

[Federal Register: December 2, 2005 (Volume 70, Number 231)]
[Proposed Rules]               
[Page 72268-72282]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr02de05-10]                         

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 51 and 96

[OAR 2003-0053; FRL-8003-7]

 
Rule To Reduce Interstate Transport of Fine Particulate Matter 
and Ozone (Clean Air Interstate Rule): Reconsideration

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice of reconsideration; request for comment; notice of 
public hearing.

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SUMMARY: On May 12, 2005, EPA published in the Federal Register the 
final ``Rule to Reduce Interstate Transport of Fine Particulate Matter 
and Ozone'' (Clean Air Interstate Rule or CAIR). The CAIR requires 
certain upwind States to reduce emissions of nitrogen oxides 
(NOX) and/or sulfur dioxide (SO2) that 
significantly contribute to nonattainment of, or interfere with 
maintenance by,

[[Page 72269]]

downwind States with respect to the fine particle and/or 8-hour ozone 
national ambient air quality standards (NAAQS). Subsequently, EPA 
received 11 petitions for reconsideration of the final rule. In this 
notice, EPA is announcing its decision to reconsider four specific 
issues in the CAIR and is requesting comment on those issues.
    The EPA is seeking comment only on the aspects of the CAIR 
specifically identified in this notice. We will not respond to comments 
addressing other provisions of the CAIR or any related rulemakings.

DATES: Comments must be received on or before January 13, 2006. A 
public hearing will be held on December 14, 2005 in Washington, DC. For 
additional information on the public hearing, see the SUPPLEMENTARY 
INFORMATION section of this preamble.

ADDRESSES: Submit your comments, identified by Docket ID No. OAR-2003-
0053, by one of the following methods:
     Federal Rulemaking Portal: http://www.regulations.gov. 

Follow the on-line instructions for submitting comments. Attention E-
Docket No. OAR-2003-0053.
     Agency Web site: http://www.epa.gov/edocket. EDOCKET, 

EPA's electronic public docket and comment system, is EPA's preferred 
method for receiving comments. Follow the on-line instructions for 
submitting comments. Attention E-Docket No. OAR-2003-0053.
     E-mail: A-and-R-Docket@epa.gov. Attention E-Docket No. 
OAR-2003-0053.
     Fax: The fax number of the Air Docket is (202) 566-1741. 
Attention E-Docket No. OAR-2003-0053.
     Mail: EPA Docket Center, EPA West (Air Docket), Attention 
E-Docket No. OAR-2003-0053, Environmental Protection Agency, Mail Code: 
6102T, 1200 Pennsylvania Ave., NW., Washington, DC 20460.
     Hand Delivery: EPA Docket Center (Air Docket), Attention 
E-Docket No. OAR-2003-0053, Environmental Protection Agency, 1301 
Constitution Avenue, NW., Room B102, Washington, DC. Such deliveries 
are only accepted during the Docket's normal hours of operation, and 
special arrangements should be made for deliveries of boxed 
information.
    Instructions: Direct your comments to Docket ID No. OAR-2003-0053. 
The EPA's policy is that all comments received will be included in the 
public docket without change and may be made available on-line at 
http://www.epa.gov/edocket, including any personal information 

provided, unless the comment includes information claimed to be 
Confidential Business Information (CBI) or other information whose 
disclosure is restricted by statute. Do not submit information that you 
consider to be CBI or otherwise protected through EDOCKET, 
regulations.gov, or e-mail. (For instructions on submitting CBI, see 
below under SUPPLEMENTARY INFORMATION.)
    The EPA EDOCKET and the Federal regulations.gov Web sites are 
``anonymous access'' systems, which means EPA will not know your 
identity or contact information unless you provide it in the body of 
your comment. If you send an e-mail comment directly to EPA without 
going through EDOCKET or regulations.gov, your e-mail address will be 
automatically captured and included as part of the comment that is 
placed in the public docket and made available on the Internet. If you 
submit an electronic comment, EPA recommends that you include your name 
and other contact information in the body of your comment and with any 
disk or CD-ROM you submit. If EPA cannot read your comment due to 
technical difficulties and cannot contact you for clarification, EPA 
may not be able to consider your comment. Electronic files should avoid 
the use of special characters, any form of encryption, and be free of 
any defects or viruses. For additional information about EPA's public 
docket visit EDOCKET on-line or see the Federal Register of May 31, 
2002 (67 FR 38102). For additional information on submitting comments, 
go to the SUPPLEMENTARY INFORMATION section of this document.
    Docket: All documents in the docket are listed in the EDOCKET index 
at http://www.epa.gov/edocket. Although listed in the index, some 

information is not publicly available, i.e., CBI or other information 
whose disclosure is restricted by statute. Certain other material, such 
as copyrighted material, is not placed on the Internet and will be 
publicly available only in hard copy form. Publicly available docket 
materials are available either electronically in EDOCKET or in hard 
copy at the EPA Docket Center (Air Docket), EPA/DC, EPA West, Room 
B102, 1301 Constitution Ave., NW., Washington, DC. The Public Reading 
Room is open from 8:30 a.m. to 4:30 p.m., Monday through Friday, 
excluding legal holidays. The telephone number for the Public Reading 
Room is (202) 566-1742 and the fax number is (202) 566-1741.

FOR FURTHER INFORMATION CONTACT: For general questions concerning 
today's action, please contact Carla Oldham, U.S. EPA, Office of Air 
Quality Planning and Standards, Air Quality Strategies and Standards 
Division, Mail Code C539-02, Research Triangle Park, NC 27711, phone 
number (919) 541-3347, e-mail addressoldham.carla@epa.gov. For 
questions concerning the analyses described in section III of this 
notice, please contact Chitra Kumar, U.S. EPA, Office of Atmospheric 
Programs, Clean Air Markets Division, Mail Code 6204J, 1200 
Pennsylvania Avenue, NW., Washington, DC 20460, telephone (202) 343-
9128, e-mail address kumar.chitra@epa.gov. For legal questions, please 
contact Sonja Rodman, U.S. EPA, Office of General Counsel, Mail Code 
2344A, 1200 Pennsylvania Avenue, NW., Washington, DC 20460, telephone 
202-564-4079, e-mail address rodman.sonja@epa.gov.
    For information concerning the public hearing, please contact Jo 
Ann Allman, U.S. EPA, Office of Air Quality Planning and Standards, Air 
Quality Strategies and Standards Division, Mail Code C539-02, Research 
Triangle Park, NC 27711, phone number (919) 541-1815, e-mail address 
allman.joann@epa.gov.


SUPPLEMENTARY INFORMATION:

Does This Action Apply to Me?

    The CAIR does not directly regulate emissions sources. Instead, it 
requires States to develop, adopt, and submit SIP revisions that would 
achieve the necessary SO2 and NOX emissions 
reductions, and leaves to the States the task of determining how to 
obtain those reductions, including which entities to regulate.
    Public Hearing. On December 14, 2005, EPA will hold a public 
hearing on today's notice at EPA Headquarters, 1310 L Street (closest 
cross street is 13th Street), 1st floor conference rooms 152 and 154, 
Washington, DC. The closest Metro stop is McPherson Square (Orange and 
Blue lines)--take 14th Street/Franklin Square Exit. Because the hearing 
will be held at a U.S. government facility, everyone planning to attend 
should be prepared to show valid picture identification to the security 
staff in order to gain access to the meeting room.
    The hearing will begin at 9 a.m. and end at 12 noon. Persons 
wishing to speak at the public hearing should contact Jo Ann Allman by 
December 9 at telephone number (919) 541-1815 or by e-mail at 
allman.joann@epa.gov. The hearing will be limited to the subject matter 

of this document. Oral testimony will be limited to 5 minutes. The EPA 
encourages commenters to provide

[[Page 72270]]

written versions of their oral testimonies either electronically (on 
computer disk or CD-ROM) or in paper copy. The public hearing schedule, 
including the list of speakers, will be posted on EPA's Web site at: 
http://www.epa.gov/cair. Verbatim transcripts and written statements will be 

included in the rulemaking docket.
    The public hearings will provide interested parties the opportunity 
to present data, views, or arguments concerning the proposed rules. The 
EPA may ask clarifying questions during the oral presentations, but 
will not respond to the presentations or comments at that time. Written 
statements and supporting information submitted during the comment 
period will be considered with the same weight as any oral comments and 
supporting information presented at a public hearing.
    Because of the need to resolve the issues in this document in a 
timely manner, EPA will not grant requests for extensions of the public 
comment period.

