a)(2)(D)(i). Because a section 126 finding turns on
the existence of a section 110(a)(2)(D)(i) deficiency, in the May 1999
Section 126 Rule, we determined which petitions had technical merit,
but we stopped short of granting the findings sought by the petitions.
Instead, we stated that because we had promulgated the NO_X
SIP Call, as long as an upwind State remained on track to comply with
that rule, EPA would defer making the section 126 findings (See 64 FR
28271-28272). Later judicial action staying the NO_X SIP Call
rule resulted in EPA granting the section 126 petitions at issue, but
the new rule retained the basic linkage between section 126 and section
110(a)(2)(D)(i) by providing that EPA would withdraw the section 126
findings upon EPA approval of a SIP satisfying the emission reduction
requirements of the NO_X SIP Call rule or upon EPA's
promulgation of a FIP that achieved the emissions reductions. [See 65
FR at 2683 and Appalachian Power v. EPA, 249 F. 3d 1032, 1039 (D.C.
Cir., 2001).]
Similarly, in our proposal on the North Carolina section
126 petition, we proposed to deny the section 126 petition if we
approved SIPs which satisfied the emission reduction requirements of
the CAIR, or if we promulgated a FIP which included the emission
reduction requirements of the CAIR. (In today's final rule, we are
denying the petition because we are promulgating FIPs concurrently with
the final section 126 response, which FIPs eliminate the significant

[[Page 25333]]

contribution from upwind sources to North Carolina.)
Finally, in the earlier section 126 rule, EPA adopted as a remedy
for section 126 a Federal NO_X cap-and-trade program
patterned after the model NO_X cap-and-trade program that EPA
developed for States as an option to meet their NO_X SIP Call
requirements. See 65 FR 2686. The EPA proposed the same approach for
the North Carolina section 126 petition, in the event that EPA granted
the petition.
4. What Is the Clean Air Interstate Rule?
The EPA developed the CAIR to address interstate pollution
transport with respect to the newly adopted PM_2.5 and 8-hour
ozone NAAQS.
In the CAIR, based on air quality modeling analyses and cost
analyses, EPA concluded that SO₂ and NO_X
emissions in certain States in the eastern part of the country, through
the phenomenon of air pollution transport,\4\ contribute significantly
to PM_2.5 and/or 8-hour ozone nonattainment and maintenance
problems in downwind States. The CAIR establishes emission reduction
requirements for the affected upwind States under CAA section
110(a)(2)(D)(i). The affected States and the District of Columbia have
until September 11, 2006 to adopt and submit SIP revisions to achieve
these required reductions. The SIP revision must contain measures that
will assure that sources in the State reduce their SO₂ and/
or NO_X emissions sufficiently to eliminate the amounts of
SO₂ and NO_X that contribute significantly to
nonattainment downwind. Reducing upwind precursor emissions will assist
the downwind PM_2.5 and 8-hour ozone areas in achieving and
maintaining the NAAQS. Moreover, attainment will be achieved in a more
equitable, cost-effective manner than if each nonattainment area
attempted to achieve attainment by implementing local emissions
reductions alone. The EPA specified that the CAIR emissions reductions
be implemented in two phases. The first phase of NO_X
reductions starts in 2009 (covering 2009-2014) and the first phase of
SO₂ reductions starts in 2010 (covering 2010-2014); the
second phase of reductions for both NO_X and SO₂
starts in 2015 (covering 2015 and thereafter). The emissions reduction
requirements are based on controls that are known to be highly cost
effective for EGUs; however, States have the flexibility to determine
what measures to adopt to achieve the necessary reductions. In the
CAIR, EPA provided model SO₂ and NO_X trading
programs for EGUs that States can choose to adopt to meet the emissions
reduction requirements in a flexible and highly cost-effective manner.
---------------------------------------------------------------------------

\4\ When we use the term ``transport'' we mean to include the
transport of both fine particles (PM_2.5) and their precursor
emissions and/or transport of both ozone and its precursor emissions.
---------------------------------------------------------------------------

With the inclusion of Delaware and New Jersey in the CAIR
PM_2.5 region, EPA estimates that the CAIR will reduce
SO₂ emissions by 3.6 million tons in 2010 and by 3.9 million
tons in 2015; and will reduce annual NO_X emissions by 1.2
million tons in 2009 and by 1.5 million tons in 2015. (These numbers
reflect the annual SO₂ and NO_X requirements.) If
all these States choose to achieve these reductions through EGU
controls, then EGU SO₂ emissions in the affected States
would be capped at 3.7 million tons in 2010 and 2.6 million tons in
2015; \5\ and EGU annual NO_X emissions would be capped at
1.5 million tons in 2009 and 1.3 million tons in 2015.
---------------------------------------------------------------------------

\5\ It should be noted that the SO₂ trading program
provides that sources may bank pre-2010 title IV SO₂
allowances to be used for compliance with CAIR. These provisions
encourage sources to make early emission reductions and ease the
transition to the CAIR SO₂ program, and as a result,
emissions may not reflect the emission caps in any given year.
---------------------------------------------------------------------------

Based on the promulgated CAIR (70 FR 25162), EPA estimates that the
required SO₂ and NO_X emissions reductions would,
by themselves, bring into attainment 52 of the 79 counties that are
otherwise projected to be in nonattainment for PM_2.5 in
2010, and 57 of the 74 counties that are otherwise projected to be in
nonattainment for PM_2.5 in 2015. The EPA further estimates
that the required NO_X emissions reductions would, by
themselves, bring into attainment 3 of the 40 counties that are
otherwise projected to be in nonattainment for 8-hour ozone in 2010,
and 6 of the 22 counties that are projected to be in nonattainment for
8-hour ozone in 2015. In addition, the CAIR will improve
PM_2.5 and 8-hour ozone air quality in the areas that would
remain in nonattainment for those two NAAQS after implementation of the
CAIR. Because of CAIR, the States with those remaining nonattainment
areas will find it less burdensome and less expensive to reach
attainment by adopting additional local controls. The CAIR will also
reduce PM_2.5 and 8-hour ozone levels in attainment areas,
providing significant health and environmental benefits in all areas of
the eastern United States.
For a more complete description of the CAIR and its impacts, the
reader is encouraged to review the preamble to the CAIR.
5. What Are the Findings of Failure To Submit for the Section
110(a)(2)(D) Plans?
In a final rule published on April 25, 2005 (70 FR 21147), we made
national findings that States have failed to submit SIPs required under
section 110(a)(2)(D) to address interstate transport with respect to
the 8-hour ozone and PM_2.5 NAAQS.
The April 25, 2005 findings started a 2-year clock for EPA to
promulgate a FIP to address the requirements of section 110(a)(2)(D).
Under section 110(c)(1), EPA may issue a FIP any time after such
findings are made and must do so unless a SIP revision correcting the
deficiency is approved by EPA before the FIP is promulgated. For States
affected by CAIR, an approved SIP meeting the CAIR requirements would
satisfy the requirement and turn off the FIP clock. As discussed below
in section IV, EPA is today promulgating FIPs for States affected by
the CAIR. However, EPA intends to withdraw the FIP in a State in
coordination with approval of a SIP for the State that meets the CAIR
requirements.
The findings do not start a sanctions clock pursuant to section 179
because the findings do not pertain to a part D plan for nonattainment
areas required under section 110(a)(2)(I) and because the action is not
a SIP Call pursuant to section 110(k)(5).
6. What Are the Petitions for Reconsideration of the CAIR?
Following publication of the final CAIR, EPA received twelve
petitions requesting reconsideration of certain aspects of the final
rule. The EPA considered all issues raised in the petitions and decided
to reconsider six issues. In the notice of proposed rulemaking for this
rule, EPA announced its decision to reconsider one issue: the
definition of ``EGU'' as it relates to certain solid waste incineration
units. Subsequently, on December 2, 2005 (70 FR 72268), and December
29, 2005 (70 FR 77101), EPA published in the Federal Register notices
announcing its decisions to reconsider five additional aspects of CAIR
and requesting comment on those issues.
As part of this rule, EPA is taking final action on reconsideration
of the definition of ``EGU'' as it relates to certain solid waste
incineration units. As explained in sections VI.E and VII below, EPA
has revised the definition of EGU to establish a specific exemption for
certain solid waste incineration units.
In a separate notice signed today, EPA is taking final action on
the five

[[Page 25334]]

additional aspects of CAIR for which EPA granted petitions for
reconsideration. The EPA also is taking final action today to deny the
remaining issues raised in the twelve petitions for reconsideration.
These actions are discussed in greater detail in the preamble for the
notice of final action on reconsideration, titled ``Rule to Reduce
Interstate Transport of Fine Particulate Matter and Ozone (Clean Air
Interstate Rule): Reconsideration'' and all related documents are
available in the docket for the CAIR (EPA-HQ-OAR-2003-0053).

D. Summary of North Carolina's Section 126 Petition

1. What Sources Does the Petition Target?
The North Carolina petition requests reductions of certain
emissions from large EGUs located in 13 States. With respect to the
PM_2.5 NAAQS, the petition requests that EPA find that
NO_X and SO₂ emissions from large EGUs in 12
States (Alabama, Georgia, Illinois, Indiana, Kentucky, Michigan, Ohio,
Pennsylvania, South Carolina, Tennessee, Virginia, and West Virginia)
are significantly contributing to nonattainment in, or interfering with
maintenance by, North Carolina. With respect to the 8-hour ozone NAAQS,
the petition requests that EPA find that NO_X emissions from
large EGUs in 5 States (Georgia, Maryland, South Carolina, Tennessee,
and Virginia) are significantly contributing to nonattainment in, or
interfering with maintenance by, North Carolina (Petition, p.1).
The petition defines the term ``EGUs'' as all facilities meeting
the criteria described in the proposal for the CAIR. (See 69 FR 4566,
4610; January 30, 2004.) In the proposal for the CAIR, we defined EGUs
as ``fossil-fuel fired boilers and turbines serving an electric
generator with a nameplate capacity of greater than 25 megawatts (MW)
producing electricity for sale.'' (Id.) (See sections VI.E. and VII of
today's preamble for clarification of the EGU definition.)
2. What Control Remedy Does the Petition Request?
In its petition, North Carolina states that compliance with the
NO_X and SO₂ emissions budgets in the proposal for
the CAIR would satisfy the requirements of the petition. These
emissions budgets were based on controls that are highly cost effective
for EGUs [the highly cost effective control metric being a component of
determining which emissions contribute significantly (see State of
Michigan v. EPA, 213 F.3d 663, 674-80 (D.C. Cir., 2000) (upholding
consideration of cost as an aspect of significant contribution)]. North
Carolina also states that it does not oppose the flexibility discussed
by EPA (69 FR at 4622) to allow equivalent reductions from other source
categories in given States, so long as those reductions are real and
enforceable (Petition, p. 24).
In the CAIR, EPA provided model NO_X and SO₂
cap-and-trade programs for EGUs as control options for States to choose
to meet the CAIR emissions reductions requirements. The trading
programs allow interstate trading among sources in all States subject
to the CAIR that adopt the programs. In its petition, North Carolina
said it recognizes the value of allowing sources flexibility to reduce
their emissions in the most cost-effective manner consistent with the
statute. However, North Carolina expressed concerns about a regional
trading program (Petition, pp. 25-28). We address this issue below in
sections II and VI.
3. What Is the Technical Support for the Petition?
To support its claim that EGUs outside North Carolina are
contributing significantly to nonattainment and maintenance problems in
the State, North Carolina relies largely on EPA's technical analyses
for the proposed CAIR. Therefore, as discussed above, the petition
targets sources in the same States that EPA linked to North Carolina in
the proposed CAIR. As corroborative support, North Carolina cites
analyses conducted by the Southern Appalachian Mountains Initiative
(SAMI) on PM_2.5 transport, North Carolina's further
evaluation of the SAMI's analyses, as well as back trajectory analyses
performed by the North Carolina Division of Air Quality from
PM_2.5 monitors in two counties. (See Petition, pp. 13-17.)

E. What Is the Consent Decree on the Section 126 Rulemaking Schedule?

On March 19, 2004, EPA received a petition from the State of North
Carolina filed under CAA section 126. Section 126(b) requires EPA to
make the requested finding, or to deny the petition, within 60 days of
receipt. It also requires EPA to provide a public hearing before acting
on the petition. In addition, EPA's action under section 126 is subject
to the procedural requirements of section 307(d) of the CAA. [See
section 307(d)(2)-(5).]
One of these requirements is that EPA conduct
notice-and-comment rulemaking. Section 307(d)(10) provides for a time
extension, under certain circumstances, for rulemakings subject to that
provision. Specifically, it allows statutory deadlines that require
promulgation in less than 6 months from proposal to be extended to not
more than 6 months from proposal to afford the public and the Agency
adequate opportunity to carry out the purposes of section 307(d). In an
action published on May 26, 2004 (69 FR 30038), EPA extended the
deadline for EPA to take action on the North Carolina petition by the
full 6 months, to November 18, 2004.
On February 17, 2005, the State of North Carolina and the citizen's
group Environmental Defense filed complaints against EPA seeking to
compel EPA to take action on the State's section 126 petition: State of
North Carolina v. Johnson, No. 5:05-CV-112 (E.D. N.C.) and
Environmental Defense v. Johnson, No. 5:05-CV-113 (E.D. N.C.). The EPA,
North Carolina, and Environmental Defense filed a proposed consent
decree that would establish a schedule for EPA to act on the petitions.
Pursuant to CAA section 113(g), the EPA solicited comments on the
proposed consent decree, by notice dated March 2, 2005 (70 FR 10089).
The comment period closed April 1, 2005 without EPA receiving negative
comment. On May 9, 2005, the court entered a slightly modified version
of the consent decree.
The schedule in the consent decree required EPA to sign a proposal
to grant or deny the petition by August 1, 2005, a date EPA met. (See
70 FR 49746.) The consent decree also required EPA to hold a public
hearing on the proposal during the week of September 12 in North
Carolina, and EPA held hearings in Research Triangle Park, North
Carolina and Washington, DC during that week. The EPA must also take
final action to grant or deny the petition by March 15, 2006, and is
doing so in this rule. With the signature of today's final response to
the petition, EPA has thus fulfilled all the deadlines and provisions
of the consent decree.

II. What Is EPA's Legal and Analytical Approach for the Section 126
Petition?

For the PM_2.5 NAAQS, EPA proposed to deny the petition
with respect to sources in any State having an approved SIP meeting the
CAIR emissions reductions requirements, and with respect to sources in
any State for which EPA promulgated a FIP with those same emission
reductions requirements. In either case, there would no longer be a
violation of the prohibition in section 110(a)(2)(D)(i). Since a
violation of that prohibition is a condition precedent for granting a
section 126 petition, EPA

[[Page 25335]]

necessarily would deny the petition. (See 70 FR at 49716-49717.)
A number of commenters disagreed with EPA's approach. In their
view, section 126 guarantees a particular result: reductions of
emissions from designated upwind sources linked to North Carolina
nonattainment or maintenance problems, which reductions are to occur
within three years.
In the commenters' view, if an approved SIP or a FIP does not
provide this result within the three year time frame stated in section
126(c), then EPA must grant the petition. Thus, the argument goes, EPA
must find that certain sources significantly contribute to
nonattainment problems in North Carolina regardless of whether there is
a current violation of the section 110(a)(2)(D)(i) prohibition. The
commenters maintain that the statute, case-law, and past EPA practice
all compel their interpretation.
EPA disagrees. In our view, section 126 provides a mechanism
forcing EPA to act, but does not force adoption of controls beyond
those necessary to remove the underlying SIP deficiency which violates
the prohibition of section 110(a)(2)(D)(i). In essence, section 126
provides States a means to force EPA to take action to reduce specific
emissions when EPA has not taken the actions required by section
110(a)(2)(D)(i) to address significant contribution to downwind
receptors, but does not force further action. It follows, therefore,
that once EPA has taken action to eliminate the SIP deficiencies by
approving SIPs which implement CAIR (i.e., which eliminate the
significant contribution), or itself promulgates a CAIR FIP for states
with SIP deficiencies, there is no longer a cause of action under
section 126.\6\
---------------------------------------------------------------------------

\6\ This analysis assumes that the facts underlying CAIR remain
unchanged. If a Petition were to present new information showing,
for example, that there is a different level of contribution than
EPA analyzed in CAIR, compliance with CAIR would not automatically
be determinative regarding whether upwind sources are emitting in
violation of the section 110 (a)(2)(D)(i) prohibition. See 64 FR at
28274 n. 15 and Appalachian Power, 249 F.3d at 1067 (later
developments can be the basis for another section 126 petition).
---------------------------------------------------------------------------

This interpretation is consistent with the text of the statute,
which links action under section 126 inextricably with the existence of
an underlying section 110(a)(2)(D)(i) SIP deficiency: ``[a]ny State * *
* may petition the Administrator for a finding that any major source or
group of stationary sources emits * * * any air pollutant in violation
of the prohibition of section 110(a)(2)(D)[(i)] 7 o[f] this
section'' (emphasis added). Case law likewise makes clear that EPA's
determination of whether or not to grant a section 126 petition turns
on whether SIPs are in violation of section 110(a)(2)(D)(i).
Appalachian Power v. EPA, 249 F.3d 1032, 1045-46 (D.C. Cir. 2001).
Similarly, in the rulemaking dealing with a section 126 petition in
circumstances most analogous to those here (EPA's response to the
Northeastern states' petition regarding interstate transport of ozone
precursors, issued roughly contemporaneously with the NO_X
SIP Call), EPA stated that it ``interprets section 126 to provide that
a source is emitting in violation of the prohibition of section
110(a)(2)(D)(i) where the applicable SIP fails to prohibit (and EPA has
not remedied this failure through a FIP) a quantity of emissions from
that source that EPA has determined contributes significantly to
nonattainment or interferes with maintenance in a downwind [S]tate''
(64 FR at 28272; May 25, 1999). Thus, ``[a]n upwind State and EPA may
remedy this excessive interstate transport of air pollutants through
adoption and approval of a SIP revision barring the emission of such
pollutants. Alternatively, a downwind State and EPA may remedy this
excessive interstate transport of air pollutants through the State
petitioning EPA under section 126 and EPA regulating the sources
directly'' (65 FR 2680; January 18, 2000).
---------------------------------------------------------------------------

\7\ As noted earlier, the statutory text refers to subsection
(ii) of section 110(a)(2)(D), but this is a scrivener's error.
Appalachian Power, 249 F.3d 1032, 1040-44.
---------------------------------------------------------------------------

Commenters argued, however, that the reference in section 126(b)
and (c) to ``the prohibition of section 110(a)(2)(D) [(i)]'' must be to
the functional prohibition in section 110(a)(2)(D)(i), by which they
mean a cessation of emissions that contribute significantly to
nonattainment in a downwind state. Under this reading, a remedy under
section 126 must entail emission reductions, not merely SIP revisions.
EPA agrees that the prohibition referred to is the functional
prohibition on significant contribution to downwind states, and
therefore, for example, EPA cannot defer granting a section 126
petition merely because a state is under a legal obligation to revise
its SIP. Appalachian Power, 249 F.3d at 1044. However, adoption of a
SIP implementing CAIR (or EPA enacting a CAIR FIP) addresses the
functional prohibition of section 110(a)(2)(D)(i) by eliminating the
SIP deficiency triggering the prohibition through requirements on
sources to eliminate the significant contribution to downwind
receptors. Moreover, to the extent the commenters are maintaining that
the `functional prohibition in section 110(a)(2)(D)(i)' refers to some
specific environmental result, such as North Carolina coming into
attainment (see Comments of North Carolina Attorney General at 17), we
disagree. EPA interprets ``significant contribution'' in the CAIR and
in this proceeding to include both an emission component and a
feasibility/cost-effectiveness component, so that what is prohibited
are specific levels of emissions which can feasibly be reduced in a
highly cost-effective manner. See also 65 FR at 2677 (applying cost
effectiveness component of the significant contribution standard in
granting a section 126 petition). Adoption of a CAIR SIP (or EPA
adopting a CAIR FIP) fully addresses this prohibition.
In the same vein, other commenters argued that sections
110(a)(2)(D) and 126 are independent provisions, and that EPA is
vitiating that independence by substituting a section 110 remedy for
the section 126 remedy, the implication again being that section 126
commands an environmental result which must be effectuated once the
section 110(a)(2)(D) prohibition is violated. EPA disagrees with the
premise of the comment. Although the two provisions unquestionably may
be applied independently, they are also closely linked in that a
violation of the prohibition in section 110(a)(2)(D)(i) is a condition
precedent for action under section 126 and, critically, that
significant contribution is construed identically for purposes of both
provisions (since the identical term naturally is interpreted as
meaning the same thing in the two linked provisions). See Appalachian
Power, 249 F. 3d at 1049-50. If EPA or a State has adopted provisions
that eliminate the significant contribution to downwind states, then
there simply is no violation of the section 110(a)(2)(D) prohibition.
Moreover, since we interpret significant contribution to mean the same
thing under both provisions, relief under section 126 to eliminate
significant contribution must in any case mean eliminating those
emissions which can feasibly be controlled in a highly cost-effective
manner as defined in the CAIR. Put another way, requiring additional
reductions would result in eliminating emissions which do not
contribute significantly, an action beyond the scope of section 126.
Commenters further argued that relief under section 126 must occur
within 3 years and therefore that the CAIR emission reductions do not
satisfy

[[Page 25336]]

section 126 because although those reductions commence within 3 years
they are phased in over a longer time. These comments assume that EPA
must make the section 126 findings, however, in which case sources
covered by the petition would indeed have to eliminate significant
contribution within 3 years. But as just explained, a condition
precedent to making section 126 findings is the existence of an
underlying SIP deficiency, which EPA has chosen to address directly
through action under section 110(a)(2)(D). Moreover, this choice is
appropriate. As a result of today's action, not only will there be an
approved SIP or a CAIR FIP in place requiring emission reductions which
eliminate the significant contribution to North Carolina, but these
reductions occur within 3 years, commencing in 2009 when NO_X
controls (a PM_2.5 precursor) are required (70 FR at 49718).
This is similar to EPA's decisions in the parallel NO_X SIP
Call/section 126 rulemakings where EPA initially deferred making
section 126 findings because there would be approved SIPs in place
requiring elimination of significant contribution to downwind States
with emission reductions to commence (although not be concluded) within
the 3-year period (64 FR at 28275).\8\ When the NO_X SIP Call
rule was judicially stayed, it was no longer appropriate to defer
making the section 126 findings because there were no longer ``explicit
and expeditious deadlines for compliance with the NO_X SIP
Call'' (65 FR 2680). Here, the certainty of SIP submissions (or action
under a CAIR FIP) coupled with explicit and certain compliance
deadlines calling for emissions reductions commencing in the same
timeframe as the section 126 3-year window make it appropriate for EPA
to utilize the section 110(a)(2)(D) remedy.
---------------------------------------------------------------------------

\8\ Commenters asserted that all emissions reductions under the
SIP Call would have occurred within the three-year period, but this
is not the case. The date for achieving the budgets provided by the
SIP Call (i.e., the full panoply of annual emission reductions) was
2007, six years from the rule's promulgation date. See 63 FR at 57450.
---------------------------------------------------------------------------

We note further that in arguing that EPA must order all emissions
reductions from designated sources which contribute to North Carolina
PM_2.5 nonattainment to occur within 3 years, commenters
again ignore the feasibility/cost-effectiveness prong of the
significant contribution test. EPA has found that the CAIR emissions
reductions are highly cost effective based on the compliance schedule
established in that rule, and further found that that compliance
schedule is needed for reasons of technical feasibility (70 FR at
25195-25229). Requiring those reductions to occur on a more rapid
timeframe would thus require considerably more than merely eliminating
significant contribution, and so would exceed the scope of section 126.
Moreover, commenters presented no independent analysis showing that
emission reductions from the designated sources could be obtained cost-
effectively (or even feasibly) within 3 years.\9\
---------------------------------------------------------------------------

\9\ The petitioner (in its comments on the proposal) stated that
``[c]ontrols for sources contributing to nonattainment in North
Carolina would be cost effective. EPA concluded as much in the
Proposed CAIR Rule * * *. There is nothing in the Final CAIR Rule
that indicates that adding North Carolina to the list of downwind
states would `break the bank' on cost effectiveness.' '' Comments of
North Carolina Attorney General at p. 30 n. 16. This statement does
not address whether controls on upwind souces would be cost
effective (or feasible) in timeframes more rapid than those found to
be cost effective and feasible in the CAIR.
---------------------------------------------------------------------------

Commenters also argued that because a SIP (or the CAIR FIP) could
(or in the case of the FIP, would) reflect a trading component, such a
scheme would not satisfy section 126. The legal argument is that
section 126 requires emission reductions to come from designated
sources, a result not possible to guarantee under a trading regime.
More basically, commenters stated that under a trading regime there was
no certainty that there would be reduction of emissions to North
Carolina, so that at the least, trading should be limited to sources
designated in the petition as contributing significantly to
nonattainment in North Carolina. These arguments again assume that EPA
must grant the petition, which is not our view so long as the
underlying SIP deficiencies are rectified, as explained above. The
arguments also do not address the critical point that availability of
trading options are part of the basis for EPA's findings that
reductions are highly cost effective, and hence are an element of the
finding that emissions contribute significantly to nonattainment.\10\
The approach here is also consistent with the one EPA adopted initially
in the NO_X SIP Call/section 126 rulemaking, where EPA
deferred granting section 126 petitions based on the existence of the
NO_X SIP Call remedy, which included a trading scheme across
the entire region. 63 FR at 56309-320; see generally 64 FR at 28307-309
(appropriateness of trading as a section 126 remedy). Indeed, as noted
earlier, EPA adopted a trading scheme when granting that earlier
section 126 petition. See 65 FR at 2686; see also Appalachian Power,
249 F. 3d at 1039 noting that EPA's section 126 rule included a cap-
and-trade program. Further discussion of issues relating to the trading
regime are found in section VI.B of this preamble.
---------------------------------------------------------------------------

\10\ Indeed, the Petition relies on EPA's analysis of what
constitutes significant contribution, which, as just noted, includes
an assumption that sources participate in a trading scheme to
achieve highly cost-effective emission reductions. The Petition
presents no independent analysis of what would constitute a
significant contribution in the absence of a trading program. It is
thus illogical for the Petition to argue that sources must eliminate
all significant contribution (of which trading is a necessary
element) but must do so without a trading program.
---------------------------------------------------------------------------

Some commenters also challenged EPA's basis for proposing to deny
the petition with respect to ozone. EPA did so because no area in North
Carolina is projected to be in nonattainment with the ozone 8-hour
NAAQS in the CAIR base case and therefore upwind states would (by
definition) not be contributing significantly to North Carolina
nonattainment (70 FR at 25162). Commenters argued that EPA is obligated
to consider current conditions, and not base findings on future
conditions, because some areas in North Carolina are presently in
nonattainment. They base this argument on the use of the present tense
in section 126(b) (``emits or would emit any air pollutant in violation
of the prohibition of section 110(a)(2)(D)[(i)]''), plus equitable
consideration of the need to address existing pollution problems.
EPA disagrees. With respect to the statutory language, both section
126(b) and 110(a)(2)(D)(i) do not specify the time by which EPA must
evaluate significance of contribution. Indeed, section 110(a)(2)(D)(i)
is written exclusively in the future tense, and the reference to
``emits or would emit'' in section 126(b) is naturally read as making
clear that controls can apply to both existing and new sources. See
Appalachian Power, 249 F. 3d at 1056-57. Moreover, it makes sense for
significant contribution determinations to be based on conditions at
the time at which potential controls are contemplated. Suppose, for
example, that due to future rules (a clutch of effective mobile source
controls, for example) it can reliably be predicted that an area will
be in attainment although it is not so presently. We do not believe
that the statute mandates immediate assessment of interstate
contribution to address a nonattainment problem that will no longer
exist at the time controls on the interstate emissions would be
implemented. EPA thus has consistently adopted this future-looking
approach when assessing interstate transport, and believes it
reasonable to continue doing so here. See 63 FR at 57375 (adopting this
approach in NO_X SIP Call).

[[Page 25337]]

Finally, commenters argued that EPA had ignored the statutory
requirement in section 110(a)(2)(D)(i) (incorporated within section
126(b) and (c)) to prohibit interstate transport that ``interefere[s]
with maintenance'' by North Carolina of the 8-hour ozone NAAQS. They
further stated that a number of North Carolina counties projected to
attain the ozone NAAQS are modeled to do so by narrow margins that
should be deemed to fall within the interfere with maintenance test
based on modeling uncertainties and historic ozone variability patterns
in the counties in question.
EPA stated in the CAIR rule that it would apply the interfere with
maintenance provision in section 110(a)(2)(D) in conjunction with the
significant contribution to nonattainment provision and so did not use
the maintenance prong to separately identify upwind States subject to
CAIR (70 FR at 25193). EPA did this so as not to give the interfere
with maintenance requirement greater weight than the significant
contribution requirement, thus avoiding giving greater weight to the
potentially lesser environmental effect. (See CAIR Response to Comments
Response at p. 63.) EPA's reading also promotes a reasonable balance
between controls on upwind states and in-state controls, an important
objective in applying the section 110 and 126 interstate transport
provisions. (See 70 FR at 25193.) Suppose, for example, that a downwind
area is projected to attain by the effective date of potential section
110(a)(2)(D) (or section 126(b)) controls, so that those controls are
unnecessary to prevent significant contribution to nonattainment.
Applying controls on upwind sources in these circumstances not only
could be environmentally unnecessary, but could even create a perverse
incentive for downwind states to increase local emissions.\11\
---------------------------------------------------------------------------

\11\ In this case, the three North Carolina counties mentioned
in comments as warranting upwind reductions to maintain attainment
status, are not only projected to be in attainment in 2010 in both
the base case and the CAIR case (considering emission reductions
occurring under CAIR to prevent significant contribution) and the
2015 base case and CAIR case. In fact, in 2015, these counties
(Mecklenburg, Rowan, and Wake) are projected to be attaining by
comfortable margins. CAIR Modeling TSD App. E Table E-1 (projected
levels of 75.0 ppb, 74.1 ppb, and 70.8 ppb respectively in the 2015
CAIR case, which are all below the levels (3-5 ppb) EPA considered
to raise maintenance concerns in the CAIR. These projections do not
consider the effect of local controls other than those already
enacted. Projected levels in the 2015 base case, i.e. without CAIR
and without further local controls, are likewise comfortably below
the levels which could raise likely possibility of returning to
nonattainment. (It is reasonable to defer consideration of
maintenance issues until 2015 in this anlaysis because the CAIR
remedy is in two parts. There thus will be further emission controls
of NO_X between 2010 and 2015 as a result of CAIR which
could subsume any controls adopted for maintenance reasons.) EPA
thus in any case does not beleive that further reductions from
upwind sources is needed to maintain the 8-hour ozone standard in
these counties, and that such emission reductions would not
reasonably balance upwind and local controls. See also Response to
Comment Document addressing these factual issues.
---------------------------------------------------------------------------

We note further that even if (against our view) the interference
with maintenance standard were to be applied in cases where there is no
evidence of significant contribution to nonattainment, EPA would still
interpret the standard as requiring consideration of cost and technical
feasibility since EPA already considers these factors as aspects of
significant contribution, and it would make little sense to interpret
the interfere with maintenance language (the lesser environmental
effect) as allowing reductions without considering those same factors.
See also 63 FR 57370 (interfere with maintenance must also reflect
significant contribution to be cognizable under section 110 remedies
for interstate transport. Moreover, given that maintenance addresses
the less significant environmental effect, EPA would likely require
that emission reductions be no less highly cost effective than those
which significantly contribute to nonattainment, and might require that
reductions be even more highly cost effective. It is thus difficult to
see that further emission reductions than those already required under
CAIR would be warranted.

III. What Is EPA's Final Action on the Section 126 Petition?

In determining whether emissions from EGUs in the States named in
the North Carolina section 126 petition contribute significantly to 8-
hour ozone and/or PM_2.5 nonattainment and maintenance
problems in North Carolina, EPA is relying on the conclusions drawn in
the final CAIR. As discussed in section I above, North Carolina based
its petition in large part on the analyses for the proposed CAIR--
identifying EGUs in the same upwind States that EPA proposed to link to
North Carolina. The EPA conducted new modeling analyses using updated
emissions inventories for the final CAIR. The EPA also applied a
different value for the threshold contribution level for the air
quality portion of the significant contribution determination for
PM_2.5 in the final CAIR. Therefore, the upwind State-to-
downwind State linkages differed in the final CAIR from the proposal.

A. What Is EPA's Final Action With Respect to the 8-Hour Ozone NAAQS?

In its petition, North Carolina requested that EPA make findings
that large EGUs in Georgia, Maryland, South Carolina, Tennessee, and
Virginia contribute significantly to nonattainment in, or interfere
with maintenance by, North Carolina with respect to the 8-hour ozone
NAAQS. In the proposed CAIR, EPA linked these States to 8-hour ozone
air quality problems in Mecklenburg County, North Carolina. In the
final CAIR, EPA's updated analyses project all of North Carolina to be
in attainment for 8-hour ozone in the CAIR 2010 base case. Therefore,
EPA did not link any upwind States to North Carolina with respect to
the 8-hour ozone NAAQS in the final CAIR (See CAIR preamble, Table VI-9
at 70 FR at 25249). Consequently, EPA is denying the section 126
petition with respect to the 8-hour ozone NAAQS.

