Approval and Promulgation of Air Quality Implementation Plans; Indiana; Oxides of Nitrogen Regulations

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

[Federal Register: July 2, 2001 (Volume 66, Number 127)]
[Proposed Rules]
[Page 34864-34878]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02jy01-36]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[IN 131a; FRL-7005-9]

Approval and Promulgation of Air Quality Implementation Plans;
Indiana; Oxides of Nitrogen Regulations

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: On March 30, 2001, Indiana submitted and requested parallel
processing on a draft plan to control emissions of oxides of nitrogen
(NO_X) throughout the State. The plan consists of two
proposed rules, a preliminary budget demonstration, and supporting
documentation. The plan will contribute to attainment and maintenance
of the 1-hour ozone standard in several 1-hour ozone nonattainment
areas including the Chicago-Gary-Lake County and Louisville areas.
Indiana's plan, which focuses on electric generating units, large
industrial boilers, turbines and cement kilns, was developed to achieve
the majority of reductions required by EPA's October 27, 1998,
NO_X State

[[Page 34865]]

Implementation Plan (SIP) Call. As of May 1, 2004, Indiana's plan will
also provide reductions at units currently required to make reductions
under the EPA's Clean Air Act Section 126 rulemaking. Through parallel
processing, EPA is proposing to approve the plan as a SIP revision
fulfilling the NO_X SIP Call Phase I requirements, provided
Indiana corrects identified deficiencies in a manner that is consistent
with this notice.
EPA notes that, as discussed in this Federal Register action, the
State adopted final rules June 6, 2001. These rules and the supporting
documents have not yet been submitted to EPA and thus EPA has not
concluded its review and analysis. However, it is EPA's understanding
and expectation that the rules resolve the deficiencies identified in
this Federal Register proposal and do not introduce any unapprovable
changes.

DATES: Written comments must be received on or before August 1, 2001.

ADDRESSES: Written comments should be sent to: J. Elmer Bortzer, Chief,
Regulation Development Section (AR-18J), U.S. Environmental Protection
Agency, 77 West Jackson Boulevard, Chicago, Illinois 60604. Copies of
the State's submittals and materials relevant to this proposed
rulemaking are available for public inspection during normal business
hours at the following address: United States Environmental Protection
Agency, Region 5, Air and Radiation Division, 77 West Jackson
Boulevard, Chicago, Illinois 60604 (18th floor). (Please telephone Ryan
Bahr at (312) 353-4366 before visiting the Region 5 office.)

FOR FURTHER INFORMATION CONTACT: Ryan Bahr, Environmental Engineer,
Regulation Development Section, Air Programs Branch (AR-18J), U.S.
Environmental Protection Agency, Region 5, 77 West Jackson Boulevard,
Chicago, Illinois 60604, Telephone Number: (312) 353-4366, E-Mail
Address: bahr.ryan@epa.gov.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
A. Why are reductions in NO_X important?
B. What mechanism is Indiana using to ensure that regional
NO_X reductions occur?
C. What analyses and EPA rulemaking actions support the need for
the NO_X emission control regulations?
D. What court rulings have impacted EPA's NO_X
emission control regulations?
E. What are Section 126 petitions, and how are they related to
this proposal?
II. Summary of the State Submittal
A. When did Indiana develop and submit the NO_X
emission control plan to the EPA?
B. What are the basic components of the State's draft plan?
C. How does Indiana address its statewide NO_X budget?
1. What NO_X budget did EPA determine for the State?
2. What changes did the State request to the NO_X
budget and are those changes approvable?
3. How does Indiana demonstrate that it is meeting the budget?
D. How is the State addressing the units covered by Section 126
Petitions?
E. What public review opportunities did the State provide?
F. What guidance did EPA use to evaluate Indiana's
NO_X control program?
G. Does Indiana's proposed NO_X emissions control plan
meet all of the federal NO_X SIP Call requirements?
H. What deficiencies are there in Indiana's proposed
NO_X emissions control regulations, and do any of these
deficiencies constitute an approvability issue?
1. The 25-ton exemptions
2. Definition of ``maximum design heat input''
3. Definition of ``NO_X budget trading program''
4. Definition of ``percent monitoring data availability''
5. Monitoring requirements
6. Indiana's new source and energy efficiency and renewable
energy ``set-asides''
7. Penalties
8. 326 IAC 10-3, Nitrogen Oxide Reduction Program for Specific
Source Categories
9. General SIP requirements
I. What additional significant changes has the Indiana
Department of Environmental Management (IDEM) incorporated in
response to comments?
1. Blast furnace gas units
2. Definition of ``repowered natural gas-fired units''
3. Utilization correction for new units
4. Centralized recordkeeping
5. Allocation methodology
III. Proposed Action
A. What action is EPA proposing today?
B. What happens if Indiana does not address the deficiencies
identified or has significantly changed the regulations during the
final adoption process?
IV. Administrative Requirements

Note: In the following questions and answers, whenever the term
``you'' is used it refers to the reader of this proposed rule and
``we,'' ``us,'' or ``our'' refers to the EPA.

I. Background

A. Why Are Reductions in NO_X Important?

The Clean Air Act (Act or CAA) requires the EPA to establish
National Ambient Air Quality Standards (NAAQS) for certain air
pollutants that cause or contribute to air pollution and are reasonably
anticipated to endanger public health or welfare. (CAA Sections 108 and
109) In 1979, EPA determined ground level ozone, at certain
concentrations, to be one of those pollutants and promulgated the 1-
hour ground-level ozone standard of 0.12 parts per million (ppm) or 120
parts per billion (ppb) to protect public health. 44 FR 8202 (February
8, 1979).
Ground-level ozone has long been recognized, in both clinical and
epidemiological research, to affect public health. There is a wide
range of ozone-induced health effects, including decreased lung
function (primarily in children active outdoors), increased respiratory
symptoms (particularly in highly sensitive individuals), increased
hospital admissions and emergency room visits for respiratory causes
(among children and adults with pre-existing respiratory disease such
as asthma), increased inflammation of the lung, and possible long-term
damage to the lungs.
Ground-level ozone is generally not directly emitted by sources.
Rather, volatile organic compounds (VOC) and NO_X, both
emitted by a wide variety of sources, react in the presence of sunlight
to form additional pollutants, including ozone. NO_X and VOC
are referred to as precursors of ozone.
Historically, EPA, State and industry efforts have focused on
controlling VOC in urban areas to achieve the ozone standards. However,
notwithstanding significant efforts, the 1-hour ozone standards have
not been met in many areas, especially major urban areas. A detailed
process was begun in 1995 to evaluate what effect transported pollution
was having on ozone levels in nonattainment areas. This study
determined, among other things, that NO_X emissions have
contributed to significant transport of ozone and that a program to
regulate regional NO_X emissions can provide the essential
background reductions needed for the majority of nonattainment areas to
attain the 1-hour ozone standard.

B. What Mechanism Is Indiana Using To Ensure That Regional
NO_X Reductions Occur?

On October 27, 1998, the EPA published a final rule in the Federal
Register finding certain States' SIPs deficient, since they failed to
prohibit the interstate transport of oxides of nitrogen (63 FR 57356).
This action is known as the ``NO_X SIP Call,'' and applies to
a number of States, primarily east of the Mississippi, including
Indiana. The NO_X SIP Call adds and revises sections of 40
CFR parts 51 and 75 and adds part 96. The 40 CFR part 51 sections
codify the requirements for

[[Page 34866]]

the State's submittal. These requirements are primarily to develop
NO_X emission control regulations and the supporting
documentation and programs necessary, for a SIP revision sufficient to
provide for a prescribed NO_X emission budget in 2007. The 40
CFR part 75 revisions and additions revise the part 75 monitoring
requirements so that they are appropriate for the NO_X SIP
Call trading program. Finally, 40 CFR part 96 is the model
NO_X budget trading program for SIPs. (You will also see 40
CFR part 97 discussed in this Federal Register action. 40 CFR part 97
was added to the CFR in a separate action in response to 126 petitions.
It establishes a control program similar to 40 CFR part 96. However,
unlike part 96, part 97 is not a model rule. It is actually a USEPA
implemented program which regulates sources directly. 40 CFR part 97
and the section 126 Petitions are discussed in more detail in section
I.E. of today's proposal.)
EPA promulgated the NO_X SIP Call under sections
110(a)(2)(D) and 110(k) of the CAA. Section 110(a)(2)(D) applies to all
SIPs for each pollutant covered by a NAAQS and for all areas regardless
of their attainment designation. It requires a SIP to contain adequate
provisions that prohibit any source or type of source or other types of
emissions within a State from emitting any air pollutants in amounts
which will contribute significantly to nonattainment in, or interfere
with maintenance of attainment of a standard by, any other State with
respect to any NAAQS. Section 110(k)(5) authorizes the EPA to find that
a SIP is substantially inadequate to meet any CAA requirement when
appropriate and, based on such a finding, to then require the State to
submit a SIP revision within a specified time to correct such
inadequacies.
Indiana submitted its plan and requested a SIP revision with
parallel processing on March 30, 2001. EPA is proposing, in this
Federal Register, to approve this plan as a SIP revision meeting the
requirements of Phase I of the NO_X SIP Call, provided that
Indiana corrects the identified deficiencies. Indiana adopted final
rules on June 6, 2001. EPA has not concluded its analysis of these
final adopted rules and the associated plan. However, based on our
preliminary review and conversations with the State, we expect that the
rules will address the deficiencies identified in this proposal. These
final adopted rules are available on Indiana's website at:
http://www.state.in.us/idem/oam/standard/Sip/index.html.