What Should I Consider as I Prepare My Comments for EPA?

    Note that general instructions for submitting comments are provided 
above under the ADDRESSES section.
    Submitting CBI. Do not submit comments that include CBI to EPA 
through EDOCKET, regulations.gov or e-mail. Clearly mark the part or 
all of the information that you claim to be CBI. For CBI information in 
a disk or CD ROM that you mail to EPA, mark the outside of the disk or 
CD ROM as CBI and then identify electronically within the disk or CD 
ROM the specific information that is claimed as CBI. In addition to one 
complete version of the comment that includes information claimed as 
CBI, a copy of the comment that does not contain the information 
claimed as CBI must be submitted for inclusion in the public docket. 
Information so marked will not be disclosed except in accordance with 
procedures set forth in 40 CFR part 2. Send or deliver information 
identified as CBI only to the following address: Roberto Morales, U.S. 
EPA, Office of Air Quality Planning and Standards, Mail Code C404-02, 
Research Triangle Park, NC 27711, telephone (919) 541-0880, e-mail at 
morales.roberto@epa.gov, Attention Docket ID No. OAR-2003-0053.

    Tips for Preparing Your Comments. When submitting comments, 
remember to:
    i. Identify the rulemaking by docket number and other identifying 
information (subject heading, Federal Register date and page number).
    ii. Follow directions--The agency may ask you to respond to 
specific questions or organize comments by referencing a Code of 
Federal Regulations (CFR) part or section number.
    iii. Explain why you agree or disagree; suggest alternatives and 
substitute language for your requested changes.
    iv. Describe any assumptions and provide any technical information 
and/or data that you used.
    v. If you estimate potential costs or burdens, explain how you 
arrived at your estimate in sufficient detail to allow for it to be 
reproduced.
    vi. Provide specific examples to illustrate your concerns, and 
suggest alternatives.
    vii. Explain your views as clearly as possible, avoiding the use of 
profanity or personal threats.
    viii. Make sure to submit your comments by the comment period 
deadline identified.

Availability of Related Information

    Documents related to the CAIR are available for inspection in 
docket OAR-2003-0053 at the address and times given above. The EPA has 
established a Web site for the CAIR at http://www.epa.gov/cleanairinterstaterule or more simply http://www.epa.gov/cair/.


Outline

I. Background
II. Today's Action
    A. Grant of Reconsideration
    B. Schedule for Reconsideration
III. Discussion of Issues
    A. SO2 Allocation Methodology in the CAIR Model 
Trading Rules
    B. Fuel Adjustment Factors Used To Set State NOX 
Budgets
    C. PM2.5 Modeling for Minnesota
    D. Inclusion of Florida in the CAIR Region for Ozone
IV. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review
    B. Paperwork Reduction Act
    C. Regulatory Flexibility Act
    D. Unfunded Mandates Reform Act
    E. Executive Order 13132: Federalism
    F. Executive Order 13175: Consultation and Coordination With 
Indian Tribal Governments
    G. Executive Order 13045: Protection of Children From 
Environmental Health and Safety Risks
    H. Executive Order 13211: Actions That Significantly Affect 
Energy Supply, Distribution or Use
    I. National Technology Transfer Advancement Act
    J. Executive Order 12898: Federal Actions To Address 
Environmental Justice in Minority Populations and Low Income 
Populations

I. Background

    On May 12, 2005, the EPA (Agency or we) promulgated the final 
``Rule to Reduce Interstate Transport of Fine Particulate Matter and 
Ozone'' (Clean Air Interstate Rule or CAIR) (70 FR 25162). In this 
action, EPA found that 28 States and the District of Columbia 
contribute significantly to nonattainment of, or interfere with 
maintenance by, downwind States with respect to the NAAQS for fine 
particles (PM2.5) and/or 8-hour ozone. The CAIR requires 
these upwind States to revise their State implementation plans (SIPs) 
to include control measures to reduce emissions of SO2 and/
or NOX. Sulfur dioxide is a precursor to PM2.5 
formation and NOX is a precursor to PM2.5 and 
ozone formation. By reducing upwind emissions of SO2 and 
NOX, CAIR will assist downwind PM2.5 and 8-hour 
ozone nonattainment areas in achieving the NAAQS.
    The EPA promulgated the CAIR based on the ``good neighbor'' 
provision of the Clean Air Act (CAA), section 110(a)(2)(D), which 
establishes State obligations to address interstate transport of 
pollution. The EPA conducted extensive air modeling to determine the 
extent to which emissions from certain upwind States were impacting 
downwind nonattainment areas. All States found to contribute 
significantly to downwind PM2.5 nonattainment or maintenance 
problems are included in the CAIR region for PM2.5 and are 
required to reduce annual emissions of SO2 and 
NOX. All States found to contribute significantly to 
downwind 8-hour ozone nonattainment are included in the CAIR region for 
ozone and required to reduce NOX emissions during the 5-
month ozone season (May-September). The CAIR establishes regional 
emission reduction requirements for annual SO2 and 
NOX emissions and seasonal NOX emissions. The 
reduction requirements are based on control technologies known to be 
highly cost effective for electric generating units (EGUs). The first 
phase of NOX reductions starts in 2009 (covering 2009-2014) 
and the first phase of SO2 reductions starts in 2010 
(covering 2010-2014). The second phase of both SO2 and 
NOX reductions starts in 2015 (covering 2015 and 
thereafter).
    Each State covered by CAIR may independently determine which 
emission sources to control, and which control measures to adopt. 
States that choose to base their programs on emissions reductions from 
EGUs may allow their EGUs to participate in an EPA-administered cap and 
trade program. The CAIR includes model

[[Page 72271]]