B. What Is EPA's Final Action With Respect to the PM2.5 NAAQS?

In its petition, North Carolina also requested that EPA make
findings that large EGUs in Alabama, Georgia, Illinois, Indiana,
Kentucky, Michigan, Ohio, Pennsylvania, South Carolina, Tennessee,
Virginia and West Virginia contribute significantly to nonattainment
in, or interfere with maintenance by, North Carolina with respect to
the PM_2.5 NAAQS. In the proposed CAIR, these 12 States were
linked to PM_2.5 nonattainment problems in North Carolina. In
the final CAIR, as noted, EPA used different, updated modeling and also
applied a 0.2 ([mu]/m3 contribution threshold level rather
than the proposed 0.15 ([mu]/m3 for the air quality portion
of the significant contribution determination (70 FR 25190-25191).
Based on the updated modeling and the 0.2 ([mu]/m3
contribution threshold level, EPA determined in CAIR that only the
following 10 States are significantly contributing to PM_2.5
air quality problems in North Carolina: Alabama, Georgia, Indiana,
Kentucky, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia, and
West Virginia (see preamble Table VI-8; 70 FR at 25248-25249). This
means for purposes of section 126(b) that sources within these States
for which EPA determined highly cost-effective controls are available
are also contributing significantly to PM_2.5 nonattainment
problems in North Carolina.
In determining what action to take in response to the
PM_2.5 portion of the section 126 petition, EPA is taking
into consideration the CAIR FIPs that are being promulgated today in
conjunction

[[Page 25338]]

with the section 126 action (see section IV below). The FIP action
establishes control requirements for each of the States affected by the
CAIR in order to achieve the emissions reductions required to address
interstate transport.
In the proposal for the section 126 action, for EGUs in States
linked to North Carolina in CAIR (and therefore, for which EPA proposed
a FIP), EPA proposed in the alternative (1) to deny the petition if EPA
issued the final FIPs to address the interstate transport no later than
the final section 126 response or (2) to grant the petition and make
section 126 findings if EPA did not promulgate the FIPs prior to or
concurrently with the final section 126 response. Because the FIPs
would fully address the PM_2.5-related interstate transport
problem identified in CAIR and thus eliminate the section 110(a)(2)(D)
violation, there would no longer be a basis for the section 126
findings. In today's action, EPA is finalizing the CAIR FIPs.
Therefore, EPA is denying the section 126 petition for EGUs in States
linked to North Carolina for PM_2.5.
For EGUs located in Illinois and Michigan, which are not linked to
North Carolina in the final CAIR with respect to the PM_2.5
NAAQS (70 FR 25247-25248), EPA is also denying the petition.

IV. What Is the Federal Implementation Plan for the CAIR?

A. What Is the Legal Framework for the FIPs?

Section 110(c)(1) of the CAA requires the Administrator to
promulgate a FIP within 2 years of: (1) Finding that a State has failed
to make a required submittal, (2) finding that a submittal received
does not satisfy the minimum completeness criteria established under
section 110(k)(1)(A), or (3) disapproving a SIP submittal in whole or
in part. The EPA may issue a FIP any time after making one of these
findings or the Agency may issue a SIP disapproval. However, EPA is
relieved of the obligation to promulgate the FIP if a SIP revision
correcting the deficiency identified is approved by EPA before such a
FIP is promulgated.
As discussed in paragraph I.D.5, in a final rule signed the same
day as CAIR, EPA found that States have failed to submit SIPs to
satisfy the interstate transport requirement under section
110(a)(2)(D)(i) of the CAA for the PM_2.5 and 8-hour ozone
NAAQS (70 FR 21147). These findings started the 2-year clock for the
promulgation of a FIP. They did not start a ``sanctions clock'' as
there are no mandatory sanctions associated with the FIP or the finding
of State failure to submit SIPs to satisfy 110(a)(2)(D)(i).
The EPA's authority to act when it has identified deficiencies in
SIPs is derived from multiple sources. First, EPA may promulgate any
measure which it is permitted to issue pursuant to pre-existing
independent statutory authority--for example, the provisions of title
II. That is, EPA may promulgate any measure which it has authority to
issue in a non-FIP context, without reliance on section 110(c). Second,
EPA may invoke section 110(c)'s general FIP authority and act in
accordance with this provision, and the CAA more broadly, to cure a SIP
deficiency. Third, under section 110(c), the courts have held that EPA
may exercise all authority that the State may exercise under the CAA.
The first type of authority, EPA's general authority, is
independent of section 110(c). It is not dependent on or altered by
finding a deficiency in a SIP.
The second type of authority, EPA's general authority under section
110(c), is essentially remedial. The EPA has broad power under that
section to cure a defective State plan. Thus, in promulgating a FIP,
EPA may exercise its own, independent regulatory authority in
accordance with section 110(c), and the CAA more broadly. When EPA has
promulgated a FIP, courts have not required explicit authority for
specific measures: ``We are inclined to construe Congress' broad grant
of power to the EPA as including all enforcement devices reasonably
necessary to the achievement and maintenance of the goals established
by the legislation.'' (South Terminal Corp. v. EPA, 504 F.2d 646, 669.
(1st Cir., 1974)).
Third, the same authority that is exercised by the States under the
CAA in connection with the adoption, implementation, and enforcement of
a SIP may be assumed to be available to the EPA when the agency issues
a FIP, after determining that a State has not adopted a satisfactory
SIP. As the Ninth Circuit has held, when EPA acts in place of the State
pursuant to a FIP under section 110(c), EPA ``stands in the shoes of
the defaulting State, and all of the rights and duties that would
otherwise fall to the State accrue instead to EPA,'' (Central Arizona
Water Conservation District v. EPA, 990 F.2d 1531, at 1541 9th Cir.,
1993). The First Circuit, in an early FIP case, agreed:

* * * the Administrator must promulgate promptly regulations
setting forth an implementation plan for a State should the State
itself fail to propose a satisfactory one. The statutory scheme
would be unworkable were it read as giving to EPA when promulgating
an implementation plan for a State, less than those necessary
measures allowed by Congress to a State to accomplish Federal clean
air goals. We do not adopt any such crippling interpretation.
South Terminal Corporation v. EPA, 504 F.2d 668 (1st Cir., 1974).

In the case of Federally-recognized Indian Tribes, as we explained
in the CAIR, (70 FR 25167-25168) Tribes are subject to section
110(a)(2)(D), but are not required to submit implementation plans. The
EPA is required to promulgate FIPs for Indian country as necessary or
appropriate to protect air quality. See 40 CFR 49.11(a). Presently,
there are no emissions sources in Indian country within the region
affected by CAIR which would make a FIP necessary or appropriate. In
the event of the planned construction of such a source within Indian
country in the 28-State region subject to CAIR, EPA will work with the
relevant Tribal government to regulate the source through a Tribal or
Federal implementation plan. In the case of an EGU, the EPA anticipates
that the Tribal implementation plan (TIP) or FIP would involve the
participation of the EGU in the EPA administered cap-and-trade program.
The EPA will also work with the Tribe and affected States to determine
how allowances allocated to the Indian country source will affect State
allowance allocations. Because any FIPs for Indian country will
necessarily be tailored to the specific circumstances, today's action
contains no such FIP. The reader is referred to the CAIR for a more
detailed discussion of the potential impact of the CAIR in Indian
country (70 FR 25167-25168, 25315).

B. What Is the Timing and Scope of the CAIR FIP Actions?

As described in the CAIR, EPA views seriously its responsibility to
address the issue of regional transport. Decreases in NO_X
and SO₂ emissions are needed in the States identified in the
CAIR to enable downwind States to develop and implement plans to
achieve and maintain the PM_2.5 and 8-hour ozone NAAQS. The
CAIR identified the amount of emissions reductions necessary for each
State identified in the CAIR to meet their section 110(a)(2)(D)
interstate transport obligations. Implementation of these reductions is
necessary to help downwind States to achieve the NAAQS in order to
provide clean air for their residents.
Therefore, EPA is promulgating FIPs today in conjunction with the
action responding to North Carolina's section 126 petition concerning
transport of

[[Page 25339]]

PM_2.5 and 8-hour ozone. The EPA is promulgating these FIPs
at the same time as its response to North Carolina's section 126
petition, which is required to be finalized no later than March 15,
2006 in accordance with a judicially-enforceable consent decree. The
EPA believes it is appropriate to coordinate these two actions because
they both address interstate transport, both apply to EGUs, and because
the States of concern in the section 126 petition are a geographical
subset of the States covered by CAIR. Promulgating the CAIR FIPs at
this time provides a backstop of Federal controls for all States
covered by CAIR for PM_2.5 and/or 8-hour ozone, not just
those States that significantly contribute to North Carolina for
PM_2.5. This provides a level playing field, giving assurance
to all the affected downwind States that the upwind emissions
reductions required under CAIR will be achieved on time. Further, EPA
believes that the CAIR reductions are best implemented as a unified
program. The EPA believes that States will submit SIP revisions
implementing the CAIR reductions in their States in a unified manner,
and that this reduces workload for the States and provides sources with
more certainty. Finally, promulgating the 8-hour ozone FIP as well as
the PM_2.5 FIP as early as possible gives States more
flexibility to take advantage of the abbreviated SIP option discussed
below and in section VI.C. This could further reduce workload for
States to meet the requirements of CAIR. In today's action, EPA is not
promulgating FIPs for any States not covered by CAIR.
The Agency is taking this action to provide a Federal backstop for
CAIR where all States may not be able to develop and submit timely,
approvable SIP revisions. In no way should the FIP for CAIR be viewed
as a sign of any concern about States ultimately making the emission
reductions required under CAIR. There are no sanctions associated with
today's rule, and EPA does not intend CAIR FIPs to have any negative
consequences for the affected States. To the contrary, EPA is
finalizing FIP approaches that are flexible and allow States a full
opportunity to get their SIP revisions in place, with minimal
disruption in transitioning from Federal to State implementation.
Moving quickly to promulgate a FIP is consistent with Congress'
intent that attaining the standard occurs in these downwind
nonattainment areas ``as expeditiously as practicable'' (sections
181(a) and 172(a)(2)(B)). The FIP will help ensure that all emissions
reductions required by CAIR, and the associated environmental benefits,
will be achieved by the CAIR deadlines. In addition, the FIP will
ensure that sources in all States covered by CAIR, regardless of
whether they were included in the North Carolina section 126 petition,
will be required to achieve emissions reductions at the same time.
By finalizing the FIP well before the deadline for States to submit
their CAIR SIPs, EPA is providing States an additional option for
complying with the requirements of CAIR. States planning to adopt the
model trading programs contained in the CAIR rule, can accept the FIP
and significantly reduce the State resources needed to establish a
program to implement the CAIR. Since there are no punitive consequences
for States associated with the FIP or the finding of failure to submit
SIPs to satisfy section 110(a)(2)(D)(i), some States could avoid much
of the time and expense of revising their SIPs to comply with CAIR.
Some States, particularly those subject to the NO_X SIP Call,
may need to prepare minor SIP revisions regardless of whether they
accept the FIP implementing the requirements of CAIR; yet the time and
expense involved would be significantly reduced.
The EPA is finalizing, with certain changes described in section
VI.C, the approach that a State can choose to modify the application of
the CAIR FIP through abbreviated SIP revisions. The abbreviated SIP
revisions approach covers specific elements of the FIP trading programs
without submitting full SIP revisions to meet the requirements of CAIR.
By accepting such abbreviated SIP revisions, EPA is providing
additional options for States to comply with CAIR. A State can choose
to retain control of these specific elements of the trading programs,
without submitting a full SIP revision to meet the requirements of
CAIR. As there are no sanctions associated with the FIP, EPA
anticipates that some States will prefer to avoid spending the time and
money necessary to submit a full SIP revision.
The Agency will accept abbreviated SIP revisions for any or all of
the following four specific elements of the FIP trading programs: (1)
Provisions for otherwise unaffected units to opt-in to the FIP trading
programs, (2) allocating annual and/or ozone season NO_X, (3)
allocating allowances from the annual NO_X Compliance
Supplement Pool (CSP), and (4) including NO_X SIP Call
trading sources that are not EGUs under CAIR in the Federal CAIR ozone
season NO_X cap-and-trade program. Upon approval of any such
SIP revisions, EPA anticipates that the corresponding portions of the
FIP for that State would be replaced or their application to sources
would be modified.
In offering a framework for abbreviated SIP revisions, the Agency
anticipates that many States will wish to retain control over the
allocation of allowances. Additionally, the Agency recognizes that
States may wish to meet their NO_X SIP Call obligations by
allowing NO_X budget units (that is, units in the
NO_X SIP Call trading program) that are not EGUs under CAIR
to participate in the CAIR ozone season trading program.
In its proposal, the EPA invited comment on the option for States
to submit abbreviated SIPs covering specific elements of the Federal
trading programs. A more complete discussion of the proposed
abbreviated SIP provisions and the comments received is found in
section VI of today's preamble.
Thus, the FIP will increase the options available for a State to
comply with CAIR. Through the CAIR rulemaking actions, EPA has provided
States with a great deal of data and analyses concerning air quality
and control costs, as well as a determination whether upwind sources
contribute significantly to downwind nonattainment under section
110(a)(2)(D). The EPA recognizes that States would face great
difficulties in developing transport SIPs to meet the requirements of
section 110(a)(2)(D) without these data and policies. Indeed, EPA
acknowledged in the CAIR that the Agency's extensive analyses and data,
including the multi-year operation of a federally-funded monitoring
system (and the considerable information generated through that system)
was a necessary element in the Agency's conclusion that it was
appropriate to impose such requirements on States (70 FR 25267).
States have 18 months from the signature date of the CAIR, or until
September 11, 2006, to develop, adopt, and submit revisions to their
SIPs that meet the requirements of CAIR. The EPA will withdraw the FIP
once EPA approves a SIP that meets the CAIR requirements in that State.
Having the FIP in place early provides for a transition to a CAIR
trading program with the greatest continuity, administrative ease, and
cost savings for States that would otherwise develop a program
identical to the model trading programs. The EPA's goal is to have
approvable programs in place that meet the requirements of the CAIR
whether they are in the form of a SIP or a FIP. By finalizing a FIP
today, EPA in no way precludes a State from developing its own SIP to
either adopt the trading

[[Page 25340]]

rules with any discretionary elements allowed by the CAIR or from
meeting the State emissions budget through different measures of the
State's choosing. The EPA has considered the timing of each element of
the FIP process to make sure to preserve each State's freedom to
develop and implement SIPs. In this way, EPA has enhanced each State's
options for complying with the requirements of the CAIR while ensuring
that all the emissions reductions and environmental benefits of the
CAIR are realized.

C. What Are the FIP Control Measures?

In contrast to the SIP process--where selection and implementation
of control measures is the primary responsibility of the State--in the
case of a FIP, it is EPA's responsibility to select the control
measures for sources and assure compliance with those measures. Thus,
while the FIP is designed by EPA to achieve the same total emissions
reductions described in the CAIR, the specific control measures
assigned in the FIP may be different from what a State might choose.
In selecting the control measures for the FIP, EPA is adopting the
same measures used in the CAIR for calculating the required emissions
reductions. In the CAIR, EPA is requiring States to achieve specified
levels of emissions reductions based on levels that are achievable
through implementation of highly cost-effective controls on EGUs. See
the discussion in section IV of the CAIR, ``What Amounts of
SO₂ and NO_X Emissions Did EPA Determine Should Be
Reduced?'' The EPA is including by reference the technical basis and
supporting rationale for EPA's conclusions as to the highly cost-
effective strategy developed for the CAIR.
The SO₂ and NO_X cap-and-trade programs for
the FIP are discussed below in section VI. The unit NO_X
allocations will be provided in a later action and will meet the State
EGU budgets that are established in the CAIR for States that choose to
meet the required emissions reductions by controlling EGUs only.

D. When and How Will EPA Remove the FIP Requirements if EPA Approves a
SIP To Meet the CAIR?

As discussed previously, EPA is finalizing the FIP today
concurrently with EPA's response to the section 126 petition from North
Carolina. The EPA intends to withdraw the FIP in a State in
coordination with EPA's approval of a SIP for that State that meets the
CAIR requirements. It is EPA's preference that States regulate sources
to control the interstate transport; therefore, EPA will work with
States to help ensure that the FIP would not need to be implemented.
The EPA intends to withdraw the FIP requirements as soon as
practical after receiving approvable CAIR SIP revisions. The EPA will
work with States to ensure a timely withdrawal of the FIP and recording
of State NO_X allocations in source accounts (for States
choosing to allocate NO_X allowances). A more detailed
discussion of the timing for recording allocations is found in section
VI.F.1 of this preamble.

V. Emission Reduction Requirements for the CAIR FIP

A. Introduction

In the CAIR (70 FR 25162), EPA determined that SO₂ and
NO_X emissions from sources in the District of Columbia and
the following 23 States contribute significantly to downwind
PM_2.5 nonattainment: Alabama, Florida, Georgia, Illinois,
Indiana, Iowa, Kentucky, Louisiana, Maryland, Michigan, Minnesota,
Mississippi, Missouri, New York, North Carolina, Ohio, Pennsylvania,
South Carolina, Tennessee, Texas, Virginia, West Virginia, and Wisconsin.
In a separate rulemaking signed the same day as this action, EPA
finds that SO₂ and NO_X emissions from sources in
Delaware and New Jersey also contribute significantly to downwind
PM_2.5 nonattainment.
In the CAIR, the Agency also determined that the District of
Columbia and the following 25 States contribute significantly to
downwind 8-hour ozone nonattainment: Alabama, Arkansas, Connecticut,
Delaware, Florida, Illinois, Indiana, Iowa, Kentucky, Louisiana,
Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Jersey,
New York, North Carolina, Ohio, Pennsylvania, South Carolina,
Tennessee, Virginia, West Virginia, and Wisconsin.
The EPA established CAIR annual SO₂ and NO_X
emission reduction requirements for States that contribute
significantly to downwind PM_2.5 nonattainment and
established NO_X ozone season emission-reduction requirements
for States that contribute significantly to downwind 8-hour ozone
nonattainment. The CAIR requires upwind States to revise their SIPs to
include control measures to reduce emissions of SO₂ and/or
NO_X to meet the requirements in CAIR (SO₂ is a
precursor to PM_2.5 formation, and NO_X is a
precursor to both ozone and PM_2.5 formation).
The CAIR requires that the emission reductions be implemented in
two phases. The first phase of CAIR NO_X reductions starts in
2009 (covering 2009-2014) and the first phase of CAIR SO₂
reductions starts in 2010 (covering 2010-2014); the second phase of
CAIR reductions for both NO_X and SO₂ starts in
2015, covering 2015 and thereafter.
In CAIR, EPA determined the extent of reductions required to
eliminate significant contribution (i.e., to remove the section
110(a)(2)(D) violation). EPA interprets significant contribution as a
specific level of emissions that can be feasibly reduced in a highly
cost-effective manner. The required reductions are expressed as
statewide budgets of SO₂ and NO_X emissions.
Regionwide emissions trading programs for large EGUs (within the
constraints of the emissions caps based on these statewide emission
budgets \12\) provide one option for eliminating significant
contribution and thus also eliminating the section 110(a)(2)(D)
violation. The violation is eliminated once a State adopts a SIP
containing the CAIR trading programs (or a SIP containing other
emission reduction options meeting the requirements specified in CAIR),
or EPA promulgates a FIP to achieve those same reductions. The CAIR
includes model rules for regionwide EGU SO₂ annual,
NO_X annual, and NO_X ozone season emission cap-
and-trade programs. States can choose to adopt these model rules (the
CAIR SIP model trading rules) to obtain the required reductions in a
flexible and cost-effective manner.
---------------------------------------------------------------------------

\12\ It should be noted that the SO₂ trading program
provides that sources may bank pre-2010 title IV SO₂
allowances to be used for compliance with CAIR. These provisions
encourage sources to make early emission reductions and ease the
transition to the CAIR SO₂ program, and as a result,
emissions may not reflect the emission caps in any given year.
---------------------------------------------------------------------------

Today, EPA is finalizing FIPs that implement the emission reduction
requirements of the CAIR in all States covered by CAIR. The Agency is
promulgating today's FIPs to provide a federal backstop for CAIR.
EPA decided to adopt, as the FIP for each State in the CAIR region,
the SIP model trading programs in the final CAIR, modified slightly to
allow for federal instead of State implementation.\13\ The specific
requirements of the FIP trading programs are explained in greater
detail in section VI below.
---------------------------------------------------------------------------

\13\ Today's action includes revisions to the CAIR SIP model
rules as described in section VII in this preamble. For the FIP
trading programs the Agency adopts the SIP model rules as finalized
today and modified for federal implementation.
---------------------------------------------------------------------------

The CAIR FIPs will require SO₂ annual and NO_X
annual emission

[[Page 25341]]

reductions from EGUs in States contributing significantly to
PM_2.5 nonattainment and NO_X ozone season emission
reductions from EGUs in States contributing significantly to ozone
nonattainment through participation in the regionwide cap-and-trade
programs. The requirements of these trading programs were developed in
the SIP model trading rules. The SIP model trading rules provide
flexibility to the implementing organization only in certain specific
areas. In adopting these model trading programs as FIPs, the Agency
adopts the requirements of the model trading rules. As the implementing
organization, therefore, it has only the same flexibility that is
available to States that choose to implement the model trading programs.
The CAIR FIP trading programs will achieve the emission reductions
required by CAIR by the deadlines established in that rule, with the
same highly cost-effective EGU control measures forming the basis for
the emission budgets. The regionwide emission reduction requirements,
State emission budgets and trading rules that are the basis for today's
FIPs were established in the final CAIR rule. They were developed
through a process that involved significant public participation. In
the CAIR rulemaking, EPA determined that the CAIR emission reduction
requirements can be met in a highly cost-effective manner using
regionwide SO₂ and NO_X cap-and-trade programs for
large EGUs (70 FR 25195-25229). The incentives provided by such
regionwide cap-and-trade programs encourage economically efficient
compliance over the entire region.
The applicability provisions of the FIPs promulgated in today's
final rule, which cover large EGUs, are identical to the applicability
provisions in the CAIR SIP model rules including the revisions
finalized today. See sections VI.E and VII in today's preamble for
detailed discussion of applicability. The FIPs and the CAIR SIP model
rules apply to large EGUs because EPA determined that their emissions
can be reduced through the application of highly cost-effective
controls (70 FR 25195-25229).
During development of the CAIR, the Agency considered the
interactions between the existing title IV Acid Rain Program and the
new CAIR (see the preamble to the final CAIR for discussion, 70 FR
25290). As explained in CAIR, ``In the absence of an approach for
taking account of the title IV program, a new program (i.e., the CAIR)
that imposes a significantly tighter cap on SO₂ emissions
for a region encompassing most of the sources and most of the
SO₂ emissions covered by title IV would likely result in a
significant excess in the supply of title IV allowances, a collapse of
the price of title IV allowances, disruption of operation of the title
IV allowance market and the title IV SO₂ cap-and-trade
system, and the potential for increased SO₂ emissions.''
These impacts would undermine the efficacy of the title IV program and
could erode confidence in emissions trading programs in general. For
these same reasons, today's FIP SO₂ trading program is
integrated with the title IV program (see discussion of FIP
SO₂ trading program in section VI, below). EPA was
petitioned for and granted reconsideration of CAIR on claims that
inequities result from applying the SO₂ allocation
methodology (which is based on title IV allocations). In the notice of
final action on reconsideration, signed the same day as this action,
EPA decided not to alter the approach taken in the final CAIR (see
further discussion of reconsideration in section VI.G, below).
Today's FIPs implement the CAIR emission reduction requirements by
adopting the CAIR SIP model trading rules; the FIPs do not develop new
emission reduction requirements or trading programs. For these reasons,
the Agency did not re-open in the FIP rulemaking any elements of the
reduction requirements and trading programs (except for the elements
such as NO_X allocations and opt-ins where States had
flexibility) that were determined in the CAIR NFR and that were not
modified by today's rule. By adopting as FIPs the CAIR SIP model
trading programs, the Agency intends to implement the requirements of
CAIR in a highly cost-effective manner and to ease the transition for
sources that might initially be covered by the FIP programs and
subsequently be covered by SIP programs that also adopt the model
trading rules.
The Agency is promulgating these FIPs to provide a Federal backstop
for CAIR. In no way should the FIPs be viewed as a sign of any concern
about States ultimately making the emission reductions required under
CAIR. There are no sanctions associated with today's rule, and EPA does
not intend CAIR FIPs to have any negative consequences for the affected
States. To the contrary, EPA is finalizing FIP approaches that are
flexible and allow States a full opportunity to get their SIP revisions
in place, with minimal disruption in transitioning from Federal to
State implementation.

B. Regionwide SO2 and NOX Caps

Today's final rule provides a federal backstop for achieving the
CAIR emission reduction requirements. Today's rule does not establish
those reduction requirements, which were established in the CAIR rulemaking.
In the preamble to the CAIR NFR, the Agency explained how it
determined regionwide SO₂ and NO_X emissions caps.
See section IV in the CAIR NFR preamble (70 FR 25195-25229). The EPA
also summarized the process for determining the regionwide CAIR
SO₂ and NO_X emissions caps in the preamble to the
proposed CAIR FIP (70 FR 49722). The CAIR FIP proposal did not reopen
for public comment EPA's determination of the CAIR regionwide caps or
the caps themselves. The EPA received a few comments on the CAIR
regionwide caps during the public comment process on the proposed FIP.
Those comments are not within the scope of today's final rule. As
discussed above, in today's FIP rule the Agency is implementing the
emission reduction requirements (including regionwide SO₂
and NO_X caps) that EPA developed in the CAIR rulemaking
through a process that included extensive public participation.
The CAIR regionwide caps (including the States of Delaware and New
Jersey) are: for SO₂, 3.7 million tons and 2.6 million tons
in 2010 and 2015, respectively; for NO_X annual, 1.5 million
tons and 1.3 million tons in 2009 and 2015, respectively; for
NO_X ozone season, 0.6 million and 0.5 million tons in 2009
and 2015, respectively.

C. State SO2 Emission Budgets

In the preamble to the final CAIR, the EPA explained how it
determined CAIR State annual SO₂ emission budgets (see
section V.A.1.a of the CAIR NFR preamble, 70 FR 25229-25230; see also
the rulemaking, signed the same day as this action, to include Delaware
and New Jersey in CAIR for PM_2.5). The EPA also summarized
the process for determining CAIR State SO₂ budgets in the
preamble to the proposed FIP (70 FR 49723). The CAIR FIP proposal did
not reopen for public comment EPA's determination of the CAIR State
SO₂ budgets or the budgets themselves. As discussed above,
in today's FIP rule, the Agency is implementing the emission reduction
requirements (including State SO₂ emission budgets) that EPA
developed in the CAIR rulemaking through a process that included
extensive public participation.
Today's final FIP rule will achieve the required SO₂
emission reductions

[[Page 25342]]

through a regionwide SO₂ cap-and-trade program for EGUs. As
discussed further in section VI, below, the CAIR FIP SO₂
cap-and-trade program will rely on title IV allowances, which sources
will retire at specified ratios generally greater than 1-to-1 for
compliance with the CAIR FIP SO₂ program. Congress has
already allocated title IV SO₂ allowances to sources in
perpetuity. State SO₂ emissions budgets would not affect the
distribution of SO₂ allowances for the CAIR FIP
SO₂ trading program (because SO₂ allowances are
already allocated to sources) and are not directly relevant for today's
final FIP rule.
After EPA finalized CAIR, the Agency was petitioned for and granted
reconsideration on claims that inequities result from applying the CAIR
SIP model rule SO₂ allocation methodology (which is based on
existing title IV allocations). The Agency announced its decision to
reconsider this issue in a Federal Register action dated December 2,
2005 (70 FR 72268) and is taking final action on the reconsideration in
a separate action signed the same day as this action. EPA decided not
to alter the approach taken in the final CAIR (see further discussion
of reconsideration in section VI.G, below).
A few commenters on the proposed CAIR FIP expressed concern with
the use of title IV to establish State SO₂ emission budgets.
The FIP State SO₂ budgets and the FIP unit SO₂
allocations are both based on existing title IV allocations. The EPA
responds to comments on the budgets and allocations for the FIP
together in section VI.G, below.
The Agency is finalizing its proposed approach regarding
SO₂ budgets for the CAIR FIP SO₂ trading programs.

D. State NOX Annual and NOX Ozone Season Emission Budgets

In the preamble to the final CAIR, the EPA explained how it
determined CAIR State NO_X annual and NO_X ozone
season emission budgets (see section V.A.1.a of the CAIR NFR preamble,
70 FR 25230-25233; see also the rulemaking, signed the same day as this
action, to include Delaware and New Jersey in CAIR for
PM_2.5).
The EPA also summarized the process for determining CAIR State
NO_X annual and NO_X ozone season budgets in the
preamble to the proposed FIP (70 FR 49723). The CAIR FIP proposal did
not reopen for public comment EPA's determination of the CAIR State
NO_X annual and NO_X ozone season budgets or the
budgets themselves. As discussed above, in today's FIP rule the Agency
is implementing the emission reduction requirements (including State
NO_X annual and NO_X ozone season emission budgets)
that EPA developed in the CAIR rulemaking through a process that
included extensive public participation.
After EPA finalized CAIR, the Agency was petitioned for and granted
reconsideration on the use of fuel adjustment factors in determining
CAIR State NO_X annual and NO_X ozone season
emission budgets. The EPA announced its decision to reconsider this
issue in a Federal Register notice dated December 2, 2005 (70 FR 72268)
and is taking final action on the reconsideration in a separate action
signed the same day as this action. EPA decided not to alter the
approach taken in the final CAIR.
A commenter on the proposed CAIR FIP raised concerns regarding the
use of fuel adjustment factors in determining State NO_X
emission budgets. Concerns raised by the commenter with respect to
EPA's use of fuel adjustment factors in determining State emission
budgets are the same issues that the Agency is addressing in the
context of the CAIR reconsideration process. The Agency's responses to
this commenter on the use of fuel adjustment factors in setting FIP
State NO_X emission budgets are addressed in the CAIR
reconsideration notice. See the December 2, 2005 Federal Register
notice announcing the reconsideration (70 FR 72268) as well the notice
of final action on reconsideration signed the same day as this action.
Some commenters addressed the use of fuel adjustment factors in the
proposed FIP methodology for unit-by-unit NO_X allocations.
The Agency's responses regarding the use of fuel adjustment factors in
the NO_X allocation methodology are discussed in section VI.F
in this preamble.
The State annual and ozone season EGU NO_X budgets for
today's final CAIR FIP trading programs are the same as the budgets in
the final CAIR. For each State affected by the FIP NO_X
trading programs, the State NO_X budgets are the total amount
of allowances \14\ that the Agency will allocate to sources in the
State or that States will allocate using an abbreviated SIP revision.
See section VI.F, below, for EPA's methodology and schedule for
allocating NO_X allowances to affected sources.
---------------------------------------------------------------------------

\14\ As in CAIR, a NO_X annual allowance will
authorize the emission of a ton of NO_X during a calendar
year, and a NO_X ozone season allowance will authorize the
emission of a ton of NO_X during an ozone season.
---------------------------------------------------------------------------

Table V-1 shows the State NO_X emission budgets for the
final FIP NO_X cap-and-trade program. These are the same
State NO_X budgets as in the final CAIR (see Table V-2 in the
CAIR NFR preamble (70 FR 25231); see also the rulemaking, signed the
same day as this action, to include Delaware and New Jersey in CAIR for
PM_2.5).

Table V-1.--CAIR FIP NOX Annual Electric Generating Units Budgets
[tons]
------------------------------------------------------------------------
State NOX
State NOX annual
State annual budget 2015
budget 2009- and
2014 thereafter
------------------------------------------------------------------------
Alabama....................................... 69,020 57,517
Delaware...................................... 4,166 3,472
District of Columbia.......................... 144 120
Florida....................................... 99,445 82,871
Georgia....................................... 66,321 55,268
Illinois...................................... 76,230 63,525
Indiana....................................... 108,935 90,779
Iowa.......................................... 32,692 27,243
Kentucky...................................... 83,205 69,337
Louisiana..................................... 35,512 29,593
Maryland...................................... 27,724 23,104
Michigan...................................... 65,304 54,420
Minnesota..................................... 31,443 26,203
Mississippi................................... 17,807 14,839
Missouri...................................... 59,871 49,892
New Jersey.................................... 12,670 10,558
New York...................................... 45,617 38,014
North Carolina................................ 62,183 51,819
Ohio.......................................... 108,667 90,556
Pennsylvania.................................. 99,049 82,541
South Carolina................................ 32,662 27,219
Tennessee..................................... 50,973 42,478
Texas......................................... 181,014 150,845
Virginia...................................... 36,074 30,062
West Virginia................................. 74,220 61,850
Wisconsin..................................... 40,759 33,966
-------------------------
CAIR Region Total........................... 1,521,707 1,268,091
------------------------------------------------------------------------

Table V-2 shows the State NO_X ozone season emission
budgets for the final CAIR FIP NO_X ozone season cap-and-
trade program. These are the same State NO_X ozone season
budgets as in the final CAIR (see Table V-4 in the CAIR NFR preamble
(70 FR 25233).