C. What Analyses and EPA Rulemaking Actions Support the Need for the
NO_X Emission Control Regulations?

The State of Indiana has the primary responsibility under the CAA
for ensuring that it meets the ozone NAAQS. For that reason, the State
is required to submit a SIP that specifies emission limitations,
control measures, and other measures necessary for attainment,
maintenance, and enforcement of the NAAQS within the State. The SIP for
ozone must meet the CAA requirements discussed above, be adopted
pursuant to notice and comment rulemaking, and be submitted to the EPA
for approval. A number of analyses and EPA rulemaking actions have
affected the SIP revisions needed for the Chicago-Gary-Lake County
ozone nonattainment areas, as discussed below.
The Chicago-Gary-Lake County ozone nonattainment area has not
attained and continues to violate the 1-hour ozone standard. The States
of Illinois, Indiana, and Wisconsin have worked cooperatively to
provide the EPA with an ozone attainment demonstration for the Lake
Michigan area, which includes the Chicago-Gary-Lake County ozone
nonattainment area. Analyses conducted to support this ozone attainment
demonstration indicate that reductions in upwind NO_X
emissions are needed to reduce the transport of ozone into these
nonattainment areas.
Recognizing the complexity of ozone pollution, on March 2, 1995,
Mary D. Nichols, Assistant Administrator for EPA's Air and Radiation
Division, issued a memorandum titled ``Ozone Attainment
Demonstrations.'' In this memorandum, the EPA recognized that the
development of the necessary technical information, as well as the
emission control measures necessary to achieve the attainment of the
ozone NAAQS had been difficult for the States affected by significant
ozone transport. EPA established a two-phased process for States with
serious and severe ozone nonattainment areas, such as the Chicago/
Northwest Indiana nonattainment area, to develop ozone attainment SIPs.
Under Phase I, States were required to complete 1994 SIP requirements
(with the exception of final ozone attainment demonstrations), submit
regulations sufficient to meet rate of progress (ROP) requirements
through 1999, and submit initial ozone modeling analyses, including
preliminary ozone attainment demonstrations based on assumed reductions
in upwind ozone precursor emissions. Phase II called for: a two-year
consultative process to assess regional strategies to address ozone
transport in the eastern United States and required submittal of all
remaining ROP submittals to cover ROP through the attainment dates;
final attainment demonstrations to address the emission reduction
requirements resulting from the two-year consultative process; any
additional rules and emission controls needed to attain the ozone
standard; and, any regional controls needed for attainment by all areas
in the eastern half of the United States.
In response to the problem of ozone transport, the Environmental
Council of States (ECOS) recommended the formation of a national
workgroup to develop a consensus approach to addressing the transport
problem. As a result of ECOS' recommendation and in response to the
March 2, 1995 EPA memorandum, the Ozone Transport Assessment Group
(OTAG), a partnership among EPA, the 37 eastern States and the District
of Columbia, and industrial, academic, and environmental groups, was
formed to conduct regional ozone transport analyses and to develop a
recommended ozone transport control strategy. OTAG was given the
responsibility of conducting the two-years of analyses envisioned in
the March 2, 1995 EPA memorandum.
OTAG conducted a number of regional ozone data analyses and
regional ozone modeling analyses using photochemical grid modeling. In
July 1997, OTAG completed its work and made recommendations to the EPA
concerning the regional emissions reductions needed to reduce
transported ozone as an obstacle to attainment in downwind areas. OTAG
recommended a possible range of regional NO_X emission
reductions to support the control of transported ozone. Based on OTAG's
recommendations and other information, EPA issued the NO_X
SIP Call rule on October 27, 1998. 63 FR 57356.
In the NO_X SIP Call, EPA determined that sources and
emitting activities in 23 jurisdictions \1\ emit NO_X in
amounts that ``significantly contribute'' to ozone nonattainment or
interfere with maintenance of the 1-hour ozone NAAQS in one or more
downwind areas, in violation of CAA Section 110(a)(2)(D)(i)(I). EPA
identified NO_X emission reductions by source sector that
could be achieved using cost-effective measures and set state-wide
NO_X emission budgets for each affected

[[Page 34867]]

jurisdiction for 2007 based on the possible cost-effective
NO_X emission reductions. The source sectors included nonroad
mobile, highway mobile, area, cement kilns, internal combustion
engines, electricity generating units (EGUs) and non-EGU stationary
point sources. EPA established recommended NO_X emissions
caps for large EGUs and for large non-EGUs, and recommended emission
limits for large cement kilns and large internal combustion engines.
Large EGUs included stationary boilers, turbines and combined cycle
systems, serving a generator 25 megawatts or larger, who generate
electricity for sale to the electrical grid. Large non-EGUs included
process stationary boilers, turbines and combined cycle systems, who
are not EGUs and whose maximum design heat input is 250 million British
thermal units [Btu]
per hour [mmBtu/hr] or more. EPA determined that
significant NO_X reductions using cost-effective measures
could be obtained as follows: application of a 0.15 pounds
NO_X/mmBtu heat input emission rate limit for large EGUs; a
60 percent reduction of NO_X emissions from large non-EGUs; a
30 percent reduction of NO_X emissions from large cement
kilns; and a 90 percent reduction of NO_X emissions from
large stationary internal combustion engines. The 2007 state-wide
NO_X emission budgets were based on NO_X emissions
projections to 2007 coupled with these levels of NO_X
emission controls.
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\1\ Alabama, Connecticut, Delaware, District of Columbia,
Georgia, Illinois, Indiana, Kentucky, Maryland, Massachusetts,
Michigan, Missouri, New Jersey, New York, North Carolina, Ohio,
Pennsylvania, Rhode Island, South Carolina, Tennessee, Virginia,
West Virginia, and Wisconsin.
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Although the state-wide NO_X emission budgets were based
on the levels of reduction achievable through cost-effective emission
control measures, the NO_X SIP Call allows each State to
determine what measures it will choose to meet the state-wide
NO_X emission budgets. It does not require the States to
adopt the specific NO_X emission rates assumed by the EPA in
establishing the NO_X emission budgets. The NO_X
SIP Call merely requires States to submit SIPs, which, when
implemented, will require controls that meet the NO_X state-
wide emission budget. The NO_X SIP Call encourages the States
to adopt a NO_X cap-and-trade program for large EGUs and
large non-EGUs as a cost-effective strategy and provides an interstate
NO_X trading program that the EPA can administer for the
States. If States choose to participate in the national trading
program, they must submit SIPs that conform to the trading program
requirements in the NO_X SIP Call.
In its March 2, 1995 memorandum, EPA did not include moderate ozone
nonattainment areas, such as the Louisville area, in the two-phased
approach. The EPA, however, recognizes that some moderate ozone
nonattainment areas may also have been significantly impacted by ozone
transport from upwind areas, making attainment of the 1-hour ozone
NAAQS difficult through the imposition of only local emission control
measures. On July 16, 1998, EPA established a policy that allowed for a
deferral of the attainment date for areas significantly impacted by
ozone transport where certain conditions are met. The EPA published
this policy (Extension Policy) in the Federal Register on March 25,
1999. 64 FR 14441.
Under the Extension Policy, the EPA would defer final findings on
the attainment status for moderate nonattainment areas and would
instead allow these areas to submit attainment SIPs that include
boundary reductions in ozone achieved by controls measures in upwind
areas. The attainment date for these areas would be the date by which
the relevant upwind areas will have reduced emission, reducing the
transported ozone.
On April 30, 1998, the State of Indiana submitted a major revision
of the ozone attainment demonstration for the Chicago-Gary-Lake County
ozone nonattainment area. In that revision, the State demonstrated that
significant reductions in transported ozone and NO_X would be
necessary to achieve attainment of the 1-hour ozone standard in the
nonattainment area. Indiana committed to complete the ozone attainment
demonstration and to adopt sufficient local and regional controls as
needed to demonstrate attainment of the ozone standard and to submit
the final attainment demonstration and adopted regulations to the EPA
by December 2000. The EPA proposed to conditionally approve the 1-hour
attainment demonstration based, in part, on the State's commitment to
adopt and submit a final attainment demonstration and a post-1999 ROP
plan, including the necessary State emission control regulations, by
December 31, 2000. (December 16, 1999. 64 FR 70514). The NO_X
regulations reviewed in this proposed rule are, in part, intended to
meet part of the State's commitment to complete the ozone attainment
demonstration for the Chicago-Gary-Lake County nonattainment area.

D. What Court Rulings Have Impacted EPA's NO_X Emission
Control Regulations?

When the EPA published the NO_X SIP Call on October 27,
1998, a number of States and industry groups filed petitions
challenging the rulemaking before the United States Court of Appeals
for the District of Columbia Circuit. The Court, on May 25, 1999,
stayed the states' obligation to submit SIPs in response to the
NO_X SIP Call rule. Subsequently, on March 3, 2000, the Court
upheld most of the NO_X SIP Call rule. The Court, however,
vacated the rule as it applied to Missouri and Georgia, and remanded
for further consideration the inclusion of portions of Missouri and
Georgia in the rule. The Court also vacated the rule as it applied to
Wisconsin because EPA had not made a showing that sources in Wisconsin
significantly contribute to nonattainment or interfere with maintenance
of the ozone NAAQS in any other State. Finally, the Court remanded to
EPA two issues concerning a limited portion of the NO_X
emission budgets. See Michigan et al. v. EPA, 213 F.3d 663 (D.C. Cir.
2000). Based on the remanded issues, on April 11, 2000, EPA initiated a
two phase approach to implement the NO_X SIP Call. Phase I of
this approach addresses the portion of the NO_X SIP Call
upheld by the Court. It will achieve the majority of the reductions in
the NO_X SIP Call. Based on the June 22 Court decision,
discussed below, the Phase I plan was due from Indiana on October 30,
2000. The second phase will address the few narrow issues that the
Court remanded to EPA, including: Whether, and if so, how, a small
subclass of facilities that generate electricity should be included in
the rule; and what control levels should be assumed for large,
stationary internal combustion engines. Phase II of the NO_X
SIP Call will not require a submittal from the States until EPA has
proposed and finalized rules in response to the Court's remand.
On June 22, 2000, the Court removed the stay of the states'
obligation to submit SIPs in response to the NO_X SIP Call
and denied petitioners' motions for rehearing and rehearing en banc. In
removing the stay, the Court provided that EPA should allow 128 days
for States to submit SIPs to the EPA, i.e., by October 30, 2000.
Shortly after removing the stay, petitioners requested that the Court
adjust the NO_X SIP Call compliance date. The Court
determined that the compliance date for the SIP Call would be May 31,
2004.