rules for multi-State cap and trade programs for annual SO2 
and NOX emissions, and seasonal NOX emissions. 
States may choose to adopt these rules to meet the required emissions 
reductions in a flexible and highly cost-effective manner. To learn 
more about the CAIR and its impacts, the reader is encouraged to read 
the preamble to the CAIR (70 FR 25162; May 10, 2005).
    The CAIR was promulgated through a process that involved 
significant public participation. The EPA published a notice of 
proposed rulemaking on January 30, 2004 (69 FR 4566) and a notice of 
supplemental rulemaking on June 10, 2004 (69 FR 32684). The EPA also 
published a notice of data availability on August 6, 2004 (69 FR 
47828). The Agency held public hearings on the January 2004 proposed 
rule on February 25 and 26, 2004, and an additional hearing on the 
supplemental proposal on June 3, 2004. In addition, the EPA received 
thousands of comments on the proposals. We responded to all significant 
public comments in the preamble to the final rule and the final 
response to comments document available in the CAIR docket (Docket No. 
OAR-2003-0053-2172).
    Following publication of the final rule on May 12, 2005, the 
Administrator received eleven petitions requesting reconsideration of 
certain aspects of the final CAIR. These petitions were filed pursuant 
to section 307(d)(7)(B) of the CAA. Under this provision, the 
Administrator is to initiate reconsideration proceedings if the 
petitioner can show that an objection is of central relevance to the 
rule and that it was impracticable to raise the objection to the rule 
within the public comment period or that the grounds for the objection 
arose after the public comment period but before the time for judicial 
review had run. The petitions for reconsideration of the CAIR ask EPA 
to reconsider several specific aspects of the final rule, and many of 
the petitions make similar requests. This notice addresses four of the 
issues raised in those petitions. The EPA expects to issue decisions on 
all remaining issues raised in the petitions for reconsideration by 
March 15, 2006. The complete petitions are available in the docket for 
the CAIR.\1\
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    \1\ Petitions for reconsideration were filed by: State of North 
Carolina (OAR-2003-0053-2192); FPL Group OAR-2003-0053-2201); 
Florida Association of Electric Utilities (OAR-2003-0053-2200); 
Entergy Corporation (OAR-2003-0053-2195 and 2198 (attachment 1)); 
Massachusetts Department of Environmental Protection (OAR-2003-0053-
2199); Integrated Waste Services Association (OAR-2003-0053-2193); 
Texas Commision on Environmental Quality (OAR-2003-0053-2212); 
Northern Indiana Public Service Corporation (OAR-2003-0053-2194 and 
2213 (supplemental petition)); City of Amarillo, Texas, El Paso 
Electric Company, Occidental Permian Ltd, and Southwestern Public 
Service Company d/b/a/ Xcel Energy (OAR-2003-0053-2196 and 2197 
(attachment 1) and 2205-2207 (attachments 2-4)); Connecticut 
Business and Industry Ass'n (OAR-2003-0053-2203); and Minnesota 
Power, a division of ALLETE. Inc. (OAR-2003-0053-2212).
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    In addition, fourteen petitions for judicial review of the final 
rule were filed with the U.S. Court of Appeals for the District of 
Columbia.\2\ The fourteen cases have been consolidated into a single 
case, State of North Carolina v. EPA (No. 05-1244) (D.C. Cir). Many of 
the parties who petitioned EPA for reconsideration of the CAIR also 
petitioned for judicial review of the rule.
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    \2\ State of North Carolina v. EPA (No. 05-1244); Minnesota 
Power v. EPA (No. 05-1246); ARIPPA v. EPA (No. 05-1249); South 
Carolina Public Service Authority et al. v. EPA (No. 05-1250); 
Entergy Corp. v. EPA (No. 05-1251); Florida Ass'n of Electric 
Utilities (No. 05-1252); FPL Group v. EPA (No. 05-1253); Northern 
Indiana Public Service Co. v. EPA (No. 05-1254); South Carolina 
Electric & Gas Co. v. EPA (No. 05-1256); Integrated Waste Services 
Ass'n v. EPA (No. 05-1257); AES Corp v. EPA (No. 05-1259); City of 
Amarillo, Texas et al. v. EPA (No. 05-1260); Appalachian Mountain 
Club et al. v. EPA (No. 05-1246); Duke Energy v. EPA (No. 05-1246).
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    By letters dated August 1, 2005, EPA granted reconsideration of the 
definition of ``electric generating unit'' or ``EGU'' as it relates to 
solid waste incinerators (and particularly municipal waste 
incinerators).\3\ The EPA explained that the issue would be addressed 
in the proposed rule signed the same day. That proposed rule, entitled 
``Rulemaking on Section 126 Petition from North Carolina to Reduce 
Interstate Transport of Fine Particulate Matter and Ozone; Federal 
Implementation Plans to Reduce Interstate Transport of Fine Particulate 
Matter and Ozone; Revisions to the Clean Air Interstate Rule; Revisions 
to the Acid Rain Program; Proposed Rule,'' was published on August 24, 
2005 (70 FR 49708). In that proposed rule, EPA reconsidered the 
definition of ``EGU'' in the final CAIR as it relates to solid waste 
incinerators (70 FR 49738). We proposed revisions to the definition of 
``EGU'' and requested comment on this issue. In that action, we did not 
address any other issues raised in the petitions for reconsideration of 
the CAIR. Today's action does not reopen for comment any aspect of the 
August 24, 2005, proposed rule.
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    \3\ These letters are available in the CAIR Docket. (OAR-2003-
0053-2209 and 2210).
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    The EPA also received two requests to stay the implementation of 
the CAIR in limited geographic areas pending resolution of this 
reconsideration process. One petitioner requested a stay of 
implementation of the CAIR in the State of Florida, and one petitioner 
requested a stay of implementation of the CAIR in the State of 
Minnesota. By letter dated August 1, 2005, EPA declined to stay 
implementation of the CAIR in Florida.\4\ The EPA has not yet acted on 
the request to stay implementation of the CAIR in Minnesota.
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    \4\ This letter is also available in the CAIR Docket (OAR-2003-
0053-2208).
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    By letters dated November 21, 2005, we informed several petitioners 
of our intent to grant reconsideration on one or more issues addressed 
in their petitions for reconsideration. We indicated in those letters 
that we would initiate the reconsideration process by publishing this 
notice.

II. Today's Action

A. Grant of Reconsideration

    In this notice, EPA is announcing its decision to grant 
reconsideration on four issues raised in the petitions for 
reconsideration. This notice initiates that reconsideration process and 
requests comment on the issues to be addressed. Given the intense 
public interest in this rule, EPA has decided to provide this 
additional opportunity for public comment. At this time, however, EPA 
does not believe that any of the information submitted to date 
demonstrates that EPA's final decisions were erroneous or 
inappropriate. Therefore, we are not proposing any modifications to the 
final CAIR.
    The first issue on which EPA is requesting comment relates to 
analysis done by EPA to address petitioner's claims regarding alleged 
inequities resulting from the application of the SO2 
allowance allocation methodology that States choosing to participate in 
the trading program would use to allocate SO2 allowances to 
sources. The second issue relates to EPA's use of specific fuel 
adjustment factors to establish NOX budgets for each State. 
The third issue relates to modeling inputs used by EPA to determine 
whether emissions from Minnesota should be included in the CAIR region 
for PM2.5. And the fourth issue relates to EPA's 
determination that the State of Florida should be included in the CAIR 
region for ozone. Each issue is described in greater detail in Section 
III of this notice.
    The EPA is requesting comment only on the issues specifically 
described in Section III. We are not taking comment on any other 
provisions in the CAIR or otherwise reopening any other issues decided 
in the CAIR for reconsideration or comment.

[[Page 72272]]

B. Schedule for Reconsideration

    For the four issues addressed in this notice, EPA expects to take 
final action on reconsideration by March 15, 2006. By that date, EPA 
will finalize the process of reconsideration by issuing a final rule or 
proposing a new approach. EPA also expects, by March 15, 2006, to issue 
decisions on all remaining issues raised in the petitions for 
reconsideration.