Table V-2.--CAIR FIP NOX Ozone Season Electricity Generating Unit
Budgets
[tons]
------------------------------------------------------------------------
State NOX
State NOX ozone
ozone season
State * season budget 2015
budget 2009- and
2014 thereafter
------------------------------------------------------------------------
Alabama....................................... 32,182 26,818
Arkansas...................................... 11,515 9,596
Connecticut................................... 2,559 2,559
Delaware...................................... 2,226 1,855
District of Columbia.......................... 112 94
Florida....................................... 47,912 39,926

[[Page 25343]]

Illinois...................................... 30,701 28,981
Indiana....................................... 45,952 39,273
Iowa.......................................... 14,263 11,886
Kentucky...................................... 36,045 30,587
Louisiana..................................... 17,085 14,238
Maryland...................................... 12,834 10,695
Massachusetts................................. 7,551 6,293
Michigan...................................... 28,971 24,142
Mississippi................................... 8,714 7,262
Missouri...................................... 26,678 22,231
New Jersey.................................... 6,654 5,545
New York...................................... 20,632 17,193
North Carolina................................ 28,392 23,660
Ohio.......................................... 45,664 39,945
Pennsylvania.................................. 42,171 35,143
South Carolina................................ 15,249 12,707
Tennessee..................................... 22,842 19,035
Virginia...................................... 15,994 13,328
West Virginia................................. 26,859 26,525
Wisconsin..................................... 17,987 14,989
-------------------------
CAIR Region Total........................... 567,744 484,506
------------------------------------------------------------------------
* For States that have lower EGU budgets under the NOX SIP Call than
their 2009 CAIR budget, table V-2 includes their SIP Call budget. For
Connecticut, the NOX SIP Call budget is also used for 2015 and beyond.

E. State NOX Annual Compliance Supplement Pool

The CAIR established State Compliance Supplement Pools (CSP) of
NO_X annual allowances of vintage 2009. In the FIP NPR, the
Agency proposed to include in the CAIR FIP NO_X trading
program the same State CSP amounts as were established in CAIR.
The Agency received several comments on its proposal to include the
CAIR CSPs in the CAIR FIP NO_X trading program. The EPA
responds to comments on inclusion of the CAIR CSPs in the FIP program,
as well as comments on EPA's proposed method for distributing CSP
allowances to sources, in section VI.I in today's preamble, below.
The Agency is finalizing its proposal to include the CAIR CSPs in
the FIP trading programs. Table V-3 shows the State CSP amounts for the
final CAIR FIP NO_X trading program. These are the same CSP
amounts as shown in the CAIR NFR preamble (see Table V-3 in the CAIR
NFR at 70 FR 25232; see also the rulemaking, signed the same day as
this action, to include Delaware and New Jersey in CAIR for
PM_2.5).
The CSPs provide, for each affected State, a pool of CAIR
NO_X annual allowances from which EPA, or a State using an
abbreviated SIP revision, can distribute allowances for use in
complying with the CAIR FIP NO_X annual trading program (see
section VI.I in today's preamble for further discussion regarding
distribution of CSP allowances).

Table V-3.--CAIR FIP NOX Annual Compliance Supplement Pool
[tons]
------------------------------------------------------------------------
Compliance
State supplement
pool
------------------------------------------------------------------------
Alabama.................................................... 10,166
Delaware................................................... 843
District Of Columbia....................................... 0
Florida.................................................... 8,335
Georgia.................................................... 12,397
Illinois................................................... 11,299
Indiana.................................................... 20,155
Iowa....................................................... 6,978
Kentucky................................................... 14,935
Louisiana.................................................. 2,251
Maryland................................................... 4,670
Michigan................................................... 8,347
Minnesota.................................................. 6,528
Mississippi................................................ 3,066
Missouri................................................... 9,044
New Jersey................................................. 660
New York................................................... 0
North Carolina............................................. 0
Ohio....................................................... 25,037
Pennsylvania............................................... 16,009
South Carolina............................................. 2,600
Tennessee.................................................. 8,944
Texas...................................................... 772
Virginia................................................... 5,134
West Virginia.............................................. 16,929
Wisconsin.................................................. 4,898
------------
Total.................................................. 199,997
------------------------------------------------------------------------

VI. CAIR FIP NO_X and SO₂ Cap-and-Trade Programs for EGUs

A. Purpose of CAIR FIP NOX and SO2 Cap-and-Trade Programs and
Relationship to the CAIR

In today's action, EPA is finalizing CAIR FIP NO_X and
SO₂ cap-and-trade programs for EGUs as the Implementation
Plan remedy for CAIR. The Agency is finalizing 3 separate CAIR FIP cap-
and-trade programs: (1) SO₂ annual; (2) NO_X
annual; and (3) NO_X ozone season. The EPA decided to adopt,
as the FIP for each State in the CAIR region, the model cap-and-trade
programs in the final CAIR, modified slightly to allow for Federal
instead of State implementation. \15\ Emissions cap-and-trade programs
are a proven method for achieving highly cost-effective emissions
reductions while providing regulated sources of emissions with
flexibility in adopting compliance strategies. The incentives provided
by regionwide cap-and-trade programs encourage economically efficient
compliance over the entire region. The specific elements of the 3
trading programs in the FIP were developed by EPA, with significant
public participation, during the CAIR development process.
---------------------------------------------------------------------------

\15\ Today's action includes revisions to the CAIR SIP model
rules as described in section VII in this preamble. For the FIP
trading programs the Agency adopts the SIP model rules as finalized
today and modified for federal implementation.
---------------------------------------------------------------------------

Participation in the new CAIR FIP NO_X and SO₂
cap-and-trade programs is mandatory for all sources covered by the
final CAIR FIP. See section VI.E in today's preamble for discussion of
affected sources (applicability). Regulatory text for today's new CAIR
FIP NO_X and SO₂ cap-and-trade programs will be
located in part 97 in title 40 of the CFR.
The CAIR established State EGU emissions budgets that each State
will use to determine its required emissions reductions. Today's final
CAIR FIP cap-and-trade programs set specific rules for EGUs to decrease
NO_X and SO₂ emissions sufficiently to achieve
emission reductions that are required under CAIR. As explained above in
section IV, EPA will withdraw a State's FIP in coordination with
approval of a SIP implementing the requirements of CAIR.
States may choose to meet their emission reduction obligations
under CAIR by adopting, as part of their SIPs, the model cap-and-trade
rules set forth in the CAIR and participating in the EPA administered
trading programs. Any such participation will be fully integrated with
the CAIR FIP NO_X and SO₂ cap-and-trade programs
that are finalized in today's action.
In order to be eligible to participate in an emissions cap-and-
trade program, the Agency believes that there are two principal
criteria that sources must meet, as stated in the supplemental proposal
for the NO_X SIP Call (62 FR 25923). The first criterion
requires that sources be able to account accurately and consistently
for all of their emissions to ensure the trading program goal of
maintaining emissions within a cap. Emissions monitoring must be
accurate and consistent among all sources so that each allowance turned
in, represents its assigned amount of emissions. The second criterion
for participation in a trading program is the ability to identify a
responsible party for each regulated source who would be accountable
for demonstrating and ensuring compliance with the program's
provisions. The EPA believes that today's rule meets those criteria.
The Agency also believes that, because

[[Page 25344]]

today's rule contains the same mandatory program elements as are in the
part 96 CAIR SIP model trading programs and is designed to meet the
same environmental goals and caps sources at the same levels as those
model trading programs, it is appropriate to integrate today's CAIR FIP
with the CAIR SIP trading programs.
Sources subject to trading programs under the FIP and sources in
States choosing to participate in the EPA-administered CAIR SIP trading
programs will be able to trade allowances with one another under common
emissions caps across participating States. Integration of the trading
programs reduces the possibility of inconsistent or conflicting
deadlines or requirements, increases the potential cost savings for
sources, and streamlines program administration. Unnecessary
inconsistency in trading programs could hamper sources' ability to plan
and achieve the needed reductions as cost effectively as possible. In
addition, if a State submits and EPA approves a SIP revision including
the CAIR SIP model trading programs after EPA establishes trading
programs under today's FIP, disruptions to sources that shift from
regulation under a FIP to regulation under a SIP will be minimized due
to the consistency between the respective CAIR SIP and FIP programs.
The EPA establishes (in part 97) the geographic boundaries of the
common trading programs as those States that submit SIP revisions in
response to the CAIR implementing the EPA-administered trading programs
or that are subject to FIPs. The EPA will administer these common
trading programs in collaboration with affected States.
For the final CAIR FIP NO_X and SO₂ cap-and-
trade programs, EPA adopted the CAIR model trading programs with slight
revisions to allow for Federal implementation. The FIP trading programs
are thus virtually identical to the CAIR SIP model trading programs.
The CAIR FIP cap-and-trade programs include all of the mandatory
elements that States are required to include in their SIPs in order to
participate in the EPA-administered cap-and-trade programs for CAIR.
The Agency is finalizing, with certain changes described in section
VI.C, the proposal to provide States that are subject to today's CAIR
FIP requirements with the option to submit abbreviated SIP revisions
covering specific elements of the FIP trading programs without submitting
full SIP revisions to meet the requirements of CAIR. See section VI.C in
this preamble for further discussion of abbreviated SIP revisions.

B. Relationship of Emissions Trading Programs to Section 126 Relief

In section II of today's preamble, EPA responds to commenters who
argued that, because a CAIR SIP could or the CAIR FIP would reflect a
trading component, such an implementation plan would not satisfy
section 126 as a matter of law. As explained in section II, these
arguments assume that the Agency must grant the petition, which is not
EPA's view so long as the underlying SIP deficiencies are rectified.
Although EPA is denying the section 126 petition as discussed
elsewhere in today's preamble, based on modeling projections the Agency
believes that sources in States upwind of North Carolina will reduce
emissions under the CAIR trading regime.
As discussed in the FIP NPR (70 FR 49737), EPA believes that upwind
sources in States that were found to contribute significantly to North
Carolina nonattainment will in fact reduce emissions of
PM_2.5 precursors under the CAIR trading regime. The Agency
explained that its Integrated Planning Model (IPM) \16\ analysis
conducted for the CAIR NFR--which assumes emissions trading--projects
decreases in annual SO₂ and NO_X emissions under
CAIR compared to the Base Case (i.e., compared to projections without
CAIR) in both 2010 and 2015 for each of the States found in the CAIR
NFR analysis to contribute significantly to nonattainment of the
PM_2.5 NAAQS in North Carolina.
---------------------------------------------------------------------------

\16\ The IPM is a multiregional, dynamic, deterministic linear
programming model of the U.S. electric power sector. The Agency uses
IPM to examine costs and, more broadly, analyze the projected impact
of environmental policies on the electric power sector in the 48
contiguous States and the District of Columbia.
---------------------------------------------------------------------------

The EPA further explained that the Agency's CAIR modeling--which,
again, assumes interstate emissions trading--projects that under CAIR
by 2010, with the projected emission reductions, there will be no
remaining PM_2.5 nonattainment counties in North Carolina.
Thus, the emission reductions under CAIR are projected to be sufficient
to eliminate PM_2.5 nonattainment in North Carolina and,
necessarily, no States will contribute to nonattainment.\17\ This
discussion of the Agency's analysis of CAIR is informational and is not
intended to reopen or reconsider any issue related to that analysis.
---------------------------------------------------------------------------

\17\ IPM emissions modeling conducted for the final CAIR is in
the CAIR docket EPA-HQ-OAR-2003-0053; air quality modeling results
are in the Air Quality Modeling Technical Support Document for the
Final Clean Air Interstate Rule, March 2005, Appendix F; see also
Table VI-10 to the preamble of the CAIR final rule at 70 FR 25251.
---------------------------------------------------------------------------

As discussed in section II in today's preamble, some commenters
argued that relief under section 126 must occur within 3 years and
therefore that the CAIR emission reductions do not satisfy section 126
because although those reductions commence within 3 years they are
phased in over a longer time. We respond to legal arguments in section
II, above.
In any case, the EPA believes that many emission sources in States
upwind of North Carolina will install NO_X and/or
SO₂ emission control technology before 2009. As explained
above, EPA modeling projects that North Carolina will come into
attainment of the PM_2.5 standards by 2010 under CAIR,
including trading programs. Much of the emission reductions that will
bring North Carolina counties into attainment with the PM_2.5
standards will result from use of selective catalytic reduction (SCR)
for NO_X control and flue gas desulphurization (FGD) for
SO₂ control on units in upwind States. For the following
reasons, EPA believes that many of these controls will be installed
before 2009.
Early emission reductions occur for several reasons. Today's CAIR
FIP trading rules and the CAIR SIP model trading rules include
incentives for early emission reductions. For example, sources may bank
title IV SO₂ allowances into the CAIR FIP or CAIR SIP
SO₂ trading programs (see section VI.I, below, for further
discussion of incentives for early reductions). Another reason why
sources may reduce emissions early is the need to stagger control
installations at plants where multiple units will be retrofitted to
avoid operational disruptions.
As discussed elsewhere in today's preamble, the 10 States that EPA
determined in CAIR contribute to North Carolina's nonattainment of the
PM_2.5 standards are Alabama, Georgia, Indiana, Kentucky,
Ohio, Pennsylvania, South Carolina, Tennessee, Virginia, and West
Virginia. Table VI-1, below, summarizes for these 10 States the total
coal-fired electric generating capacity expected to be on-line by the
end of 2006 as well as the portion of that capacity expected to be
controlled with SCR or FGD.\18\ In addition, the table

[[Page 25345]]

summarizes for the 10 States the generating capacity that EPA expects
to be controlled with SCR or FGD through the end of 2008 based on
research that the Agency conducted for today's action.\19\ The table
also summarizes for the 10 States the generating capacity that EPA
projects will be controlled with SCR or FGD by the end of 2010 based on
IPM modeling projections.\20\ As Table VI-1 indicates, many of the
emission controls that EPA's modeling projects will be installed by the
end of 2010 are actually likely to be installed before 2009.
---------------------------------------------------------------------------

\18\ Generating capacity through the end of 2006 (with capacity
greater than 25 MWe) based on EPA's v.2.1.9 NEEDS database (2004).
Capacity expected to be controlled with SCR or FGD by the end of
2006 based on research EPA conducted on planned control retrofits on
coal-fired units.
\19\ This includes expected capacity (greater than 25 MWe) with
control retrofits through the end of 2008 based on EPA research of
planned control retrofits on coal-fired units. Research included
searching the Internet for company announcements regarding contracts
for control retrofits. For 2007 and 2008 retrofits EPA focused its
research on units with capacity greater than 100 MWe; if smaller
units were included, we might have identified additional planned retrofits.
\20\ These 2010 projections are from IPM modeling conducted for
the final CAIR and include units with capacity greater than 25 MWe
(IPM version 2.1.9, 2004).

Table VI-1.--SCR and FGD Summary for 10 States Contributing to North Carolina's Nonattainment of the PM2.5
Standards
----------------------------------------------------------------------------------------------------------------
Expected capacity with Expected capacity with Projected capacity with
Total generating capacity by end of emission controls by emission controls by emission controls by
2006 end of 2006 end of 2008 end of 2010 under CAIR
----------------------------------------------------------------------------------------------------------------
132 GW (466 units)................... SCR: 67 GW (126 units). SCR: 70 GW (130 units). SCR: 82 GW (184 units)
FGD: 48 GW (111 units). FGD: 64 GW (137 units). FGD: 73 GW (167 units)
----------------------------------------------------------------------------------------------------------------

EPA believes that even more controls may be installed before 2009
than were identified in the Agency's research. It is reasonable to
suppose that, once CAIR SIP revisions are submitted and approved,
additional plans for control retrofits will be adopted due to SIP revisions.
Some commenters supported the use of trading programs in connection
with a section 126 remedy and some did not. A commenter, using South
Carolina as an example, questioned why emissions can be above State
budget amounts through allowance trading. This commenter points out
that EPA's IPM modeling for CAIR projects emissions in South Carolina
above the State's 2015 SO₂ emissions budget 5 years after
2015 and asserts that emissions over the State budget ``will still
contribute to attainment problems in North Carolina.'' However, as
explained above, based on modeling for CAIR--which assumes interstate
emissions trading--by 2010 there will be no remaining PM_2.5
nonattainment counties in North Carolina. In other words, the EGU
emission reductions projected by IPM to occur under the CAIR trading
regimes are the amounts that are projected to be sufficient to bring
North Carolina into attainment in 2010, regardless of whether for some
States emissions are projected to be above the State EGU emissions budgets.

C. Abbreviated SIP Revisions Covering Elements of the CAIR FIP Cap-and-
Trade Programs

In the FIP NPR (70 FR 49720, 49727-49739), the Agency proposed to
provide States that are covered by CAIR with the option to submit
abbreviated SIP revisions covering specific elements of the CAIR FIP
trading programs without submitting full SIP revisions to meet the
requirements of CAIR. By proposing to accept such abbreviated SIP
revisions, the Agency intended to increase the options available for
States to comply with CAIR. A State could choose to retain control of
these specific elements of the trading programs without submitting a
full SIP revision.
As proposed, a State would submit an abbreviated SIP revision that
would modify the application of certain elements of the FIP in order to
better meet the needs of the State. The EPA proposed that a State could
choose to modify the application of the FIP through abbreviated SIP
revisions that would do any or all of the following:
? Make applicable, to the State, provisions in the FIP for
otherwise unaffected units to opt into the FIP trading programs,
? Allow the State, rather than EPA, to allocate
NO_X annual and/or NO_X ozone season allowances,
? Allow the State, rather than EPA, to allocate allowances
from the NO_X annual Compliance Supplement Pool (CSP), and
? Include NO_X SIP Call trading sources that are
not EGUs under CAIR in the CAIR FIP NO_X ozone season cap-
and-trade program.
As there are no sanctions or penalties for leaving the CAIR FIP
trading programs in place, EPA anticipates that some States may prefer
to avoid spending the time and money necessary to submit a full SIP
revision and may just modify the application of certain parts of the FIP.
The final CAIR (70 FR 25162) requires States to submit SIP
revisions complying with the CAIR requirements to the Agency by
September 11, 2006 and to submit the initial set of NO_X
allocations by October 31, 2006.
In the CAIR FIP NPR, the Agency proposed that States choosing to
submit abbreviated SIP revisions addressing the specific elements
identified in the proposal would be required to submit such revisions
to EPA by March 31, 2007, and--if choosing to address NO_X
allocations in an abbreviated SIP revision--would be required to submit
the initial set of NO_X allocations by September 30, 2007 (70
FR 49731).\21\ The EPA proposed allowing States to submit abbreviated
SIP revisions later than full revisions because the Agency anticipates
that it will be able to complete the approval process more quickly for
abbreviated revisions due to their narrower scope.
---------------------------------------------------------------------------

\21\ The proposed regulatory text at Sec. 51.123 (70 FR 49746)
would require States using the abbreviated SIP revision approach for
NO_X allocations to notify EPA of such allocations by
September 30, 2007 for 2009, 2010 and 2011. Through an inadvertent
error, the preamble listed a different date--the preamble indicated
that the proposed deadline for such allocations would be October 31,
2007 (70 FR 49731). The Agency intended the proposed date to be
September 30, 2007 as indicated in the regulatory text.
---------------------------------------------------------------------------

The Agency proposed to include appendices in part 97 that will be
amended in the future to list any States for which the Administrator
approves abbreviated SIP revisions covering opt-ins, allocation of
NO_X allowances, distribution of CSP allowances, or inclusion
of non-CAIR NO_X SIP Call trading sources in the CAIR FIP
NO_X ozone season trading program.
The Agency received a number of comments on its proposal to allow
submission of abbreviated SIP revisions for CAIR. Several commenters
supported the abbreviated SIP revision approach. A commenter states
that the approach provides States added flexibility, helps facilitate
eventual transitions from a FIP-implemented to a State-implemented
CAIR, and provides

[[Page 25346]]

sources with better certainty regarding key operational elements (such
as NO_X allocations) over the initial years of the program.
Commenters generally supported the choice of specific elements that EPA
proposed to allow States to control using abbreviated SIP revisions.
Several commenters argued against the Agency's proposed submission
deadline for abbreviated SIP revisions. Commenters who argued against
the proposed submission deadline generally did so in relation to the
timing for NO_X allocations. The EPA discusses the schedule
for determining and recording NO_X allocations in detail in
the NO_X allocations section in today's preamble (section
VI.F, below) and responds in that section to commenters' concerns
regarding submission deadlines for abbreviated SIP revisions in
relation to NO_X allocation timing.
One commenter that did not support the proposal for abbreviated SIP
revisions suggested that allowing such revisions to be submitted later
than the deadline for a full SIP revision sets a poor procedural
precedent. The Agency disagrees. The proposal to allow abbreviated SIP
revisions for CAIR is based on the unique circumstances in this case
and does not set precedent for other different circumstances.
The EPA is finalizing, with certain changes described below, the
approach that a State can choose to modify the application of the CAIR
FIP through abbreviated SIP revisions that do any or all of the following:
? Make applicable, to the State, provisions in the FIP for
otherwise unaffected units to opt into the FIP trading programs,
? Allow the State, rather than EPA, to allocate annual and/
or ozone season NO_X allowances,
? Allow the State, rather than EPA, to allocate allowances
from the annual NO_X Compliance Supplement Pool (CSP), and
? Include NO_X SIP Call trading sources that are
not EGUs under CAIR in the CAIR FIP NO_X ozone season cap-
and-trade program.
Thus a State could choose, through its abbreviated SIP revision, to
bring its NO_X SIP Call trading sources that are not EGUs
under CAIR from the NO_X SIP Call trading program into the
CAIR NO_X ozone season trading program.
With regard to the provision allowing an abbreviated SIP revision
to provide for State allocation of annual and/or ozone season
NO_X allowances, EPA is revising that provision to give
States the same flexibility concerning such allocations as States have
in a full SIP revision. In a full SIP revision, States have the option
of allocating allowances to CAIR units or to other entities (such as
renewable energy facilities) or of auctioning allowances. The States
must submit the CAIR unit allocations to the Administrator by specified
deadlines so that the allowances can be recorded in the allowance
tracking system, but the requirements for a full SIP revision do not
address what happens if the State fails to meet these deadlines. In
contrast, under the proposed provision for an abbreviated SIP revision
allowing for State allowance allocations, a State's allocation
provisions must provide that, if a State does not inform the
Administrator of the allocations to CAIR units by the specified
deadlines, the Administrator will assume that the units get the same
allocations for the year as in the prior year and will record such unit
allocations. (EPA notes that the deadline for submitting the initial
set of allocations is changed, as described below, from the proposed
deadline of September 30, 2007 to April 30, 2007.)
The difficulty with the proposed approach is that it assumes that
the State is distributing (not auctioning) allowances and is providing
them to CAIR units (not to other entities). In order to clarify that
States have the same flexibility in allocating in abbreviated SIP
revisions and full SIP revisions, EPA is removing the abbreviated SIP
revision language concerning the Administrator's actions in the event a
State fails to inform in a timely manner the Administrator of the
allocations. However, it should be noted that the provisions for both
abbreviated SIP revisions and full SIP revisions set deadlines for
State submission of allocations to the Administrator for recordation
and that, in reviewing such SIP revisions, EPA intends to ensure that
the SIP revisions are consistent with those deadlines.
With regard to the provision allowing an abbreviated SIP revision
to provide for State allocation of the CSP, EPA is revising that
provision to give States the same flexibility with regard to CSP
allocations as States have in a full SIP revision. Under Sec.
51.123(e)(4)(iii), States may use in a full SIP revision one or both of
the mechanisms described for CSP allocation, one based on early
reductions and one based on need. Under the proposed provision for an
abbreviated SIP revision concerning State CSP allocations, a State must
use the allocation methods detailed in either Sec. 96.143 or Sec.
97.143. In order that an abbreviated SIP revision provides States the
same flexibility as a full SIP revision, EPA is revising the
abbreviated SIP revision language to give States the options of using
the Sec. 96.143 or Sec. 97.143 provisions or the provisions under
Sec. 51.123(e)(4).
The EPA will include appendices in part 97 that will be amended in
the future to list any States for which the Administrator approves
abbreviated SIP revisions covering any of the 4 specific elements
listed above. The EPA anticipates coordinating such amendments of the
appendices with the Administrator's final decision to approve such SIP
revisions.

D. Overall Structure of the CAIR FIP Cap-and-Trade Programs

In the CAIR NFR, the Agency provided SIP model rules for the CAIR
NO_X annual, CAIR NO_X ozone season, and CAIR
SO₂ annual trading programs that States can use to meet the
emission reduction requirements in the CAIR (in part 96). For the final
CAIR FIP cap-and-trade programs, EPA decided to adopt the CAIR SIP
model rules with minor changes to allow for Federal implementation.
The emission reductions mandated by today's final rule will be
achieved from EGUs (see sections VI.E and VII, below, for discussion of
applicability provisions).
The CAIR FIP cap-and-trade programs rely on the detailed unit-level
emissions monitoring and reporting procedures of part 75 and consistent
allowance management practices. All affected sources are required to
monitor and report their emissions using part 75. Source information
management, emissions data reporting, and allowance trading will be
accomplished using on-line systems similar to those currently used for
the Acid Rain SO_X and NO_X SIP Call trading programs.
The penalty provisions for excess emissions under today's FIP
trading programs were also adopted from the CAIR model trading rules.
As discussed in section VII in today's preamble, the Agency revised the
excess emission penalties in the CAIR SO₂ trading program to
clarify the penalties for units that have excess emissions under both
the Acid Rain Program and the CAIR SO₂ trading program. The
penalty provisions adopted for the final FIP thus are the excess
emissions penalty provisions in the CAIR with the revised CAIR
SO₂ trading program penalties.
1. SO₂ Annual Program
The final CAIR FIP SO₂ cap-and-trade program requires
affected sources to hold SO₂ allowances sufficient to cover
their emissions for each control period. For the FIP SO₂
program, EPA decided to adopt the CAIR model SO₂ trading rule
(with minor changes to allow for Federal implementation) which is based

[[Page 25347]]

on the existing Acid Rain Program and relies on title IV SO₂
allowances.
As in the CAIR SIP SO₂ model trading program, the
SO₂ reductions for the CAIR FIP SO₂ trading
program will be achieved by requiring sources to retire, in most cases,
more than one title IV allowance for each ton of SO₂
emissions.\22\ Sources can use pre-2010 title IV SO₂
allowances for compliance with the CAIR FIP SO₂ cap-and-
trade program at a 1-to-1 ratio (i.e., SO₂ allowances of
vintage 2009 and earlier will offset one ton of SO₂
emissions). Allowances of vintages 2010 through 2014 will offset 0.5
tons of emissions (i.e., such allowances will need to be retired at a
ratio of 2-to-1 for CAIR compliance, in other words 2 allowances for
every ton of emissions). Allowances of vintages 2015 and beyond will
offset 0.35 tons of emissions (i.e., such allowances will need to be
retired at a ratio of 2.86-to-1, in other words 2.86 allowances for
every ton of emissions). The emission value of an SO₂
allowance is independent of the year in which it is used, but rather is
be based on its vintage (i.e., the year for which the allowance is
issued). These SO₂ allowance retirement ratios are the
retirement ratios in the CAIR NFR, which EPA adopted in the CAIR FIP
SO₂ trading program (see discussion in section VII in the
CAIR NFR preamble at 70 FR 25255-25273, as well as in section IX at 70
FR 25290-25291).
---------------------------------------------------------------------------

\22\ Allowances of pre-2010 vintage will be retired at a ratio
of one allowance per ton of emissions. For allowances of later
vintages, more than one allowance will be retired per ton of emissions.
---------------------------------------------------------------------------

The Agency uses the single term, ``CAIR SO₂ allowance,
'' to refer to an SO₂ allowance under a CAIR SIP using the
model trading rule or CAIR FIP.\23\ A CAIR SO₂ allowance can
be used for compliance with the SO₂ allowance-holding
requirement in a CAIR SIP or CAIR FIP SO₂ trading program.
Sources in States governed by either of these SO₂ trading
programs can trade CAIR SO₂ allowances with each other.
---------------------------------------------------------------------------

\23\ A CAIR SO₂ allowance is generally a tilte IV
SO₂ allowance; the only exception is where a State adopts
the provisions allowing units not otherwise covered by the CAIR
SO₂ trading program to opt in and allocates allowances
(which are not title IV allowances) to such units. For purposes of
compliance with the EPA-administered CAIR SIP SO₂ trading
program or with the CAIR FIP SO₂ trading program in
today's rule, the value of SO₂ allowances are discounted
based on the allowance vintage year, as explained above.
---------------------------------------------------------------------------

2. NOX Annual Program
The final CAIR FIP NO_X annual cap-and-trade program
requires affected sources to hold NO_X annual allowances
sufficient to cover their emissions for each control period. For the
FIP NO_X trading program, EPA adopted the CAIR SIP model
NO_X trading program with minor revisions to allow for
Federal implementation. The FIP NO_X program relies on CAIR
NO_X annual allowances that will be allocated to affected
units by the EPA (see section VI.F in today's preamble for discussion
of the methodology and schedule for allocating NO_X
allowances) or allocated by States using abbreviated SIP revisions. A
NO_X annual allowance authorizes the emission of one ton of
NO_X.
The Agency is finalizing the proposed Compliance Supplement Pool
(CSP) of allowances that will be allocated to sources and can be used
for compliance with the CAIR FIP NO_X annual cap-and-trade
program. See sections V and VI.I in today's preamble for further
discussion of the CSP.
NO_X ozone season allowances issued under the
NO_X SIP Call or under the CAIR FIP NO_X ozone
season trading program can't be used for compliance with the CAIR FIP
NO_X annual reduction requirement. (Pre-2009 NO_X
ozone season allowances issued under the NO_X SIP Call can be
banked into the CAIR FIP NO_X ozone season program; see
discussion of FIP NO_X ozone season program, below.)
The Agency uses the single term, ``CAIR NO_X allowance,''
to refer to a NO_X allowance issued under a CAIR SIP using
the model trading rule or CAIR FIP. A CAIR NO_X allowance can
be used for compliance in a CAIR SIP or CAIR FIP NO_X annual
trading program. Sources in States governed by either of these
NO_X annual trading programs can trade CAIR NO_X
allowances with each other.
3. NO_X Ozone Season Program
The final CAIR FIP NO_X ozone season cap-and-trade
program requires affected sources to hold CAIR NO_X ozone
season allowances sufficient to cover their emissions for each control
period. For the ozone season program, the control period extends from
May 1 through September 30 for each year of the program. For this
trading program also, EPA adopted the trading program from the CAIR SIP
model NO_X ozone season trading rule with minor modifications
to allow for Federal implementation. Under the FIP program, a
NO_X ozone season allowance authorizes the emission of one
ton of NO_X during the ozone season.
The FIP program relies on CAIR NO_X ozone season
allowances that will be allocated to affected sources by the EPA (see
section VI.F in today's preamble for discussion of the methodology and
schedule for allocating NO_X allowances) or allocated by
States using abbreviated SIP revisions. In addition, pre-2009
NO_X SIP Call allowances can be banked into the CAIR FIP
NO_X ozone season program and used by affected sources for
compliance with that program. NO_X allowances issued under
the CAIR FIP NO_X annual program can't be used for compliance
with the CAIR FIP NO_X ozone season reduction requirement.
As discussed in the CAIR NFR and the CAIR FIP NPR, certain emission
sources that do not meet the applicability requirements of CAIR are
included in the existing EPA-administered NO_X Budget Trading
Program under the NO_X SIP Call. (The types of NO_X
Budget Trading Program units that are not EGUs under CAIR include
industrial boilers and turbines, cement kilns, and small EGUs.) As
explained in the CAIR NFR and CAIR FIP NPR, EPA will no longer
administer the NO_X SIP Call ozone season cap-and-trade
program for ozone seasons after 2008; however, NO_X SIP Call
requirements will remain in place. The CAIR NFR provides that States
that choose to participate in the CAIR EPA-administered NO_X
ozone season cap-and-trade program may choose whether or not to bring
their non-CAIR NO_X SIP Call trading sources into the CAIR
ozone season trading program, through their SIP revisions. Bringing the
non-CAIR NO_X SIP Call trading sources into the CAIR ozone
season program is one way to continue to meet NO_X SIP Call
requirements. See section VII in the CAIR NFR (70 FR 25255-25273) and
section IX.A. (70 FR 25289-25290).
As discussed above, the Agency is finalizing its proposal that
States may choose to submit an abbreviated SIP revision to bring their
non-CAIR NO_X SIP Call trading sources into the CAIR FIP
NO_X ozone season cap-and-trade program. The abbreviated SIP
revision may increase a State's NO_X ozone season trading
budget under the CAIR FIP NO_X ozone season cap-and-trade
program by an amount equal to the portion of the State's NO_X
SIP Call State trading budget that is attributed to such units.
The Agency uses the single term, ``CAIR NO_X Ozone Season
allowance,'' to refer to a NO_X ozone season allowance issued
under a CAIR SIP using the model trading rule or CAIR FIP. A CAIR
NO_X ozone season allowance could be used for compliance in a
CAIR SIP or CAIR FIP NO_X ozone season trading program.
Sources in States governed by either of these NO_X ozone
season trading programs can trade CAIR NO_X Ozone Season
allowances with each other.