E. What Are Section 126 Petitions, and How Are They Related to This
Proposal?

Section 126 of the CAA authorizes a downwind State to petition EPA
for a finding that any new (or modified) or existing major stationary
source or group of stationary sources upwind of the State emits or
would emit in violation of the prohibition of section 110(a)(2)(D)(i)
because the source(s) emissions contribute significantly to

[[Page 34868]]

nonattainment, or interfere with maintenance, of a NAAQS in the State.
Sections 110(a)(2)(D)(i), 126(b)-(c). If EPA makes the requested
finding, the source(s) must shut down within 3 months from the finding,
unless EPA directly regulates the source(s) by establishing emissions
limitations and a compliance schedule, extending no later than 3 years
from the date of the finding, to eliminate the prohibited interstate
transport of pollutants as expeditiously as possible. See sections
110(a)(2)(D)(i) and 126(c). Eight northeastern States, including
Connecticut and New York, petitioned EPA requesting that EPA make a
finding that certain major stationary sources or groups of sources in
upwind States, including Indiana, emit NO_X emissions in
violation of the CAA's prohibition on amounts of emissions that
contribute significantly to ozone nonattainment or maintenance problems
in the petitioning State.
EPA made affirmative technical determinations for six of these
petitions on May 25, 1999 (64 FR 28250). EPA's approach was to defer
making Section 126 findings as long as States and EPA stayed on track
to meet the requirements of the NO_X SIP Call by May 1, 2003.
This timing was synchronized such that approval of a complete
NO_X SIP Call could supplant the section 126 rulemaking by
ensuring that section 126 sources were no longer contributing
significantly to downwind nonattainment. However, when the Court
granted a motion to stay the compliance deadline for the NO_X
SIP Call to May 31, 2004, the result was that the NO_X SIP
Call no longer assured in 2003 that affected sources would not emit in
violation of the prohibition in section 126 of the CAA. Thus, with the
required compliance deadline for the NO_X SIP Call of May 31,
2004, the dates are no longer aligned.
EPA subsequently took final action making 126 findings on January
18, 2000 (65 FR 2674). The January 18, 2000, action also finalized the
federal NO_X Budget Trading Program at 40 CFR part 97 as a
means of mitigating the interstate transport of ozone and
NO_X. The sources listed in the section 126 rulemaking are
required to comply with the part 97 trading program by May 1, 2003.
Several parties filed a petition for review of EPA's final action. On
May 15, 2001, the United States Court of Appeals for the District of
Columbia Circuit rendered its decision, largely upholding EPA's action.
Appalachian Power Co. et al. v. EPA, No. 99-1200.
In the NO_X SIP call, EPA determined that emissions from
sources throughout the entire State of Indiana significantly contribute
to downwind areas. However, because the petitions from Connecticut and
New York named sources in only part of the State, EPA limited its
section 126 findings to the geographic scope of those petitions. Maps
showing the geographic coverage of these two petitions are shown in
Figures F-2 and F-6 of appendix F to 40 CFR part 52. Based on the
geographic limits given in the petitions, all sources in Indiana
located east of 86.0 degrees longitude are covered by the section 126
1-hour finding. The existing sources located in Indiana that are
subject to the 1-hour section 126 finding are also listed in appendix A
to 40 CFR part 97.

II. Summary of the State Submittal

A. When Did Indiana Develop and Submit the NO_X Emission
Control Plan to the EPA?

On March 30, 2001, IDEM submitted its proposed NO_X
emission control plan to the EPA and requested parallel processing.
IDEM had originated its rulemaking process on regional
NO_X reductions in 1999. EPA has reviewed and provided
extensive comments on several previous drafts of the rules. The State
has adequately addressed most of these comments. Some of the issues
raised, however, were very complex and the State was not able to
address them before proposing the rule. These issues are discussed in
this Federal Register action.
Parallel processing allows a State to submit a plan for approval
prior to actual adoption by the State. 47 FR 27073 (June 23, 1982). A
submittal for parallel processing must include the following three
items: a letter from the State requesting parallel processing; a
schedule for final adoption or issuance of the plan; and a copy of the
proposed regulation or document. Indiana submitted this information in
its March 30, 2001, letter.

B. What Are the Basic Components of the State's Draft Plan?

Indiana's proposed plan included a budget demonstration, supporting
materials and two NO_X rules: 326 IAC 10-3, pertaining to
cement kilns, and 326 IAC 10-4, a trading program focusing on
reductions from EGUs and large boilers and turbines. The budget
demonstration is discussed in more detail in section C, ``How does
Indiana address its statewide NO_X budget?''. The supporting
materials include information such as the number of allowances that
Indiana intends to allocate to each unit for 2004-2006 and detailed
inventories. The rules included in the plan require compliance
statewide by May 31, 2004. This plan constitutes Indiana's response to
Phase I of the NO_X SIP Call. The tables below summarize the
requirements of the two draft rules as submitted and how the rules
differ from the SIP Call. These tables are not meant to be exhaustive
of every requirement in Indiana's rules. Rather, they are intended to
provide a general idea of how Indiana's rules are structured and some
of the significant requirements. For a complete understanding of the
proposed rules, please see the applicable rulemaking package which is
available at the locations listed in the Addresses section of this
proposal. As described in this proposal action, it is EPA's
understanding that the State made changes in response to comments by
EPA and affected stakeholders. (These tables, however, reflect the
proposed rules as submitted.)

Table 1.--326 Indiana Administrative Code 10-3
----------------------------------------------------------------------------------------------------------------
Cite Section title/subject
----------------------------------------------------------------------------------------------------------------
326 IAC 10-3-1...................................... Applicability--Generally Portland Cement Kilns larger than
specified size with specified exceptions.
326 IAC 10-3-2...................................... Definitions
326 IAC 10-3-3...................................... Emission limits
Technology Requirements (mid-kiln firing or low
NO_X burners) or
Ozone Season Emission Averages 2.8--6 pounds of
NO_X per ton of clinker depending on type of kiln or
Approved alternatives to achieve 30% reductions
326 IAC 10-3-4...................................... Monitoring and Testing Requirements
Technology Requirements--preventative maintenance
plan
Ozone Season Emission Averages or Approved
alternatives to achieve 30% reductions--initial and
subsequent annual testing or NO_X Continuous Emission
Monitoring Systems (CEMS)

[[Page 34869]]

326 IAC 10-3-5(a)................................... Record keeping and Reporting
(a) Record keeping--Begin May 31, 2004, and keep records
at the unit for 5 years.
Technology Requirements--record maintenance,
startup, shutdown, and malfunction information
Ozone Season Emission Averages or Approved
Alternatives to achieve 30% reductions--emissions in
pounds per ton of clinker, results of performance
testing, CEMS data if CEMS are used, startup, shutdown
and malfunction information
(b) Reporting
By May 31, 2004 submit initial information to
IDEM
By October 31, 2004 and before October 31 each
year after submit NO_X emission information.
----------------------------------------------------------------------------------------------------------------

In addition to the specific rule for cement kilns, 326 IAC 10-3,
Indiana proposed a rule to implement the 40 CFR part 96 Nitrogen Oxides
Budget Trading Program.

Table 2.--326 IAC 10-4 Nitrogen Oxides Budget Trading Program
------------------------------------------------------------------------
Comparable federal
Cite/section Title/subject regulation/note
------------------------------------------------------------------------
326 IAC 10-4-1................... Applicability.. Sec. 96.4--Indiana'
s rule includes
same core sources
(EGUs and large non
utility boilers and
turbines) as NO_X
SIP Call and opt in
provisions. It
contains 2
additional 25 ton
exemptions.
326 IAC 10-4-2................... Definitions.... Sec. 96.2--Indiana
adds definition for
``energy efficient
or renewable energy
projects.'' Indiana
also adjusts some
definitions to
account for 2004
compliance date.
326 IAC 10-4-3................... Retired Unit Sec. 96.5
Exemption.
326 IAC 10-4-4................... Standard Sec. 96.6--Proposed
Requirements. rule does not
include full
liability
requirements of SIP
Call and will need
to be revised.
326 IAC 10-4-5................... Computation of Sec. 96.7--Indiana
time. clarified that the
ozone control
period always
begins and ends on
the calendar dates
specified in the
definition.
326 IAC 10-4-6................... NO_X Authorized Sec. 96.10, Sec.
Account 96.11, Sec. 96.12,
Representative. Sec. 96.13, Sec.
96.14
326 IAC 10-4-7................... Permit Sec. 96.20, Sec.
Requirements. 96.21, Sec. 96.22,
Sec. 96.23, Sec.
96.24, Sec. 96.25--
Indiana is
implementing the
permitting
requirements with
its existing
permitting
programs, 326 IAC 2-
7.
326 IAC 10-4-8................... Compliance Sec. 96.30, Sec.
Certification. 96.31.
326 IAC 10-4-9................... Allowance Sec. 96.40, Sec.
Allocations. 96.41, Sec. 96.42
State is
establishing
trading program
budget of 43,654
tons of NO_X in 2004
and 2005 and 45,033
tons thereafter.
The State requested
changes to the SIP
Call budget as
discussed in the
preliminary budget
demonstration. The
State also provides
a mechanism to
transition from the
Section 126
petitions to the
SIP Call. This
issue is discussed
in detail in this
proposal. The State
has developed an
allocation
methodology,
utilizing the
flexibility under
the NO_X SIP Call.
326 IAC 10-4-10.................. NO_X allowance.. Sec. 96.50, Sec.
96.51, Sec. 96.52,
Sec. 96.53, Sec.
96.54, Sec. 96.56,
Sec. 96.57.
326 IAC 10-4-11.................. NO_X allowance Sec. 96.60, Sec.
transfers. 96.61, Sec. 96.62.
326 IAC 10-4-12.................. NO_X monitoring Sec. 96.70, Sec.
and reporting 96.71, Sec. 96.72,
requirements. Sec. 96.73, Sec.
96.74, Sec. 96.75,
Sec. 96.76--State'
s proposed rule
would not require
sources to begin
monitoring May 1 of
the year before the
compliance year as
required by the NO_X
SIP Call as
discussed in this
proposal.
326 IAC 10--13................... Individual opt- Sec. 96.80, Sec.
ins. 96.81, Sec. 96.82,
Sec. 96.83,Sec. 9
6.84, Sec. 96.85,
Sec. 96.86, Sec.
96.87, Sec. 96.88.
326 IAC 10-4-14.................. NO_X Banking.... Sec. 96.55(a) and
(b).
326 IAC 10-4-15.................. Compliance Sec. 96.55(C)--The
Supplement. State has made
several changes to
this section to
allow for an easier
transition from the
Section 126
rulemaking as
discussed below.
------------------------------------------------------------------------