III. Discussion of Issues

A. SO2 Allocation Methodology in the CAIR Model Trading 
Rules

    One petitioner argues that the SO2 allowance allocation 
methodology in the CAIR model trading rules is unreasonable and 
inequitable, and asks EPA to establish a different approach. According 
to the petitioner, the methodology is inequitable because it results in 
owners of units that have lower emission rates, historically, buying 
allowances from historically higher emitting units that install new 
emission controls. EPA does not accept the petitioner's 
characterization of this issue. EPA continues to believe that the 
methodology selected is reasonable for the reasons explained in the 
final rule and further outlined below. Furthermore, numerous 
opportunities for public comment on this issue were provided, and a 
full discussion of the allowance allocation options occurred during the 
rule development process. Nonetheless, given the intense public 
interest in this issue, EPA has decided to grant the Petition for 
Reconsideration insofar as it raises issues regarding alleged 
inequities resulting from the application of the SO2 
allowance allocation.
    As explained below, EPA has conducted additional analyses 
concerning the impact of the SO2 allowance allocation 
approach adopted in the model rules, comparing this approach to various 
other alternatives considered during the rulemaking process. These 
analyses further illustrate that the approach selected produces a 
reasonable result, not the inequities alleged in the Petition for 
Reconsideration. Therefore EPA is not proposing any changes to the CAIR 
SO2 allocation approach as part of this reconsideration 
notice. We are taking comment on the analyses conducted and our 
discussion of the petitioner's concerns.
Title IV and CAIR
    The CAIR model SO2 trading program relies on the use of 
title IV SO2 allowances for compliance with the allowance-
holding requirements of CAIR. Title IV SO2 allowances have 
already been allocated on a unit-by-unit basis in perpetuity, based on 
formulas set forth in section 405 and 406 of title IV, which were 
implemented through final regulations issued in 1998 (Sec 42 U.S.C. 
7651d and 7651e; and 18 CFR 73.10(b)). The statutory formula for 
SO2 allocations was generally based on unit data for 1985-
1987 and, for some units, data for years up to 1995. For the title IV 
SO2 trading program, each allowance authorizes one ton of 
SO2 emissions.
    For the CAIR SO2 trading program, SO2 
reductions would be achieved by generally requiring CAIR sources to 
retire more than one title IV allowance for each ton of their 
SO2 emissions for 2010 and thereafter. Specifically, each 
title IV SO2 allowance issued for 2009 or earlier would be 
used for compliance by CAIR sources at a ratio of one allowance per ton 
of SO2 emissions and would authorize one ton of 
SO2 emissions. Each title IV allowance of vintage 2010 
through 2014 would be used for compliance under CAIR at a two-to-one 
ratio and authorize 0.5 tons of SO2 emissions. Each title IV 
allowance of vintage 2015 and later would be used at a 2.86-to-1 ratio 
and authorize 0.35 tons of SO2 emissions. See discussion in 
the preamble to the final CAIR in section VII (70 FR 25255-25273) and 
section IX (70 FR 25290-25291).
SO2 Allocation Options in CAIR
    A variety of SO2 allowance allocation methodologies were 
raised and analyzed during the rulemaking process, including the one 
EPA selected. Alternative methodologies analyzed included allocating on 
the basis of historic tonnage emissions, heat input (with alternatives 
based on heat input from all fossil generation, and heat input from 
coal- and oil-fired generation only) and output (with alternatives 
based on all generation and all fossil-fired generation). While every 
allocation methodology suggested by commenters during the rulemaking 
process has its advantages and disadvantages for different companies 
and States, EPA explained in the final rule that its chosen methodology 
is reasonable on several grounds. First, EPA believes that ``achieving 
SO2 reductions for EGUs using the title IV allowances is 
necessary in order to ensure the preservation of a viable title IV 
program'' (Response to Comments (RTC) at page 511, section X.A.26, 
2005). See also discussion in preamble to the final CAIR in section IX 
(70 FR 25290-25291). Second, in using the title IV allowances, EPA 
relied on the selection by Congress of the permanent allocation 
methodology established in title IV for purposes of reducing 
SO2 emissions. As stated in the RTC (page 512), ``Congress 
clearly did not choose a policy to regularly revisit and revise these 
allocations, believing that its allocations methodology for title IV 
allowances would be appropriate for future time periods.''
    Third, title IV allowance allocations provide a logical and well 
understood starting point from which additional EGU SO2 
emission reductions can be achieved for Acid Rain units, which account 
for over 90% of the SO2 emissions from CAIR EGUs. Finally, 
EPA's State-by-State analysis of several methods for SO2 
allocations shows that the use of title IV allowances to develop state 
budgets creates a reasonable result (See RTC, section X.A.26). The 
policy decision to base the CAIR SO2 budgets on the existing 
title IV allowance system, and EPA's demonstration that the result of 
using the system is reasonable fully support the use of an allocation 
system based on title IV allowances.
Analysis of SO2 Allocation Options
    As a part of this reconsideration, EPA performed additional 
analyses, explained below, to evaluate the SO2 allocation 
methodology in the final CAIR rule in light of the petitioner's 
concerns. In these analyses, EPA compared three alternative 
SO2 allowance allocation methodologies to the methodology in 
the final CAIR to see how companies fared in terms of the amount of 
allowances allocated relative to their projected SO2 
emissions. The allocation allowance methodologies evaluated by EPA were 
the ones referred to by the petitioner in the Petition for 
Reconsideration. EPA believes that, for purposes of evaluating the 
various allocation methodologies, computing allocations on a company-
by-company basis is more appropriate than comparing allocations on a 
unit-by-unit basis. This is because, while one unit could be allocated 
fewer allowances under one methodology, another unit owned by the same 
company could be allocated more allowances, which may offset the 
smaller allocation of the first unit.
    The three alternative allowance allocation methodologies EPA 
analyzed were suggested by various commenters during the rulemaking 
process. Also note that methodologies 2 and 3 were suggested by the 
petitioner. These methodologies are:
    1. Allocating allowances based on more recent heat input data;

[[Page 72273]]

    2. Allocating allowances based on more recent heat input data 
adjusted for fuel type (e.g., coal, oil and gas);
    3. Allocating allowances based on more recent heat input data 
adjusted both for fuel type (e.g., coal, oil and gas) and for coal type 
(e.g., bituminous, sub-bituminous and lignite).
    In comparing the CAIR final SO2 allocation methodology 
and the three alternative methodologies, EPA took into account certain 
factors that are applicable to the CAIR final allocation methodology 
but not to the three alternative methodologies. For all four 
methodologies, EPA analyzed the resulting total allowance allocations, 
and the total projected emissions, for companies' sources located in 
the States subject to CAIR. In addition, for all the methodologies, EPA 
analyzed the relationship between allowances and emissions in two ways. 
In the first, EPA calculated the ratio of allowances to total projected 
emissions before CAIR controls (base case). This measures how much each 
company falls short of allowance needs. Then, in the second approach, 
EPA calculated the ratio of allowances to total projected emissions 
with CAIR controls installed (control case). This way measures how many 
allowances a company would need to purchase after controls are 
installed.
    For the CAIR final methodology, EPA also considered both the 
allowance allocations and emissions for companies' sources both in the 
CAIR region and outside the CAIR region. EPA believes that this is 
appropriate because, under the CAIR final methodology, if a company's 
sources outside the CAIR region have more title IV allowances than 
needed to cover their emissions under the Acid Rain Program, the 
company could transfer, at little or no net cost, excess allowances to 
the company's sources in the CAIR region for use to cover emissions 
under the CAIR trading program. Under the three alternative 
methodologies, which would require creating new CAIR SO2 
allowances independent of the existing title IV allocations, CAIR 
sources could not use title IV for compliance with the CAIR 
SO2 allowance holding requirements.
    Further, in the analysis of the CAIR final methodology, EPA 
considered the allocation of title IV allowances to CAIR region units 
that are not currently in the Acid Rain Program but that could opt into 
the Acid Rain Program and receive title IV allowances (see 42 U.S.C. 
7651i and 18 CFR part 74). This analysis assumed that companies owning 
non-Acid Rain units affected by CAIR would opt into the Acid Rain 
Program because they would receive title IV allowances to cover a 
portion of the unit's emissions under CAIR. EPA believes this 
assumption is reasonable because there is very little cost associated 
with opting into the Acid Rain Program.\5\ In contrast, the analysis of 
the three alternative methodologies did not consider Acid Rain Program 
opt-in allowances because these approaches do not use title IV 
allowances for CAIR compliance.
---------------------------------------------------------------------------

    \5\ The greatest cost associating with opting in to the title IV 
program is the cost of monitoring. Since these sources are already 
required to monitor using the same monitoring methodologies that 
would be required if they were to opt in, their costs for opting in 
are significantly reduced.
---------------------------------------------------------------------------

    EPA's analyses, of which a detailed description is available in the 
docket, encompassed 112 (control case) to 114 (base case) parent/
holding companies with sources covered by the CAIR. These 112 to 114 
companies represent about two-thirds of the total number of CAIR 
plants, over 95 percent of total annual allocations for all 
methodologies during 2015, and about 97 percent of the total projected 
emissions in the CAIR region in 2015.\6\
---------------------------------------------------------------------------

    \6\ According to EPA inventory data, there are a total of 921 
CAIR affected plants. EPA did not have complete owner, parent 
company information for all of these plants.
---------------------------------------------------------------------------

    While allocations vary from company to company under the four 
methodologies, overall, the distributions of allowances that companies 
received relative to their projected emissions for both the base case 
and control case are very similar. In other words, no methodology 
stands out as providing a more reasonable method of allocation across 
all companies when examining allowance needs under either the base case 
or control case. Figures 1 and 2, below, show the distribution of 
values for each methodology under the two cases, and support this 
conclusion. EPA repeated these analyses for 2010, which show similar 
results. Separate analyses of owner/operating company allowances 
compared to emissions in 2010 and 2015, show similar results, as well. 
See TSD Memo, ``Technical Support Document for Clean Air Interstate 
Rule Response to Petition for Reconsideration.''