[[Page 25348]]

E. Sources Subject to the CAIR FIP Cap-and-Trade Programs

Under the proposed CAIR FIP cap-and-trade programs, only EGUs were
subject to the proposed rules. The proposed applicability provisions
are, by design, identical to the provisions for applicability the CAIR
SIP model trading programs and incorporated the FIP NPR revisions to
the applicability provisions of the final CAIR SIP model trading rules.
The revisions to CAIR SIP model rule applicability include exemptions
for (1) municipal solid waste incinerators and (2) existing units that
have not served a generator since before November 15, 1990.
Incorporating these exemptions into the applicability provisions in
both the CAIR SIP and CAIR FIP trading programs provides clarity and
aligns the provisions more closely with the provisions in the title IV
Acid Rain Program. A detailed discussion of the rationales for
including these exemptions may be found in section VII of the CAIR FIP
NPR. (See section VIII.C. in the CAIR NFR preamble for applicability
discussion at 70 FR 25276-25278 and section VII in today's preamble for
additional discussion of changes to the CAIR EGU definition).
Public comment on the proposed applicability provisions of the CAIR
FIP trading programs primarily expressed interest in additional
exemptions for waste coal-fired units, biomass-fired units, and low
emissions units. These are discussed in detail below.
Applicability in the Final CAIR FIP. Today's action finalizes that,
in any jurisdiction for which a final CAIR FIP is promulgated, units
will be subject to the CAIR FIP trading programs (i.e., to the CAIR FIP
SO₂, NO_X annual, or NO_X ozone season
programs, as appropriate) if they are stationary, fossil-fuel-fired
boiler or stationary, fossil-fuel-fired combustion turbine serving at
any time, since the later of November 15, 1990 or the start-up of the
unit's combustion chamber, a generator with nameplate capacity of more
than 25 MWe producing electricity for sale. Certain cogeneration units
or solid waste incinerators are exempt from the CAIR FIP and are
described below.
Cogeneration Unit Exemption. As in the CAIR NFR, certain
cogeneration units are exempt from the CAIR FIP trading programs.
Cogeneration units include units having equipment used to produce
electricity and useful thermal energy for industrial, commercial,
heating, or cooling purposes through sequential use of energy and
meeting certain operating and efficiency standards. The program has
different applicability provisions for non-cogeneration units and
cogeneration units. Any cogeneration unit, serving (since the later of
November 15, 1990 or the start-up of the unit), a generator with a
nameplate capacity of greater than 25 MW and supplying more than \1/3\
potential electric output capacity and more than 219,000 MW-hrs
annually to any utility power distribution system for sale, will be
subject to the requirements of the CAIR FIP trading rules. Otherwise,
the unit will qualify for an exemption under the FIP rules. This
cogeneration unit exemption is identical to the exemption in the CAIR
NFR, as revised by today's action. Section VIII.C.3. of the CAIR NFR
preamble describes the cogeneration unit exemption and discusses the
specific elements of how units would qualify and remain qualified for
the exemption (70 FR 25276-25278).
Solid Waste Incinerator Exemption. Today's action includes an
exemption for certain solid waste incinerators in both the CAIR and
CAIR FIP cap-and-trade programs. Specifically, a solid waste
incineration unit commencing operation before January 1, 1985, for
which the average annual fuel consumption of non-fossil fuels during
1985-1987 exceeded 80 percent and during any 3 consecutive calendar
years after 1990 the average annual fuel consumption of non-fossil
fuels exceeds 80 percent, is not subject to either the CAIR or CAIR FIP
cap-and-trade programs. (Section VII of the preamble for today's rule
provides additional discussion.)
Individual Unit Opt-ins. Today's action includes provisions for
individual units to opt-in to the CAIR FIP trading programs. These
units, when they opt-in, become ``affected'' by the CAIR FIP trading
program and, as a result, must comply with allowance holding
requirements, monitor and report emissions, and receive CAIR allowances.
The opt-in provisions of the CAIR FIP trading programs would become
applicable to sources in a given State only if the State chooses to
submit an abbreviated SIP revision that would provide for the inclusion
of opt-ins in the CAIR FIP trading programs. The EPA considered
requiring all States to have opt-in provisions in the proposed CAIR FIP
trading programs. By not requiring opt-in provisions in all States
covered by the proposed FIP trading programs, the Agency seeks to
preserve the States' flexibility to decide whether to allow opt-in
units. In addition, the EPA believes that including opt-in provisions
only in States that have elected to include them in an abbreviated SIP
revision avoids the possibility of ``stranding'' some opt-in units.
More specifically, this requirement avoids a situation where a unit
might make investments based upon assumption that it will opt-in to a
CAIR FIP trading program only to be stranded if the CAIR FIP program
was later supplanted by EPA approving a CAIR SIP submitted by the State
that did not include opt-in provisions.
If States choose to submit abbreviated SIP revisions to provide for
the inclusion of opt-ins in the CAIR FIP trading programs, the SIP
revisions must include the opt-in provisions that are provided in the
CAIR final rule. See section VIII.G. of the CAIR NFR preamble for
discussion of opt-in provisions (70 FR 25286-25288).
Waste Coal-Fired Units Under CAIR FIP. The EPA received comments
requesting an exemption for waste coal-fired units from both the CAIR
and CAIR FIP SO₂ annual programs. Some commenters claimed
that their costs to comply with the programs are excessively high. The
economics of a waste coal-fired unit are different depending upon
whether the unit has a fixed price power purchase agreement in place or
whether it is selling electricity on the wholesale market.
Units that had power purchase agreements with fixed prices in place
on November 15, 1990, are exempt from title IV and do not receive title
IV allowances. The commenters state that, while their agreements are in
effect, these units are not able to pass through cost increases, such
as the cost of compliance with CAIR, except where specific escalations
are provided (e.g., compensation for increases in fuel costs or inflation).
While under the agreements and exempt from title IV, the units can
opt into the title IV program and receive allowances as opt-in units.
Commenters claim that the title IV opt-in provisions could allocate
allowances to them at levels below their projected emissions because
the years on which title IV bases the allocations are early in the
units operation and might under-represent the unit's typical heat
input. The commenters add that it is not cost effective for the units
to reduce SO₂ emissions by installing advanced emission
controls because the units already achieve significant reductions and
have fixed price contracts that do not allow them to pass through
control costs.
The second scenario is the period beginning when the units' power
purchase agreements expire and the units lose their title IV exemption.
As title IV affected units, they lose their

[[Page 25349]]

title IV opt-in status and can no longer receive title IV allowances
under the title IV opt-in provisions. These units are no longer locked
into their power purchase contracts and are free to participate in the
wholesale electricity markets. The commenters contend that reducing
emissions--even when they are free to pass through the cost of
compliance--is not cost-effective, because most waste coal-fired
facilities already operate at lower SO₂ emission rates than
many other sources. This, however, belies the real issue, since under a
trading program, sources have multiple compliance options including
installing emission controls, switching fuels or purchasing allowances.
If a source's control costs are above the marginal cost of control in
the region, the unit is likely to comply by purchasing allowances,
thereby reducing their cost of control to the market price.
In general, information regarding the cost of generation,
electricity markets, and cost of controlling emissions may be found
through publicly available sources. This information is used, and in
some cases developed, by EPA in its regulatory efforts (e.g., IPM
modeling results, technical support documents (TSD) examining the cost
and feasibility of control options). However, information regarding
specific terms of the contracts, such as found in the power purchase
agreements of the waste coal-fired units, is generally proprietary and
is claimed to vary widely from contract to contract. Although complete
information on contracts (e.g., the fixed price for electricity, price
escalators) could have been provided in order to perform a thorough
analysis, commenters provided EPA with some limited information (much
of it after the public comment period closed) that did not support the
commenters' case for the broad closure of waste coal-fired units as a
category of sources. In addition, commenters presented some limited
analysis of the ratio of their estimated cost of compliance with CAIR
to their projected revenue. Again, EPA's evaluation of this limited
analysis showed that it did not support the commenters claims that they
would not be economically viable. (The results of EPA's evaluation of
the commenters' analysis are discussed later in this section.) Because
the unit-specific information provided by the commenters was limited,
EPA conducted an analysis using generally available information to
evaluate the potential impact of the cost of complying with CAIR for a
typical CFB combusting waste coal. This analysis shows that the typical
waste coal-fired unit would remain economically viable under CAIR. (The
results of this analysis are discussed later in this section.)
EPA understands that waste coal-fired facilities have not received
a title IV SO₂ allowance allocation because they have been
exempt from title IV under the IPP exemption. Title IV's IPP exemption
applies to units that had power purchase agreements with fixed prices
in place on November 15, 1990, and includes units other than waste
coal-fired facilities. Congress limited this exemption to only those
units with power purchase commitments in effect, thereby acknowledging
that once the unit was freed from its power purchase commitment, it was
free to pass through compliance costs to its customers. The unit may
lose this exemption even before the full-term of the contract if the
power purchase commitment changes after November 15, 1990, in a way
that allows the cost of compliance with the Acid Rain Program to be
shifted to the purchaser. For example, expiration or termination of the
power purchase commitment or modification so that the price is
increased (e.g., changed to a market price) results in loss of the
exemption. The purpose of the exemption is to protect IPP facilities
subject to contract prices that were set before passage of the CAA
Amendments of 1990 (including the Acid Rain Program in title IV) and
that did not allow pass through of the costs of Acid Rain Program
compliance. Congress has limited the exemption to apply to the Acid
Rain Program and did not mandate the Agency with maintaining the
exemption in future programs. EPA believes that this exemption was
aimed at easing the transition of such facilities into the Acid Rain
Program and that there is no basis for maintaining this exemption for
every subsequent cap-and-trade program.
Waste coal-fired units are designed and operated for the purpose of
generating electricity for sale. As a result, they are reasonably
treated as part of the power generation sector, which comprises the
category of sources the CAIR and CAIR FIP trading programs aimed at
regulating. For this reason, EPA modeling for CAIR included waste coal-
fired EGUs as part of the power sector, which was shown to collectively
be able to make highly cost-effective SO₂ and NO_X
emission reductions. The marginal cost of control and the average cost
of control, shown to be highly cost-effective, reflect a range of power
sector control costs that include costs from sources such as waste
coal-fired units. Notably, the model considers where control will be
least expensive and that some units will purchase allowances in the
determination of which units are projected to dispatch. EPA modeling
shows that waste coal-fired units continue to be dispatched even when
the cost of complying with CAIR is part of the unit's production costs.
Commenters did not provide any basis for changing EPA's treatment of
waste coal-fired units in the modeling or for challenging EPA's
modeling results.
EPA agrees that these units do not have large SO₂
emissions. These units may emit based on a reduction in SO₂
from sulfur content in the fuel of approximately 90 percent, or in some
cases greater, reductions in SO₂ from sulfur content of the
fuel.\24\ However, many continue to emit at rates above those recently
achieved by coal-fired units with advanced SO₂ controls
(i.e., scrubbers). Nevertheless, because these units tend to be
relatively small and have lower total emissions, they would be required
to purchase significantly fewer allowances than other, potentially
higher emitting, sources that also may not have received SO₂
allowances under title IV.
---------------------------------------------------------------------------

\24\ Reduction in SO₂ from CFB units are EPA
estimates based upon the design of the facilities.
---------------------------------------------------------------------------

However, EPA does not believe that the CAIR SO₂ annual
requirements would impose an undue or inequitable ``economic burden''
on waste coal-fired units that would ``threaten the viability'' of all,
or even many, of these units. EPA considered the potential impacts for
both the periods of the concern identified by the commenter: (1) When
the power purchase agreement is in place and the unit is exempt from
title IV; and (2) after the power purchase agreement has expired and
the unit is title IV affected.
For the period in which the waste coal-fired unit has a power
purchase contract in place, EPA examined the analysis presented by the
commenters in support of their argument that CAIR compliance costs
would threaten their economic viability. EPA believes the commenters'
analysis substantially overestimated the potential compliance costs of
CAIR and the CAIR FIP (by inaccurately accounting for the future
projected cost of emitting one ton of SO₂, underestimating
access to title IV SO₂ allowances through the title IV opt-
in provisions, and inaccuracies in other analytical assumptions) and,
when more realistic assumptions are correctly applied, these units are
much better off. (Section VI.A of the CAIR FIP Response to Comment
Document presents the results of this analysis.)

[[Page 25350]]

As mentioned above, while waste coal-fired units have a valid power
purchase agreement (and, subsequently, an exemption from title IV),
they may choose to opt-in to the title IV program and receive
SO₂ allowances. The title IV opt-in provisions provide units
with SO₂ allowances based upon their heat input (i.e., the
average of their annual heat input for the years 1985 through 1987 or
their first 3 whole years of operation) and their emission rate (i.e.,
the lesser of their actual emission rate during the first baseline year
or, their lowest permitted emission limit in year they apply that will
be effective that year or any time after). As a result, these units
could receive SO₂ allowances sufficient to authorize all of
their future, annual emissions under the title IV program. Other units,
that may operate more than they did during the baseline years, may
receive SO₂ allowances from the title IV opt-in provisions
at levels lower than their future emissions. Assuming the waste coal-
fired units made no additional reduction in SO₂ emissions,
this same opt-in allocation level would authorize half of their
emissions, and require them to purchase SO₂ allowances equal
to half of their emissions, under the first phase of CAIR or the CAIR
FIP.\25\ Considering that waste coal-fired CFB units generally achieve
greater than 90 percent SO₂ emission reductions, the unit
would purchase SO₂ allowances equal 5 percent of this total,
uncontrolled emissions. The retirement ratio for the second phase of
CAIR or the CAIR FIP would result in the sources purchasing
SO₂ allowances equivalent to 7 percent of this uncontrolled
emissions level (i.e., two thirds of the remaining 10 percent of the
uncontrolled emissions). From the evidence that EPA has been provided,
the commenters have not demonstrated that purchasing allowances equal
to approximately 5 percent or 7 percent of uncontrolled emissions in
the phases 1 and 2 of the CAIR FIP (and CAIR), respectively, would
result in the units not being economically viable.
---------------------------------------------------------------------------

\25\ Assumes sources receive title IV opt-in allowances equal to
their current emissions. The 2-to-1 retirement ratio of CAIR's first
phase requires CAIR sources to hold twice as many allowances.
---------------------------------------------------------------------------

The commenters concerns about the economic viability of waste coal-
fired units continue for periods of time when the power purchase
agreements have expired (i.e., the units have lost the exemption from
title IV) and the units are free to participate in the electricity
markets. EPA addressed this concern by conducting additional analysis
using generally available information to evaluate the potential impact
of the cost of complying with CAIR for a typical CFB combusting waste
coal. More specifically, EPA examined how the potential cost to operate
a typical waste coal-fired CFB unit (in $/MWh) compares to the
potential price it would receive on the electricity market. This
analysis estimated the potential cost of producing electricity for a
waste coal-fired CFB (including the cost of complying with CAIR) to be
significantly less than the EPA projected wholesale price and the
forecasted price of electricity. In general, waste coal-fired
facilities will continue to be profitable, even when factoring in the
cost of complying with CAIR.
EPA also notes that, upon the expiration of the power purchase
agreements, waste coal-fired units will participate in the electricity
markets and be required to comply with all applicable emission control
programs, including the title IV Acid Rain Program, just as other coal-
fired facilities. Some of these coal-fired units have installed
emission control equipment, emit SO₂ at lower rates than the
waste coal-fired units, and are complying with title IV while they
compete in the electricity markets. Additionally, new units continue to
come online and are economically viable even though they must acquire
title IV SO₂ allowances on the market.
In addition, commenters mentioned that waste coal-fired facilities
provide benefits outside of air emissions, such as assisting in the
mitigation of waste coal impacts on the land. EPA notes that, in case
of waste coal-fired units, there are a variety of avenues of potential
relief for States that wish to assist these units as they transition to
competitive markets. Options for States to encourage certain types of
generation include, but are not limited to: Revenue from renewable
portfolio standards (where waste coal-fired units can qualify); and
providing valuable CAIR NO_X annual and ozone season
allowances, as well as mercury allowances under the Clean Air Mercury
Rule (which are options in Pennsylvania, where most of the commenters
waste coal-fired units are located). EPA also notes that, in the case
of waste coal-fired units that have contended that they provide multi-
media benefits, that they will have the flexibility to develop
integrated, multi-pollutant compliance strategies under CAIR.
In summary, EPA does not agree with commenters that believe that
complying with the CAIR FIP or CAIR SO₂ annual program would
result in this category of units not being economically viable. These
units are designed to generate electricity for sale on the grid and are
part of the power generation sector. The CAIR FIP and CAIR trading
programs are designed to achieve emission reductions from EGUs while
providing the flexibility for the markets to find the least-cost
reductions. Once their contracts expire, waste coal-fired units, just
as other coal-fired generation sources which may or may not receive
title IV SO₂ allowances, will be expected to hold
SO₂ allowances and compete in the electricity markets. In
addition, the commenter has not provided analysis that demonstrates
that waste coal-fired units, as a category, would not be economically
viable as a result of CAIR. For these reasons, EPA has not included an
exemption for waste coal-fired units or IPPs in the CAIR FIP or CAIR
trading programs.
Biomass-Fired Units under CAIR FIP. EPA received comment that
biomass-fired units should be exempt from the CAIR and CAIR FIP trading
programs. These commenters claimed that their operations are similar to
those of solid waste incineration units, which EPA proposed to exempt
in the CAIR FIP NPR. Commenters added that they could meet fossil fuel
use criteria used in the solid waste incineration unit exemption (i.e.,
the average annual fuel consumption of non-fossil fuels not exceeding
80 percent for the years 1985-1987 (or for a unit commencing operation
after January 1, 1985, the first 3 years of operation) and during any 3
consecutive calendar years after 1990). In addition, commenters noted
that this would be consistent with the title IV exemptions for biomass-
fired units as ``qualifying facilities.''
EPA disagrees with commenters that request that biomass-fired EGUs
be exempted from the CAIR and CAIR FIP trading programs because they
are similar to solid waste incinerators. While biomass-fired EGUs may
be able to meet the criteria for limited combustion of fossil fuel used
in the solid waste incineration unit exemption in the CAIR and CAIR FIP
trading programs, they differ from solid waste incineration units in
that biomass-fired units are designed and operated for the purpose of
generating electricity for sale. As a result, they are reasonably
treated as part of the power generation sector, which comprises the
category of sources the CAIR and CAIR FIP trading programs aimed at
regulating. For this reason, EPA modeling for CAIR included biomass-
fired EGUs as part of the power sector, which was shown to be able to
make highly cost-effective SO₂ and NO_X emission
reductions. The marginal cost of control and the average

[[Page 25351]]

cost of control, shown to be highly cost-effective, reflect a range of
power sector control costs that include costs from sources such as
biomass-fired units. Commenters did not provide any basis for changing
EPA's treatment of biomass-fired units in the modeling or for
challenging EPA's modeling results.
Biomass-fired units included in the CAIR and CAIR FIP trading
programs are distinguishable from solid waste incineration units exempt
from the CAIR and CAIR FIP trading programs. First, while the purpose
of biomass-fired units are to generate electricity (and, in some cases,
useful thermal energy), solid waste incineration units are designed and
operated for the purpose of disposing of solid waste, with electricity
generation incidental to this purpose. In fact, the term ``solid waste
incineration unit'' excludes sources whose primary purpose is something
other than waste disposal, such as ``material recovery facilities * * *
which combust for the primary purpose of recovering materials'' and
``qualifying small power production facilities * * * or qualifying
cogeneration facilities * * * which burn homogeneous waste for the
production of electric energy * * * for the production of electric
energy and steam or forms of useful energy (such as heat) * * *'' (18
U.S.C. 7429(g)(1)) Thus, it was reasonable for EPA to treat biomass-
fired units, but not solid waste incineration units, as part of the
power sector. Second, as explained in the CAIR FIP NPR, emission
reductions from solid waste incineration units, treated as a separate
source category, were not considered in EPA's determination of highly
cost-effective reductions from the power sector. Biomass-fired units
were treated as part of the power sector, which was shown in EPA's
modeling to be able to make highly cost-effective reductions.
EPA does not believe that the title IV exemption for qualifying
biomass-fired units means that these units should be exempt from all
cap-and-trade programs developed after the Acid Rain Program. Under the
Acid Rain Program, an IPP facility (such as a biomass-fired unit) that
has, as of November 15, 1990, a qualifying power purchase commitment
(including a sales price) to sell at least 15 percent of planned net
output capacity and has installed net output capacity not exceeding 130
percent of planned net output capacity is exempt from the program.
However, if the power purchase commitment changes after November 15,
1990 in a way that allows the cost of compliance with the Acid Rain
Program to be shifted to the purchaser, then the IPP facility loses the
exemption. For example, expiration or termination of the power purchase
commitment or modification so that the price is increased (e.g.,
changed to a market price) results in loss of the exemption. The
purpose of the exemption is to protect IPP facilities subject to
contract prices that were set before passage of the CAA Amendments of
1990 (including the Acid Rain Program in title IV) and that did not
allow pass through of the costs of Acid Rain Program compliance.
However, EPA maintains that this exemption was aimed at easing the
transition of such facilities into the Acid Rain Program and that there
is no basis for maintaining this exemption for every subsequent cap-
and-trade program.
Under the CAIR trading programs, a biomass-fired unit can be
allocated NO_X allowances, just as any other CAIR unit.
Further, although biomass-fired units are not generally allocated title
IV allowances, which are used in the CAIR SO₂ annual trading
program, those units can opt into the Acid Rain Program and receive
title IV allowances as long as they retain their IPP exemption. If they
lose the exemption because they are no longer bound by their power
purchase commitment, then they can pass through compliance costs to the
same extent any CAIR unit can do so.
For the reasons discussed above, the EPA is not including an
exemption from the CAIR and CAIR FIP trading programs for biomass-fired
units in today's final rule.
Low Emissions Units Under CAIR FIP. EPA received comment requesting
that units with low emissions, such as units that emit less than 25-
tons annually, be exempt from the CAIR and CAIR FIP trading programs.
This includes simple cycle turbines that are operated infrequently,
primarily during peak demand or when there are operational difficulties
with baseload units. Commenters claim that the cost of monitoring and
reporting their emissions is excessively burdensome and that special
provisions in part 75 monitoring for low mass emitting (LME) units does
not provide adequate relief.
Today's final CAIR FIP trading rules do not include an exemption
for low emitting units. While low emitting, these units are designed
and operated for the purposes of generating electricity for sale. As a
result, they are reasonably treated as part of the power generation
sector, which comprises the category of sources the CAIR and CAIR FIP
trading programs aimed at regulating. For this reason, low-emitting
units were included as part of the power sector, which was shown
through EPA modeling for CAIR to be able to make highly cost-effective
emission reductions. The marginal cost of control and the average cost
of control, shown to be highly cost effective, reflect a range of power
sector control costs that include costs from low-emitting units
(including simple-cycle turbines).
Commenters advocating an exemption of these units did not provide
any basis for changing EPA's treatment of these units in the modeling
or for challenging EPA's modeling results.
The NO_X SIP Call did include an exemption for units that
could demonstrate that their permits imposed an operating hour
limitation under which their potential emissions during the ozone
season did not exceed 25 tons (the ``25-ton exemption''). Units wishing
to obtain the 25-ton exemption were required to use conservative
emission estimates of their potential emissions and State budgets were
adjusted to remove the equivalent of their potential emissions from
that State's trading program budget. In general, this exemption was
undersubscribed and complex. EPA also notes that it received little
comment on including a 25-ton exemption, with only a single facility
claiming that this exemption is necessary. EPA does not see compelling
justification to include this exemption in the CAIR and CAIR FIP
trading programs.
EPA does not agree with commenters that contend that the LME
provisions do not adequately relieve the cost of monitoring and
reporting for low emitting units. The part 75 LME provisions provide
qualifying sources with multiple options to allow facilities to choose
the approach that best fits their circumstances. First, units may
choose to use EPA-provided, conservative emission factors in lieu of
installing and operating Continuous Emissions Monitoring Systems
(CEMS). The LME provisions provide a second option that allows
facilities to determine unit-specific emission factors for use in
estimating their annual emissions. Additionally, EPA provides the
software necessary to generate the quarterly emissions reports for
these sources to further lessen the burden on these sources. These
streamlined monitoring and reporting procedures relieve much of the
administrative burden, and therefore, the compliance costs, for LME
qualifying units. This allows EPA to accurately and cost-effectively
account for the emissions, even at low emission levels, and allow these
units to participate in the CAIR trading programs.

[[Page 25352]]

F. Allocation of NOX Emission Allowances to Sources

The EPA presented in the NPR (70 FR 49730-49734) its proposed
schedules and methods for allocating NO_X allowances to
sources, including allowances for the CAIR FIP NO_X annual
trading program and the CAIR FIP NO_X ozone season trading
program. The Agency proposed to use NO_X allocation methods
that are consistent with the NO_X allocation methods in the
CAIR SIP model trading rules.
As discussed above, the Agency proposed that a State could choose
to modify the application of the FIP through abbreviated SIP revisions
that would allow the State, rather than EPA, to allocate NO_X
annual and/or ozone season allowances for the CAIR FIP trading programs.
The EPA proposed formulas for EPA-determined allocations of
NO_X allowances to units (both existing units with sufficient
baseline data and new units) under the CAIR FIP trading programs.
Further, the Agency proposed schedules for applying the allocation
formulas and for determining such NO_X allocations for the
CAIR FIP trading programs. The EPA also proposed schedules for States
to apply State-determined allocation formulas under abbreviated SIP
revisions. In addition, EPA proposed a schedule for the Administrator
to record NO_X allocations (whether EPA-or State-determined)
in source accounts.
The EPA received a number of comments on each of these elements of
its proposed schedules and methods for NO_X allocations. The
Agency discusses the comments and presents the final schedules and
methods for NO_X allocations below.
See section VI.I in today's preamble for a discussion of the
Agency's method for distributing FIP NO_X annual allowances
from the NO_X annual CSP.
1. Schedule for Determining and Recording NO_X Allocations
The Agency's preference is for States to make decisions about
NO_X allocations for their sources. Although EPA will
determine NO_X allocations for the CAIR FIP trading programs,
we intend to only record EPA-determined allocations in allowance
accounts for sources located in a State without a timely, approved CAIR
SIP revision (or timely, approved abbreviated CAIR SIP revision
providing for State-determined allocations).
While EPA's proposal included schedules for determining and
recording NO_X allocations for both existing units with
sufficient baseline data and new units, this section of the preamble--
and the public comments--focus on the allocations for existing units.\26\
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\26\ The Agency is finalizing the proposed schedules for
determiing and recording FIP NO_X allocations for new
units; see Sec. Sec. 97.141, 97.341, 97.153 and 97.353.
---------------------------------------------------------------------------

As discussed further below, EPA intends to determine NO_X
allocations for the CAIR FIP trading programs by October 31, 2006
(covering 2009-2014). For any State choosing to determine CAIR FIP
NO_X allocations using an abbreviated SIP revision, the
deadline for States to notify EPA of their first set of NO_X
allocations (covering at least 2009-2011) is April 30, 2007. The Agency
will record EPA-determined allocations for the CAIR FIP trading
programs by September 30, 2007 (covering 2009), September 30, 2008
(covering 2010) and September 30, 2009 (covering 2011-2013). If State-
determined NO_X allocations are approved earlier than these
recordation deadlines (under a full SIP revision or an abbreviated SIP
revision), the Agency intends to record the State-determined
allocations in source accounts rather than EPA-determined allocations,
as soon as possible. Table VI-2, below, summarizes the final deadlines
for recording CAIR FIP NO_X allocations (EPA-determined
allocations or State-determined allocations using an abbreviated SIP
revision). Table VI-3 summarizes the final deadlines for recording CAIR
SIP NO_X allocations for States choosing to use the CAIR
model trading rules (full SIP revisions).
As discussed in the NPR, the Agency developed proposed schedules
for recording CAIR FIP NO_X allocations for existing units in
source accounts with the objective of balancing the following two
goals: (1) Providing both adequate certainty to sources regarding their
CAIR NO_X allocations and adequate time for sources to make
compliance decisions, and (2) providing States choosing to allocate
CAIR NO_X allowances with time to submit, and EPA to approve,
abbreviated or full SIP revisions that provide for State-determination
of allowance allocations.
The final CAIR (70 FR 25162) requires States to submit SIP
revisions complying with the CAIR requirements to the Agency by
September 11, 2006 and to submit the initial set of NO_X
allocations by October 31, 2006.
In the CAIR FIP NPR, the Agency proposed that States choosing to
submit abbreviated SIP revisions would be required to submit such
revisions to EPA by March 31, 2007, and--if choosing to address
NO_X allocations in an abbreviated SIP revision--would be
required to submit the initial set of NO_X allocations by
September 30, 2007. The EPA proposed allowing States to submit
abbreviated SIP revisions later than full revisions because the Agency
anticipates being able to complete the approval process more quickly
for abbreviated revisions due to their narrower scope.
The Agency stated in the FIP NPR its intention to determine final
NO_X allocations for 2009 through 2014 for the FIP trading
programs prior to December 1, 2007 (70 FR 49732). The EPA has further
considered its plans for determining these final NO_X
allocations and now intends to determine them by October 31, 2006. The
Agency intends to publish a Notice of Data Availability (NODA) during
spring 2006 with NO_X allocations for 2009 through 2014. The
public will have an opportunity to make objections to any of the data
used in these allocations. EPA will publish a NODA with the final
NO_X allocations for 2009 through 2014 (adjusted if necessary
in light of any objections) by October 31, 2006. In this manner, the
Agency intends to provide earlier notice to sources of the EPA-
determined NO_X allocations.
The EPA proposed to determine NO_X allocations by July
31, 2011 and July 31 of each year thereafter for the control period in
the fourth year after the year of the deadline for the determination
and then to provide opportunity for submission of objections to the
determination. The EPA would make any necessary adjustments to the
allocations in light of any objections, before the deadline for EPA to
record the allocations. The EPA is now finalizing this schedule. For
example, the Agency will determine allocations by July 31, 2011 for the
2015 control period and then provide opportunity for submission of
objections. The Agency intends to make any necessary adjustments to
these allocations, in light of any objections, as soon as possible
after the receipt of objections and before the recordation deadline
\27\ of December 1, 2011. As discussed further below, the Agency
intends to record EPA-determined NO_X allocations in source
accounts only in the absence of a timely, approved full CAIR SIP
revision or a timely, approved abbreviated CAIR SIP revision providing
for State-determined allocations.
---------------------------------------------------------------------------

\27\ Recordation deadline means the date by which the
Administrator will record allocations in source accounts in the
allowance tracking systems.
---------------------------------------------------------------------------

The EPA presented in the FIP NPR its proposed deadlines for
recording NO_X allocations in source accounts for the CAIR
FIP trading programs (see Table

[[Page 25353]]

VI-1 in the NPR at 70 FR 49732.) The proposed recordation deadlines for
FIP NO_X allocations were as follows: By December 1, 2007 for
the 2009 control period; by December 1, 2008 for the 2010 control
period; by December 1, 2009 for the 2011, 2012 and 2013 control
periods; by December 1, 2010 and December 1 of each year thereafter for
the control period in the fourth year after the recordation deadline.
These proposed recordation deadlines were the latest dates by which EPA
proposed to record NO_X allocations for the CAIR FIP trading
programs. The EPA proposed to record EPA-determined NO_X
allocations only in the absence of a timely, approved full CAIR SIP
revision or a timely, approved abbreviated CAIR SIP revision providing
for State-determined NO_X allocations. The Agency intended to
record any NO_X allocations determined by a State using an
abbreviated SIP revision as soon as feasible after approval of the
abbreviated SIP revision; EPA did not intend to wait until the proposed
deadlines to record such State-determined allocations. Likewise, the
Agency intended to record any NO_X allocations determined by
a State using a full SIP revision as soon as feasible after approval of
the full revision (and according to the recordation deadlines in the
CAIR SIP rules at Sec. Sec. 96.153 and 96.353).\28\
---------------------------------------------------------------------------

\28\ The FIP NPR preamble contained an inaccurate statement
regarding proposed NO_X allocation recordation deadlines.
The preamble (70 FR 49731) indicated that the recordation deadlines
would be the same whether the allocations were in a full SIP
revision or in an abbreviated revision; however the proposed
recordation deadlines relevant to abbreviated revisions are
different from deadlines for full SIP revisions.
---------------------------------------------------------------------------