Table 3
------------------------------------------------------------------------
Sections of the 40 CFR Part
96 model rule not addressed How Indiana has addressed or needs to
by a specific section in address these sections.
Indiana's Rule
------------------------------------------------------------------------
40 CFR 96.1, 40 CFR 96.3..... Indiana has addressed both of these
sections by 1) submitting a rule, and 2)
addressing specifics in various sections
of its rule. For example, the
requirement in 40 CFR 96.1 that, by
adoption of the rule a state authorizes
EPA to assist in operating the trading
program, is addressed in the rule's
definition of EPA in 326 IAC 10-4-2(65).
------------------------------------------------------------------------

[[Page 34870]]

C. How Does Indiana Address Its Statewide NO_X budget?

1. What NO_X budget Did EPA Determine for the State?
In the October 27, 1998, NO_X SIP Call, Indiana's
NO_X budget was set at 202,584 tons/season with a
``compliance supplement pool'' of 19,738 tons. The ``compliance
supplement pool'' is a voluntary provision that provides flexibility to
States in addressing concerns of full compliance by May 31, 2004. Each
State will be able to use its pool to cover excess emissions from
sources that are unable to meet the compliance deadline during the 2004
and 2005 timeframe. In the final NO_X SIP Call, EPA provided
a 60-day public comment period on 2007 baseline sub-inventory
revisions. The EPA received numerous requests to allow more time to
accept revisions to source-specific inventory data used to establish
each State's emissions baseline and budget in the NO_X SIP
Call and also to allow revisions to vehicle miles traveled (VMT)
projections. Therefore, by notice dated December 24, 1998, EPA
published a ``Correction and Clarification to the Finding of
Significant Contribution and Rulemaking for Purposes of Reducing
Regional Transport of Ozone'' (63 FR 71220), which may be referred to
as ``the correction notice.''
In the correction notice, EPA reopened and extended the comment
period to February 22, 1999, on emissions inventory revisions for the
2007 baseline information used to establish each State's budget in the
NO_X SIP Call. This included source-specific emission
inventory data, data on VMT and nonroad mobile growth rates, VMT
distribution by vehicle class, average speed by roadway type,
inspection and maintenance program parameters, and other input
parameters used in the calculation of highway vehicle emissions. In
response to the comments received during this comment period, EPA
published revised baseline inventories and budgets in the May 14, 1999
technical amendment (64 FR 26298).
Subsequently, on March 2, 2000 (65 FR 11222), the EPA proceeded to
final action on a second technical amendment based on further comments
received from the public in response to the NO_X SIP Call and
the request for comments on inventory revisions as well as the May 14,
1999 technical amendment. The final NO_X SIP Call required
that States submit the SIPs by September 30, 1999, and that the rules
require the sources to implement the controls by May 1, 2003. The March
2, 2000, changes were also necessary to make the NO_X SIP
Call inventory consistent with the inventory adopted when EPA granted
section 126 petitions on December 17, 1999. The March 2, 2000, 2007
NO_X emission budget for the State of Indiana is 229,965
tons/season with a compliance supplement pool of 19,915 tons.
This revision did not address the issues remanded by the D.C.
Circuit Court of Appeals on March 3, 2000. As discussed earlier, in
this decision, the Court generally upheld the NO_X SIP Call.
It did, however, vacate the standard for some states and portions of
other states, and remanded two issues concerning a limited portion of
the NO_X emission budgets. Based on this decision, EPA sent
letters to the affected states' governors on April 11, 2000, to specify
what portion of the budget needed to be met to achieve the reduction
upheld by the Court. Consistent with the Court's opinion, these
budgets, referred to as the ``Phase I NO_X budgets,'' reflect
controls on electricity generating units subject to the acid rain
program; large boilers and turbines; and cement kilns. For Indiana, the
Phase I budget was 234,625 tons for each NO_X SIP Call ozone
control period. The compliance supplement pool was not affected by the
phased approach.
2. What Changes Did The State Request to the NO_X Budget and
Are Those Changes Approvable?
The State submitted its draft rules and preliminary budget
demonstration to the EPA for parallel processing on March 30, 2001. In
the preliminary budget demonstration, the State took a slightly
different approach than that laid out by EPA in the phased approach,
and also requested several changes to the statewide budget. The
resulting overall budget for the State, that EPA is proposing approval
on in this action, is 233,633 tons. These changes also affected the
portion of the budget that is being used to ensure that the appropriate
reductions are being achieved from EGUs and large industrial boilers
and turbines in the State, namely the trading budget. The State trading
portion of the budget, in its submittal, is 57,059 tons.
In the budget demonstration, IDEM used the same inventories as the
EPA for area, on-road mobile and non-road mobile categories. IDEM also
used the inventories from the NO_X SIP Call as a starting
point for its budget demonstration for EGUs and the non-EGU point
sources.
IDEM then requested moving several units at the Indianapolis Power
& Light Perry K facility identified by EPA in the EGU inventory to the
non-EGU inventory based on those units meeting the definition in 326
IAC 10-4-2 for ``large affected units''. The 2007 projected
uncontrolled emissions from these units were then multiplied by 40% (to
account for 60% control as non-EGU large affected units) and added to
the non-EGU portion of the budget.
In addition to the changes to the Perry K facility, IDEM determined
that 19 units that EPA had characterized as large non-EGUs in fact have
capacities of less than 250 mmBtu/hr. As a result, they do not meet
either EPA's or IDEM's definition for units that need to be controlled.
Therefore, IDEM requested and EPA is proposing for approval that these
units be shifted from the large non-EGU portion of the inventory to the
small non-EGU portion. More information on the inventory and these
changes is available in the Docket.
IDEM also presented inventory information that units at Bethlehem
Steel and Purdue University are larger than 250 mm/Btu. Since these
units meet the definition for ``large affected units'', IDEM has
requested that they be moved to that category and with controls assumed
to be 60%. IDEM also noted two numerical errors in the SIP call
inventory; one affecting a New Energy unit and the other affecting two
units at SIGECO's Warrick Station. The State has submitted inventory
information to support correcting these errors. We are proposing to
approve these inventory corrections. More information on these changes
is available in the Docket.
The following table shows how IDEM's proposed inventories differed
from those used by EPA.

[[Page 34871]]

Table 4.--EPA and IDEM Inventories
----------------------------------------------------------------------------------------------------------------
EPA IEDM
----------------------------------------------------------------------------------------------------------------
2007 Projected 2007 2007 Projected 2007
Source category uncontrolled Budget uncontrolled Budget
----------------------------------------------------------------------------------------------------------------
Point:
EGUs........................................ 136,773 47,712 136,773 46,778
Non-EGUs.................................... 69,011 52,042 67,263 51,984
Area............................................ 29,070 29,070 29,070 29,070
On-road Mobile.................................. 79,307 79,307 79,307 79,307
Non-road Mobile................................. 26,494 26,494 26,494 26,494
---------------------------------------------------------------
Total................................... 340,655 234,625 338,907 233,633
----------------------------------------------------------------------------------------------------------------

EPA is proposing to approve the changes submitted by IDEM in its
budget demonstration. Based on these changes, the State's budget would
be 233,633 tons.
3. How Does Indiana Demonstrate That It Is Meeting the Budget?
To meet the overall budget, Indiana is relying on reductions from
cement kilns of 30% (326 IAC 10-3) and reductions equivalent to 0.15
pounds of NO_X per million BTU heat input for EGUs and a 60%
reduction from industrial boilers and turbines with maximum rated heat
input greater than 250 mmBtu/hr. The reductions from EGUs and large
industrial boilers and turbines will be achieved through the State's
trading program (326 IAC 10-4). The State demonstrates that, based on
these regulations and the changes that it requested to its 2007
NO_X budget, it is controlling facilities to the extent
necessary to ensure the budget is being met. The following table shows
that, through the implementation of controls on EGUs, large industrial
boilers and turbines and cement kilns, the State projects, in its
submitted materials, that it will meet its 2007 budget.

Table 5.--IDEM's Submitted Preliminary Budget Demonstration
----------------------------------------------------------------------------------------------------------------
Trading
Source category 2007 Projected 2007 Reductions portion of
uncontrolled Budget budget
----------------------------------------------------------------------------------------------------------------
EGUs............................................ 136,773 46,778 89,995 45,952
Non-EGUs:
Boilers > 250 mmBtu/hr...................... 24,715 11,107 13,608 11,107
Controlled cement kilns..................... 5,572 3,900 1,672
Uncontrolled................................ 36,976 36,977 0
Area............................................ 29,070 29,070 0
On-road Mobile.................................. 79,307 79,307 0
Non-road Mobile................................. 26,494 26,494 0
---------------------------------------------------------------
Total................................... 338,907 233,633 a 105,274 57,059
----------------------------------------------------------------------------------------------------------------
a Slight difference due to rounding.

One of the most significant numbers in this chart is the total
trading budget since, through the trading program, this budget will
ensure that the majority of emission reductions are being obtained. As
shown below, Indiana included ``set-asides'' for new sources,
equivalent to 5% of the EGU portion of the budget and 1% of the non-EGU
portion until 2006, with 2% and 1% respectively, thereafter. The State
also included an energy efficiency set aside of 1% from the non-EGU
category. The concept of a set aside was discussed in NO_X
SIP Call Rulemaking Federal Register actions. The State may establish
set-asides where a portion of the trading budget is reserved for a
special purpose. It is a tool to help States manage their budgets. The
result is that the total trading budget is 57,059, including the set-
asides, and 53,509 tons, when considering that excess emission
reductions will be required from existing facilities to provide for the
tonnage reduction to supply the set-asides with allowances. The
following table illustrates the total Indiana budget, the trading
portion and the set-asides.