BILLING CODE 6560-50-P

[[Page 72274]]

[GRAPHIC] [TIFF OMITTED] TP02DE05.037


[[Page 72275]]


[GRAPHIC] [TIFF OMITTED] TP02DE05.038

BILLING CODE 6560-50-C


[[Page 72276]]


    EPA also notes that, while the Petitioner states that the CAIR 
final allocation methodology is ``inequitable'' because lower emitting 
units would buy allowances from higher emitting units that install 
emission controls, it is unclear why such a result would actually be 
inequitable. On the contrary, the owner of each of the units involved 
would be choosing to adopt the most economic compliance strategy in 
light of the unit's emission control costs and the market value of 
allowances. The ability of the owners to make such choices reflects the 
flexibility provided by a cap and trade program.
    The EPA requests comment on its analyses of the four allocation 
methodologies and on the above discussion of the Petitioner's concerns.

B. Fuel Adjustment Factors Used To Set State NOX Budgets

    Several petitioners argue the Agency did not provide adequate 
notice regarding the use of specific fuel adjustment factors to 
establish NOX budgets for States in the CAIR region. As 
explained below, EPA believes that it provided adequate notice both 
that the fuel adjustment factors might be used and of the calculation 
procedures that it would use to determine the specific factors. 
Nevertheless, given the significant public interest in this issue, EPA 
has decided to grant reconsideration of, and to take comment on, EPA's 
use of fuel adjustment factors (i.e., 1.0 for coal, 0.4 for gas, and 
0.6 for fuel oil) in setting State NOX budgets. Today's 
action also presents additional analysis that EPA conducted to further 
explain the impact of these factors on State annual NOX 
budgets. This analysis demonstrates that the factors selected are 
reasonable and decrease the disparity between most States' actual 
electric generation unit (EGU) emissions and their State NOX 
budgets. For that reason, EPA is not proposing any changes to the final 
CAIR at this time.
    The CAIR establishes regional emission budgets for annual 
NOX, and seasonal NOX emissions. These regional 
budgets are then further divided into State budgets, with a share of 
each total regional budget allocated to each State in the corresponding 
CAIR region. States choosing to participate in the trading programs 
will be able to allocate, to sources in their State, the number of 
allowances in their budgets. Petitioners challenge the methodology EPA 
used to establish these State budgets for annual and seasonal 
NOX.
Background
    For States choosing to participate in the trading program, these 
budgets determine the number of allowances that could be allocated to 
sources in that State. In a cap and trade system, however, the 
methodology used to allocate allowances in any given year would not 
affect where control technologies are installed.\7\ Rather, the 
determinant would be the cost of adding controls compared to the cost 
of buying, or the profit from selling, allowances. Controls are 
expected to be installed where it is relatively less expensive, without 
regard to which units received the initial allocation of allowances. 
Further, the total cost to industry of controlling emissions and the 
total amount of reductions achieved would not be affected by the 
allocation methodology in a given year (for a permanent system). The 
allocation method, however, could have financial impacts on individual 
units and companies. A unit that receives more allocations than it has 
emissions would get a benefit at the expense of a unit that does not 
receive enough allocations to cover its emissions. While States 
choosing to participate in the cap and trade program can determine how 
to allocate allowances among their units, companies in States whose 
budgets exceed projected EGU emissions would likely receive a financial 
benefit while companies in States whose budgets are lower than their 
EGU emissions would likely incur additional costs. In the absence of 
other considerations, EPA believes that it is in the public interest to 
reduce the disparity between the number of allowances in a State budget 
and total projected State EGU emissions.
---------------------------------------------------------------------------

    \7\ A permanent allocation approach, such as the CAIR allocation 
methodology in the model trading rules, should not affect where 
controls are installed. This is true regardless of the type of 
approach used to permanently allocate allowances (e.g., heat input, 
adjusted heat input, or output). The use of an updating allocation 
system, on the other hand, could impact future generation behavior.
---------------------------------------------------------------------------

Notice of Fuel Factor Use in CAIR Promulgation
    In the CAIR notice of proposed rulemaking (NPR), EPA proposed to 
use the simple heat input method. (69 FR 4566) This approach used the 
un-adjusted heat input to set budgets based on heat input data from the 
years 1999 through 2002. EPA proposed to give each State a pro rata 
share of the regional NOX budget based on the ratio of its 
average annual heat input to the regional total average annual heat 
input.
    In the Supplemental Notice of Proposed Rulemaking (SNPR), EPA 
proposed to supplement and update the data used to calculate the State 
annual NOX budgets (69 FR 32684). EPA also described an 
alternative method that could be used to calculate the budgets--the 
adjusted heat input (fuel factor) method. This approach, EPA explained, 
would ``* * * reflect the inherently higher emissions rate of coal-
fired plants, and consequently the greater burden on coal plants to 
control emissions.'' (See 69 FR 32689.) The SNPR further explains ``in 
contrast to allocations based on historic emissions, the factors would 
also not penalize coal-fired plants that have already installed 
pollution controls'' (69 FR 32689). In the SNPR, EPA also described the 
method that it would use to derive specific fuel factors if this 
adjusted heat input method was selected. EPA explained, ``States' 
shares would be determined by the amount of the State heat input, as 
adjusted, in proportion to the total regional heat input. The factors 
could be based on average historic emissions rates (in lbs/mmBtu) by 
fuel type (coal, gas, and oil) for the years 1999-2002'' (69 FR 32689). 
The SNPR did not identify the specific numeric factors that would be 
used. EPA received and responded to numerous comments addressing this 
alternative fuel factor approach. (See ``Corrected Response to 
Significant Public Comments on the Proposed Clean Air Interstate 
Rule,'' pp. 520-576.)
    EPA established State NOX budgets for the final CAIR 
using the adjusted heat input method. The specific fuel factors used to 
adjust heat input data were 1.0 for coal, 0.4 for gas and 0.6 for oil. 
These factors are based on the average historic NOX 
emissions rate for each fuel. They reflect for each fuel, the 1999-2002 
average emissions by State summed for the CAIR region, divided by 
average heat input by fuel by State, summed for the CAIR region (70 FR 
25230-25231).
EPA Analyses of Potential Impacts
    EPA conducted two analyses to evaluate the potential impact of 
using the adjusted heat input method versus the simple heat input 
method on State annual NOX budgets: one on a regionwide 
scale and the second on a State-by-State level.
    The regionwide analysis of the potential impacts compared 
regionwide budgets using both approaches (i.e. simple heat input and 
fuel factor) to the regionwide projected emissions of units fired with 
that fuel.\8\ Regional budgets and emissions, by fuel type, are 
summarized in Table 1.
---------------------------------------------------------------------------

    \8\ It should be noted that simple heat input or adjusted heat 
input are used to set State budgets and do not imply that States 
would allocate allowances to units in that manner. In the proposal, 
EPA gives States flexibility in the distribution of allowances.

[[Page 72277]]



           Table 1.--Regionwide Comparison of CAIR Allowance Distributions and Emissions by Fuel Type
                                                 [Thousand tons]
----------------------------------------------------------------------------------------------------------------
                                                 Projected 2009* emissions and     Projected 2015 emissions and
                                                           allowances                       allowances
                                               -----------------------------------------------------------------
                                                             Other                            Other
                                                   Coal     fossil**    Total       Coal      fossil     Total
----------------------------------------------------------------------------------------------------------------
Base Case Emissions...........................      2,635         97      2,732      2,650         96      2,746
CAIR Emissions................................      1,404         99      1,503      1,151         89      1,254
Simple Heat Input Allowances..................      1,197        308      1,505        998        256      1,254
Fuel Factor Adjusted Allowances...............      1,349        156      1,505      1,124        130      1,254
----------------------------------------------------------------------------------------------------------------
* Numeric value is based on 2010 projections.
** Numeric value includes wood and refuse in three States.