In the FIP NPR (70 FR 49739), the Agency proposed to remove the
deadline to record NO_X allocations for the first set of
years submitted in a SIP revision (i.e., in a full SIP revision) that
used the model allocation method in part 96, but to retain the
deadlines to record the subsequent allocations. The CAIR NO_X
model trading rules, as finalized at 70 FR 25162, required the
Administrator to record the initial set of NO_X allocations
submitted by the States by December 1, 2006 (Sec. Sec. 96.153 and
96.353). However, since the SIP revisions that include such allocations
are not due until September 11, 2006, it is highly unlikely that all
the SIP revisions will be approved by EPA in time for the allocations
to be recorded by December 1, 2006. CAIR NO_X allowance
allocations should not be recorded, and thereby be tradable in the
allowance market, before the SIP revision on which the allocations are
based is final; it would be highly disruptive to the allowance market
if allocations that are recorded and could be traded could subsequently
be rendered invalid due to disapproval of the SIP revision on which the
allocations are based.
The Agency's proposal to remove the deadline to record the first
set of NO_X allocations submitted in a full SIP revision did
not include an alternative recordation deadline. Some commenters
suggested that EPA should set an alternative deadline, and one
commenter suggested that the deadline should be within 30 to 60 days
following EPA approval of a State's SIP revision. The Agency is
finalizing a recordation deadline of September 30, 2007 for the first
set of NO_X allocations submitted with a full SIP revision.
This recordation deadline is based on the Agency's belief that full SIP
revisions can be approved in about a year from submission, that is by
about September 2007.
Some industry commenters who supported the abbreviated SIP revision
approach did not support the proposed schedule for abbreviated
revisions, in particular with regard to the schedule for NO_X
allocations. Some suggested that abbreviated SIP revisions should be
due on the same schedule as full SIP revisions (i.e., that the deadline
for abbreviated SIP revisions should be September 11, 2006, instead of
March 31, 2007 as proposed) or, as suggested by one commenter, on an
even earlier schedule than full SIP revisions. Similarly, some
suggested that the deadline for the first set of NO_X
allocations submitted with an abbreviated SIP revision should be the
same as the NO_X allocations deadline for a full SIP revision
(i.e., that the deadline for allocations in an abbreviated revision
should be October 31, 2006, instead of the proposed deadline).\29\ Some
commenters suggested that sources should be provided earlier knowledge
of their allocations in order to plan for compliance.
---------------------------------------------------------------------------

\29\ The deadline that EPA proposed for submitting
NO_X allocations with an abbreviated SIP revision is
September 30, 2007 for 2009, 2010 and 2011, as specified in the
proposed regulatory text at Sec. 51.123 (70 FR 49746). Through an
inadvertent error the preamble to the NPR listed a different date;
the preamble indicated that the proposed deadline for such
allocations would be October 31, 2007 (70 FR 49731).
---------------------------------------------------------------------------

A State commenter asserts that submitting an abbreviated SIP
revision under the proposed schedule will be problematic for some
States that may not be able to complete a State rulemaking prior to the
deadline for such submission.
The EPA is finalizing the proposed March 31, 2007 deadline for
submission of abbreviated SIP revisions to the Agency. Because of the
narrower scope of abbreviated SIP revisions, EPA anticipates that it
will be able to complete the approval process more quickly for such
revisions than for full SIP revisions. The EPA believes that it can
approve abbreviated SIP revisions in about 6 months from submission.
With abbreviated SIP revisions due to the Agency about 6 months later
than the deadline for full SIP revisions, EPA anticipates that approval
for both types of submissions would be feasible by about the same time,
that is by about September 2007.
The Agency is finalizing a deadline of April 30, 2007--instead of
September 30, 2007 as proposed--for States to submit to EPA their first
set of NO_X allocations associated with an abbreviated SIP
revision (covering at least 2009, 2010 and 2011). The Agency revised
this deadline in order to provide sources with an earlier opportunity
to have notice of the State-determined NO_X allocations.
A few industry commenters argued that the deadlines for recording
NO_X allocations in source accounts for the CAIR FIP trading
programs should be earlier than proposed, to provide earlier knowledge
to sources of their allocations. One recommended that NO_X
allocations for the CAIR FIP trading programs--whether determined by
EPA or determined by a State using an abbreviated SIP revision--be
recorded in source accounts by December 1, 2006 for 2009 through 2011.
Another industry commenter suggested that, if a State fails to meet
the October 31, 2006 deadline for allowance allocations in a full SIP
revision, EPA should immediately record the FIP allowance allocations.
The same commenter also suggested that NO_X allocations
should be recorded in source accounts a minimum of 3 years prior to the
date they can be used for compliance and asserted that, if a source did
not know until a year before the compliance deadline what its allocation
will be, the source ``would be completely unable to plan for compliance.''
A State commenter suggests that the requirements for notification
of allocations under CAIR SIP trading programs and the CAIR FIP trading
programs should be the same. According to the commenter, if EPA
finalizes a lead time for recording NO_X allocations under
the CAIR FIP trading programs of less than 3 years for the first 4
control periods, ``the same flexibility

[[Page 25354]]

should be extended to approved CAIR SIP trading programs.''
In determining the final NO_X allocation recordation
deadlines, abbreviated SIP submission deadlines, and schedules for
determining NO_X allocations, the Agency is balancing the
goals of (1) providing information in advance to source owners and
operators regarding their future CAIR NO_X allocations in
order to facilitate their decision-making concerning compliance with
the requirements to hold allowances and (2) providing States choosing
to allocate CAIR NO_X allowances sufficient time to prepare
and submit SIP revisions (full or abbreviated revisions) setting forth
the State allocation methodology and prepare and submit unit
allocations for specific years and providing EPA sufficient time to
review and approve these SIP revisions and record these unit
allocations. The EPA made adjustments to the proposed NO_X
allocation schedules in response to public comments received on the
proposal. The Agency believes that the final schedules achieve a
reasonable balance between these goals within the constraints of the
available time.
The Agency is finalizing a deadline of September 30, 2007 (instead
of December 1, 2007 as proposed) for recording NO_X
allocations for 2009 for the CAIR FIP trading programs, whether EPA-
determined or State-determined using an abbreviated SIP revision. This
is the same deadline that EPA is finalizing for recording the first set
of State-determined NO_X allocations in a full SIP revision,
as discussed above. This is the earliest feasible recordation date
based on EPA's assumption that it will take about a year to approve a
full revision and about 6 months to approve an abbreviated revision.
The EPA would like to stress that, if State-determined NO_X
allocations are approved earlier than this deadline (under a full SIP
revision or an abbreviated SIP revision) the Agency intends to record
the State-determined allocations in source accounts as soon as
possible. The Agency does not intend to wait until the recordation
deadline to record State-determined allocations and will record EPA-
determined allocations for 2009 by this deadline in the absence of an
approved full SIP revision or an approved abbreviated SIP revision
providing for State-determined allocations.
Similarly, the Agency is finalizing a recordation deadline of
September 30, 2008 (instead of December 1, 2008) for recording CAIR FIP
NO_X allocations for 2010; and September 30, 2009 (instead of
December 1, 2009) for recording CAIR FIP NO_X allocations for
2011, 2012 and 2013. The Agency does not intend to wait until these
deadlines to record State-determined allocations and will record EPA-
determined allocations for 2010, 2011, 2012 and 2013 according to these
deadlines in the absence of an approved full SIP revision or an
approved abbreviated SIP revision providing for State-determined
allocations. The Agency will record EPA-determined allocations in
source accounts one year at a time for 2009 and 2010 in order to
provide flexibility to States to determine allocations for their sources.
Beginning with allocations for the 2014 compliance year, EPA is
finalizing the proposed recordation deadlines for CAIR FIP
NO_X allowances. That is, beginning with the 2014 control
period and for each control period thereafter, EPA intends to record
NO_X allocations for the CAIR FIP trading programs in source
accounts by December 1 of each year for the control period 4 years
after the year in which the allocations are recorded. This approach
will provide sources with their allocations about 3 years in advance.
For example, EPA will record FIP allocations for the 2014 control
period by December 1, 2010. The Agency will record EPA-determined
allocations only in the absence of an approved full SIP revision or an
approved abbreviated SIP revision providing for State-determined
allocations.
Table VI-2, below, summarizes the final NO_X allocation
recordation deadlines for the CAIR FIP trading programs. Deadlines for
future control periods not shown in the table follow the same pattern
shown for 2014 through 2016. Note that these are the latest dates by
which EPA will record CAIR FIP NO_X allocations. The EPA
intends to record State-determined CAIR FIP NO_X allocations
as soon as possible after approval of abbreviated SIP revisions.

Table VI--2.--Recordation Deadlines for CAIR FIP NOX Allocations
------------------------------------------------------------------------
Deadline by which FIP NOX
allocations are recorded (EPA-
CAIR control period determined allocations or state-
determined allocations using
abbreviated SIP revision)
------------------------------------------------------------------------
2009................................... September 30, 2007.
2010................................... September 30, 2008.
2011................................... September 30, 2009.
2012................................... September 30, 2009.
2013................................... September 30, 2009.
2014................................... December 1, 2010.
2015................................... December 1, 2011.
2016................................... December 1, 2012.
------------------------------------------------------------------------

As discussed in the FIP NPR (70 FR 49731), EPA acknowledges that it
is preferable for source owners and operators to have at least 3 years
lead time with regard to allowance allocations when feasible. A shorter
lead time would reduce the period for buying or selling allowances and
could prevent sources from participating in allowance futures markets,
a mechanism for hedging risk and lowering costs (CAIR NFR, 70 FR
25279). Although lead time may impact the selection of trading
strategies, as discussed further below, EPA believes that the selection
of compliance methods (e.g., installation of emission control
technology, fuel switching, or allowance purchases) should not be impacted
by the amount of allowances a source is allocated for a given year.
The final schedule for recording NO_X allocations for the
CAIR FIP trading programs in today's rulemaking provides that
allocations will be recorded with at least 3 years lead time in all but
the initial 4 compliance years. For those initial years, the Agency
will work with the States to be able to record State-determined
NO_X allocations as soon as feasible and will record EPA-
determined allocations by the recordation deadlines in the absence of
timely, approved full SIP revisions or timely, approved abbreviated SIP
revisions providing for State-determined allocations.
Table VI-3, below, summarizes the final recordation deadlines for
NO_X allocations for the CAIR SIP model trading rules (i.e.,
NO_X allocations contained in full SIP revisions). Deadlines
for future control periods not shown in the table follow the same
pattern shown for 2015 and 2016. The EPA intends to record State-
determined allocations as soon as possible after approval of full SIP
revisions.

Table VI--3.--Recordation Deadlines for CAIR SIP Model Rule NOX
Allocations
------------------------------------------------------------------------
Deadline by which SIP NOX
allocations are recorded (for
CAIR control period States choosing to use the CAIR
SIP model rules)
------------------------------------------------------------------------
2009................................... September 30, 2007.
2010................................... September 30, 2007.
2011................................... September 30, 2007.
2012................................... September 30, 2007.
2013................................... September 30, 2007.
2014................................... September 30, 2007.
2015................................... December 1, 2009.
2016................................... December 1, 2010.
------------------------------------------------------------------------

It is likely that source owners and operators will know or at least
have a reasonable understanding of the likely

[[Page 25355]]

amounts of their NO_X allocations substantially earlier than
the deadlines for recording allocations in source accounts. States
submitting full CAIR SIP revisions must notify EPA of their initial set
of unit-by-unit NO_X allocations (covering at least 2009,
2010 and 2011) by October 31, 2006. As indicated in the CAIR, the
States have broad discretion in making unit-by-unit allocations, and
EPA's review will center on whether the total allocations in a given
year exceed the State's trading budget. See Sec. Sec.
51.123(o)(2)(ii)(A) and (aa)(2)(iii)(A). The Agency intends to
determine unit-by-unit NO_X allocations for the initial
compliance years of the CAIR FIP trading programs by the same date,
October 31, 2006 (covering 2009 through 2014). States submitting
abbreviated SIP revisions must notify EPA of their unit-by-unit
NO_X allocations for the CAIR FIP trading programs by April
30, 2007 (covering at least 2009, 2010 and 2011). As is the case for
States submitting full SIP revisions, EPA's review of unit-by-unit
allocations will center on ensuring that the State budget would not be
exceeded.
Moreover, through each State's public rulemaking, adjudicative,
and/or legislative processes for determining allocations, source owners
and operators will likely be aware of their State's plans regarding
NO_X allocations even in advance of the deadlines by which
the States must submit their unit-by-unit allocations to EPA. For
example, the public is likely to know whether the State is planning to
allocate using the example NO_X allocation method provided in
the CAIR SIP model rules, or what alternative allocation method the
State is planning to use. This knowledge would give owners and
operators a sense for what their allocations will be.
An industry commenter asserted that, if a source did not know until
a year before the compliance deadline what its allocation will be the
source ``would be completely unable to plan for compliance,'' stating
as a reason ``it takes longer than a year to install the controls that
might be necessary to meet an unexpectedly low allocation.'' Another
commenter asserted that ``Sources use the period of time between
finalization of source-by-source allocations and the control period to
plan and implement any strategy necessary to achieve compliance.'' The
Agency disagrees with these arguments. The EPA believes--and general
economic theory suggests--that for owners and operators of sources
covered by CAIR trading programs, the determination regarding what will
be the lowest cost compliance methods (e.g., installation of emission
control technology, fuel switching, or allowance purchases) should not
be impacted by the amount of allowances a source is allocated for a
given year.
The Agency believes the decision to install NO_X control
technology will be made based on evaluating the cost to that source of
installing controls compared to the price of NO_X allowances
in the allowance market. For a particular source, if the cost to
control a ton of NO_X emissions is lower than the
NO_X allowance price, then the source will likely choose to
control emissions. This is the case regardless of the amount of
allowances allocated to the source since using an allocated allowance
to cover emissions has an opportunity cost (i.e., the value of that
allowance if it were sold in the allowance market) just as using a
purchased allowance to cover emissions has a cost (i.e., the price of
purchasing that allowance in the allowance market).
Such a source may choose to over-control and make greater
reductions than those required on average by the NO_X trading
program cap either to free up allocated allowances that can then be
sold for more than it cost to free up the allowances or in order to
avoid purchasing allowances in the allowance market. In contrast, for a
particular source, if the cost to control a ton of NO_X
emissions is higher than the NO_X allowance price, the source
will likely choose to use allocated allowances or buy allowances to
cover its NO_X emissions since that will cost less than
installing control technology.
The Agency strongly urges States to submit CAIR SIP revisions (full
or abbreviated revisions) to EPA in a timely manner. The EPA will
endeavor to work with States to ensure that the Agency can timely
approve SIP revisions and record State NO_X allocations in
source accounts.\30\ However, once EPA-determined NO_X
allocations are recorded for a particular control period (which would
only occur in the absence of a timely, approved full CAIR SIP revision,
or a timely, approved abbreviated CAIR SIP revision providing for
State-determined allocations), EPA intends not to record overlapping
State-determined allocations for that same control period. Rather, EPA
will work with the States to approve SIP revisions with State
allocations for control periods after the last control period for which
EPA-determined allocations have been recorded in source accounts. It
would be highly disruptive to the allowance market if EPA-determined
allocations that had been recorded and could be traded in the market
could subsequently be rendered invalid due to approval of overlapping
State allocations for the same control period.\31\
---------------------------------------------------------------------------

\30\ EPA believes that, if a State submits its CAIR SIP revision
later than the submission deadline (September 11, 2006 or March 31,
2007 for a full or abbreviated SIP revision, respectively), it is
unlikely that there will be adequate time for the Agency to review
and approve the SIP revision and record State-determined
NO_X allocations by the recordation deadline under the FIP
for the 2009 compliance year. For a CAIR SIP revision submitted
after its deadline, EPA intends to withdraw FIP requirements in a
State as soon as practical after receiving approvable SIP revisions
and will work with any State to ensure a timely withdrawal of the
FIP and recording of State NO_X allocations in source
accounts. The deadlines for recording CAIR FIP NO_X
allocations and CAIR SIP NO_X allocations are presented
above in Tables VI-2 and VI-3, respectively.
\31\ The discussion in this section focuses on the time frame in
which EPA plans to record EPA-determined allocations in order to
coordinate with the approval of SIP revisions and the recordation of
State allocations, assuming States choose to participate in the EPA-
administered CAIR NO_X trading programs. The Agency will
also carefully consider the timing of a transition from federal to
State-implemented programs for any States choosing to use a method
other than the EPA-administered CAIR SIP trading programs to meet
their CAIR obligations.
---------------------------------------------------------------------------

For States choosing to submit full SIP revisions for CAIR, the
Agency suggests they consider designating any of the 4 specific
elements that can be included in abbreviated SIP revisions (e.g.,
NO_X allocations) as being submitted for purposes of both a
full SIP revision and an abbreviated SIP revision. Because the Agency
anticipates that it will be able to approve abbreviated SIP revisions
more quickly than full SIP revisions, a State's designation of its
NO_X allocations as an abbreviated SIP revision (as well as
part of a full SIP revision) may result in EPA being able to approve
the allocations portion more quickly and being able to record the
State-determined unit-by-unit allocations sooner.
The Agency intends to work with any State choosing to allocate
NO_X allocations (whether through a full SIP revision or an
abbreviated SIP revision) and to ensure that the State's allocations,
rather than EPA-determined allocations, will be recorded as soon as
possible.
The Clean Air Act is designed to give States the first obligation
(and opportunity) to prevent significant contribution to a downwind
State's nonattainment problems. The EPA only acts in the case where a
State does not meet this obligation. The Agency is promulgating CAIR
FIPs as soon as possible to assure downwind States that emission
reductions will occur in time to help them meet their nonattainment
deadlines. Even though EPA is

[[Page 25356]]

promulgating FIPs, the Agency recognizes that the Clean Air Act assigns
first responsibility to the States, and it is EPA's preference to
defer, wherever possible, to States the decisions about control
mechanisms to prevent significant contribution, including States'
decisions about allocation of NO_X allowances.
2. Method for Allocating NO_X Allowances
Proposed NOX Allocation Methodology. In the NPR, EPA proposed a
NO_X allocation approach for both annual and ozone season
allowances that is consistent with the example methodology presented in
the CAIR SIP model trading rules. The proposed methodology was the same
for annual NO_X allowances and for ozone season
NO_X allowances, except that the ozone season method uses
ozone season heat input not annual heat input.
For existing units, the proposed NO_X allocation
methodology used input-based allocations, adjusting the heat input by
factors based on fuel type (described later in this section). As in the
example allocation methodology in the CAIR SIP model trading rules, for
existing units the Agency proposed to use heat input based on the
average of the 3 highest amounts of a unit's adjusted heat input for 5
years (2000 through 2004). The EPA took comment on using heat input
based on 3 or 4 years of data rather than 5 years.
For new units that have established baselines, EPA proposed that
allocations would be based on generation using a modified output
approach to convert output to heat input (described below), and
allocations to existing units would be updated to take into account new
generation, because new units would receive allocations from the pool
of allowances shared with existing sources. New units that have not yet
established baseline data would receive allowances from a new unit set-
aside.
The Agency proposed that EPA would allocate allowances to existing
units from the State's EGU NO_X budget for the first 6
control periods (2009 through 2014) for existing sources on the basis
of historic baseline heat input. Consistent with CAIR, EPA proposed
January 1, 2001 as the proposed cut-off on-line date for considering
units as existing units. Allowances for 2015 and later would be
allocated from the State's EGU NO_X budget annually, 3 years
in advance. These allocations would take into account output data from
new units with established baselines (modified by heat input conversion
factors to yield heat input numbers, as described below). As new units
enter into service and establish a baseline, they would be allocated
allowances in proportion to their share of the total calculated region-
wide heat input. Allowances allocated to existing units would slowly
decline as their share of total calculated heat input decreases with
the entry of new units. (Note that once a baseline heat input was
established for existing units, this baseline heat input would not change).
EPA proposed to allocate allowances from a new unit set aside to
new units that have entered service but have not yet established a 5-
year baseline. The allowances from the set-aside would be distributed
based on a unit's reported emissions from the previous control period,
which would provide allowances for use in meeting the allowance-holding
requirement during the interim period before the unit would be
allocated allowances on the same basis as existing units.
Consistent with the CAIR SIP example allocation methodology, the
new unit set-aside would be equal to 5 percent of a State's emission
budget for the years 2009-2013 and 3 percent of a State's emission
budget for subsequent years. New units would begin receiving allowances
from the set-aside for the control period immediately following the
control period in which the new unit commences commercial operation,
based on the unit's emissions from the preceding control period. EPA
would allocate allowances from the set-aside to all new units in any
given year as a group. If there were more allowances requested than exist
in the set-aside, allowances would be distributed on a pro-rata basis.
EPA received a number of comments on various aspects of the
proposed NO_X allocation methodology. First, while most
commenters were supportive of allocating allowances to existing units
using historic heat input, some commenters advocated the use of output
data for determining allocations, suggesting that such an approach would
reward cleaner, more efficient generation, particularly with updating.
Second, most commenters supported the use of a 5-year baseline for
allocating allowances based on heat input, noting that a longer period
of data collection is more likely to capture a unit's normal operating
conditions. One commenter suggested that a shorter baseline period
would allow new sources to enter the existing source pool in a more
timely manner and thus provide existing sources with more certainty.
One commenter requested clarification on the treatment of
replacement units under the allocation provisions, regarding whether
they would be treated as new units, and have to reestablish a baseline,
or maintain their allowance allocation similarly to retired units.
Several industry commenters made suggestions regarding the use of
new unit set-asides in the FIP NO_X allocation methodology.
Some stated that EPA should provide that unused allowances from the
set-aside would be returned to existing units. The Agency proposed to
do so, and is finalizing that any unallocated allowances that remain in
the new unit set-asides will be allocated on a prorated basis to the
units that received allocations. See Sec. Sec. 97.142(d) and
97.342(d). One commenter argued against using a new unit set-aside.
Another commenter supported the use of a set-aside but argued that new
units should be provided access to allocations during their initial
year of operation.
In today's rule, EPA is finalizing most of the NO_X
allowance allocation provisions as proposed. First, EPA is finalizing
the use of an input-based approach for allocating allowances. This
approach uses a baseline heat input comprised of operating data from
the years 2000-2004, and uses the average of the 3 highest heat input
years from this time period for allowance allocation calculations for
existing units. This baseline heat input will not be updated over time.
EPA believes, as it stated in the final CAIR, that allocating to
existing units based on a baseline of historic heat input data, rather
than output data, is desirable because accurate protocols currently
exist for monitoring this data and reporting it to EPA, and several
years of certified data are available for most of existing units. EPA
has chosen not to utilize an updating system for allocating allowances,
in order to avoid the subsidization of increased fuel use (or increased
electricity generation) and the associated market distortions. If
allocations were based on updated heat input (or updated output) data
then increased fuel use (or increased electricity generation) would result
in increased future allocations and thus would in effect be subsidized.
For new units, EPA is finalizing the use of the proposed modified
output approach for calculating baseline heat input, described in
detail below, as well as the allocation to new units without a baseline
from a new unit set aside of 5 percent of a State's emission budget for
the years 2009-2013 and 3 percent of a State's emission budget for
subsequent years.
The Agency believes that it is reasonable to provide a set-aside
for allocations to new units and further

[[Page 25357]]

believes that it is reasonable not to provide access to allocations for
a new unit during its initial year of operation. The Agency's final
methodology provides allocations to new units based on the prior year's
emissions until the new unit establishes a baseline and is allocated as
an existing unit. The methodology does not provide allowances to a unit
in its first year of operation; however, it is straightforward,
reasonable to implement, and predictable (see preamble to final CAIR,
70 FR 25281).
As in the CAIR SIP example methodology, after 5 years of operation,
a new unit will have an adequate operating baseline of output data to
be incorporated into the calculations for NO_X allocations
for existing units. (However, as discussed below in section VII of this
preamble, allowances are allocated to existing units several years in
advance, and a new unit with a baseline may need to continue to get
allowances from the new unit set-aside for a few years after the unit's
baseline is established.) The average of the highest 3 years from these
5 years will be multiplied by a heat-input conversion factor of 7,900
Btu/KWh to calculate the heat input value used to determine the new
unit's allocation from the pool of allowances for existing units. New
units will update the heat input numbers only once--for the initial 5-
year baseline period after they start operating. As in the CAIR SIP
example methodology, existing units as a group will not update their
heat input. This eliminates the potential for a generation subsidy
because current or future operating behavior will not impact the units'
allocations. Retired units will continue to receive allowances
indefinitely, thereby avoiding creation of a disincentive to retire
less efficient units.
As discussed in section VII in today's preamble, EPA is adopting
technical changes to the SIP rules that make it clear that a separate
request for new-unit-set-aside allowances must be submitted for each
control period for which they are sought and must be submitted by May 1
(rather than July 1) of that control period; the final FIP rules are
consistent with these technical changes.
Regarding replacement units, EPA's allocation approach allows such
units to retain their NO_X allowance allocation, so as not to
provide a disincentive to replace (e.g., repower) older, less-efficient
units. As discussed in section VII in today's preamble, a definition of
``replacement'' has been added and the definition of ``commence
commercial operation'' has been clarified in the CAIR SIP model trading
rules in order to clarify the treatment of replacement units. The final
CAIR FIP rules are consistent with these changes in the SIP rules.
Adjustments to Heat Input Data by Fuel Factors. In the NPR, EPA
proposed an allocation methodology based on the example allocation
methodology in the CAIR SIP model rules, which included adjustments to
heat input by fuel type, using fuel adjustment factors that are based
on average historic NO_X emissions rates by 3 fuel types
(coal, natural gas, and oil) for the years 1999--2002. These adjustment
factors are 1.0 for coal-fired units, 0.6 for oil-fired units, and 0.4
for units fired with all other fuels (e.g., natural gas). The factors
reflect the inherently different emissions rates of different fossil
fuel-fired units.
A number of commenters supported the use of the proposed fuel
factors to adjust heat input, arguing that adjusting heat input for
fuel type results in a more equitable allocation scheme that would
provide allowances that are in closer proportion to historic emissions.
Commenters supporting the use of fuel factors also noted that EPA
should retain these fuel factors in order to maintain consistency with
the model cap-and-trade rule, which would ease any necessary
transitions from a CAIR FIP to a CAIR SIP if most States are expected
to eventually adopt the model rule. One commenter opposing the use of
fuel factors for individual unit allocations argued that adjusting
baseline heat input for fuel use is inequitable and penalizes clean
generation and is irreconcilable with EPA's ``highly cost-effective''
determination and EPA's air quality modeling. This same commenter also
questioned EPA's legal authority to use fuel adjustment factors in the
allocation of allowances.
EPA is finalizing the use of the proposed adjustment factors (1.0
for coal-fired units, 0.6 for oil-fired units, and 0.4 for units fired
with all other fuels (e.g., natural gas)), to adjust baseline heat
input. EPA believes that these adjustment factors appropriately
consider the inherently higher emissions rate of coal-fired units and
the relatively greater burden on these units to control emissions.
EPA's determination that CAIR control levels are highly cost
effective was assessed at the regional, rather than the State, level
because of the ability of sources to meet control requirements through
a regional cap-and-trade program for EGUs. While the chosen allocation
methodology can affect the distribution of compliance costs under the
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, as discussed above. The economically efficient outcome
will not depend on the relative levels of individual unit allowance
allocations.
For this same reason, air quality modeling is not relevant to the
determination of allowance allocations, and a given allowance
allocation approach, particularly one based on historic data, would
have no affect on air quality modeling.
Finally, EPA disagrees with the commenter who questioned its legal
authority to use this allocation scheme. The approach selected by EPA
is reasonable, is supported by the information available to EPA and is
well within the scope of EPA's authority to act. For further discussion
of this issue, see the CAIR notice of final action on reconsideration
signed the same day as the final FIP notice. While the reconsideration
notice addresses the use of fuel factors in the context of determining
the State NO_X budgets, the same rationale applies to the use
of fuel factors for individual unit allocations.
Cogeneration Units. In the NPR, EPA proposed that for a new
cogeneration unit that is a boiler, annual heat input values used to
calculate the unit's baseline heat input for purposes of allowance
allocations would be determined by converting the available thermal
output (Btu) of useable steam from the boiler to an equivalent heat
input by dividing the total thermal output (Btu) by a standard boiler/
heat exchanger efficiency rate of 80 percent. In today's rule, EPA is
finalizing this approach.
For new cogeneration combustion turbines, EPA proposed in the NPR
to calculate annual heat input for such a unit by: Converting the
available thermal output of useable steam from a heat recovery steam
generator (HRSG) to an equivalent heat input by dividing the total
thermal output (Btu) by a standard boiler/heat exchanger efficiency
rate of 80 percent; and then adding the equivalent heat input for the
electrical generation from the combustion turbine, which is calculated
by multiplying the turbine's generation (in KWh) by the conversion
factor of 3,413 Btu/kWh. EPA is finalizing this approach as proposed.
One commenter suggested that EPA's approaches for allocating to new
cogeneration boilers and combustion turbines be modified. This
commenter argued that EPA's proposed

[[Page 25358]]

methodology improperly rewards new cogeneration units by not matching
the rate of allocation with the degree of benefits realized by a
specific cogeneration unit. The commenter further asserts that EPA's
methodology would give a unit that only slightly improves its
efficiency the same allowance allocation benefit as a unit that
achieves a large increase in efficiency.
The commenter proposes an alternative allocation approach for
cogeneration units, the primary goal of which is rewarding electricity
as a higher value product than steam.
As EPA noted in the final CAIR preamble, steam and heat output,
like electrical output, are useable forms of energy that can be
utilized to power other processes. Because it would be nearly
impossible to adequately define the efficiency in converting steam
energy into the final product for each of the various processes and
uses for these outputs, EPA selected an approach that focuses on the
effectiveness of a cogeneration unit in capturing energy from fuel
input and converting it into the useable forms of steam and electricity.
EPA's approach does not attempt to regulate the efficiency of the processes
that are powered by the steam output from cogeneration units.
Further, EPA disagrees with the commenters suggestion that the
Agency's approach would not provide an incentive for cogeneration units
to operate efficiently. The use of modified output, rather than actual
heat input, as the basis of determining allowance allocations will
promote the development of cleaner and more efficient generation of
both electricity and process steam. EPA's approach rewards cogeneration
combustion turbines that have HRSGs capable of recapturing greater than
80 percent of the available heat from the combustion turbine exhaust
and any auxiliary burners. Furthermore, EPA's use of a 3,413 btu/KWh
factor to convert electrical output from the combustion turbine to an
equivalent heat input assumes that 100 percent of the combustion
turbine's heat input that is not converted to electricity is sent to
the HRSG as heat. This approach neglects energy losses in the
combustion turbine and generator. EPA believes that any efficiency
gains made by reducing these losses will be rewarded by the Agency's
approach, by resulting in greater electricity and/or steam output for a
given amount of heat input.
Comments on providing sources owned by small entities with a
greater share of allowances: In the NPR, EPA took comment on allocating
NO_X allowances in such a way as to provide sources owned by
small entities with a greater share of allowances. As discussed at
proposal, this option was based on the recommendation of one of the
Small Business Advocacy Review Panel members. This option would
necessitate reducing the number of NO_X allowances available
to other affected sources in order to ensure that the overall reduction
requirements of CAIR are achieved, but could potentially provide
economic relief to small entities that demonstrate economic hardship as
a result of the rulemaking.
A number of commenters expressed opposition to such an allocation
approach arguing that it is inappropriate for EPA to subsidize small
entity sources through additional allocations that result in reduced
allowance allocations and increased compliance costs for larger
sources. Additionally, some of these commenters noted that such an
approach could open the NO_X allowance allocation system to
gaming, such as through a company establishing subsidiaries in order to
obtain additional allowances made available for small entities.
Finally, one of these commenters suggested that such an approach would
deviate from the CAIR model rules, and could restrict a State's freedom
if the State plans to transition from CAIR FIP allocations to CAIR SIP
allocations. One commenter expressed support for the approach described
in the NPR, but noted the need for additional clarification on the
definition of hardship and how such an approach would fit in with the
compliance supplement pool. No potentially affected small entities, as
defined in the NPR, submitted comments in support of this approach.
EPA is not finalizing a NO_X allocation approach that
gives a greater share of allowances to small entities that demonstrate
hardship. EPA believes that the flexibilities inherent in the CAIR FIP
trading program, as well as the existence of the Compliance Supplement
Pool in the first year of the program, will reasonably address concerns
about the economic impact of the rule on all sources. Additionally, the
lack of commenter support for such an approach suggests that such an
approach may not be warranted.
Comments on use of an auction to distribute NOX allowances. In the
NPR, the Agency asked for comment on using a combination of direct
allocation and auctions for distributing NO_X allowances in
the proposed CAIR FIP trading programs. The proposed approach was
analogous to the approach in the Administration's proposed Clear Skies
legislation: For the first CAIR NO_X control period (2009)
the Agency would allocate 100 percent of the allowances using the fuel-
factor adjusted heat input approach described above. For the second
control period (2010) the Agency would allocate 99 percent of
allowances to units and auction the remaining 1 percent. The percentage
of allowances distributed via auction would increase over time, with
the Agency distributing via auction an additional 1 percent of
allowances every year for 20 years and then an additional 2.5 percent
of allowances every year thereafter, until eventually 100 percent of
allowances would be distributed via auction. The Agency also requested
comment on appropriate auction procedures for the proposed CAIR FIP
trading programs.
The majority of commenters opposed the use of an auction for
allocating allowances. One commenter expressed support for an auction
and the specific approach that EPA outlined at proposal. This commenter
suggested that EPA modeled the auction procedure after that used in the
Acid Rain Program. EPA does not necessarily agree with the specifics of
the arguments submitted by commenters opposing the use of an auction.
However, in light of the comments, EPA is concerned that adoption of
the auction approach would be premature because the Agency lacks
sufficient information about the potential impact of such auctions on
sources and about the appropriate procedures for implementing such
auctions. Consequently, the allocation provisions for today's final
rule do not include auctions. Today's final allocation methodology,
described earlier in this section, provides for the direct distribution
of allowances to affected units.