Table 6.--Summary of Indiana's Phase I NO_X Budget
[(tons/season) (as submitted in Draft)]
----------------------------------------------------------------------------------------------------------------
On-road Non-road
EGU Non-EGU Area Mobile Mobile Total
----------------------------------------------------------------------------------------------------------------
2007 Projected Uncontrolled 136,773 67,263 29,070 79,307 26,494 338,907
Inventory........................
2007 Budget....................... 46,778 51,984 29,070 79,307 26,494 233,633
NO_X Trading Budget Portion........ 45,952 11,107 57,059
New Source Set-Aside.............. 2,298 111 2,409
Energy Efficiency Set-Aside....... 1,141 1,141
Trading Budget minus Set-Asides... 43,654 9,855 53,509
----------------------------------------------------------------------------------------------------------------

[[Page 34872]]

As explained in section I below, where we discuss changes that IDEM
has made in response to comments, the emissions from ``blast furnace
gas'' units have been removed from the trading program in the final
adopted rule. Indiana did not intend to require reductions from these
units, regardless of whether the units were included in the trading
program or not. For a more thorough discussion, please see section I
below. The resulting impact on the budget is as follows:

Table 7.--Summary of Indiana's Phase I NO_X Budget
[(tons/season) (as revised in final adopted rule)]
----------------------------------------------------------------------------------------------------------------
On-road Non-road
EGU Non-EGU Area Mobile Mobile Total
----------------------------------------------------------------------------------------------------------------
2007 Projected Uncontrolled 136,773 67,263 29,070 79,307 26,494 338,907
Inventory........................
2007 Budget....................... 46,778 51,984 29,070 79,307 26,494 233,633
NO_X Trading Budget Portion........ 45,952 8,008 53,960
New Source Set Aside.............. 2,298 80 2,378
Energy Efficiency Set Aside....... 1,079 1,079
Trading Budget minus Set-Asides... 43,654 6,849 50,503
----------------------------------------------------------------------------------------------------------------

Either of these approaches is acceptable to EPA and should ensure
that the required reductions will occur in the State. EPA is proposing
for approval the trading budget and set-asides as revised in the final
adopted rule and reflected in Table 7 above.

D. How Is the State Addressing the Units Covered by Section 126
Petitions?

IDEM's proposed trading rule states that sources subject to 40 CFR
part 97 will be subject to the Indiana trading rule as of May 1, 2004.
Indiana's intention is that, as of that date, its rule will ensure that
those sources are no longer significantly contributing to downwind
nonattainment and thus the sources would no longer need to be subject
to the section 126 requirements.
Under certain circumstances in which the section 126 sources in a
State are no longer significantly contributing to downwind
nonattainment, EPA believes it would be appropriate to propose to
withdraw the section 126 findings of significant contribution and the
accompanying requirements for such sources. Specifically, where a
State's regulation is approved into the SIP and requires at least the
same total quantity of reductions from the same group of sources as
would have been controlled under the section 126 rule, we believe it
would be appropriate to propose withdrawal of the section 126
requirements. EPA believes it would be reasonable to find that, as of
the required date of compliance with the State regulations, such
sources were no longer contributing significantly to downwind
nonattainment for purposes of section 126.
Under Indiana's proposed regulations, all of the section 126
sources in the State would be covered by the State rule, and the rule
requires those sources to reduce a quantity of emissions greater than
the quantity of reductions required under the section 126 rule. Under
these circumstances, and assuming that EPA's final analysis of
Indiana's adopted rule confirms that Indiana has addressed the other
identified deficiencies, EPA intends to propose to withdraw the section
126 findings and requirements for sources in the State as of May 1,
2004.
As Indiana noted in correspondence to EPA, an Indiana state rule
cannot operate to withdraw the section 126 findings, which can only be
modified through further rulemaking under the section 126 rule.
However, the submitted draft of the Indiana regulations contains a
provision (326 IAC 10-4-1(c)) that suggests otherwise. In light of
EPA's intention to propose withdrawal of the section 126 findings and
requirements for the State as of May 1, 2004, this provision in the
draft submittal needs to be removed. EPA expressed its concerns with
this issue to the State in a May 3, 2001, letter from John S. Seitz,
Director of the Office of Air Quality Planning and Standards to Lori F.
Kaplan, Commissioner, IDEM. Indiana has removed the language referenced
above from the final adopted rule. Indiana's NO_X SIP rule
could meet the requirements of the NO_X SIP Call without
addressing the section 126 requirements. However, Indiana and EPA have
worked together to help ensure that Indiana's SIP Call rule is written
to allow for a smooth transition to phase out the section 126
requirements.
In order to make this transition, EPA identified several other
issues that Indiana must address in its final submittal so that EPA can
propose to amend the applicability of the section 126 rulemaking. We
are highlighting those issues in today's proposal because Indiana has
made changes to the submitted NO_X regulations in response to
our comments.
First, if Indiana were to have sole responsibility for distributing
the ``compliance supplement pool'' for the State, it must account for
the section 126 sources in the State, as well as the sources covered
only by the State program. The submitted draft of the Indiana rule
would provide allowances from the compliance supplement pool for early
reductions made in 2002 and 2003. EPA recommended that Indiana consider
also providing allowances from the compliance supplement pool for early
reductions made in 2001, to assure that the section 126 sources have a
full two years to earn early reduction credits before their compliance
deadline of 2003. Indiana's final adopted rule provides the opportunity
for sources to request early reduction credits for reductions made in
2001.
Second, the sources covered by the section 126 rule should not be
able to earn early reduction credits for any reductions made in 2003.
The Indiana draft rule provides that reductions already required by
federal law are not eligible for early reduction credits. EPA
interprets this language as precluding sources covered by the section
126 rule from being granted compliance supplement pool allowances for
reductions made in 2003. It is our understanding that Indiana agrees
and the State is expected to confirm this in its final submittal.
The third change to Indiana's proposed NO_X rule
addresses a concern that arises because the NO_X SIP Call
covers the full State, but the section 126 rule covers only a portion
of the State. The statewide compliance supplement pool is substantially
larger than either the compliance supplement pool for Indiana under
section 126 or, for that matter, the entire budget for the section 126
sources in Indiana. Thus, if the State were to distribute the full
compliance supplement pool for

[[Page 34873]]

Indiana in a manner that allowed the section 126 sources to use all of
those allowances in 2003, the section 126 sources might not need to
make any emissions reductions in 2003. This would undercut the benefits
of the section 126 requirements and make it difficult for EPA to
justify a proposal to withdraw the section 126 program for Indiana.
Indiana's final adopted rule removes this concern by limiting when
the compliance supplement pool allowances can be used. The rule limits
the compliance supplement pool allowances that could be used in 2003 to
no more than 2,454 allowances (i.e., the quantity equal to the
compliance supplement pool under the section 126 rule). The remainder
could be used beginning in 2004. This limitation on the number of
compliance supplement pool allowances that can be used in 2003, equal
to the quantity of compliance supplement pool allowances under the
section 126 rule, is included in IDEM's final rule and is being
proposed for approval in this action.
Fourth, the State may change the rule to enable it to distribute
the compliance supplement pool allowances at any time after the early
reductions have been verified, but no later than the date that the
source claiming the early reduction credit becomes subject to the
requirement to hold allowances. Thus, for section 126 sources making
early reductions, the State could distribute compliance supplement pool
allowances up to April 30, 2003. For all other sources making early
reductions, the State can distribute compliance supplement pool
allowances up to May 30, 2004. The State's final rule specifies that
the issuance of allowances, under these provisions, shall be completed
by March 31, 2003 for section 126 sources and March 31, 2004, for non-
section 126 sources.

E. What Public Review Opportunities Did the State Provide?

Indiana has led a proactive outreach effort with affected
stakeholders throughout this rulemaking process. IDEM began conducting
discussion with stakeholders prior to the publication of the
NO_X SIP Call. In April 1999, IDEM drafted language for a
NO_X rulemaking, considering options to fulfill the
NO_X SIP Call requirements and a NO_X emission
limit of 0.25 lb/mmBtu for EGUs, and began to hold monthly public
meetings to discuss issues and receive feedback on the approaches it
was developing to respond to the NO_X SIP Call. Indiana began
its formal rulemaking process for the regulations in response to the
NO_X SIP Call on July 1, 2000, opening a comment period for
30 days. (In the State of Indiana, at least three written public
comment periods are required for each rulemaking.) The State opened the
second comment period on December 1, 2000. Indiana preliminarily
adopted the draft rule on February 7, 2001.
The proposed rule was published in the Indiana Federal Register on
April 1, 2001, providing a third written comment period. The comment
period closed on April 23, 2001. Indiana received numerous comments
from EPA and affected stakeholders. Since preliminary adoption, IDEM
has held numerous formal and informal meetings to discuss those
comments and their resolution with affected stakeholders and EPA. IDEM
and EPA have discussed several changes to the rules, significant and
otherwise, that will need to be made or are being made in response to
comments. The significant issues that are expected to be addressed are
discussed in this proposal. The State will also need to include
responses to these comments in its final submittal to EPA.
Indiana adopted final rules on June 6, 2001. EPA has not concluded
its analysis of these final adopted rules and the associated plan.
However, based on our preliminary review and conversations with the
State, we expect that the rules will address the deficiencies
identified in this proposal. These final adopted rules are available on
Indiana's website at: http://www.state.in.us/idem/oam/standard/Sip/
index.html.