    Assuming allowancesare often passed through to generation units in 
the same way that they are apportioned to the States, Table 1 
illustrates that under either approach natural gas-fired and other non-
coal-fired generation receives more allowances than their projected 
emissions in both 2009 and 2015 and therefore States with more units of 
this type receive a greater share of the budget. However, using the 
fuel factor approach, the disparity between the number of allowances 
provided and the emissions is less than under the simple heat input 
method. Table 1 also demonstrates that the majority of emission 
reductions are made by coal-fired sources. States with more of these 
types of units receive a greater share of the regional budget under the 
fuel factor approach (however, the portion of the budget derived from 
the heat input from these units is still generally smaller than their 
projected emissions). Therefore, the fuel factor approach generally 
provides additional allowances to States with large amounts of coal-
fired units that are making the investments in emission control 
measures and technologies. Conversely the simple heat input approach 
provides more allowances to States with larger amounts of gas-fired 
units that are not making reductions. Note that under either approach 
the portion of the State budgets derived from the heat input from the 
gas-fired units generally exceeds both the historical and the future 
projected emissions from these units. This finding led EPA to believe 
that the fuel factor approach better reduced the disparity between 
projected emissions and State budgets.
    EPA conducted a second analysis that examined the potential impacts 
of the two approaches for developing Statewide budgets (i.e., simple 
heat input and fuel factor) on a State-by-State basis. This analysis, 
summarized in Tables 2 and 3 below, shows that States receiving fewer 
allowances using a fuel factor approach, generally still receive 
Statewide budgets that are greater than their projected emissions in 
2009 and 2015. This results because a substantial portion of their 
generation portfolio consists of gas-fired sources with generally low 
NOX emission levels.

     Table 2.--Comparison of Projected NOX Missions and State Budgets for CAIR States Not Dominated by Coal
                                                   Generation
                                                 [Thousand tons]
----------------------------------------------------------------------------------------------------------------
                                                 Projected 2009 * emissions and    Projected 2015 emissions and
                                                            budgets                          budgets
        State                                  -----------------------------------------------------------------
                                                             Other                            Other
                                                   Coal      fossil     Total       Coal      fossil     Total
----------------------------------------------------------------------------------------------------------------
DC **................  Base Case Emissions....          0          0          0          0         < 1         < 1
                       CAIR Emissions.........          0         < 1         < 1          0         < 1         < 1
                       Simple Heat Input                0         < 1         < 1          0         < 1         < 1
                        Budget.
                       Fuel Factor Adjusted             0         < 1         < 1          0         < 1         < 1
                        Budget.
LA...................  Base Case Emissions....         45          5         49         45          5         50
                       CAIR Emissions.........         30          4         35         27          5         32
                       Simple Heat Input               19         23         42         16         26         42
                        Budget.
                       Fuel Factor Adjusted            21         14         36         18         12         30
                        Budget.
NY...................  Base Case Emissions....         38          7         45         38          6         44
                       CAIR Emissions.........         29          7         36         15          6         21
                       Simple Heat Input               19         42         61         16         35         51
                        Budget.
                       Fuel Factor Adjusted            21         25         46         17         21         38
                        Budget.
TX...................  Base Case Emissions....        141         45        186        141         39        179
                       CAIR Emissions.........        122         44        166        122         35        157
                       Simple Heat Input              114        118        231         95         98        192
                        Budget.
                       Fuel Factor Adjusted           128         53        181        106         44        151
                        Budget.
MS...................  Base Case Emissions....         36          1         37         36          2         37
                       CAIR Emissions.........         30          1         31          6          2          8
                       Simple Heat Input               11         10         21          9          8         18
                        Budget.
                       Fuel Factor Adjusted            13          5         18         10          4         15
                        Budget.
FL...................  Base Case Emissions....        132         19        151        132         18        151
                       CAIR Emissions.........         51         17         69         44         18         61
                       Simple Heat Input               58         58        116         48         48         97
                        Budget.

[[Page 72278]]


                       Fuel Factor Adjusted            65         34         99         54         28         83
                        Budget.
----------------------------------------------------------------------------------------------------------------
* Numeric value is based on 2010 projections.
** For DC: Projected Base Case emissions are 35 tons in 2015. CAIR Emissions are projected to be 35 tons in both
  2009 and 2015. Simple Heat Input budgets are 213 and 178 tons in 2009 and 2015, respectively. Fuel Factor
  budgets are 144 and 120 tons in 2009 and 2015, respectively.

    Table 2 lists those States in the CAIR region that have significant 
amounts (i.e., 40 percent or greater) of generation sources that 
combust fossil fuels other than coal. As illustrated by Table 2, DC, 
FL, LA, MS, NY, and TX, while receiving fewer allowances under a fuel 
factor approach, are provided with reasonable Statewide budgets that 
are comparable to their projected emissions in 2009 and 2015. If the 
States were to directly pass through allowances to their gas-fired 
units, these units would still have excess allowances. Furthermore in 
most cases, these States still receive a larger budget than they need 
to cover their projected emissions.

                                    Table 3.--Comparison of Projected NOX Emissions and State Budgets for CAIR States
                                                                     [Thousand tons]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                    Projected 2009 * emissions and budgets                  Projected 2015 emissions and budgets
                                           -------------------------------------------------------------------------------------------------------------
                                                  Emissions                    Budget                    Emissions                    Budget
                   State                   -------------------------------------------------------------------------------------------------------------
                                                                    Simple      Fuel                                       Simple      Fuel
                                            Base case     CAIR       heat      factor    Percent   Base case     CAIR       heat      factor    Percent
                                                                    input     adjusted    change                           input     adjusted    change
--------------------------------------------------------------------------------------------------------------------------------------------------------
DC **.....................................          0         < 1         < 1         < 1        -32         < 1         < 1         < 1         < 1        -33
LA........................................         49         35         50         36        -29         50         32         42         30        -29
NY........................................         45         36         61         46        -25         44         21         51         38        -25
TX........................................        186        166        231        181        -22        179        157        192        151        -22
MS........................................         37         31         21         18        -16         37          8         18         15        -16
FL........................................        151         69        116         99        -14        151         61         97         83        -14
MI........................................        117         88         64         65          3        120         90         53         54          3
MD........................................         57         13         27         28          4         57         12         22         23          4
VA........................................         68         43         35         36          5         60         39         29         30          5
AL........................................        132         65         64         69          8        134         49         53         58          8
GA........................................        143        106         61         66          9        141         67         51         55          9
IL........................................        146         66         70         76          9        159         65         58         64          9
WI........................................         71         47         37         41          9         69         34         31         34          9
PA........................................        198         86         90         99         10        193         72         75         83         10
SC........................................         49         38         30         33         10         50         36         25         27         10
MO........................................        116         64         54         60         10        118         66         45         50         10
MN........................................         72         36         28         31         11         74         37         24         26         11
NC........................................         60         59         56         62         11         61         49         47         52         11
IN........................................        234        121         98        109         11        233         79         81         91         11
OH........................................        264         91         97        109         12        274         90         81         91         12
TN........................................        106         37         46         51         12        106         27         38         42         12
KY........................................        176         99         74         83         12        176         74         62         69         12
IA........................................         76         45         29         33         12         81         47         24         27         12
WV........................................        179         62         66         74         13        176         40         55         62         13
                                           ------------
    Total.................................       2732       1503       1505       1505          0       2746       1254       1254       1254          0
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Numeric value is based on 2010 projections.
** For DC: Projected ** Base Case emissions are 35 tons in 2015. CAIR Emissions are projected to be 35 tons in both 2009 and 2015. Simple Heat Input
  budgets are 213 and 178 tons in 2009 and 2015, respectively. Fuel Factor budgets are 144 and 120 tons in 2009 and 2015, respectively.

    Table 3 shows that relative to the simple heat input method the 
fuel factor method reduces the disparity between projected State 
emissions and State budgets, because the fuel factor approach allocates 
State budgets that are generally closer to projected State emissions. 
As explained above, the States that receive smaller budgets under the 
fuel factor method are still generally receiving budgets that exceed 
their projected emissions. States that receive larger budgets under the 
fuel factor method are generally States with a large amount of coal-
fired generation that are installing post combustion controls as a 
result of CAIR.