G. Allocation of SO2 Allowances to Sources

The Agency proposed a CAIR FIP SO₂ cap-and-trade program
substantively identical to the CAIR SIP model SO₂ trading
rule, which relies on title IV allowances. Title IV allowances have
already been allocated in perpetuity to individual units by title IV of
the CAA (70 FR 25278). Thus, the FIP proposal did not include an
allocation methodology for SO₂ allowances, except with
regard to opt-in units.
The Agency received several comments on the use of the title IV
allowances in the CAIR FIP SO₂ program. EPA also received
several petitions for reconsideration of the CAIR, and granted
reconsideration concerning claims that inequities result from using
title IV allowance allocations in the CAIR program. EPA received,
considered, and responded to numerous

[[Page 25359]]

comments on this issue as part of the reconsideration process. As
explained in the CAIR Notice of Final Action on Reconsideration signed
the same day as this action, EPA has decided not to alter the approach
taken in the final CAIR.
In today's action, EPA is adopting the CAIR model SO₂
trading rules as the CAIR FIP SO₂ trading rules, with minor
revisions to allow for Federal implementation. Thus, EPA is adopting
the approach taken in the final CAIR for SO₂ allowance
allocation and State SO₂ budgets, which was not changed
during the reconsideration process. This approach is explained below,
with a brief explanation of EPA's response to the major comments
received on this process. A more complete discussion of this issue and
the comments received appears in the preamble to the CAIR Notice of
Final Action on Reconsideration.
Several issues on SO₂ allowance allocations and State
budgets were raised both in comments on the proposed CAIR FIP and in
the context of the CAIR reconsideration process. EPA has responded to
such FIP comments in the CAIR Notice of Final Action on
Reconsideration, a separate action signed the same day as this notice.
These comments include the following claims:
? Inequities result from EPA's allocation approach, i.e.,
using title IV allowance allocations in the CAIR FIP trading program. A
few commenters suggested that EPA instead create new CAIR SO₂
allowances and allocate these allowances using a methodology similar to
that adopted in the CAIR SIP model trading rule for NO_X.
? EPA's approach to SO₂ allowance allocation and
State budgets creates inequities between States.
? New units and independent power production (IPP)
facilities, which did not receive allocations under the Acid Rain
Program, are unfairly disadvantaged by the CAIR SO₂ budget
and allocation methodology.
A variety of approaches to SO₂ allowance allocation were
raised and analyzed during the CAIR rulemaking process, including the
approach EPA adopted in the final CAIR SIP model rule and in today's
final FIP trading rule. Alternative approaches analyzed for the final
CAIR included the creation of new CAIR SO₂ allowances and
allocating on the basis of historic tonnage emissions, heat input (with
alternatives based on heat input from all fossil generation or heat
input from coal- and oil-fired generation only), and output (with
alternatives based on all generation and all fossil-fired generation).
(See CAIR Corrected Response to Comments, section X.A.26, Docket
#: EPA-HQ-OAR-2003-0053-2172).
Furthermore, as a part of the CAIR reconsideration, EPA reanalyzed
State differences in allocation approaches using the same methodology
as for the final CAIR, comparing the title IV approach and seven
alternative approaches (those discussed above, and those raised by the
commenters on the reconsideration, discussed below). EPA also performed
additional analyses to evaluate the use of title IV allowance
allocations in the final CAIR to see how companies and States fared in
terms of the amount of allowances allocated relative to their projected
SO₂ emissions. In these analyses, EPA compared 3 alternative
SO₂ allowance allocation methodologies that were either
referred to by the petitioner in the petition for reconsideration or by
commenters on the proposed response to the petition, to the use of
title IV SO₂ allowance allocations. EPA considered the
following approaches, all using 1999-2002 data: (1) Pure heat input;
(2) heat input adjusted for fuel type (e.g., coal, oil and gas); and
(3) heat input adjusted for fuel type and coal type (e.g., bituminous,
sub-bituminous, and lignite).
Each allocation methodology suggested by the petitioner and
commenters during the CAIR rulemaking results in both advantages and
disadvantages for different companies and States. However, as EPA
explained in the CAIR Response to Comments and again in the CAIR Notice
of Final Action on Reconsideration, the analyses performed by EPA
demonstrate that EPA's use of title IV allowance allocations is
reasonable (see CAIR Notice of Final Action on Reconsideration, signed
in a separate action the same day as this notice).
Comments about new units and IPPs, which did not receive
allocations under the acid rain program, being disadvantaged by the
CAIR SO₂ budget and allocation methodology are also
addressed in the CAIR Notice of Final Action on Reconsideration, as
well as in the applicability section (VI.E) of this final FIP action.
EPA considered the allocation of title IV allowances to CAIR region
units that are not currently in the Acid Rain Program but that could
opt into the Acid Rain Program and receive title IV allowances (see 42
U.S.C. 7651i and 18 CFR part 74). EPA assumes that companies owning
non-Acid Rain units subject to CAIR will opt into the Acid Rain Program
to receive title IV allowances to cover a portion of the units'
emissions under CAIR. EPA believes this assumption is reasonable
because, as explained in the CAIR Notice of Final Action on
Reconsideration, each of these units has the option of becoming an Acid
Rain Program opt-in unit at little cost.
The fact that non-Acid Rain units may opt into the Acid Rain
Program and receive allocations addresses the concern that the CAIR
applicability provisions sweep in units that are not covered under the
Acid Rain Program and thus do not receive Acid Rain Program
allocations. EPA maintains that 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. See CAIR Notice of Final Action on Reconsideration--signed the
same day as the final FIP rule--for additional discussion of authority
under section 410(a) of the Clean Air Act.
Further, it should be noted, that not all units required to
participate in the Acid Rain Program receive allocations under the Acid
Rain Program. While, as noted above, the Acid Rain Program provides
allowances for non-Acid Rain units opting into the program as long as
they remain non-Acid Rain units, the Acid Rain Program provides no
allocations for virtually all new Acid Rain units (i.e., Acid Rain
units commencing commercial operation on or after November 15, 1990)
and for all existing units that were not Acid Rain units when the
allowance allocations were completed in 1998 but that become Acid Rain
units thereafter. By using title IV allowance allocations in the CAIR
SIP SO₂ model trading program (adopted today as the CAIR FIP
SO₂ trading program), EPA is taking the same approach to
allocations for these units.
Finally, it is worth noting that not all title IV allowances for
future years have been allocated. 250,000 allowances will continue to
be auctioned for the years 2012 and thereafter, and these allowances
could be used to comply with the requirements of 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.
In summary, EPA's use of title IV allowances in the CAIR (and CAIR
FIP) 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 prevent erosion of confidence in cap-and-
trade programs in general; and (2) the results of EPA's analysis which
indicate that the allocations resulting from this approach are reasonable.

[[Page 25360]]

A few comments related to SO₂ budgets and allocations
submitted in response to the proposed CAIR FIP were unique to this
action and, therefore, are addressed below.
One FIP commenter states that the CAIR final allocation methodology
is ``inequitable'' because lower emitting units would buy allowances
from higher emitting units that install emission controls. However, 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 provided by
a cap-and-trade program.
Moreover, EPA believes that for purposes of evaluating various
allocation methodologies, computing allocations on a company-by-company
basis is more appropriate than comparing allocations on a unit-by-unit
basis. This is because, while one unit could be allocated fewer
allowances under one methodology, another unit owned by the same
company could be allocated more allowances, which may offset the
smaller allocation of the first unit.
This same commenter performed its own analysis of differences in
SO₂ State budgets for select States, comparing EPA's
finalized method to ``a heat input method (similar to the
NO_X allowance allocation method).'' The commenter described
the 6 of its selected States as ``[l]ow-emitting states that already
have made substantial investments in SO₂ emissions controls
(e.g., South Carolina, Minnesota, Iowa, Wisconsin, Virginia, and North
Carolina).'' Another 5 States the commenter analyzed were described as
``high-emitting states (e.g., Ohio, Georgia, West Virginia,
Pennsylvania and New York).'' See Docket ID: EPA-HQ-OAR-2004-0076-0204.
The commenter's characterization of States as ``low-'' or ``high-
emitting'' and as having made ``substantial'' SO₂ control
investments is entirely unsupported. The commenter provided no criteria
or factual basis for making such characterization, and the analysis
submitted by the commenter appears to disregard the cost of installing
controls in order to generate any excess allowances in States that are
characterized as ``high-emitting.'' Further, only 3 utilities from the
State's listed as ``low-emitting'' by the commenter, submitted adverse
comments on EPA's use of title IV.
Nevertheless, as mentioned above, EPA performed a comprehensive
State-by-State SO₂ budget analysis of all CAIR States and a
variety of alternative methodologies to evaluate the claim of inequity
as a part of the CAIR Notice of Final Action on Reconsideration. In
that analysis, EPA demonstrated that the CAIR (and CAIR FIP)
SO₂ State budget and allocation methodology provides a
reasonable result. EPA's use of title IV allowances in the CAIR (and
CAIR FIP) SO₂ trading program is supported by: EPA's
determination that this approach is necessary to maintain the emissions
reductions from, and effectiveness of, the title IV program; prevent
erosion of confidence in cap-and-trade programs in general; and EPA's
analysis showing that the allocations resulting from this approach is
reasonable.

H. Allowance Banking

Allowance banking is the retention of unused emissions allowances
from one calendar year for use in a later calendar year (or from one
ozone season for use in a later ozone season). Banking allows sources
to make reductions beyond required levels and ``bank'' the unused
allowances for use later. Generally speaking, banking has several
advantages. Allowance banking can encourage earlier or greater
reductions than are required from sources, stimulate the market and
encourage efficiency, and provide flexibility in achieving emissions
reduction goals. The CAIR FIP NPR proposed a trading program with
unrestricted banking.
Comments on the Banking of Allowances
Several commenters supported EPA's proposal to allow unrestricted
banking of allowances. In general, they agreed with EPA that this
approach: provides incentives for sources to make emission reductions
beyond required levels, in some cases earlier emission reductions; is
consistent with the CAIR SIP model trading rules; and provides
flexibility in compliance strategies. Supporters of unrestricted
banking also agreed with the EPA assessment that the use of banking
restrictions, such as the ``flow control'' in the Ozone Transport
Commission (OTC) cap-and-trade program, is complicated to understand
and implement and caused market complexity.
Other commenters supported the use of banking restrictions claiming
that allowing unrestricted banking delays emission reductions. These
commenters did not provide additional details regarding an alternative
to banking or, if banking were to be restricted, what restrictions
should be used.
Final CAIR FIP Cap-and-Trade Program
Today's final CAIR FIP cap-and-trade programs allow unrestricted
banking. EPA disagrees with commenters who claimed that unrestricted
banking simply delays emission reductions. The ability of sources to
sell allowances, without restriction, provides incentives for sources
to over-control their emissions prior to emission reduction deadlines.
As discussed in the CAIR NFR (section VIII.E), this creates a ``glide
path'' towards the final emission cap levels. Emission levels along the
glide path, which may not equate to the emissions caps for any given
year, are the levels of emission reductions that are shown to address
the pollution transport issue.
EPA also agrees with supporting commenters that banking
restrictions, such as ``flow control,'' introduce uncertainty into
source planning by introducing the potential for devaluing allowances
on short notice. EPA also agrees that allowing unrestricted banking in
the CAIR FIP cap-and-trade programs provides consistency with the CAIR
cap-and-trade programs.

I. Incentives for Early Reductions

When sources reduce their SO₂ and NO_X
emissions prior to the first phase of a multi-phase cap-and-trade
program, it creates a slope of emissions that gradually declines over
time, an emission reduction ``glide path'' that provides early
environmental benefit and lowers the costs of compliance. Each of the
cap-and-trade programs proposed in the CAIR FIP NPR incorporated the
incentives for early reductions provided in the respective CAIR model
trading programs: i.e., the banking of title IV allowances allocated of
vintage years pre-2010 into the CAIR SO₂ trading program,
the compliance supplement pool (CSP) in the CAIR NO_X annual
program, and the banking of NO_X SIP Call allowances of pre-
2009 vintage into the CAIR NO_X ozone season program. While
EPA believes that modeling has shown that the CAIR and CAIR FIP
timelines are as early as feasible, early reductions incentives provide
a mechanism for those facilities that can reduce their emissions prior
to the implementation deadline to receive some credit. By shifting some
emission reductions earlier, some environmental benefit is realized
earlier. In addition, the CAIR FIP trading programs' early reduction
mechanisms provide a way for companies that may have some difficulty
meeting the implementation timeline to start early and achieve the
mandated reductions on a more gradual pace. These mechanisms, along with

[[Page 25361]]

public comment on each, are discussed below.
1. SO₂ Annual Program
The proposed CAIR FIP SO₂ annual cap-and-trade program
would provide incentives for sources to reduce their SO₂
emissions prior to the 2010 implementation date by allowing affected
sources to use title IV SO₂ allowances of vintage 2009 and
earlier for compliance with the CAIR FIP program at a 1-to-1 ratio. The
CAIR FIP trading program adopts the early reductions incentive
mechanism in the CAIR model trading rules. The modeling for the CAIR
assumed the existence of such incentive mechanisms and showed that the
SO₂ cap-and-trade program, with this early incentive
mechanism, will achieve the level of SO₂ reductions needed
to meet the CAIR goals.
Comments on Early Emission Reduction Incentives in the CAIR FIP SO2
Cap-and-trade Program. In general, commenters supported EPA's approach
of allowing sources to bank title IV SO₂ allowances into the
CAIR FIP SO₂ trading program at a 1-to-1 ratio. One
commenter opposed this mechanism because ``EPA does not explain how
carrying these allowances over to the CAIR bank creates an incentive
for reductions if the allowances already exist.'' The commenter
continues by highlighting that EPA modeling projects emissions to be
approximately 37 percent above the annual CAIR emission caps for the
first 5 years after the compliance deadline.
Final CAIR FIP SO₂ Annual Cap-and-trade Program. Today's
action allows sources to bank title IV SO₂ allowances into
the Federal CAIR SO₂ annual cap-and-trade program at a 1-to-
1 ratio. EPA disagrees with the comment that allowing banked allowances
does not promote early reductions because allowances were banked before
CAIR was proposed or finalized. Allowing sources to bank title IV
allowances in the CAIR FIP SO₂ annual program provides
incentive for sources to: (1) Preserve reductions already made (whether
before or after CAIR was proposed) rather than negating these
reductions by increasing their emissions before 2010 and ``spending
down'' their bank; and (2) to reduce further emissions before 2010 and
increase their bank. This incentive is created by allowing sources to
benefit financially from allowances banked before 2010 that retain
their value in the CAIR FIP and CAIR SO₂ trading programs.
All pre-2010 vintage allowances will retain their value in the CAIR and
CAIR FIP trading programs because they can be used (on a one-allowance-
per-ton basis) to meet the requirement to hold allowance to cover
emissions under the CAIR FIP (and CAIR) trading programs. In summary, a
source has an incentive to continue banking allowances before 2010,
which results in the preservation of existing emission reductions and
the creation of further reductions.
The commenter noted that allowing banking into the CAIR FIP
SO₂ annual program results in the emissions being greater
than the cap levels. However, the gradually declining emissions ``glide
slope'' is one of the keys to cap-and-trade programs achieving cost-
effective reductions. As discussed above, EPA's modeling for CAIR
showed that, with the pre-2010 title IV SO₂ allowance
banking and subsequent use of the bank, the environmental goals of
reducing the interstate transport of pollution will be achieved.
2. NO_X Annual Program
The FIP NPR proposed a CAIR FIP NO_X annual cap-and-trade
program that included a Compliance Supplement Pool (CSP) to provide an
incentive for early, annual NO_X annual emission reductions.
The CSP would provide, for each affected State, a pool of CAIR
NO_X annual allowances from which EPA could distribute
allowances for early, surplus NO_X emissions reductions
occurring in the years 2007 and 2008. The CSP would provide a total of
200,000 annual NO_X allowances of vintage 2009 for the CAIR
region (including Delaware and New Jersey's share of the pool),
apportioned to each State, which would be in addition to each State's
annual NO_X budgets. Table V-3 in this preamble sets forth
the CSP amounts by State. The CAIR FIP trading program adopts the CSP
established in the CAIR model trading program. However, where the CAIR
model trading program provides States with flexibility to determine
what constitutes an early reduction qualifying for an allocation of
allowances from the CSP, the Administrator allocates the CSP in the
CAIR FIP trading program. As a result, the CAIR FIP, provides a
specific methodology for determining early reductions than is in the
CAIR model rules. This methodology is explained below.
As proposed, Federal CSP allowances could be distributed to sources
based upon: (1) Implementing NO_X control measures that
result in early emission reductions in 2007 or 2008, i.e., reductions
beyond what is required by any applicable State or Federal emissions
limitation; or, (2) a demonstration of need for an extension of the
2009 deadline for implementing emission controls. See section VII.A. in
the CAIR NFR preamble (70 FR 25256-25263). The Agency proposed that, in
order for early emission reductions to qualify for allowances from the
CAIR FIP CSP, sources would have to demonstrate that--for each year for
which they apply for CAIR FIP CSP allowances--they had an annual
NO_X emission rate below 0.25 lb/mmBtu. In addition, sources
who also participate in a title IV NO_X averaging plan would
have to demonstrate that the plan-wide weighted-average annual
NO_X emission rate for each such year was equal to or lower
than the plan-wide rate for the preceding year. Sources meeting this
criterion could request early reduction credit equal to the difference
between 0.25 lb/mmBtu and the unit's actual emission rate multiplied by
the unit's actual heat input for the applicable control period.
Comments on Federal CSP. Several commenters supported the use of a
CAIR FIP CSP to encourage early emission reductions and provide sources
access to some additional allowances for demonstrated reliability
needs. Some commenters supported including a CAIR FIP CSP but were
concerned about the use of additional criteria (i.e., a 0.25 lb/mmBtu
threshold and the limitation on emissions under a title IV
NO_X averaging plan). Other commenters believed that
providing additional allowances would delay emission reductions and
that EPA's analysis already demonstrated that the mandated emission
reduction levels and timelines are feasible.
EPA disagrees with commenters that believe the CAIR FIP CSP should
not include the criterion that units can only request early reduction
credit equal to the difference between 0.25 lb/mmBtu and the unit's
actual emission rate multiplied by the unit's actual heat input for the
applicable control period. EPA believes that the 0.25 lb/mmBtu
threshold (coupled with the limitation on emissions under a title IV
NO_X averaging plan) provides a reasonable proxy for the more
general standard that emission reductions exceed what is required under
State or Federal law.\32\ Applying these criteria will provide
reasonable assurance that only early reductions (i.e., reductions
exceeding existing requirements) will be awarded CAIR FIP CSP
allowances. Further, because these criteria are clearer and more
precise than the general standard that reductions exceed existing

[[Page 25362]]

requirements, the criteria will give owners and operators greater
certainty when making reasonable projections about how many allowances
they may receive for their early reductions and will, thereby,
encourage early emission reductions.
---------------------------------------------------------------------------

\32\ The 0.25 lbs/mmBtu criterion is based upon EPA analysis
described in the CAIR FIP CSP Technical Support Document and is
similar to the criterion used for the CSP established under the
NO_X SIP Call section 126 action. (65 FR 2674, January 18, 2000).
---------------------------------------------------------------------------

Additionally, EPA disagrees with commenters that believe the CAIR
FIP CSP should not include the distribution criterion that units in a
title IV NO_X averaging plan would have to demonstrate that
the current plan-wide average NO_X emission rate be less than
the plan-wide average for the previous year. The averaging plan
criterion acknowledges the unique circumstances for units that are in
title IV NO_X averaging plans, where emission reductions by
one unit in the plan may be offset by emission increases by another
unit in the plan, thereby, making it difficult to determine whether
early reductions are taking place. As discussed above, EPA believes
that this criterion, coupled with the 0.25 lb/mmBtu criterion, provides
a reasonable proxy for the general standard that reductions exceed
existing requirements and that the criteria provide greater certainty
about the rewarding of CAIR FIP CSP allowances. EPA believes it is
appropriate to base the averaging plan criterion on a single, prior
year's plan-wide average emission rate because the averaging of
emissions across a plan tends to mitigate year-to-year fluctuations.
EPA disagrees with commenters that believe a CAIR FIP CSP will
significantly delay emission reductions. For the CAIR NFR, EPA
conducted IPM modeling of the CAIR trading programs to evaluate the
effect of the 200,000 CAIR annual CSP NO_X allowances. The
modeling shows that these CSP allowances do not have a significant
impact on regionwide NO_X emissions.
CAIR FIP CSP Finalized in Today's Action. Today's rule finalizes
the CAIR FIP CSP mechanism proposed in the FIP NPR. EPA believes that
including a CAIR FIP CSP will encourage early emission reductions and
alleviate concerns of some sources that they have unique issues
concerning compliance with the 2009 implementation deadline of the CAIR
FIP trading program. (See 70 FR 25286 for additional discussion of the
CAIR CSP.) EPA also believes that the CSP will not significantly impact
the achievement of emission reduction goals.
The CAIR FIP CSP includes specific criteria for distributing
allowances based upon early emission reductions that do not appear in
the CAIR SIP trading programs. (Note that, as discussed in section IV.E
of today's action, States choosing the abbreviated SIP revision option
may choose to use the CAIR FIP CSP or the CAIR CSP mechanism or may
choose another mechanism consistent with Sec. 51.123(e)(4).) EPA
believes that the criteria will reasonably ensure that the award of CSP
allowances will be aimed at early reductions and give owners and
operators greater certainty to make reasonable projections about how
many allowances they may receive for their early reductions.
3. NO_X Ozone Season Program
The final CAIR FIP NO_X ozone season cap-and-trade
program allows the banking of NO_X SIP Call allowances of
vintage years 2008 and earlier and their use in the CAIR FIP
NO_X ozone season program to meet the requirement to hold
allowances covering their emissions. This provides incentive for
sources in the NO_X SIP Call to reduce their ozone season
NO_X emissions before 2009 and bank additional allowances
into the CAIR FIP NO_X ozone season program. This early-
reduction incentive mechanism is in the CAIR NO_X ozone
season model rule and is adopted as part of the CAIR FIP NO_X
ozone season cap-and-trade programs. EPA did not receive any comments
specifically addressing the early-reduction incentive mechanism in the
CAIR FIP NO_X ozone season program. However, several
commenters generally supported mechanisms to provide incentives for
early emission reductions. The Agency is finalizing this mechanism.

J. Monitoring and Reporting Requirements

Under the CAIR SIP model cap-and-trade rules, sources are required
to monitor and report NO_X and SO₂ mass emissions
in accordance with 40 CFR part 75. (See Section VIII.H. of the CAIR NFR
preamble, 70 FR 25288.) Many CAIR sources are measuring and reporting
SO₂ mass emissions and NO_X emission rate year
round under the Acid Rain Program. Many additional sources are also
reporting NO_X mass emissions at least during the ozone
season and often year round under the NO_X SIP Call. The CAIR
SIP model rules require continuous monitoring of NO_X mass
emissions by all existing, affected units by January 1, 2008 using part
75 certified monitoring systems for the NO_X annual program
and May 1, 2008 for the NO_X ozone season program.
SO₂ emissions must be monitored by those same units
beginning January 1, 2009.
Today's rulemaking requires part 75 monitoring, reporting, and
recordkeeping for all units subject to the CAIR FIP cap-and-trade
programs. This is consistent with the CAIR model cap-and-trade
programs. For additional discussion on monitoring and reporting
requirements, see Section VIII.H. in the CAIR NFR preamble (70 FR 25288).

K. Interactions With Other CAA Programs

In the CAIR NFR preamble, section IX discusses interactions between
the NO_X SIP Call and CAIR. Section IX also discusses
interactions between the title IV Acid Rain Program and CAIR. Today's
final rule covers the same States as the CAIR and adopts as FIP trading
programs the CAIR SIP model trading rules, thus the interactions would
be as described in CAIR (70 FR 25289-25299).

VII. What Are the Revisions of the CAIR SIP Rule, Including the CAIR
Model Cap-and-Trade Rules?

The EPA is adopting several revisions of the CAIR SIP rule. One
such revision is part of EPA's final action on reconsideration
concerning the applicability provisions as they relate to solid waste
incineration units. In particular, for the reasons stated in the
preamble of the August 24, 2005 proposed rule, EPA is finalizing the
EGU definition in Sec. Sec. 51.123(cc) and 51.124(q). The EGU
definition, as adopted, excludes certain solid waste incineration units
from being EGUs; limits EGUs to units that, as of November 15, 1990 or
any time later, serve a generator with a greater than 25 MWe nameplate
capacity producing electricity for sale; and clarifies language
concerning cogeneration units. The final EGU definition is the same as
the definition proposed on reconsideration except for a few minor
changes, e.g., to clarify the circumstances under which a unit that is
not an EGU, but that begins to combust fossil fuel or to serve a
generator with a 25 MWe nameplate, becomes an EGU. (For the reasons in
the preamble of the August 24, 2005 proposed rule, the language in the
final EGU definition is also reflected in final applicability
provisions of the CAIR model trading rules and the CAIR FIP trading
programs.) EPA is also finalizing, as discussed in detail above,
provisions allowing States to submit abbreviated SIP revisions.
EPA is also adopting a number of revisions of the CAIR SIP model
cap-and-trade rules. The revisions are generally necessary to integrate
each of the CAIR SIP model cap-and-trade programs with its
corresponding CAIR FIP cap-and-trade program, and some of the final
revisions reflect needed technical and clarifying changes. The
revisions are consistent with the

[[Page 25363]]

analogous provisions of the final CAIR FIP trading programs. One such
revision is part of EPA's final action on reconsideration concerning
the applicability provisions as they relate to solid waste incineration
units.
In particular, several definitions of terms are revised, and a few
new definitions are added. For example, the definitions of ``CAIR
designated representative'' and ``alternate CAIR designated
representative'' are modified to require that the respective
individuals designated for these positions be the same individuals as
designated, for a given source, as the designated representative and
alternate designated representative under any applicable trading
program under the Clean Air Mercury Rule (CAMR). (CAMR was promulgated
in May 2005 to achieve reduction of national mercury (Hg) emissions.
See 70 FR 28606, May 18, 2005.) This will greatly simplify the
administration of the allowance tracking systems for the trading
programs, including the Hg trading programs, for which EPA intends to
propose analogous changes. (In order to implement this change, a new
definition for ``Hg Budget Trading Program'' is added to the CAIR SIP
model trading rules.)
As a further example, a new definition is added (``solid waste
incineration unit''), and certain definitions are modified (``commence
commercial operation'' and ``commence operation''), to reflect final
changes in the applicability provisions for the CAIR model trading rule
and to clarify and streamline the language in the definitions. In
particular, the modified definitions are consistent with the above-
noted revisions of the applicability provisions that: exempt certain
solid waste incineration units from the CAIR trading programs; limit
applicability to units that, as of November 15, 1990 or any time later,
serve a generator with a greater than 25 MWe nameplate capacity
producing electricity for sale; and clarify the language concerning
cogeneration units. In addition, the ``commence commercial operation''
and ``commence operation'' definitions are simplified by removing
unnecessary language, such as the language referring to CAIR opt-in
units, which is unnecessary because these terms are not used in the
CAIR opt-in rule provisions. Also, the simplified definition of
``commence operation'' means that all units will use the same
``commence operation'' definition in determining, for purposes of
allocations under Sec. 96.142 and 96.342, their baseline periods for
calculating adjusted or converted heat input. (The provisions for opt-
in units that subsequently become subject to the allocation provisions
of Sec. 96.142 and 96.342 and lose their opt-in status are also
revised to reflect this approach.)
Further, a definition of ``replacement,'' a term used in the
``commence commercial operation'' and ``commence operation''
definitions, is added in order to clarify the application of the latter
two terms to cases when a unit is replaced by another unit, rather than
simply being modified. The revised applicability provisions and related
definitions in the CAIR SIP model trading rules are consistent with the
applicability provisions and related definitions in the final CAIR FIP
trading rules and with the above-discussed EGU definition in Sec. Sec.
51.123(cc) and 51.124(q).
In addition, the definitions of ``CAIR NO_X allowance,''
``CAIR NO_X Annual Trading Program,'' ``CAIR SO₂
allowance,'' ``CAIR SO₂ Annual Trading Program,'' ``CAIR
NO_X Ozone Season allowance,'' and ``CAIR NO_X
Ozone Season Trading Program'' are modified to provide for integrated
operation of each CAIR SIP trading program administered by EPA for any
State with its corresponding CAIR FIP trading program for any State.
Under these revised definitions, CAIR NO_X, SO₂,
or NO_X Ozone Season allowances issued under either type of
program for any State would be a ``CAIR NO_X allowance,''
``CAIR SO₂ allowance,'' or ``CAIR NO_X Ozone
Season allowance,'' respectively, usable by owners and operators for
meeting the allowance-holding requirement under the corresponding CAIR
SIP model trading program or CAIR FIP trading program for any State.
EPA is also simplifying and clarifying other definitions. For
example, the term ``allocate'' is simplified to cover allocation of
allowances for either the CAIR SIP or FIP trading programs. The
definition of ``maximum design heat input'' is simplified, and the
definition of ``nameplate capacity'' is clarified.
Further, the retired unit exemption provisions are revised. The
revisions clarify that the provisions concerning CAIR designated
representatives and the appeal procedures generally applicable to final
actions of the Administrator are applicable to retired units and to
final actions of the Administrator with regard to retired units.
In addition, the provisions listing the content of a certificate of
representation are revised to clarify that the identification of each
unit covered by the certificate of representation includes
identification and nameplate capacity of each generator served by the
unit. EPA believes that the current rule language requiring
``identification'' of each unit subject to the trading program is
already broad enough to encompass such information concerning each
generator served by the unit, particularly since only a unit serving a
generator with a nameplate capacity greater than 25 MWe can be subject
to the CAIR trading programs. However, EPA is revising the language to
make it clear that generator information is required in the certificate
of representation.
EPA is also making technical revisions to the provisions concerning
the reflection in certificates of representation of the owners and
operators of the source and units involved. The changes make it clear
that all owners and operators must be listed and that those that should
be, but are not, listed are still bound by the certificate of
representation and the CAIR designated representative.
Further, new provisions concerning designated representatives and
authorized account representatives are added to clarify that such
individuals may use agents in order to make electronic submissions. The
existing CAIR SIP model trading rules provide for certain submissions
(i.e., certificates of representation, applications for general
account, allowance transfers, and quarterly emissions reports) required
to be ``in a format prescribed'' or ``in a format specified'' by the
Administrator. (The terms ``prescribed'' and ``specified'' have the
identical meaning in these contexts.) These submissions may be made,
and in the case of quarterly emissions reports must be made,
electronically. Although the formats for the CAIR trading programs have
not yet been developed, other EPA-administered trading programs (i.e.,
the Acid Rain Program and the NO_X Budget Trading Program)
have analogous language concerning submission formats and have
existing, prescribed formats for submissions. The electronic formats
prescribed by the Administrator for the Acid Rain Program and the
NO_X Budget Trading Program allow the designated
representative or authorized account representative, as appropriate, to
designate other individuals (``agents'') who may make the electronic
submissions for the designated representative or authorized account
representative, who is fully bound by the agent's actions. EPA
maintains that the references in the Acid Rain Program and
NO_X Budget Trading Program regulations to ``prescribed'' (or
``specified'') formats, coupled with the existing electronic formats,
provide the legal authority necessary for designated representatives
and authorized account