F. What Guidance Did EPA Use To Evaluate Indiana's NO_X
Control Program?

In evaluating Indiana's draft NO_X rules, EPA considered
a number of documents related to the NO_X SIP Call, section
110 of the Clean Air Act and 40 CFR part 51. These documents include:
(1) ``Federal Implementation Plans to Reduce the Regional Transport
of Ozone; Proposed Rule,'' published October 21, 1998. (63 FR 56393)
(2) ``Findings of Significant Contribution and Rulemaking for
Certain States in the Ozone Transport Assessment Group Region for
Purposes of Reducing Regional Transport of Ozone; Rule,'' published
October 27, 1998. (63 FR 57356). This Federal Register is referred to
as ``The NO_X SIP Call'' in today's action.
(3) ``Correction and Clarification to the Finding of Significant
Contribution and Rulemaking for Purposes of Reducing Regional Transport
of Ozone,'' published December 24, 1998 (63 FR 71220).
(4) EPA's `` NO_X SIP Call Checklist,'' (the checklist),
issued on April 9, 1999. The checklist summarizes the requirements of
the NO_X SIP Call set forth in 40 CFR 51.121 and 51.122.
(5) ``Development of Emission Budget Inventories for Regional
Transport NO_X SIP Call'' issued by the EPA Office of Air
Quality Planning and Standards May 1999 and technically-amended
December 1999.
(6) Technical amendments to the NO_X SIP Call, published
May 14, 1999 (64 FR 26298) and March 2, 2000 (65 FR 11222).
(7) The section 126 findings and requirements as contained in the
January 18, 2000, Federal Register (63 FR 2674).
(8) The April 11, 2000 letter from EPA Administrator Carol Browner
to Indiana Governor Frank O'Bannon, regarding the phased approach to
implement the issues upheld by the Court, based on the March 3, 2000,
decision from the United States Court of Appeals for the District of
Columbia Circuit regarding the NO_X SIP Call.
(9) ``Summary of EPA's Approach to the NO_X SIP Call in
Light of the March 3rd Court Decision'' fact sheet issued April 11,
2000.
(10) EC/R, Inc., `` NO_X Control Technologies for the
Cement Industry.'' Chapel Hill, NC. September 19, 2000. This report
updates information in the ``Alternative Control Techniques Document-
NO_X Emissions from Cement Manufacturing'' (EPA-453/R-94-
004), which was the primary reference used in preparing the cement kiln
portion of the proposed Federal Implementation Plan (FIP) rulemaking.
The report includes updated information on uncontrolled NO_X
emissions from cement kilns and on the current use, effectiveness and
cost of NO_X controls.
(11) A May 3, 2001, letter from John S. Seitz, Director of the
Office of Air Quality Planning and Standards, to Lori F. Kaplan,
Commissioner, IDEM.
As noted in the EPA's NO_X SIP Call checklist, the key
elements of an approvable submittal are: a budget demonstration;
enforceable control measures; legal authority to implement and enforce
the control measures; adopted control measure compliance dates and
schedules; monitoring, recordkeeping, and emissions reporting; and
elements that apply to states that choose to adopt an emissions trading
rule in response to the NO_X SIP Call. The documents related
to the NO_X SIP Call are available to the public on EPA's
website at: http://www.epa.gov/ttn/naaqs/ozone/rto/sip/related.html.

[[Page 34874]]

G. Does Indiana's Proposed NO_X Emissions Control Plan Meet
All of the Federal NO_X SIP Call Requirements?

Based on EPA's review, Indiana's proposed plan meets all of the
federal requirements, including the Phase I NO_X SIP Call
requirements, with the exception of the deficiencies identified in this
document. In addition, the State's final submittal will need to include
responses to comments on the preliminarily adopted rule. Furthermore,
Indiana must have addressed the deficiencies identified in this
proposal, including revisions to the preliminary budget demonstration
to support those changes where appropriate. Finally, Indiana must not
significantly change the submitted rules from those being proposed for
approval today, other than to address EPA comments or changes that are
discussed in this Federal Register action. In addition, if Indiana does
not correct these deficiencies, EPA is proposing to disapprove these
rules, in the alternative.
Indiana adopted final rules on June 6, 2001. EPA has not concluded
its analysis of these final adopted rules and the associated plan.
However, based on our preliminary review and conversations with the
State, we expect that the rules will address the deficiencies
identified in this proposal. These final adopted rules are available on
Indiana's website at: http://www.state.in.us/idem/oam/standard/Sip/
index.html.

H. What Deficiencies Are There in Indiana's Proposed NO_X
Emissions Control Regulations, and Do Any of These Deficiencies
Constitute an Approvability Issue?

EPA reviewed the State's proposed NO_X emissions control
rules at 326 IAC 10-3 and 10-4 and offers the following comments on
deficiencies found in the rules. Many of these comments are minor and
should be readily correctable in the final rule adoption process. These
deficiencies must be corrected before the EPA can give final approval
on the Indiana NO_X rules. EPA is proposing disapproval, in
the alternative, if the State does not correct these deficiencies.
1. The 25-Ton Exemptions
States may develop alternative 25-ton NO_X exemptions to
the one included in the model rule (40 CFR part 96) provided they are
based on permit restrictions that limit a unit's potential to emit
during an ozone season to 25 tons or less. Indiana's proposed rule, 326
IAC 10-4, Nitrogen Oxides Budget Trading Program Section, includes in
10-4-1(b), the 25-ton exemption from the model rule and two additional
exemptions. One of these alternatives relies on Continuous Emission
Monitoring System (CEMS) data. In this exemption, units may use CEMS
data to demonstrate that the unit is not emitting more than 25 tons
during an ozone season. For this exemption to provide sufficient
assurance that these units will not emit more than 25 tons per season,
these units must still be required to monitor according to 40 CFR part
75, subpart H, even while they have the exemption. This requirement
needs to be clarified in Indiana's rule.
The second alternative attempts to restrict the unit's usage of
each fuel that it is authorized to burn (natural gas or fuel oil) such
that the unit's potential NO_X mass emissions will not exceed
25 tons of NO_X during the ozone season. Indiana's intent in
including this exemption appears to be to allow units which burn
predominantly natural gas, and only a small amount of oil, to not have
to use only the default emissions rate in 40 CFR 75.19, table 2, for
oil when determining the 25-ton exemption. However, the provisions in
Indiana's rule are unclear and would not result in limiting the unit's
potential NO_X emissions to 25 tons or less. Indiana must
either use the following language to correct this deficiency or use
similar language which is as stringent and achieves similar and
acceptable results. This language allows units the flexibility Indiana
intended and also limits a unit's potential NO_X emissions to
less than 25 tons:

326 IAC 10-4-1(b)(3)(B)(iii): Restrict the number of hours a
unit may use each fuel that it is authorized to burn such that the
unit's potential NO_X mass emissions will not exceed
twenty-five (25) tons per ozone control period, calculated by
dividing twenty-five (25) tons of potential NO_X mass
emissions by the unit's maximum potential hourly NO_X mass
emissions (DD), where the unit's maximum potential hourly
NO_X mass emissions shall be calculated as follows:
(AA) Identify the percentage of hours in the ozone control
period during which the unit intends to burn each type of fuel that
is authorized under the fuel use restriction in clause (A).
(BB) For each fuel type identify the default NO_X
emission rate in 40 CFR 75.19(c)(1)(ii), Table 2 for each type of
fuel that the unit is allowed to burn under the fuel use restriction
in clause (A).
(CC) For each fuel type multiply the default NO_X
emission rate under subitem (BB) and the percentage of the unit's
maximum rated hourly heat input for that fuel type identified under
subitem (AA). The owner or operator of the unit may petition the
department to use a lower value for the unit's maximum rated hourly
heat input than the value as defined under section 2(24) of this
rule. The department may approve the lower value if the owner or
operator demonstrates that the maximum hourly heat input specified
by the manufacturer or the highest observed hourly heat input, or
both, are not representative, and that the lower value is
representative, of the unit's current capabilities because
modifications have been made to the unit, limiting its capacity
permanently;
(DD) Sum the products determined in (CC) for each fuel type.

In addition, when a unit receives a 25-ton exemption, the unit's
emissions must be removed from the trading program budget to avoid
double counting. EPA has concerns about how Indiana's submitted rule
accounts for the emissions of the exempt units. Specifically, the
provision at 326 IAC 10-4-9(a), which states that ``the total number of
NO_X allowances shall be adjusted, as needed, to account for
units exempted under section (1)(b) of this rule'' is not explicit
enough to account for the emissions of units receiving the 25-ton
exemption. IDEM needs to specify the mechanism that will be used to
ensure that the emissions from these sources are removed from the
trading budget.
There are many ways Indiana can account for the exempted units'
emissions. If Indiana does not plan on allocating allowances to units
which are exempt from the program based on the 25-ton exemption, then
it must subtract the unit's potential tons of emissions from the
trading budget. Alternatively, if Indiana chooses to allocate
allowances to these exempt units, then immediately after EPA allocates
allowances, IDEM's rule needs to provide that EPA should deduct from
accounts the maximum number of tons of NO_X emissions the
units have the potential to emit. The Authorized Account
Representatives (AAR) for the units are required to ensure that enough
allowances are in the units' accounts. EPA notes that Indiana has
posted its final adopted NO_X regulation to its website, and
this rule appears to address the EPA's concerns regarding Indiana's 25-
ton exemptions.
2. Definition of ``Maximum Design Heat Input''
Indiana's rule changes the definition of ``maximum design heat
input'' to, ``the ability of a unit to combust a stated maximum amount
of fuel per hour on a steady state basis, as determined by the physical
characteristics of the unit and the federally enforceable permit
conditions limiting the heat input.'' This expansion of the term is
unacceptable as it would exempt from the trading program units (both
new and existing) that meet the definition of a large

[[Page 34875]]