[[Page 72279]]

Analysis of Potential Delaware and New Jersey Impacts
    The analyses described above were conducted for the States in the 
CAIR PM2.5 region only. EPA has proposed to add Delaware and 
New Jersey to the CAIR region for PM2.5 (``Inclusion of 
Delaware and New Jersey in the Clean Air Interstate Rule'', EPA, May 
10, 2005), but has not yet taken final action on this proposal. EPA 
proposed a separate 2-State ``regional'' budget for Delaware and New 
Jersey of just over 14,000 tons. EPA's analysis, presented in Table 4, 
shows that apportioning this budget between the two States based on a 
fuel factor method instead of a simple heat input method, is 
reasonable. (``Inclusion of Delaware and New Jersey in the Clean Air 
Interstate Rule'', EPA, May 10, 2005)

                              Table 4.--Comparison of Projected NOX Emissions and State Budgets for New Jersey and Delaware
                                                                     [Thousand tons]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                             Projected 2009 * emissions and allowance allocation     Projected 2015 emissions and allowance allocation
                                           -------------------------------------------------------------------------------------------------------------
                                                                    Simple      Fuel                                       Simple      Fuel
                   State                    Base case     CAIR       heat      factor    Percent   Base case     CAIR       heat      factor    Percent
                                                       emissions    input     adjusted    change              emissions    input     adjusted    change
                                            emissions               budget     budget              emissions               budget     budget
--------------------------------------------------------------------------------------------------------------------------------------------------------
NJ........................................       16.8       12.0       13.4       12.7       -5.6       17.9       12.8       11.2       10.6       -5.6
DE........................................        9.4        8.5        3.4        4.2       22.1       10.7        9.5        2.8        3.5       22.2
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Numeric value is based on 2010 projections.

Other Considerations
    EPA notes that the analyses above were conducted for State annual 
NOX budgets established in the CAIR. CAIR also establishes 
seasonal NOX budgets using the fuel factor approach. EPA did 
not conduct a similar analysis of the seasonal NOX budgets. 
EPA modeling indicates that the ozone season program is likely to 
function as a backstop to the annual NOX program, and that 
the annual NOX program is likely to impose the binding 
constraint on NOX emissions.
    Finally, to ensure that our estimates appropriately reflect the 
distribution of emissions in the case of higher electricity demand and 
increased gas and oil prices, EPA conducted a sensitivity run using 
EIA's forecast of higher electricity demand and gas and oil prices. 
This run produced very similar emissions results to the original 
NOX analysis, showing that EPA's original analysis is robust 
enough to support the fuel adjusted heat input approach finalized in 
CAIR. (See the ``CAIR Statewide NOX Budget Calculations 
Technical Support Document, EPA 2005, for additional discussion of the 
analysis.)

C. PM2.5 Modeling for Minnesota

    One petitioner asserts that EPA's modeling to determine whether 
emissions from Minnesota significantly contribute to downwind 
nonattainment of the PM2.5 NAAQS failed to take into account 
certain emissions reductions required by State programs. The petitioner 
asserts that if these reductions had been properly included in the 
modeling done for CAIR, the modeling might show that the State of 
Minnesota does not significantly contribute to downwind nonattainment 
of the PM2.5 NAAQS. The petitioner also asked EPA to stay 
implementation of the CAIR in Minnesota. The Agency is not taking 
action on the request for a stay at this time.
    The Agency agrees that EPA's modeling of the contribution of 
emissions from Minnesota to downwind PM2.5 nonattainment for 
the final CAIR did not fully account for the effects on future year 
emissions of certain State control programs. In order to ensure that 
all parties have ample opportunity to comment on all aspects of this 
issue, EPA is reconsidering the air quality modeling inputs for 
Minnesota.
    Using the corrected inputs described below, EPA recently remodeled 
the PM2.5 contributions from emissions in Minnesota. In this 
analysis, EPA used the same PM2.5 modeling platform that was 
used for the final CAIR modeling. This modeling platform is described 
in the CAIR Air Quality Modeling Technical Support Document 
(``Technical Support Document for the Final Clean Air Interstate Rule, 
Air Quality Modeling,'' March 2005, OAR-2003-0053-2123). The EPA is not 
taking comment on the modeling platform itself, only on the corrected 
2010 emissions inputs for Minnesota, as described below.
    The result of the revised 2010 Minnesota PM2.5 
contribution modeling is that Minnesota contributes a maximum of 0.20 
[mu]g/m3 to PM2.5 nonattainment in Chicago, IL. 
This result confirms the findings from the CAIR PM2.5 
contribution modeling that emissions in Minnesota make a significant 
contribution to PM2.5 nonattainment in Chicago, IL. The 2010 
emissions inputs used in the revised Minnesota modeling and the revised 
contributions to each downwind nonattainment receptor county can be 
found in the CAIR docket.
    The following discussion provides background on the corrected 
emissions inputs for Minnesota and on air quality analyses that the 
Agency conducted prior to finalizing CAIR.
    The emissions for the electric power sector used in EPA's 
contribution modeling for the final CAIR were derived from the 
Integrated Planning Model (IPM). The IPM is designed to forecast the 
projected impact of environmental polices on the electric power sector. 
The Agency updated its IPM modeling for the final CAIR. As part of a 
routine model update to the IPM and in response to comments from 
various parties, EPA updated the inventory of EGUs, made revisions to 
several model assumptions, and added various State rules, regulations, 
and New Source Review settlements to best reflect available data and 
information.
    In that IPM update for the final CAIR, the Agency included emission 
reduction actions that are required by Minnesota for certain units, 
based on the data available. However, as discussed in the RTC for the 
final CAIR (``Corrected Response to Significant Public Comments on the 
Proposed Clean Air Interstate Rule,'' March 2005, corrected April 2005, 
OAR-2003-0053-2172) as well as in a memorandum to the CAIR docket 
entitled ``Emissions in Minnesota: Additional Analysis'' (OAR-2003-
0053-2091) (''Minnesota memorandum''), the Agency discovered that there 
may be some discrepancies between how the Agency represented the 
Minnesota emissions reductions in the final CAIR IPM update and how the 
reductions would be implemented. The Agency revised its IPM model to 
better reflect the emissions reductions from

[[Page 72280]]

those Minnesota units and conducted revised emissions modeling using 
the IPM (in the memorandum mentioned above, the revised emissions 
modeling is described as a sensitivity analysis.) The revised emissions 
modeling (sensitivity analysis) resulted in somewhat lower 
NOX and SO2 emission projections for Minnesota in 
the base case, compared to the emissions modeling done for the final 
CAIR. The revised emissions modeling was discussed in the RTC for the 
final CAIR and in the Minnesota memorandum.
    Specifically, that revised IPM modeling projects statewide utility 
NOX emissions roughly 16,500 tons lower and SO2 
emissions about 5,800 tons lower than the emissions modeling used in 
the final CAIR. These revised NOX and SO2 
emission projections result in lower total NOX and 
SO2 emissions of 4.6 percent and 4.3 percent, respectively, 
than the emission projections used in the final CAIR modeling. In order 
to account for these revised emission projections, the Agency performed 
two analyses to estimate whether air quality modeling based on the 
lower emission projections would show that Minnesota's downwind 
contribution was below the PM2.5 significance threshold of 
0.2 [mu]g/m3. The EPA's modeling of Minnesota for the final 
CAIR showed that Minnesota's maximum downwind contribution is 0.21 
[mu]/m3 to Cook County, Illinois. The Agency's analyses of 
the effects of the lower emission projections on Minnesota's maximum 
contribution, which were presented in the RTC for the final CAIR and 
the Minnesota Memorandum, are summarized below:
     Analysis 1: We reduced the maximum PM2.5 
contribution by the larger of the percent reduction in NOX 
and SO2 emissions (i.e., the 4.6 percent reduction in 
NOX). The maximum PM2.5 contribution after making 
this adjustment is 0.2 [mu]g/m3.
     Analysis 2: We reduced the sulfate and nitrate portions of 
the maximum PM2.5 contribution by the corresponding 
reductions in SO2 and NOX emissions. 
Specifically, the sulfate portion (including sulfate, ammonium, and 
particle-bound water) was reduced by the 4.3 percent reduction in 
SO2 emissions and the nitrate portion was reduced by the 4.6 
percent reduction in NOX emissions. We then recalculated the 
maximum contribution using these lower components. The result is that 
the adjusted maximum PM2.5 contribution is 0.2 [mu]g/
m3.
    Thus, the analyses presented in the RTC and the Minnesota 
memorandum indicate that Minnesota makes a significant contribution to 
PM2.5 nonattainment, even after considering the lower 
emissions levels in the revised emissions modeling.\9\
---------------------------------------------------------------------------