[[Page 25364]]

representatives to use agents to make electronic submissions in the
applicable trading programs. EPA plans to adopt electronic formats for
the CAIR trading programs that, similarly, allow for the use of agents.
EPA believes that the existing references in the CAIR SIP model trading
rules to ``format[s] prescribed '' or ``specified'' by the
Administrator, when coupled with the appropriate electronic formats,
will similarly provide the legal authority necessary for the use of
agents. However, in order to remove any uncertainty about such legal
authority, EPA is adding provisions to the CAIR SIP model trading rules
(and to the CAIR FIP trading rules) that explicitly authorize the use
of agents for electronic submissions.
In addition, in the permitting provisions, EPA is revising the
deadline for submission of CAIR permit applications to run from the
later of January 1, 2009 (for the NO_X programs) or 2010 (for
the SO2 program) or the date on which the unit commences commercial
operation, rather than the date on which the unit simply commences
operation. A unit's date of commencement of commercial operation is not
likely to range from more than a few days to a few months later than
the unit's date of commencement of operation since owners and operators
of EGUs generally prefer to minimize using fuel without producing
electricity. Moreover, running the permit application deadline from the
commencement of commercial operation avoids the need for complex
provisions in the definition of ``commence operation'' to address,
solely for permitting purposes, units that are not subject to the CAIR
trading programs when they first combust fuel and that subsequently
become CAIR units. (The simplified definition of ``commence operation''
reflects this revision.)
Further, EPA is adopting certain technical corrections in the
NO_X allowance allocation provisions. In particular, the
current provisions concerning timing of submission of unit allocations
by the permitting authority to the Administrator provide that if the
unit allocations are not submitted on time, the Administrator will
assume that the allocations are the same as in the prior year. If the
year for which allocations are submitted late is 2015 (the beginning of
phase II of the CAIR trading programs, the Administrator will assume
that the allocations are 83% of the 2014 allocations. EPA is removing
these provisions both for existing and new units because they seem
unlikely to be used, are unduly complicated, and may result in 2015 in
total allocations that do not equal the respective State trading
budget. Moreover, there are no comparable provisions in the CAIR FIP
trading rules.
EPA is also revising the current provisions for new unit
allocations that provide that a new unit is eligible for allocations
from the new unit set-aside until that unit has operated long enough to
develop a baseline heat input using the 3 highest figures for converted
control period heat input out of such figures for the first 5 years of
operation. At that point, the unit is supposed to be allocated
allowances from the pool of allowances allocated to all units that have
a baseline heat input. However, allowances for units with baselines are
allocated a number of years in advance of the first year for which such
allowances may be used to meet the allowance-holding requirement.
Consequently, it is possible for a new unit to have a baseline as of a
given year but find that no more allowances are available for that year
for units with baselines because the allowances for that year were
allocated before the time when the new unit's baseline was developed. A
new unit could find that, for some years, it was both ineligible for
the new unit set-aside and unable to obtain an allocation from the pool
for units with baselines. EPA intended that new units move seamlessly
from new-unit-set-aside eligibility to units-with-baselines allocations
and not to fall in between the two types of allocation procedures. EPA
is revising the allocation provisions to clarify that a new unit
continues to be eligible for the new unit set-aside so long as the unit
is not allocated allowances from the pool for units with baselines
allocations either because the new unit does not yet have a baseline or
because all the allowances for units with baselines have already been
allocated for the year involved.
EPA also is adopting technical changes that make it clear that a
separate request for new-unit-set-aside allowances must be submitted
for each control period for which they are sought and must be submitted
by May 1 (for the NO_X annual program) or February 1 (for the
NO_X ozone season program) of that control period. This
approach will reasonably put the burden on owners and operators to
inform the State permitting authority each year. This will ensure that
the State permitting authority can keep track, for each control period
in the future, of which units are seeking new-unit-set-aside allowances
for that control period. These submission deadlines will give the State
permitting authorities more time to process (which may include, when
appropriate, opportunity for public comment) the requests in time to
submit the allocations to the Administrator for recordation by December
1 (for the NO_X annual program) or September 1 (for the
NO_X ozone season program). Similarly, EPA is revising the
deadline for submission of requests for allowances from the compliance
supplement pool to be May 1, 2009 (rather than July 1, 2009). Just as
emissions data for 2008 will be available in time for new-unit-set-
aside requests due on May 1, emissions data for 2008 (and 2007) will be
available in time for compliance-supplement-pool requests due on May 1.
The July 1, 2009 deadline did not provide sufficient time for State
permitting authorities to process the requests.
In addition, EPA is adopting technical changes to the provisions
for recordation of allowance allocations, for the reasons discussed
below and elsewhere in this preamble. For example, the current
provisions require the Administrator to record the initial allocations
for 2010-2014 by December 1, 2006. Because State plans are not due
until September 11, 2006, EPA cannot review and approve all State plans
in time to record allowance allocations in those plans by December 1,
2006, which date is changed to September 30, 2007. Further, the current
provisions also require the recordation of allocations for subsequent
years to occur only after completion of the end-of-year compliance
determination process for a previous year. Because of the need to
finalize emissions data for a year before the compliance determination
process for that year can be completed, the current provisions may
delay recordation for a number of months. However, as a matter of
logic, there is no necessary connection between one year's compliance
determination and the future year's allocation recordation.
Consequently, EPA is removing the connection made in the current
provisions and is setting an independent deadline (December 1) for
allocation recordation, which will result in recordation several months
earlier than under the current provisions.
Further, EPA is adopting technical changes to the provisions
referring to when an allowance transfer by the owner of an allowance to
another allowance tracking system account is ``correctly submitted.''
The changes clarify that a ``correctly submitted'' allowance transfer
is one that references allowances that both: Were in the owner's
allowance tracking system account when the allowance transfer form was
submitted to the

[[Page 25365]]

Administrator; and continue to be in such account when the allowance
transfer form is processed by the Administrator.
In addition, EPA is revising the provisions for deducting
allowances to determine compliance with the allowance-holding
requirement under the trading programs. The revisions do not change the
requirements that an allowance usable for compliance: be allocated for
the year, or a year before the year, for which compliance is being
determined; and be in or covered by a proper request for transfer into
the source's compliance account by the allowance transfer deadline.
However, the statement indicating that the allowance must also not be
necessary to account for excess emissions for a prior year is removed
because it is confusing and inconsistent with the compliance procedures
that EPA has been using in its ongoing cap-and-trade programs, i.e.,
the Acid Rain Program and the NO_X Budget Trading Program.
Further, as explained in the preamble of the August 24, 2005
proposed rule, EPA is adopting revisions clarifying the application of
excess emissions penalties for a source that is subject to, and has
excess emissions under, both the Acid Rain Program and the CAIR
SO₂ model trading rule. Under these revisions, a given ton
of SO₂ excess emissions at a source, the owners and
operators of the source will be liable, if that ton is an excess
emission under both the Acid Rain Program and the CAIR trading program,
for the offset (the deduction of one allowance) and the dollar penalty
($2,000 inflation adjusted) under the Acid Rain Program and liable, if
that ton is only an excess emission under the CAIR trading program, for
the 3-for-1 allowance deduction under the CAIR trading program.
In addition, EPA is revising certain provisions concerning the use
of substitute data when the owner or operator of a unit adds a new
stack or flue and fails to meet the deadline for monitoring
certification. EPA proposed, but is not finalizing, procedures that
would allow for substitute data other than data reflecting maximum
potential emissions. Because EPA believes that the proposed provisions
would in fact still result in the use of data reflecting maximum
potential emissions, EPA is not adopting the proposed provisions.
Further, EPA is removing a provision that separately requires units
to monitor heat input. The provision is unnecessary because heat input
monitoring is already explicitly required in the monitoring provisions
in Sec. 96.170, 96.270, and 96.370.
In addition, EPA is revising the requirements for CAIR opt-in
permits for owners and operators planning to repower an opt-in unit and
seeking special allowance allocations for such unit. The revisions
require that the owners and operators state, in the permit application,
that they intend to repower the opt-in unit before January 1, 2015. EPA
believes that this is a reasonable requirement to prevent frivolous
requests for the special allocations for opt-in units to be repowered.
The permit application, like any submission for owners and operators,
must of course include a certification as to the truth, accuracy, and
completeness of the submission.
A few changes are adopted for some other provisions (concerning,
e.g., the submission deadlines for quarterly emissions reports for CAIR
opt-in units and units applying to be CAIR opt-in units and inclusion
of the CAIR opt-in permit in the CAIR permit and the title V permit for
the source that includes the CAIR opt-in unit) of the CAIR SIP model
trading rules. These other changes are similarly technical or
clarifying in nature. All of these changes are consistent with the
analogous provisions in the final CAIR FIP trading rules.

VIII. What Are the Revisions of Acid Rain Program Regulations?

A few changes are adopted for the Acid Rain Program regulations. As
explained in the preamble of the August 24, 2005 preamble, EPA is
adopting revisions aimed at facilitating interaction among the CAIR FIP
trading programs, any EPA-administered CAIR SIP trading programs, and
the Acid Rain SO₂ trading program and revisions related to
the change, finalized in the CAIR rulemaking, from unit-level to
source-level compliance with the Acid Rain SO₂ trading program.
In addition, EPA is revising the provisions listing the content of
a certificate of representation to clarify that the identification of
each unit covered by the certificate of representation includes
identification and nameplate capacity of each generator served by the
unit. EPA believes that the current rule language requiring
``identification'' of each unit subject to the trading program is
already broad enough to encompass such information concerning each
generator served by the unit, particularly since only a unit serving a
generator with a nameplate capacity greater than 25 MWe can be subject
to the Acid Rain Program. However, EPA is adopting revised language to
make it clear that generator information is required in the certificate
of representation.
EPA is also making technical revisions to the provisions concerning
the reflection in certificates of representation of the owners and
operators of the source and units involved. The changes make these
provisions consistent with those in the CAIR trading programs. The
changes make it clear that all owners and operators must be listed and
that those that should be, but are not, listed are still bound by the
certificate of representation and the CAIR designated representative.
Further, EPA is adding a new Sec. 72.26 and a new Sec. 73.33(g)
that are analogous to provisions adopted in the CAIR SIP model trading
rules and the CAIR FIP trading rules and concern the use of agents by a
designated representative and authorized account representative. As
discussed above in Section VII of this preamble, EPA maintains that the
existing Acid Rain Program regulations already authorize a designated
representative or authorized account representative to use agents to
make certain electronic submissions. However, in order to remove any
uncertainty about such legal authority, EPA is adding provisions to the
Acid Rain Program regulations that explicitly authorize such use of agents.
In addition, EPA is revising the appeal provisions of part 78 to
apply to the appeals procedures to final actions of the Administrator
under the CAIR FIP trading rule, just as these provisions already apply
to final Administrator actions under the CAIR SIP model trading rules.
Part 78 is revised to refer specifically, where appropriate, to the
CAIR FIP trading rules in a similar way to how part 78 currently refers
specifically, where appropriate, to the CAIR SIP model trading rules.

IX. 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 a 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

[[Page 25366]]

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.
Today's action both provides a response to the Section 126 Petition
filed by North Carolina and promulgates FIPs to implement the
requirements of the recently published CAIR (May 2005) in all affected
States. It also makes minor changes to the CAIR and the Acid Rain
Program. The FIPs require the same set of air pollution emissions
reductions required by the CAIR. For this reason, EPA is relying on the
economic analysis conducted for CAIR entitled ``Regulatory Impact
Analysis of the Final Clean Air Interstate Rule'' (March 2005) to serve
as the analysis for these rulemakings.
This economic analysis shows that substantial net economic benefits
to society are likely to be achieved due to reduction in emissions
resulting from the CAIR program. The results show that the CAIR program
would be highly beneficial to society, with annual net benefits
(benefits less costs) of approximately $71.4 or $60.4 billion in 2010
and $98.5 or $83.2 billion in 2015. These alternative net benefits
estimates occur due to differing assumptions concerning the social
discount rate used to estimate the annual value of the benefits of the
rule with the lower estimates relating to a discount rate of 7 percent
and the higher estimates a discount rate of 3 percent. All amounts are
reflected in 1999 dollars. The costs and benefits presented in the CAIR
economic analysis are an accurate representation of the benefits and
costs anticipated for the FIPs. For more information, see the NFR for
the CAIR published in the Federal Register (70 FR 25162; May 12, 2005)
and the ``Regulatory Impact Analysis for the Final Clean Air Interstate
Rule'' (March 2005).
In view of its important policy implications and potential effect
on the economy of over $100 million, this action has been judged to be
an economically ``significant regulatory action'' within the meaning of
the Executive Order. As a result, today's action was submitted to OMB
for review. Changes made in response to OMB suggestions or
recommendations are documented in the public record.

B. Paperwork Reduction Act

The EPA believes that the Paperwork Reduction Act (44 U.S.C. 3501
et seq.) requirements of this rule are satisfied through the
Information Collection Request (ICR) (EPA ICR number 2152.02; OMB
control number 2060-0570) submitted to the OMB for review and approval
on May 12, 2005 as part of the CAIR (70 FR 25162-25405) and approved by
the OMB in September 2005. The ICR describes the nature of the
information collection and its estimated burden and cost associated
with that final rule. In cases where information is already collected
by a related program, the ICR takes into account only the additional
burden. [This situation arises in States that are also subject to
requirements of the Consolidated Emissions Reporting Rule (EPA ICR
number 0916.10; OMB control number 2060-0088) or for sources that are
subject to the Acid Rain Program (EPA ICR number 1633.13; OMB control
number 2060-0258) or NO_X SIP Call (EPA ICR number 1857.03;
OMB number 2060-0445) requirements.]
The burden of today's rule is essentially the same as the burden
estimated for the CAIR. There is a modest transfer of burden from the
States to EPA if the Federal plan is implemented rather than the CAIR
State plan. The overall total burden is essentially unchanged. Thus,
the ICR prepared for CAIR satisfies the requirements of the Paperwork
Reduction Act for this rule.
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 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, after appearing in the preamble of the final
rule, are listed in 40 CFR part 9.

C. Regulatory Flexibility Act

The Regulatory Flexibility Act (RFA) generally requires an agency
to prepare a regulatory flexibility analysis of any rule subject to
notice and comment rulemaking requirements under the Administrative
Procedure Act or any other statute unless the agency certifies that the
rule will not have a significant economic impact on a substantial
number of small entities. Small entities include small businesses,
small organizations, and small governmental jurisdictions.
For the purposes of this rulemaking, EPA defined small entities
according to the following three criteria:
(1) A small business according to the Small Business Administration
size standards by the North American Industry Classification System
(NAICS) category of the owning entity. The range of small business size
standards for electric utilities is 4 billion kilowatt-hours of
production or less;
(2) A small government jurisdiction that is a government of a city,
county, town, district, or special district with a population of less
than 50,000; and
(3) A small organization that is any not-for-profit enterprise that
is independently owned and operated and is not dominant in its field.
Table IX-1 lists entities potentially affected by this rule with
applicable NAICS code.

Table IX-1.--Potentially Regulated Categories and Entities a
------------------------------------------------------------------------
NAICS Examples of potentially
Category code b regulated entities
------------------------------------------------------------------------
Industry.......................... 221112 Fossil fuel-fired
electric utility steam
generating units.
Federal Government................ c 221112 Fossil fuel-fired
electric utility steam
generating units owned
by the Federal
government.

[[Page 25367]]

State/Local/...................... c 221112 Fossil fuel-fired
electric utility steam
generating units owned
by municipalities.
Tribal Government................. 921150 Fossil fuel-fired
electric utility steam
generating units in
Indian Country.
------------------------------------------------------------------------
a Include NAICS categories for source categories that own and operate
electric generating units only.
b North American Industry Classification System.
c Federal, State, or local government-owned and operated establishments
are classified according to the activity in which they are engaged.

After considering the economic impacts of today's final rule on
small entities, EPA is certifying that this action will not have a
significant economic impact on a substantial number of small entities.
EPA has assessed the potential impact of today's action on small
entities. Pursuant to section 603 of the RFA, EPA prepared an initial
regulatory flexibility analysis (IRFA) for the proposed rule (70 FR
49708, 49743). Approximately 140 of the estimated 3,000 EGUs
potentially affected by today's action are owned by the 58 potentially
affected small entities identified by EPA. Of the 140, 49 units are
owned by small entities that also share ownership with large entities.
Of these units, 34 are believed to be more than 50 percent owned by a
large entity.
Beyond the 140, an additional 185 units owned by small entities in
these states could be exempted because they have a nameplate capacity
less than 25 MW. The above estimates include a number of units that are
owned jointly by small and non-small entities. In addition, these
estimates represent the maximum number of units potentially affected by
the CAIR FIP. Only units in States that fail to submit an approved SIP
would be directly regulated under the CAIR FIP. The actual number of
affected units will depend on the number of States that do not submit a
SIP or do not get their SIP submittal approved.
This analysis is based in large part on EPA's prior analysis of the
potential impact of regulations implementing the CAIR model trading
programs in the CAIR region. The analysis of the model trading programs
was based on the best information available at that time and assumed
that 75 small entities could be affected by any eventual implementation
of the trading programs. However, EPA subsequently determined that some
of these 75 entities either did not meet the definition of a small
entity, or had units that were no longer generating. EPA's final
analysis thus concluded that only 58 entities would be affected by
today's action. Because the Agency's analysis of small entity impacts
was based on the earlier estimate of affected small entities (i.e., the
impacts were analyzed based on 75 affected entities, not 58 entities),
the impact analysis overstates the maximum potential impact of today's
action on small entities.
Overall, EPA analysis suggested that about 445 MW of total small
entity capacity, or 1.0 percent of total small entity capacity in the
CAIR region, is projected to be uneconomic to maintain under
regulations implementing the CAIR trading programs relative to the Base
Case. In practice, units projected to be uneconomic to maintain may be
``mothballed'', retired, or kept in service to ensure transmission
reliability in certain parts of the grid. Our IPM modeling is unable to
distinguish between these potential outcomes.
Of the 75 initially identified as potentially impacted by
regulations implementing the model trading programs, EPA determined
that 29 might experience compliance costs in excess of one percent of
revenues in 2010 and 46 might in 2015. Potentially affected small
entities experiencing compliance costs in excess of 1 percent of
revenues have some potential for significant impact resulting from
implementation of CAIR.
Pursuant to section 609(b) of the RFA, EPA convened a Small
Business Advocacy Review Panel to obtain advice and recommendations
from representatives of small entities that would potentially be
regulated by the rule. A detailed discussion of the Panel's advice and
recommendations is found in the Panel Report (EPA-HQ-OAR-2004-0076-
0074). A summary of the Panel's recommendations is presented at 70 FR
49708, 49741.
A detailed discussion of the panel process is provided in the
proposed rule. In the proposed rule, EPA took comment on all aspects of
the proposed FIP and its impact on small entities. EPA did not receive
significant comments in this regard. In addition, in section VI.D of
the proposed rule preamble, EPA specifically took comment on one of the
panel recommendations, which was to consider providing a greater share
of NO_X allowances to small entities. A number of utilities
submitted comments opposing such a provision, and one State expressed
support for such a provision. These comments are discussed in more
detail in section VI.F of this preamble.
The decision to certify that this rule will not have a significant
economic impact on a substantial number of small entities is largely a
result of two factors. First, because the rule only affects sources
with a capacity greater than 25 MW, the majority of potentially
affected small entities are exempted. The decision to include only
units greater than 25 MW in size exempts 185 small entities that would
otherwise be potentially affected by today's actions. In the final
CAIR, EPA stated its belief that it is reasonable to assume no further
control of air emissions from these smaller EGUs. Second, as EPA's
analysis of potential impacts of this rulemaking on small entities
progressed, we determined that our initial estimates were too high,
because some of the entities that EPA had projected to be affected
either did not meet the definition of a small entity, or had units that
were no longer generating. Finally, as was discussed in the NPR, the
use of cap-and-trade in general will limit impacts on small entities
relative to a less flexible command-and-control program.

D. Unfunded Mandates Reform Act

Title II of the Unfunded Mandates Reform Act of 1995, 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, 2
U.S.C. 1532, 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

[[Page 25368]]

$100,000,000 or more in any 1 year. Before promulgating an EPA rule for
which a written statement is needed, section 205 of the UMRA generally
requires EPA to identify and consider a reasonable number of regulatory
alternatives and to 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 inconsistent
with applicable law. Moreover, section 205 allows EPA to adopt an
alternative other than the least costly, most cost-effective or least
burdensome alternative if the Administrator publishes with the final
rule an explanation why that alternative was not adopted.
In addition, 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 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 this rule contains a Federal mandate
that may result in expenditures of $100 million or more in 1 year. The
costs of compliance will be borne predominately by sources in the
private sector although a small number of sources owned by State and
local governments may also be impacted. EPA prepared a written
statement meeting the requirements of section 202 of the UMRA during
the CAIR rulemaking process. The Federal mandates in today's action
relate to its implementation of the CAIR and thus the analyses prepared
for CAIR are applicable to today's action.
In accordance with section 202(c) of UMRA, EPA prepared the
statement required by section 202 in conjunction with the Regulatory
Impact Analysis prepared for the CAIR. This document is available at
http://www.epa.gov/cair/pdfs/finaltech08.pdf and contains analyses that
meet the requirements of section 202(a) of UMRA. That is, it contains a
qualitative and quantitative assessment of the anticipated costs and
benefits of the Federal mandate; estimates of future compliance costs
and any disproportionate budgetary effects upon any particular regions
of the nation; and estimates of the effect on the national economy.
Consultation with State, local and Tribal governments potentially
affected by the CAIR emission reduction requirements was conducted
during the CAIR rulemaking process. Such consultation was conducted in
a manner consistent with the intergovernmental consultation provisions
of section 204 of the UMRA, and Executive Order 12875, ``Enhancing the
Intergovernmental Partnership.''
EPA has determined that this rule contains no regulatory
requirements that might significantly or uniquely affect small
governments. Therefore, development of a small government plan under
section 203 of the Act is not required. The requirements in this action
do not distinguish EGUs based on ownership, either for those units that
are included within the scope of the rule or for those units that are
exempted by the generating capacity cut-off. Consequently, the rule has
no requirements that uniquely affect small governments that own or
operate EGUs within the region. Further, with respect to the
significance of the rule's provisions, EPA's UMRA analysis demonstrates
that the economic impact of the rule will not significantly affect
State or municipal EGUs or non-EGUs, either in terms of total cost
incurred and the impact of the costs on revenue, or increased cost of
electricity to consumers.

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 rule does not have federalism implications. It does not have
substantial direct effects on the States, on the relationship between
the national government and the States, or on the distribution of power
and responsibilities among the various levels of government, as
specified in Executive Order 13132. These effects do not occur from the
final rule itself because it is the provisions of the CAA that require
EPA, after a State has failed to submit a SIP or a complete SIP, to
make a finding to that effect and then to promulgate a FIP within 2
years of the finding. Although EPA is exercising discretion to
promulgate the FIP within the early part of the 2-year period, EPA
intends to rescind the FIP for each State that submits a SIP that EPA
approves, and, if the FIP remains, sources are not required to
implement controls until after the close of the 2-year period.
Moreover, as emphasized throughout the preamble, States are not
required to adopt the FIP provisions, or any particular portion
thereof, in order for EPA to approve their SIPs. Thus, Executive Order
13132 does not apply to this rule.

F. Executive Order 13175: Consultation and Coordination With Indian
Tribal Governments

Executive Order 13175, entitled ``Consultation and Coordination
with Indian Tribal Governments'' (59 FR 22951, November 9, 2000),
requires EPA to develop an accountable process to ensure ``meaningful
and timely input by Tribal officials in the development of regulatory
policies that have Tribal implications.'' This rule does not have
``Tribal implications'' as specified in Executive Order 13175.
This rule addresses transport of pollution for precursors of ozone
and PM_2.5. The CAA provides for States and Tribes to develop
plans to regulate emissions of air pollutants within their
jurisdictions. The regulations clarify the statutory obligations of
States and Tribes that develop plans to implement these rules. The
Tribal Authority Rule (TAR) gives Tribes the opportunity to develop and
implement CAA programs, but it leaves to the discretion of the Tribe
whether to develop these programs and which programs, or appropriate
elements of a program, the Tribe will adopt.
This rule 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 because no Tribe has implemented a federally-
enforceable air quality management program under the CAA at this time.
Furthermore, this rule does not affect the relationship or distribution
of power and responsibilities between the Federal Government and Indian
Tribes. The CAA and the TAR establish the relationship of the Federal
Government and Tribes in developing plans to attain the NAAQS, and this
rule does nothing to modify that relationship. Because this rule does
not have Tribal implications, Executive Order 13175 does not apply.
If one assumes a Tribe is implementing a Tribal Implementation
Plan, today' rule could have implications for that Tribe, but would

[[Page 25369]]

not impose substantial direct costs upon the Tribe, nor preempt Tribal
law. The EPA has estimated the total annual private costs for the FIP
for the CAIR region as implemented by State, local, and Tribal
governments to be approximately $2.4 billion in 2010 and $3.6 billion
in 2015 (1999$). There are currently very few emissions sources in
Indian country that could be affected by these rules and the percentage
of Tribal land that will be impacted is very small. For Tribes that
choose to regulate sources in Indian country, the costs would primarily
be attributed to inspecting regulated facilities and enforcing adopted
regulations.
EPA consulted with Tribal officials in developing the final CAIR,
which provides the basis for the FIPs in today's rule. The EPA
encouraged Tribal input at an early stage. Also, EPA held periodic
meetings with the States and the Tribes during the technical
development of CAIR. Three meetings were held with the Crow Tribe,
where the Tribe expressed concerns about potential impacts of the rule
on their coal mine operations. In addition, EPA held three calls with
Tribal environmental professionals to address concerns specific to the
Tribes. These discussions have given EPA valuable information about
Tribal concerns regarding the development of CAIR. During the CAIR
rulemaking process, the EPA provided briefings for Tribal
representatives and the newly formed National Tribal Air Association
(NTAA), and other national Tribal forums. Input from Tribal
representatives was taken into consideration in development of 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 a
disproportionate effect on children. If the regulatory action meets
both criteria, Section 5-501 of the Order directs the Agency to
evaluate the environmental health or safety effects of the planned rule
on children, and explain why the planned regulation is preferable to
other potentially effective and reasonably feasible alternatives
considered by the Agency.
This rule is not subject to the Executive Order, because it does
not involve decisions on environmental health or safety risks that may
disproportionately affect children. The EPA believes that the emissions
reductions from the strategy in this rule would further improve air
quality and would further improve children's health.

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
proposed rulemaking, and notices of proposed 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.''
This final rule is a significant regulatory action under Executive
Order 12866 and this rule may have a significant adverse effect on the
supply, distribution, or use of energy. The energy impacts of this rule
come from its implementation of the emission reduction requirements in
the CAIR. The impacts for this rule will therefore not differ from
those for the CAIR. These impacts are detailed in the final CAIR (70 FR
25315). As discussed in the CAIR NFR, EPA's analysis shows that the EGU
emission reductions required under the trading programs are projected
to result in a 1.6 percent or less increase in natural gas prices
projected from 2010 to 2020. If base case natural gas prices are higher
than EPA has assumed in its primary analysis, the impact on natural gas
price will be even less.

I. National Technology Transfer Advancement Act

Section 12(d) of the National Technology Transfer Advancement Act
(NTTAA) of 1995 (Pub. L. 104-113; 15 U.S.C. 272 note) directs EPA to
use voluntary consensus standards in its regulatory and procurement
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, business practices) developed or adopted by one or more
voluntary consensus bodies. The NTTAA directs EPA to provide Congress,
through annual reports to OMB, with explanations when an agency does
not use available and applicable voluntary consensus standards.
Today's rule implements requirements largely identical to the
requirements in the CAIR. This rule requires all sources that
participate in the trading programs under part 97 (analogous to the
CAIR SIP trading programs under part 96) to meet the applicable
monitoring requirements of part 75. Part 75 already incorporates a
number of voluntary consensus standards. Consistent with the Agency's
Performance Based Measurement System (PBMS), part 75 sets forth
performance criteria that allow the use of alternative methods to the
ones set forth in part 75. The PBMS approach is intended to be more
flexible and cost effective for the regulated community; it is also
intended to encourage innovation in analytical technology and improved
data quality. At this time, EPA is not recommending any revisions to
part 75; however, EPA periodically revises the test procedures set
forth in part 75. When EPA revises the test procedures set forth in
part 75 in the future, EPA will address the use of any new voluntary
consensus standards that are equivalent. Currently, even if a test
procedure is not set forth in part 75, EPA is not precluding the use of
any method, whether it constitutes a voluntary consensus standard or
not, as long as it meets the performance criteria specified; however,
any alternative methods must be approved through the petition process
under Sec. 75.66 before they are used under part 75.

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, U.S. Environmental Protection Agency, 1998.
Guidance for Incorporating Environmental Justice Concerns in EPAs NEPA
Compliance Analyses. Office of Federal Activities, Washington, D.C.,
April, 1998. Agencies

[[Page 25370]]

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 this rule may have disproportionate negative impacts on
minority or low income populations. The Agency expects this rule will
lead to reductions in air pollution and exposures generally. In
addition, EPA has conducted an air quality modeling analysis to
estimate the changes in exposure of minority and low-income populations
to ambient concentrations of PM_2.5 as a result of
implementation of a cap-and-trade program similar to CAIR: the Acid
Rain Program. The analysis shows that each racial, ethnic, and income-
level group studied is projected to experience similar average
improvement in ambient concentrations of PM_2.5 in the
eastern U.S. (where the vast majority of the emission reductions took
place) as a result of the Acid Rain Program in 2010. No
disproportionately high and adverse human health or environmental
effects of the Acid Rain Program were found for any minority, low-
income, or other population. For these reasons, negative impacts to
these sub-populations that appreciably exceed similar impacts to the
general population are not expected.

K. Congressional Review Act

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the
Small Business Regulatory Enforcement 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. Therefore, EPA will submit a report containing this rule
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 rule in the Federal Register. A major rule cannot
take effect until 60 days after it is published in the Federal
Register. This action is a ``major rule'' as defined by 5 U.S.C.
804(2). This rule will be effective June 27, 2006.

List of Subjects

40 CFR Parts 51 and 52

Environmental protection, Administrative practice and procedure,
Air pollution control, Intergovernmental relations, Nitrogen dioxide,
Ozone, Particulate matter, Reporting and recordkeeping requirements,
Sulfur oxides.

40 CFR Parts 72, 73, 74, and 78

Environmental protection, Acid rain, Administrative practice and
procedure, Air pollution control, Electric utilities, Intergovernmental
relations, Nitrogen oxides, Reporting and recordkeeping requirements,
Sulfur oxides.

40 CFR Parts 96 and 97

Environmental protection, Administrative practice and procedure,
Air pollution control, Intergovernmental relations, Nitrogen oxides,
Reporting and recordkeeping requirements.

Dated: March 15, 2006.
Stephen L. Johnson,
Administrator.

? For the reasons set forth in the preamble, parts 51, 52, 72, 73, 74,
78, 96, and 97 of chapter I of title 40 of the Code of Federal
Regulations are amended as follows:

PART 51--[AMENDED]

? 1. The authority citation for Part 51 continues to read as follows:

Authority: 23 U.S.C. 101; 42 U.S.C. 7401-7671q.

? 2. Section 51.123 is amended as follows:
? a. In paragraph (o)(2)(ii)(B), by revising the words ``for the year
after the year of'' to read ``for the 4th year after the year of'' and
by removing the word ``and'' at the end;
? b. In paragraph (o)(2)(ii)(C), by revising the words ``allocated.'' to
read allocated; and'';
? c. By adding a new paragraph (o)(2)(ii)(D);
? d. By adding a new paragraph (p);
? e. In paragraph (cc), by amending the definition of ``Electric
generating unit'' or ``EGU'' by:
? i. In paragraph (1) of the definition, by redesignating the paragraph
as paragraph ``(1)(i)'', by revising the words ``since the start-up''
to read ``since the later of November 15, 1990 or the start-up'', and
by adding a new paragraph (1)(ii); and
? ii. By revising paragraph (2) of the definition; and
? f. In paragraph (cc), by adding a new definition for ``Solid waste
incineration unit''; and
? g. By adding a new paragraph (ee).

Sec. 51.123 Findings and requirements for submission of State
implementation plan revisions relating to emissions of oxides of
nitrogen pursuant to the Clean Air Interstate Rule.