electric generating unit or large non-electric generating unit under 40
CFR 51.121, which is based strictly on the physical characteristics of
the unit.
Additionally, such a definition could result in load shifting from
affected to non-affected units. If there is load shifting, the
emissions from the affected units would decrease but there would be no
net decrease in emissions because the emissions of the unaffected units
that picked up the load would increase by a commensurate amount. This
definition needs to be revised so that ``maximum design heat input'' is
based solely on physical characteristics and not permitted limits. The
State has made this change in its final adopted rule by removing the
reference to permit limits.
3. Definition of ``NO_X Budget Trading Program''
Indiana's submitted draft rule allows trading between Section 126
and NO_X SIP call sources. Because under the NO_X
SIP Call, States have the option of developing their own intrastate
trading programs, the State must add language to the definition of
``NO_X budget trading program'' to indicate that trading may
only occur between sources that are participating in an EPA
administered trading program. IDEM has added this language to its final
adopted rule.
4. Definition of ``Percent Monitoring Data Availability''
Indiana's submitted draft rule includes a definition of ``percent
monitoring data availability''. The definition is not correct. (EPA
notes that the definition of ``percent monitoring data availability''
in part 97 is also incorrect, and intends to take action to correct the
definition.) Under Indiana's definition, a source would determine the
percent availability based on the assumption that it is operating the
entire ozone season. With this definition, a unit could fail to meet
the 90% monitoring data availability requirement even if its monitors
were available 90% of the time it operated. Thus, Indiana must revise
the definition such that the unit's total operating hours constitute
the denominator of the equation instead of the total potential
operating hours in the season. IDEM has made this revision in the final
adopted rule.
5. Monitoring Requirements
Indiana's 326 IAC 10-4-12(c) does not require units to comply with
the rule's monitoring and reporting requirements until May 31, 2004
unless they are applying for early reduction credits. However, the
model rule requires compliance with the monitoring and reporting
requirements one year before the program begins (i.e., May 31, 2003).
The additional year of monitoring is for the benefit of the sources. It
allows them to ensure that their monitoring and reporting systems are
working and accurate before the program begins, thus avoiding
unnecessary penalties once the trading program has begun. Additionally,
Indiana may want to use the 2003 data for determining allocations under
``326 IAC 10-4-9 NO_X allowance allocations.'' The date for
required monitoring must be May 31, 2003 at the latest. However, EPA
has recommended to Indiana that monitoring begin May 1, 2003, so that
when Indiana updates its allocations, it has a full year of data to
use. Indiana has revised this date in its final rule to require
monitoring to begin May 1, 2003.
6. Indiana's New Source and Energy Efficiency and Renewable Energy
``Set-Asides''
Indiana may include the new source, and energy efficiency and
renewable energy ``set-asides'' outlined in 326 IAC 10-4-9(e). However,
the allowances reserved for these set-asides must come from the trading
program budget. While EPA believes this was Indiana's intent, Indiana
should clarify that the allowances reserved for these set-asides are
within the bounds of its trading program budget. EPA can only approve a
rule where the set-asides come from the trading program budget. IDEM
has clarified this issue in its final adopted rule.
7. Penalties
The following language in 40 CFR 96.54(d)(3)(i) must be added to
the rule:

For purposes of determining the number of days of violation, if
a NO_X Budget unit has excess emissions for a control
period, each day in the control period (153 days) constitutes a day
in violation, unless the owners and operators demonstrate that a
lesser number of days should be considered.

The language stipulates the maximum number of days in which a
violation could be sought. However, EPA notes that if an agency were to
seek penalties for a violation, it has the discretion to seek penalties
for fewer days of violation. Removing this language would limit both
the State and EPA's ability to seek violation for the maximum number of
days which would be a violation of the Clean Air Act, as interpreted in
case law. IDEM has added this language to its final adopted rules.
8. 326 IAC 10-3 Nitrogen Oxide Reduction Program for Specific Source
Categories
326 IAC 10-3, as submitted by Indiana, requires emission reductions
at cement kilns. Model rules for cement kilns were not a part of the
NO_X SIP Call. For this reason, the State used the proposed
October 28, 1998, NO_X Federal Implementation Plan (FIP) as a
starting point in developing its rules. Since much of the analysis and
background materials for the proposed FIP are germane to cement kilns,
as noted below, these materials were also used to provide information
to review the State's submittal.
326 IAC 10-3-1 Applicability. Indiana's submitted rules contain a
provision, 326 IAC 326 10-3-1(b), that would exempt cement kilns
covered by the rule from the Clark and Floyd NO_X Reasonably
Available Control Technology (RACT) rules at 326 IAC 10-1. EPA
commented to Indiana that 326 IAC 10-3 can only supercede the Clark and
Floyd NO_X RACT rules at 326 IAC 10-1 if the State either
demonstrates that 326 IAC 10-3 is as stringent as 326 IAC 10-1 or
provides photochemical dispersion modeling that shows the area remains
in attainment without the RACT controls.
In response to EPA's comment, in the final adopted rule, Indiana
significantly narrowed the scope of the provision and argued that for
the group of cement kilns affected, 326 IAC 10-3 is as stringent as 326
IAC 10-1. Indiana narrowed the scope of the provision such that only
cement kiln units operating low-NO_X burners would be exempt.
Furthermore, the final adopted rule states that those units are only
exempt from the emission limit in 326 IAC 10-1 and only during the
ozone control period.
Indiana's argument is that based on the expected emission limits
achievable for low-NO_X burners installed on cement kilns,
those kiln's emissions under 326 IAC 10-3 are expected to be less than
the emission limits required for those kilns under 326 IAC 10-1. The
following table summarizes the emission limits in 326 IAC 10-1 compared
to the expected emissions from a cement kiln with low-NO_X
burners installed.

[[Page 34876]]

Table 8.--Low-NO_X Burner Cement Kiln Stringency
----------------------------------------------------------------------------------------------------------------
326 IAC 10-1 Pounds per ton 326 IAC 10-3
of clinker Pounds per ton
-------------------------------- of clinker
---------------
Cement Kiln Type Expected
30 day limit Daily limit emissions
averaged over
30 days
----------------------------------------------------------------------------------------------------------------
preheater kiln.................................................. 4.4 5.9 3.8
long dry kiln................................................... 6.0 10.8 5.1
----------------------------------------------------------------------------------------------------------------

As discussed in the proposed October 28, 1998, NO_X FIP,
EPA expects that low-NO_X burners can achieve a
NO_X emission rate of 3.8 pounds per ton for any preheater
kiln, and 5.1 pounds per ton of clinker for any long dry kiln averaged
over 30 days. The RACT rule requires 4.4 and 6.0 pounds per ton of
clinker produced on a thirty-day average basis, respectively, and 5.9
and 10.8 pounds per ton of clinker produced on a daily basis,
respectively.
On a thirty-day rolling average basis, low-NO_X burners
are expected to have lower emissions than the current requirement in
the RACT rule. The expected emission rate is also 64% of the daily RACT
requirement for preheater kilns and 47% of the daily RACT requirement
for long dry kilns. Low-NO_X burners are a type of technology
that, once installed, can not be bypassed or taken off-line unless the
entire kiln is shut down. 326 IAC 10-3 requires that the low-
NO_X burners be installed, operated and maintained. Keeping
these burners properly maintained should ensure that they provide a
relatively constant effect on NO_X emissions. Hence, EPA
believes that the significantly lower expected emissions from having
the low-NO_X burners installed should ensure that for cement
kilns in Clark and Floyd Counties with low-NO_X burners
installed 326 IAC 10-3 is as stringent as the applicable emission
limits in 326 IAC 10-1. The State is also expected to submit supporting
documentation with its final plan submittal.
326 IAC 10-3-3 Emission Limits. IDEM included an emission limit
option at subdivision(a)(2), in which a unit could meet emission limits
that were determined to be the equivalent of 30% reduction from the
industry-wide average in the FIP proposed October 21, 1998 (63 FR
56393). The proposed FIP and the supporting documents have been used as
tools for evaluating cement kiln provisions in State rules. While EPA
agrees that the emission limit option can be provided, it was not
proposed as part of the FIP and certain elements need to be
incorporated into the State's rule to make it viable. The preamble to
the FIP listed these emission limits to be based on a 30 day average.
The State has asserted that the NO_X SIP Call is for the
purposes of addressing regional transport on a seasonal basis. EPA has
reconsidered the averaging time for these limits and determined that a
seasonal average can be appropriate as long as the State adds
compliance language to indicate that if the limit is exceeded at any
time in the season, it constitutes a separate violation for every day
in the season unless the unit can demonstrate otherwise. IDEM's final
rule includes this language.
Under 326 IAC 10-3-3 (a)(3), IDEM has an emission limit option
which allows a reduction equivalent to 30% subject to IDEM and EPA
approval. EPA agrees that again, this is a reasonable approach to
achieving the emissions decreases intended by the NO_X SIP
Call. The approach in the submitted draft rule is a variation of the
industry-wide average emissions rate provision described in the
proposed FIP. It uses actual, measured uncontrolled emissions to set
the baseline rate and then requires a 30 percent reduction from that
baseline.
While this approach provides flexibility to sources and may reduce
costs, we are concerned that the site-specific emissions baseline needs
to be carefully determined. Due to the large variability of emissions
at cement kilns cited in comments we received on the FIP proposal, and
confirmed in the September 19, 2000, EC/R Incorporated report
referenced above, we believe that short-term emissions testing is not
appropriate for establishing a baseline or a seasonal emission average
for this compliance option. An unduly high emissions reading with a
short-term test could lead to a minimal emissions reduction
requirement. Conversely, an unduly low emissions reading could lead to
an unrealistically high emissions reduction requirement. For this
reason, Indiana must require sources to establish baseline emissions
with a CEMS or require in the rule that the 30% reduction be measured
from industry wide average--the resulting emission limits being those
required in 326 IAC 10-3-3(a)(2). The State has followed the second
approach in its final adopted rule.
326 IAC 10-3-4 Monitoring and Testing Requirements. As discussed
above, EPA believes IDEM's additional compliance options at 326 IAC 10-
3-3 (a)(2)and (a)(3) to be reasonable, provided reliable seasonal
emission averages can be determined. If the cement kiln is complying
through subdivision (a)(2) or (a)(3), it needs to determine the
seasonal average using an agreed-upon reliable mechanism such as CEMS
data. This is due to the variability in NO_X emissions from
cement kilns, as referenced above. In discussions with the State, it
has agreed that CEMS is the only viable option for compliance with
these provisions and IDEM has included the requirement for CEMS, if the
unit is complying with one of these emission limit options, as part of
its final adopted rule.
326 IAC 10-3-5 Record Keeping and Reporting. Sources that are
complying by meeting the emission limits on a pound of NO_X
per ton of clinker basis would need to keep daily cement kiln
production records to ensure that the emission limits are complied with
on at least a 30-day rolling average. Alternatively, if IDEM adds
language to clarify that exceeding the emission limit at any time
during the ozone control period constitutes a violation for every day
in the period, it does not need to make this change. IDEM has included
language in the final adopted rule that clarifies the violation issue
and requires sources to report the daily cement kiln production
records.
9. General SIP Requirements
Indiana's draft submittal did not fully address some of the general
requirements required under the NO_X SIP Call for a SIP
revision. These requirements must be addressed before EPA can take a
final rulemaking action. The requirements include: that resources are
available to implement the

[[Page 34877]]

program, that the State address the data availability requirements of
40 CFR 51.116, how the SIP provides for compliance with the annual and
trienniel reporting requirements set forth in 40 CFR 51.122, that the
State has the legal authority to carry out the SIP revision, and
information that the general testing, inspection, enforcement and
complaint mechanisms required under 40 CFR 51.121(f)(1) and 40 CFR
51.212 are in place to support implementation of this rule.

I. What Additional Significant Changes Has IDEM Incorporated in
Response to Comments?

IDEM received comments on several aspects of its preliminarily
adopted rule. EPA understands that several changes have been made to
the final adopted rule to respond to these comments, as discussed
above. In addition, EPA also sees the following changes as being
reasonable for the reasons discussed below. Indiana posted final
adopted rules on its website on June 14, 2001. See http://
www.state.in.us/idem/oam/standard/Sip/index.html.
1. Blast Furnace Gas Units
The final adopted rule would include the regulating of blast
furnace gas units under 326 IAC 10-3, as opposed to 326 IAC 10-4, as
originally proposed. Since these units have a relatively low emission
rate on a lb/mmBtu basis, IDEM was not anticipating requiring them to
make reductions under the trading program. EPA generally requires,
under the NO_X SIP Call, that if any type of unit in a
category is regulated by the NO_X SIP Call trading program,
the entire category must be covered by the trading program. This
prevents production from getting shifted out of the trading program
while it appears that units within the trading program have reduced
their seasonal NO_X emissions. However, since the entire
blast furnace gas boiler category is not included in the trading
program, there is no possibility of shifting production of steel within
the State from a unit covered by the trading program to one outside the
program. Indiana has also argued that, because the availability of
blast furnace gas is limited based on steel production, the shifting of
production out of the trading program is prohibitive.
Since IDEM did not envision these units contributing to the
reductions required in the State, removing them from the trading
program will have no net effect on the amount of total reductions
achieved. The most significant effect is that the emissions are being
removed from the trading portion of the overall budget and hence the
trading portion of the budget has been revised in the final adopted
rule.
In IDEM's final adopted rule, it removed the blast furnace gas
boilers' uncontrolled 2007 emissions from the trading budget. IDEM then
developed an emission factor for the sources based on those
uncontrolled emissions and 2007 projected heat inputs from the units.
Since these units are not contributing to the required reductions, this
emission factor was established to effectively limit the blast furnace
gas units emissions assuming the growth factors in the NO_X
SIP Call. Since this modification does not impact the reductions being
achieved under IDEM's proposed rule, EPA proposes to approve this rule
modification.
2. Definition of ``Repowered Natural Gas-Fired Units''
IDEM's final adopted rule adds new language to define repowered
natural gas-fired units''. This term is defined for the purpose of
determining the allowance allocations for these units. Since the
addition of this term only affects the way that allowances are
allocated, this rule modification also appears acceptable.
3. Utilization Correction for New Units
IDEM's submitted draft rules would have required an additional
deduction of allowances from new sources. The deduction would have been
to account for actual utilization of the unit as opposed to the
projected utilization. This interpretation was more stringent than
necessary as it could potentially permanently remove NO_X
allowances from the trading program for emissions that had not
occurred. The NO_X SIP Call model rule requires a similar
correction based on actual utilization but intends for the excess
allowances to be returned to the set aside instead of completely
removing them from the trading program. The State's final adopted rule
takes a slightly different approach. It requires any allowances
remaining in a new NO_X budget unit's account at the end of
each season to be returned to the new source set aside. Although this
approach is different than used in the model trading rule, it should
ensure the integrity of the trading program and that the NO_X
budget is being met.
4. Centralized Recordkeeping
IDEM's final adopted rules allow recordkeeping at a central
location. EPA discussed these recordkeeping requirements at length with
the State. EPA was only able to agree to the provisions, under certain
circumstances, for sources not participating in the trading program.
The State choose to retain the provisions throughout the rule (since it
had determined that the centralized recordkeeping could be acceptable
to the State). However, the State also added language to clarify that
the central recordkeeping provisions do not override or alter any of
the record retention requirements for a source under 40 CFR part 75.
(Since the recordkeeping requirements in 40 CFR part 75 need to be
required for federal SIP approval.)
These recordkeeping requirements are included in three parts of the
final adopted rule and apply to: (1) Units burning only natural gas or
fuel oil during the ozone control period with potential NO_X
mass emissions for the ozone control period twenty-five (25) tons or
less; (2) Retired units; and (3) NO_X Budget Units covered by
the trading program. As mentioned above, to the extent these units are
required to comply with 40 CFR part 75, these centralized recordkeeping
provisions do not alter those requirements. For example, each unit
under the trading program must, as required by part 75, maintain its
records on-site. Furthermore, any unit with an exemption based on part
75 monitoring, demonstrating 25 tons or less of emissions, must
maintain records on-site and in accordance with part 75. Since the
State has been explicit in its rule that the 40 CFR part 75
requirements stay in place, the centralized recordkeeping requirements
appear acceptable.
5. Allocation Methodology
The final adopted rule incorporates several changes to the State's
NO_X allowance allocation methodology. The State has provided
more concise definitions of the projects that qualify for allowances
from the energy efficiency and renewable energy set aside, for example.
The State has also replaced the allocation methodology for existing
non-EGUs with a table specifying the allowances that will be allocated
to each non-EGU. EPA has reviewed the revisions to the allocation
methodologies and determined that they do not adversely affect the
State's demonstration that it meets the NO_X SIP Call budget.
The changes only affect how the allowances will be allocated and do not
affect the number of allowances that will be allocated. For these
reasons, these changes appear acceptable.

[[Page 34878]]

III. Proposed Action

A. What Action Is EPA Proposing Today?

EPA proposes to approve Indiana's submitted plan as a revision to
the SIP to fulfill the Phase I NO_X SIP Call requirements, if
Indiana corrects the deficiencies discussed in this document and does
not make additional significant revisions not discussed in this
document. The submitted plan includes a budget demonstration,
supporting materials and the NO_X SIP rules for cement kilns
(326 IAC 10-3) and the trading program for EGUs, large non-EGU boilers
and turbines and opt-in sources (326 IAC 10-4). The rules achieve 30%
reductions from cement kilns, the equivalent of a 0.15 lb/mmBtu limit
on EGUs and 60% reductions from large non-EGU boilers and turbines. In
the alternative, if Indiana does not address the identified
deficiencies, EPA is proposing to disapprove this plan.
Indiana adopted final rules on June 6, 2001. EPA has not concluded
its analysis of these final adopted rules and the associated plan.
However, based on our preliminary review and conversations with the
State, we expect that the rules will address the deficiencies
identified in this proposal. These final adopted rules are available on
Indiana's website at: http://www.state.in.us/idem/oam/standard/Sip/
index.html.

B. What Happens if Indiana Does Not Address the Deficiencies Identified
or Has Significantly Changed the Regulations During the Final Adoption
Process?

Since the EPA is proposing to rulemake on the Indiana
NO_X plan under parallel processing procedures, it notes the
possibility exists that Indiana will submit a final version of the plan
which differs significantly from the version of the plan reviewed in
this proposed rulemaking.
If the State makes significant changes to the plan as a result of
its public comment and adoption process and based on further
deliberation and/or on comments other than based on the discussion and
deficiencies noted above, the EPA will need to re-evaluate the rules
through a new proposed rulemaking. If, on the other hand, the State
only makes changes in the plan to correct the deficiencies identified
in this proposed rule consistent with the analysis presented here, the
EPA will proceed to final approval rulemaking after considering public
comments received in writing during the public comment period on this
proposed rule.

IV. Administrative Requirements

Under Executive Order 12866 (58 FR 51735, October 4, 1993), this
proposed action is not a ``significant regulatory action'' and
therefore is not subject to review by the Office of Management and
Budget. This proposed action merely proposes to approve State law as
meeting federal requirements and imposes no additional requirements
beyond those imposed by State law. Accordingly, the Administrator
certifies that this proposed rule will not have a significant economic
impact on a substantial number of small entities under the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.). Because this rule proposes to
approve pre-existing requirements under State law and does not impose
any additional enforceable duty beyond that required by State law, it
does not contain any unfunded mandate or significantly or uniquely
affect small governments, as described in the Unfunded Mandates Reform
Act of 1995 (Public Law 104-4). This proposed rule also does not have a
substantial direct effect on one or more Indian tribes, on the
relationship between the Federal Government and Indian tribes, or on
the distribution of power and responsibilities between the Federal
Government and Indian tribes, as specified by Executive Order 13175 (65
FR 67249, November 9, 2000), nor will it 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 (64 FR 43255, August 10, 1999), because it
merely proposes to approve State rules implementing a federal standard,
and does not alter the relationship or the distribution of power and
responsibilities established in the Clean Air Act. This proposed rule
also is not subject to Executive Order 13045 (62 FR 19885, April 23,
1997), because it is not economically significant.
In reviewing SIP submissions, EPA's role is to approve state
choices, provided that they meet the criteria of the Clean Air Act. In
this context, in the absence of a prior existing requirement for the
State to use voluntary consensus standards (VCS), EPA has no authority
to disapprove a SIP submission for failure to use VCS. It would thus be
inconsistent with applicable law for EPA, when it reviews a SIP
submission, to use VCS in place of a SIP submission that otherwise
satisfies the provisions of the Clean Air Act. Thus, the requirements
of section 12(d) of the National Technology Transfer and Advancement
Act of 1995 (15 U.S.C. 272 note) do not apply. As required by section 3
of Executive Order 12988 (61 FR 4729, February 7, 1996), in issuing
this proposed rule, EPA has taken the necessary steps to eliminate
drafting errors and ambiguity, minimize potential litigation, and
provide a clear legal standard for affected conduct. EPA has complied
with Executive Order 12630 (53 FR 8859, March 15, 1988) by examining
the takings implications of the rule in accordance with the ``Attorney
General's Supplemental Guidelines for the Evaluation of Risk and
Avoidance of Unanticipated Takings'' issued under the executive order.
This proposed rule does not impose an information collection burden
under the provisions of the Paperwork Reduction Act of 1995 (44 U.S.C.
3501 et seq.).

List of Subjects in 40 CFR Part 52

Environmental protection, Air pollution control, Intergovernmental
relations, Nitrogen oxides, Ozone, Reporting and recordkeeping
requirements.

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

Dated: June 25, 2001.
David A. Ullrich,
Acting Regional Administrator, Region 5.
[FR Doc. 01-16568 Filed 6-29-01; 8:45 am]
BILLING CODE 6560-50-P

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