* * * * *
(o) * * *
(ii) * * *
(D) The State's methodology for allocating the compliance
supplement pool must be substantively identical to Sec. 97.143 (except
that the permitting authority makes the allocations and the
Administrator records the allocations made by the permitting authority)
or otherwise in accordance with paragraph (e)(4) of this section.
* * * * *
(p) Notwithstanding any other provision of this section, a State
may adopt, and include in a SIP revision submitted by March 31, 2007,
regulations relating to the Federal CAIR NO_X Annual Trading
Program under subparts AA through HH of part 97 of this chapter as follows:
(1) The State may adopt, as CAIR NO_X allowance
allocation provisions replacing the provisions in subpart EE of part 97
of this chapter:
(i) Allocation provisions substantively identical to subpart EE of
part 96 of this chapter, under which the permitting authority makes the
allocations; or
(ii) Any methodology for allocating CAIR NO_X allowances
to individual sources under which the permitting authority makes the
allocations, provided that:
(A) The State's methodology must not allow the permitting authority
to allocate CAIR NO_X allowances for a year in excess of the
amount in the State's Annual EGU NO_X budget for such year.
(B) The State's methodology must require that, for EGUs commencing
operation before January 1, 2001, the permitting authority will
determine, and notify the Administrator of, each unit's allocation of
CAIR NO_X allowances by April 30, 2007 for 2009, 2010, and
2011 and by October 31, 2008 and October 31 of each year thereafter for
the 4th year after the year of the notification deadline.
(C) The State's methodology must require that, for EGUs commencing
operation on or after January 1, 2001, the permitting authority will
determine, and notify the Administrator of, each unit's allocation of
CAIR NO_X allowances by October 31 of the year for which the
CAIR NO_X allowances are allocated.
(2) The State may adopt, as compliance supplement pool provisions
replacing the provisions in ( 97.143 of this chapter:

[[Page 25371]]

(i) Provisions for allocating the State's compliance supplement
pool that are substantively identical to Sec. 97.143 of this chapter,
except that the permitting authority makes the allocations and the
Administrator records the allocations made by the permitting authority;
(ii) Provisions for allocating the State's compliance supplement
pool that are substantively identical to Sec. 96.143 of this chapter;
or
(iii) Other provisions for allocating the State's compliance
supplement pool that are in accordance with paragraph (e)(4) of this
section.
(3) The State may adopt CAIR opt-in unit provisions as follows:
(i) Provisions for CAIR opt-in units, including provisions for
applications for CAIR opt-in permits, approval of CAIR opt-in permits,
treatment of units as CAIR opt-in units, and allocation and recordation
of CAIR NO_X allowances for CAIR opt-in units, that are
substantively identical to subpart II of part 96 of this chapter and
the provisions of subparts AA through HH that are applicable to CAIR
opt-in units or units for which a CAIR opt-in permit application is
submitted and not withdrawn and a CAIR opt-in permit is not yet issued
or denied;
(ii) Provisions for CAIR opt-in units, including provisions for
applications for CAIR opt-in permits, approval of CAIR opt-in permits,
treatment of units as CAIR opt-in units, and allocation and recordation
of CAIR NO_X allowances for CAIR opt-in units, that are
substantively identical to subpart II of part 96 of this chapter and
the provisions of subparts AA through HH that are applicable to CAIR
opt-in units or units for which a CAIR opt-in permit application is
submitted and not withdrawn and a CAIR opt-in permit is not yet issued
or denied, except that the provisions exclude Sec. 96.188(b) of this
chapter and the provisions of subpart II of part 96 of this chapter
that apply only to units covered by Sec. 96.188(b) of this chapter; or
(iii) Provisions for applications for CAIR opt-in units, including
provisions for CAIR opt-in permits, approval of CAIR opt-in permits,
treatment of units as CAIR opt-in units, and allocation and recordation
of CAIR NO_X allowances for CAIR opt-in units, that are
substantively identical to subpart II of part 96 of this chapter and
the provisions of subparts AA through HH that are applicable to CAIR
opt-in units or units for which a CAIR opt-in permit application is
submitted and not withdrawn and a CAIR opt-in permit is not yet issued
or denied, except that the provisions exclude Sec. 96.188(c) of this
chapter and the provisions of subpart II of part 96 of this chapter
that apply only to units covered by Sec. 96.188(c) of this chapter.
(cc) * * *
Electric generating unit or EGU means:
(1)(i) * * *
(ii) If a stationary boiler or stationary combustion turbine that,
under paragraph (1)(i) of this section, is not an electric generating
unit begins to combust fossil fuel or to serve a generator with
nameplate capacity of more than 25 MWe producing electricity for sale,
the unit shall become an electric generating unit as provided in
paragraph (1)(i) of this section on the first date on which it both
combusts fossil fuel and serves such generator.
(2) A unit that meets the requirements set forth in paragraphs
(2)(i)(A), (2)(ii)(A), or (2)(ii)(B) of this definition paragraph shall
not be an electric generating unit:
(i)(A) Any unit that is an electric generating unit under paragraph
(1)(i) or (ii) of this definition:
(1) Qualifying as a cogeneration unit during the 12-month period
starting on the date the unit first produces electricity and continuing
to qualify as a cogeneration unit; and
(2) Not serving at any time, since the later of November 15, 1990
or the start-up of the unit's combustion chamber, a generator with
nameplate capacity of more than 25 MWe supplying in any calendar year
more than one-third of the unit's potential electric output capacity or
219,000 MWh, whichever is greater, to any utility power distribution
system for sale.
(B) If a unit qualifies as a cogeneration unit during the 12-month
period starting on the date the unit first produces electricity and
meets the requirements of paragraphs (2)(i)(A) of this section for at
least one calendar year, but subsequently no longer meets all such
requirements, the unit shall become an electric generating unit
starting on the earlier of January 1 after the first calendar year
during which the unit first no longer qualifies as a cogeneration unit
or January 1 after the first calendar year during which the unit no
longer meets the requirements of paragraph (2)(i)(A)(2) of this section.
(ii)(A) Any unit that is an electric generating unit under
paragraph (1)(i) or (ii) of this definition commencing operation before
January 1, 1985:
(1) Qualifying as a solid waste incineration unit; and
(2) With an average annual fuel consumption of non-fossil fuel for
1985-1987 exceeding 80 percent (on a Btu basis) and an average annual
fuel consumption of non-fossil fuel for any 3 consecutive calendar
years after 1990 exceeding 80 percent (on a Btu basis).
(B) Any unit that is an electric generating unit under paragraph
(1)(i) or (ii) of this definition commencing operation on or after
January 1, 1985:
(1) Qualifying as a solid waste incineration unit; and
(2) With an average annual fuel consumption of non-fossil fuel for
the first 3 calendar years of operation exceeding 80 percent (on a Btu
basis) and an average annual fuel consumption of non-fossil fuel for
any 3 consecutive calendar years after 1990 exceeding 80 percent (on a
Btu basis).
(C) If a unit qualifies as a solid waste incineration unit and
meets the requirements of paragraph (2)(ii)(A) or (B) of this section
for at least 3 consecutive calendar years, but subsequently no longer
meets all such requirements, the unit shall become an electric
generating unit starting on the earlier of January 1 after the first
calendar year during which the unit first no longer qualifies as a
solid waste incineration unit or January 1 after the first 3
consecutive calendar years after 1990 for which the unit has an average
annual fuel consumption of fossil fuel of 20 percent or more.
* * * * *
Solid waste incineration unit means a stationary, fossil-fuel-fired
boiler or stationary, fossil-fuel-fired combustion turbine that is a
``solid waste incineration unit'' as defined in section 129(g)(1) of
the Clean Air Act.
* * * * *
(ee) Notwithstanding any other provision of this section, a State
may adopt, and include in a SIP revision submitted by March 31, 2007,
regulations relating to the Federal CAIR NO_X Ozone Season
Trading Program under subparts AAAA through HHHH of part 97 of this
chapter as follows:
(1) The State adopt, as applicability provisions replacing the
provisions in Sec. 97.304 of this chapter, provisions for
applicability that are substantively identical to the provisions in
Sec. 96.304 of this chapter expanded to include all non-EGUs subject
to the State's emissions trading program approved under Sec. 51.121(p).
(2) The State may adopt, as CAIR NO_X Ozone Season
allowance allocation provisions replacing the provisions in subpart
EEEE of part 97 of this chapter:
(i) Allocation provisions substantively identical to subpart EEEE
of part 96 of this chapter, under which the permitting authority makes
the allocations; or
(ii) Any methodology for allocating CAIR NO_X Ozone
Season allowances to

[[Page 25372]]

individual sources under which the permitting authority makes the
allocations, provided that:
(A) The State may provide for issuance of an amount of CAIR Ozone
Season NO_X allowances for an ozone season, in addition to
the amount in the State's Ozone Season EGU NO_X Budget for
such ozone season, not exceeding the portion of the State's trading
program budget, under the State's emissions trading program approved
under Sec. 51.121(p), attributed to the non-EGUs that the
applicability provisions in Sec. 96.304 of this chapter are expanded
to include under paragraph (ee)(1) of this section.
(B) The State's methodology must not allow the State to allocate
CAIR Ozone Season NO_X allowances for an ozone season in
excess of the amount in the State's Ozone Season EGU NO_X
Budget for such ozone season plus any additional amount of CAIR Ozone
Season NO_X allowances issued under paragraph (ee)(2)(ii)(A)
of this section for such ozone season.
(C) The State's methodology must require that, for EGUs commencing
operation before January 1, 2001, the permitting authority will
determine, and notify the Administrator of, each unit's allocation of
CAIR NO_X Ozone Season allowances by April 30, 2007 for 2009,
2010, and 2011 and by October 31, 2008 and October 31 of each year
thereafter for the 4th year after the year of the notification deadline.
(D) The State's methodology must require that, for EGUs commencing
operation on or after January 1, 2001, the permitting authority will
determine, and notify the Administrator of, each unit's allocation of
CAIR NO_X Ozone Season allowances by July 31 of the year for
which the CAIR NO_X Ozone Season allowances are allocated.
(3) The State may adopt CAIR opt-in unit provisions as follows:
(i) Provisions for CAIR opt-in units, including provisions for
applications for CAIR opt-in permits, approval of CAIR opt-in permits,
treatment of units as CAIR opt-in units, and allocation and recordation
of CAIR NO_X Ozone Season allowances for CAIR opt-in units,
that are substantively identical to subpart IIII of part 96 of this
chapter and the provisions of subparts AAAA through HHHH that are
applicable to CAIR opt-in units or units for which a CAIR opt-in permit
application is submitted and not withdrawn and a CAIR opt-in permit is
not yet issued or denied;
(ii) Provisions for CAIR opt-in units, including provisions for
applications for CAIR opt-in permits, approval of CAIR opt-in permits,
treatment of units as CAIR opt-in units, and allocation and recordation
of CAIR NO_X Ozone Season allowances for CAIR opt-in units,
that are substantively identical to subpart IIII of part 96 of this
chapter and the provisions of subparts AAAA through HHHH that are
applicable to CAIR opt-in units or units for which a CAIR opt-in permit
application is submitted and not withdrawn and a CAIR opt-in permit is
not yet issued or denied, except that the provisions exclude Sec.
96.388(b) of this chapter and the provisions of subpart IIII of part 96
of this chapter that apply only to units covered by Sec. 96.388(b) of
this chapter; or
(iii) Provisions for applications for CAIR opt-in units, including
provisions for CAIR opt-in permits, approval of CAIR opt-in permits,
treatment of units as CAIR opt-in units, and allocation and recordation
of CAIR NO_X allowances for CAIR opt-in units, that are
substantively identical to subpart IIII of part 96 of this chapter and
the provisions of subparts AAAA through HHHH that are applicable to
CAIR opt-in units or units for which a CAIR opt-in permit application
is submitted and not withdrawn and a CAIR opt-in permit is not yet
issued or denied, except that the provisions exclude Sec. 96.388(c) of
this chapter and the provisions of subpart IIII of part 96 of this chapter
that apply only to units covered by Sec. 96.388(c) of this chapter.

? 3. Section 51.124 is amended as follows:
? a. In paragraph (q), by amending the definition of ``Electric
generating unit'' or ``EGU'' by:
? i. In paragraph (1) of the definition, redesignating the paragraph as
paragraph ``(1)(i)'', revising the words ``since the start-up'' to read
``since the later of November 15, 1990 or the start-up'', and adding a
new paragraph (1)(ii); and
? ii. Revising paragraph (2) of the definition; and
? b. In paragraph (q), add a new definition for ``Solid waste
incineration unit''; and
? c. Add a new paragraph (r).

Sec. 51.124 Findings and requirements for submission of State
implementation plan revisions relating to emissions of sulfur dioxide
pursuant to the Clean Air Interstate Rule.

* * * * *
(q) * * *
Electric generating unit or EGU means:
(1)(i) * * *
(ii) If a stationary boiler or stationary combustion turbine that,
under paragraph (1)(i) of this section, is not an electric generating
unit begins to combust fossil fuel or to serve a generator with
nameplate capacity of more than 25 MWe producing electricity for sale,
the unit shall become an electric generating unit as provided in
paragraph (1)(i) of this section on the first date on which it both
combusts fossil fuel and serves such generator.
(2) A unit that meets the requirements set forth in paragraphs
(2)(i)(A), (2)(ii)(A), or (2)(ii)(B) of this definition paragraph shall
not be an electric generating unit:
(i)(A) Any unit that is an electric generating unit under paragraph
(1)(i) or (ii) of this definition:
(1) Qualifying as a cogeneration unit during the 12-month period
starting on the date the unit first produces electricity and continuing
to qualify as a cogeneration unit; and
(2) Not serving at any time, since the later of November 15, 1990
or the start-up of the unit's combustion chamber, a generator with
nameplate capacity of more than 25 MWe supplying in any calendar year
more than one-third of the unit's potential electric output capacity or
219,000 MWh, whichever is greater, to any utility power distribution
system for sale.
(B) If a unit qualifies as a cogeneration unit during the 12-month
period starting on the date the unit first produces electricity and
meets the requirements of paragraphs (2)(i)(A) of this section for at
least one calendar year, but subsequently no longer meets all such
requirements, the unit shall become an electric generating unit
starting on the earlier of January 1 after the first calendar year
during which the unit first no longer qualifies as a cogeneration unit
or January 1 after the first calendar year during which the unit no
longer meets the requirements of paragraph (2)(i)(A)(2) of this section.
(ii)(A) Any unit that is an electric generating unit under
paragraph (1)(i) or (ii) of this definition commencing operation before
January 1, 1985:
(1) Qualifying as a solid waste incineration unit; and
(2) With an average annual fuel consumption of non-fossil fuel for
1985-1987 exceeding 80 percent (on a Btu basis) and an average annual
fuel consumption of non-fossil fuel for any 3 consecutive calendar
years after 1990 exceeding 80 percent (on a Btu basis).
(B) Any unit that is an electric generating unit under paragraph
(1)(i) or (ii) of this definition commencing operation on or after
January 1, 1985:
(1) Qualifying as a solid waste incineration unit; and
(2) With an average annual fuel consumption of non-fossil fuel for
the first 3 calendar years of operation exceeding 80 percent (on a Btu
basis)

[[Page 25373]]

and an average annual fuel consumption of non-fossil fuel for any 3
consecutive calendar years after 1990 exceeding 80 percent (on a Btu
basis).
(C) If a unit qualifies as a solid waste incineration unit and
meets the requirements of paragraph (2)(ii)(A) or (B) of this section
for at least 3 consecutive calendar years, but subsequently no longer
meets all such requirements, the unit shall become an electric
generating unit starting on the earlier of January 1 after the first
calendar year during which the unit first no longer qualifies as a
solid waste incineration unit or January 1 after the first 3
consecutive calendar years after 1990 for which the unit has an average
annual fuel consumption of fossil fuel of 20 percent or more.
* * * * *
Solid waste incineration unit means a stationary, fossil-fuel-fired
boiler or stationary, fossil-fuel-fired combustion turbine that is a
``solid waste incineration unit'' as defined in section 129(g)(1) of
the Clean Air Act.
* * * * *
(r) Notwithstanding any other provision of this section, a State
may adopt, and include in a SIP revision submitted by March 31, 2007,
regulations relating to the Federal CAIR SO₂ Trading Program
under subparts AAA through HHH of part 97 of this chapter as follows.
The State may adopt the following CAIR opt-in unit provisions:
(1) Provisions for CAIR opt-in units, including provisions for
applications for CAIR opt-in permits, approval of CAIR opt-in permits,
treatment of units as CAIR opt-in units, and allocation and recordation
of CAIR SO₂ allowances for CAIR opt-in units, that are
substantively identical to subpart III of part 96 of this chapter and
the provisions of subparts AAA through HHH that are applicable to CAIR
opt-in units or units for which a CAIR opt-in permit application is
submitted and not withdrawn and a CAIR opt-in permit is not yet issued
or denied;
(2) Provisions for CAIR opt-in units, including provisions for
applications for CAIR opt-in permits, approval of CAIR opt-in permits,
treatment of units as CAIR opt-in units, and allocation and recordation
of CAIR SO₂ allowances for CAIR opt-in units, that are
substantively identical to subpart III of part 96 of this chapter and
the provisions of subparts AAA through HHH that are applicable to CAIR
opt-in units or units for which a CAIR opt-in permit application is
submitted and not withdrawn and a CAIR opt-in permit is not yet issued
or denied, except that the provisions exclude Sec. 96.288(b) of this
chapter and the provisions of subpart III of part 96 of this chapter
that apply only to units covered by Sec. 96.288(b) of this chapter; or
(3) Provisions for applications for CAIR opt-in units, including
provisions for CAIR opt-in permits, approval of CAIR opt-in permits,
treatment of units as CAIR opt-in units, and allocation and recordation
of CAIR SO₂ allowances for CAIR opt-in units, that are
substantively identical to subpart III of part 96 of this chapter and
the provisions of subparts AAA through HHH that are applicable to CAIR
opt-in units or units for which a CAIR opt-in permit application is
submitted and not withdrawn and a CAIR opt-in permit is not yet issued
or denied, except that the provisions exclude Sec. 96.288(c) of this
chapter and the provisions of subpart III of part 96 of this chapter
that apply only to units covered by Sec. 96.288(c) of this chapter.

PART 52--[AMENDED]

? 1. The authority citation for part 52 continues to read as follows:

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

Subpart A--General Provisions

? 2. Subpart A is amended by adding Sec. Sec. 52.35 and 52.36 to read as
follows:

Sec. 52.35 What are the requirements of the Federal Implementation
Plans (FIPs) for the Clean Air Interstate Rule relating to emissions of
nitrogen oxides?

The Federal CAIR NO_X Annual Trading Program provisions
of part 97 of this chapter constitute the Clean Air Interstate Rule
Federal Implementation Plan provisions that relate to annual emissions
of nitrogen oxides (NO_X). These provisions apply to sources
in each State that is described in Sec. 51.123(c)(1) and (2) of this
chapter, Delaware, and New Jersey, each of which States is subject to a
finding by the Administrator that the State failed to submit a State
Implementation Plan (SIP) to satisfy the requirements of section
110(a)(2)(D)(I) of the Clean Air Act for the PM_2.5 NAAQS.
The Federal CAIR NO_X Ozone Season Trading Program provisions
of part 97 of this chapter constitute the Clean Air Interstate Rule
Federal Implementation Plan provisions for emissions of nitrogen oxides
(NO_X) during the ozone season, as defined in Sec. 97.302 of
this chapter. These provisions apply to sources in each State that is
described in Sec. 51.123(c)(1) and (3) of this chapter, each of which
States is subject to a finding by the Administrator that the State
failed to submit a State Implementation Plan (SIP) to satisfy the
requirements of section 110(a)(2)(D)(I) of the Clean Air Act for the 8-
hour ozone NAAQS. These provisions do not invalidate or otherwise
affect the obligations of States, emissions sources, or other
responsible entities with respect to all portions of plans approved or
promulgated under this part, nor the obligations of States under the
requirements of Sec. 51.123 and 51.125 of this chapter.

Sec. 52.36 What are the requirements of the Clean Air Interstate Rule
Federal Implementation Plans relating to emissions of sulfur dioxide?

The Federal CAIR SO₂ Trading Program provisions of part
97 of this chapter constitute the Clean Air Interstate Rule Federal
Implementation Plan provisions for emissions of sulfur dioxide
(SO₂). These provisions apply to sources in each State that
is described in Sec. 51.124(c) of this chapter, Delaware, and New
Jersey, each of which States is subject to an EPA finding that the
State failed to submit a State Implementation Plan (SIP) to satisfy the
requirements of section 110(a)(2)(D)(I) of the Clean Air Act for the
PM_2.5 NAAQS. These provisions do not invalidate or otherwise
affect the obligations of States, emissions sources, or other
responsible entities with respect to all portions of plans approved or
promulgated under this part, nor the obligations of States under the
requirements of Sec. Sec. 51.124 and 51.125 of this chapter.

Subpart B--Alabama

? 3. Subpart B is amended by adding Sec. Sec. 52.54 and 52.55 to read as
follows:

Sec. 52.54 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of nitrogen oxides?

The owner or operator of each NO_X source located within
the State of Alabama and for which requirements are set forth under the
Federal CAIR NO_X Annual and Ozone Season Trading Programs in
part 97 of this chapter must comply with such applicable requirements.

Sec. 52.55 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of sulfur dioxide?

The owner or operator of each SO₂ source located within
the State of Alabama and for which requirements are set forth under the
Federal CAIR SO₂ Trading Program in part 97 of this chapter
must comply with such applicable requirements.

[[Page 25374]]

Subpart E--Arkansas

? 4. Subpart E is amended by adding Sec. Sec. 52.184 to read as follows:

Sec. 52.184 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of nitrogen oxides?

The owner or operator of each NO_X source located within
the State of Arkansas and for which requirements are set forth under
the Federal CAIR NO_X Ozone Season Trading Program in part 97
of this chapter must comply with such applicable requirements.

Subpart H--Connecticut

? 5. Subpart H is amended by adding Sec. Sec. 52.386 to read as follows:

Sec. 52.386 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of nitrogen oxides?

The owner or operator of each NO_X source located within
the State of Connecticut and for which requirements are set forth under
the Federal CAIR NO_X Ozone Season Trading Program in part 97
of this chapter must comply with such applicable requirements.

Subpart I--Delaware

? 6. Subpart I is amended by adding Sec. Sec. 52.440 and 52.441 to read
as follows:

Sec. 52.440 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of nitrogen oxides?

The owner or operator of each NO_X source located within
the State of Delaware and for which requirements are set forth under
the Federal CAIR NO_X Annual and Ozone Season Trading Programs in
part 97 of this chapter must comply with such applicable requirements.

Sec. 52.441 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of sulfur dioxide?

The owner or operator of each SO₂ source located within
the State of Delaware and for which requirements are set forth under
the Federal CAIR SO₂ Trading Program in part 97 of this
chapter must comply with such applicable requirements.

Subpart J--District of Columbia

? 7. Subpart J is amended by adding Sec. Sec. 52.484 and 52.485 to read
as follows:

Sec. 52.484 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of nitrogen oxides?

The owner or operator of each NO_X source located within
the District of Columbia and for which requirements are set forth under
the Federal CAIR NO_X Annual and Ozone Season Trading Programs in
part 97 of this chapter must comply with such applicable requirements.

Sec. 52.485 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of sulfur dioxide?

The owner or operator of each SO₂ source located within
the District of Columbia and for which requirements are set forth under
the Federal CAIR SO₂ Trading Program in part 97 of this
chapter must comply with such applicable requirements.

Subpart K--Florida

? 8. Subpart K is amended by adding Sec. Sec. 52.540 and 52.541 to read
as follows:

Sec. 52.540 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of nitrogen oxides?

The owner or operator of each NO_X source located within
the State of Florida and for which requirements are set forth under the
Federal CAIR NO_X Annual and Ozone Season Trading Programs in
part 97 of this chapter must comply with such applicable requirements.

Sec. 52.541 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of sulfur dioxide?

The owner or operator of each SO₂ source located within
the State of Florida and for which requirements are set forth under the
Federal CAIR SO₂ Trading Program in part 97 of this chapter
must comply with such applicable requirements.

Subpart L--Georgia

? 9. Subpart L is amended by adding Sec. Sec. 52.584 and 52.585 to read
as follows:

Sec. 52.584 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of nitrogen oxides?

The owner or operator of each NO_X source located within
the State of Georgia and for which requirements are set forth under
Federal CAIR NO_X Annual Trading Programs in part 97 of this
chapter must comply with such applicable requirements.

Sec. 52.585 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of sulfur dioxide?

The owner or operator of each SO₂ source located within
the State of Georgia and for which requirements are set forth under the
Federal CAIR SO₂ Trading Program in part 97 of this chapter
must comply with such applicable requirements.

Subpart O--Illinois

? 10. Subpart O is amended by adding Sec. Sec. 52.745 and 52.746 to read
as follows:

Sec. 52.745 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of nitrogen oxides?

The owner or operator of each NO_X source located within
the State of Illinois and for which requirements are set forth under
the Federal CAIR NO_X Annual and Ozone Season Trading Programs in
part 97 of this chapter must comply with such applicable requirements.

Sec. 52.746 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of sulfur dioxide?

The owner or operator of each SO₂ source located within
the State of Illinois and for which requirements are set forth under
the Federal CAIR SO₂ Trading Program in part 97 of this
chapter must comply with such applicable requirements.

Subpart P--Indiana

? 11. Subpart P is amended by adding Sec. Sec. 52.789 and 52.790 to read
as follows:

Sec. 52.789 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of nitrogen oxides?

The owner or operator of each NO_X source located within
the State of Indiana and for which requirements are set forth under the
Federal CAIR NO_X Annual and Ozone Season Trading Programs in
part 97 of this chapter must comply with such applicable requirements.

Sec. 52.790 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of sulfur dioxide?

The owner or operator of each SO₂ source located within
the State of Indiana and for which requirements are set forth under the
Federal CAIR SO₂ Trading Program in part 97 of this chapter
must comply with such applicable requirements.

[[Page 25375]]

Subpart Q--Iowa

? 12. Subpart Q is amended by adding Sec. Sec. 52.840 and 52.841 to read
as follows:

Sec. 52.840 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of nitrogen oxides?

The owner or operator of each NO_X source located within
the State of Iowa and for which requirements are set forth under the
Federal CAIR NO_X Annual and Ozone Season Trading Programs in
part 97 of this chapter must comply with such applicable requirements.

Sec. 52.841 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of sulfur dioxide?

The owner or operator of each SO₂ source located within
the State of Iowa and for which requirements are set forth under the
Federal CAIR SO₂ Trading Program in part 97 of this chapter
must comply with such applicable requirements.

Subpart S--Kentucky

? 13. Subpart S is amended by adding Sec. Sec. 52.940 and 52.941 to read
as follows:

Sec. 52.940 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of nitrogen oxides?

The owner or operator of each NO_X source located within
the State of Kentucky and for which requirements are set forth under
the Federal CAIR NO_X Annual and Ozone Season Trading Programs in
part 97 of this chapter must comply with such applicable requirements.

Sec. 52.941 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of sulfur dioxide?

The owner or operator of each SO₂ source located within
the State of Kentucky and for which requirements are set forth under
the Federal CAIR SO₂ Trading Program in part 97 of this
chapter must comply with such applicable requirements.

Subpart T--Louisiana

? 14. Subpart T is amended by adding Sec. Sec. 52.984 and 52.985 to read
as follows:

Sec. 52.984 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of nitrogen oxides?

The owner or operator of each NO_X source located within
the State of Louisiana and for which requirements are set forth under
the Federal CAIR NO_X Annual and Ozone Season Trading Programs in
part 97 of this chapter must comply with such applicable requirements.

Sec. 52.985 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of sulfur dioxide?

The owner or operator of each SO₂ source located within
the State of Louisiana and for which requirements are set forth under
the Federal CAIR SO₂ Trading Program in part 97 of this
chapter must comply with such applicable requirements.

Subpart V--Maryland

? 15. Subpart V is amended by adding Sec. Sec. 52.1084 and 52.1085 to
read as follows:

Sec. 52.1084 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of nitrogen oxides?

The owner or operator of each NO_X source located within
the State of Maryland and for which requirements are set forth under
the Federal CAIR NO_X Annual and Ozone Season Trading Programs in
part 97 of this chapter must comply with such applicable requirements.

Sec. 52.1085 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of sulfur dioxide?

The owner or operator of each SO₂ source located within
the State of Maryland and for which requirements are set forth under
the Federal CAIR SO₂ Trading Program in part 97 of this
chapter must comply with such applicable requirements.

Subpart W--Massachusetts

? 16. Subpart W is amended by adding Sec. 52.1140 to read as follows:

Sec. 52.1140 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of nitrogen oxides?

The owner or operator of each NO_X source located within
the State of Massachusetts and for which requirements are set forth
under the Federal CAIR NO_X Ozone Season Trading Program in
part 97 of this chapter must comply with such applicable requirements.

Subpart X--Michigan

? 17. Subpart X is amended by adding Sec. Sec. 52.1186 and 52.1187 to
read as follows:

Sec. 52.1186 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of nitrogen oxides?

The owner or operator of each NO_X source located within
the State of Michigan and for which requirements are set forth under
the Federal CAIR NO_X Annual and Ozone Season Trading Programs in
part 97 of this chapter must comply with such applicable requirements.

Sec. 52.1187 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of sulfur dioxide?

The owner or operator of each SO₂ source located within
the State of Michigan and for which requirements are set forth under
the Federal CAIR SO₂ Trading Program in part 97 of this
chapter must comply with such applicable requirements.

Subpart Y--Minnesota

? 18. Subpart Y is amended by adding Sec. Sec. 52.1240 and 52.1241 to
read as follows:

Sec. 52.1240 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of nitrogen oxides?

The owner or operator of each NO_X source located within
the State of Minnesota and for which requirements are set forth under
the Federal CAIR NO_X Annual Trading Programs in part 97 of
this chapter must comply with such applicable requirements.

Sec. 52.1241 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of sulfur dioxide?

The owner or operator of each SO₂ source located within
the State of Minnesota and for which requirements are set forth under
the Federal CAIR SO₂ Trading Program in part 97 of this
chapter must comply with such applicable requirements.

Subpart Z--Mississippi

? 19. Subpart Z is amended by adding Sec. Sec. 52.1284 and 52.1285 to
read as follows:

Sec. 52.1284 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of nitrogen oxides?

The owner or operator of each NO_X source located within
the State of Mississippi and for which requirements are set forth under
the Federal CAIR NO_X Annual and Ozone Season Trading
Programs in part 97 of this chapter must

[[Page 25376]]

comply with such applicable requirements.

Sec. 52.1285 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of sulfur dioxide?

The owner or operator of each SO₂ source located within
the State of Mississippi and for which requirements are set forth under
the Federal CAIR SO₂ Trading Program in part 97 of this
chapter must comply with such applicable requirements.

Subpart AA--Missouri

? 20. Subpart AA is amended by adding Sec. Sec. 52.1341 and 52.1342 to
read as follows:

Sec. 52.1341 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of nitrogen oxides?

The owner or operator of each NO_X source located within
the State of Missouri and for which requirements are set forth under
the Federal CAIR NO_X Annual and Ozone Season Trading Programs in
part 97 of this chapter must comply with such applicable requirements.

Sec. 52.1342 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of sulfur dioxide?

The owner or operator of each SO₂ source located within
the State of Missouri and for which requirements are set forth under
the Federal CAIR SO₂ Trading Program in part 97 of this
chapter must comply with such applicable requirements.

Subpart FF--New Jersey

? 21. Subpart FF is amended by adding Sec. Sec. 52.1584 and 52.1585 to
read as follows:

Sec. 52.1584 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of nitrogen oxides?

The owner or operator of each NO_X source located within
the State of New Jersey and for which requirements are set forth under
the Federal CAIR NO_X Annual and Ozone Season Trading Program
in part 97 of this chapter must comply with such applicable requirements.

Sec. 52.1585 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of sulfur dioxide?

The owner or operator of each SO₂ source located within
the State of New Jersey and for which requirements are set forth under
the Federal CAIR SO₂ Trading Program in part 97 of this
chapter must comply with such applicable requirements.

Subpart HH--New York

? 22. Subpart HH is amended by adding Sec. Sec. 52.1684 and 52.1685 to
read as follows:

Sec. 52.1684 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of nitrogen oxides?

The owner or operator of each NO_X source located within
the State of New York and for which requirements are set forth under
the Federal CAIR NO_X Annual and Ozone Season Trading Programs in
part 97 of this chapter must comply with such applicable requirements.

Sec. 52.1685 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of sulfur dioxide?

The owner or operator of each SO₂ source located within
the State of New York and for which requirements are set forth under
the Federal CAIR SO₂ Trading Program in part 97 of this
chapter must comply with such applicable requirements.

Subpart II--North Carolina

? 23. Subpart II is amended by adding Sec. Sec. 52.1784 and 52.1785 to
read as follows:

Sec. 52.1784 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of nitrogen oxides?

The owner or operator of each NO_X source located within
the State of North Carolina and for which requirements are set forth
under the Federal CAIR NO_X Annual and Ozone Season Trading
Programs in part 97 of this chapter must comply with such applicable
requirements.

Sec. 52.1785 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of sulfur dioxide?

The owner or operator of each SO₂ source located within
the State of North Carolina and for which requirements are set forth
under the Federal CAIR SO₂ Trading Program in part 97 of
this chapter must comply with such applicable requirements.

Subpart KK--Ohio

? 24. Subpart KK is amended by adding Sec. Sec. 52.1891 and 52.1892 to
read as follows:

Sec. 52.1891 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of nitrogen oxides?

The owner or operator of each NO_X source located within
the State of Ohio and for which requirements are set forth under the
Federal CAIR NO_X Annual and Ozone Season Trading Programs in
part 97 of this chapter must comply with such applicable requirements.

Sec. 52.1892 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of sulfur dioxide?

The owner or operator of each SO₂ source located within
the State of Ohio and for which requirements are set forth under the
Federal CAIR SO₂ Trading Program in part 97 of this chapter
must comply with such applicable requirements.

Subpart NN--Pennsylvania

? 25. Subpart NN is amended by adding Sec. Sec. 52.2040 and 52.2041 to
read as follows:

Sec. 52.2040 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of nitrogen oxides?

The owner or operator of each NO_X source located within
the State of Pennsylvania and for which requirements are set forth
under the Federal CAIR NO_X Annual and Ozone Season Trading
Programs in part 97 of this chapter must comply with such applicable
requirements.

Sec. 52.2041 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of sulfur dioxide?

The owner or operator of each SO₂ source located within
the State of Pennsylvania and for which requirements are set forth
under the Federal CAIR SO₂ Trading Program in part 97 of
this chapter must comply with such applicable requirements.

Subpart PP--South Carolina

? 26. Subpart PP is amended by adding Sec. Sec. 52.2140 and 52.2141 to
read as follows:

Sec. 52.2140 Interstate pollutant transport provisions; What are the
FIP requirements for decreases in emissions of nitrogen oxides?

The owner or operator of each NO_X source located within
the State of South Carolina and for which requirements are set forth
under the Federal CAIR NO_X Annual and Ozone Season Trading
Programs in part 97 of this chapter must

[[Continued on page 25377]]

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