    \9\ Although the petition acknowledges that the Agency revised 
its IPM emissions analysis to reflect emission reductions at certain 
Minnesota units, it states incorrectly that ``EPA subsequently 
learned that emission levels in the IPM sensitivity analysis were 
overstated by an additional 16,500 tons of annual NOX 
emissions and 5,800 tons of annual SO2 emissions'' 
(petition, p. 7). As discussed above, the emission projections in 
EPA's revised IPM modeling (the sensitivity analysis) were in fact 
lower by 16,500 tons of annual NOX emissions and 5,800 
tons of SO2 emissions than the emission projections in 
EPA's modeling for the final CAIR. For the same reason, the petition 
is incorrect in stating (p. 7) that EAP failed to consider these 
emission reductions in its analysis.
---------------------------------------------------------------------------

    Although the Agency's analyses of downwind impacts from Minnesota 
which were based on the revised emissions modeling (and presented in 
the RTC and the Minnesota memorandum) indicate that the State makes a 
significant contribution to downwind PM2.5 nonattainment, 
the Agency acknowledges that it did not at that time conduct air 
quality modeling based on the revised emissions modeling. However, as 
discussed above, the Agency has now remodeled the PM2.5 
contribution from emissions in Minnesota and the results of that 
revised modeling confirm that emissions in Minnesota make a significant 
contribution to PM2.5 nonattainment in Chicago, IL. This 
revised PM2.5 contribution modeling used the same modeling 
platform as EPA used for the final CAIR modeling coupled with the 
revised emissions inputs for Minnesota discussed above. The EPA is 
taking comment only on the revised inputs for Minnesota discussed 
above.

D. Inclusion of Florida in the CAIR Region for Ozone

    Florida petitioners (the Florida Association of Electric Utilities 
and FPL Group) maintain that neither the proposed rule nor the 
supplemental proposal or notice of additional data availability gave 
adequate notice that Florida might be included within the CAIR region 
as a significant contributor for ozone. They further maintain that 
EPA's ultimate determination to include Florida within the ozone CAIR 
region was based on modeling inputs not readily available for comment. 
The petitioners state that they therefore lacked adequate opportunity 
to comment on this issue.
    The EPA does not fully accept the Florida petitioners' 
characterization. Clearly, for example, EPA gave notice that it would 
utilize a different modeling platform for the final rule, with the 
necessary implication that this could change the makeup of the CAIR 
ozone (and PM2.5) regions (69 FR 47828; August 6, 2004). The 
EPA also provided access to the data inputs for the modeling runs, 
including emissions data and the information necessary to process that 
emissions data into model-ready files. Nonetheless, considering all the 
factors here (notably the absence of Florida from the CAIR region for 
ozone in the NPR and SNPR), EPA has decided to provide an opportunity 
for additional public comment on the inclusion of Florida within the 
CAIR region for ozone.

IV. Statutory and Executive Order Reviews

A. Executive Order 12866: Regulatory Planning and Review

    Under Executive Order 12866 (58 FR 51735, October 4, 1993), the 
Agency must determine whether the regulatory action is ``significant'' 
and, therefore, subject to Office of Management and Budget (OMB) review 
and the requirements of the Executive Order. The Order defines 
``significant regulatory action'' as one that is likely to result in a 
rule that may:
    (1) Have an annual effect on the economy of $100 million or more or 
adversely affect in a material way the economy, a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local, or Tribal governments or 
communities;
    (2) Create a serious inconsistency or otherwise interfere with an 
action taken or planned by another agency;
    (3) Materially alter the budgetary impact of entitlements, grants, 
user fees, or loan programs or the rights and obligations of recipients 
thereof; or
    (4) Raise novel legal or policy issues arising out of legal 
mandates, the President's priorities, or the principles set forth in 
the Executive Order.
    Pursuant to the terms of Executive Order 12866, OMB has determined 
that this is not a significant regulatory action. This notice takes 
comment on several aspects of the CAIR, but does not propose any 
modifications.

B. Paperwork Reduction Act

    This action does not propose information collection request 
requirements under the provisions of the Paperwork Reduction Act, 44 
U.S.C. 3501 et seq. Therefore, an information collection request 
document is not required.
    Burden means the total time, effort, or financial resources 
expended by persons to generate, maintain, retain, or disclose

[[Page 72281]]

or provide information to or for a Federal agency. This includes the 
time needed to review instructions; develop, acquire, install, and 
utilize technology and systems for the purposes of collecting, 
validating, and verifying information, processing and maintaining 
information, and disclosing and providing information; adjust the 
existing ways to comply with any previously applicable instructions and 
requirements; train personnel to be able to respond to a collection of 
information; search data sources; complete and review the collection of 
information; and transmit or otherwise disclose the information.
    An agency may not conduct or sponsor, and a person is not required 
to respond to a collection of information unless it displays a 
currently valid OMB control number. The OMB control numbers for EPA's 
regulations in 40 CFR are listed in 40 CFR part 9.

C. Regulatory Flexibility Act

    The Regulatory Flexibility Act generally requires an Agency to 
prepare a regulatory flexibility analysis of any rule subject to notice 
and comment rulemaking requirements under the Administrative Procedures 
Act or any other statute unless the Agency certifies the rule will not 
have a significant economic impact on a substantial number of small 
entities. Small entities include small businesses, small organizations, 
and small governmental jurisdictions.
    For purposes of assessing the impacts of today's proposed rule on 
small entities, small entity is defined as: (1) A small business that 
is a small industrial entity as defined in the U.S. Small Business 
Administration (SBA) size standards. (See 13 CFR part 121.); (2) a 
governmental jurisdiction that is a government of a city, county, town, 
school district or special district with a population of less than 
50,000; and (3) a small organization that is any not-for-profit 
enterprise which is independently owned and operated and is not 
dominant in its field.
    After considering the economic impacts of today's proposed rule on 
small entities, I certify that this action will not have a significant 
economic impact on a substantial number of small entities. This notice 
does not impose any requirements on small entities. We are only 
announcing our decision to reconsider and request comment on specific 
issues in the CAIR. We continue to be interested in the potential 
impacts of the rule on small entities and welcome comments on issues 
related to such impacts.

D. Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public 
Law 104-4, establishes requirements for Federal agencies to assess the 
effects of their regulatory actions on State, local, and Tribal 
governments and the private sector. Under section 202 of the UMRA, EPA 
generally must prepare a written statement, including a cost-benefit 
analysis, for proposed and final rules with ``Federal mandates'' that 
may result in expenditures by State, local, and Tribal governments, in 
the aggregate, or by the private sector, of $100 million or more in any 
1 year. Before promulgating an EPA rule for which a written statement 
is needed, UMRA section 205 generally requires EPA to identify and 
consider a reasonable number of regulatory alternatives and adopt the 
least costly, most cost-effective, or least-burdensome alternative that 
achieves the objectives of the rule. The provisions of section 205 do 
not apply when they are inconsistent with applicable law. Moreover, 
section 205 allows EPA to adopt an alternative other than the least-
costly, most cost-effective, or least-burdensome alternative if the 
Administrator publishes with the final rule an explanation why that 
alternative was not adopted. Before EPA establishes any regulatory 
requirements that may significantly or uniquely affect small 
governments, including tribal governments, it must have developed, 
under section 203 of the UMRA, a small government agency plan. The plan 
must provide for notifying potentially affected small governments, 
enabling officials of affected small governments to have meaningful and 
timely input in the development of EPA's regulatory proposals with 
significant Federal intergovernmental mandates, and informing, 
educating, and advising small governments on compliance with the 
regulatory requirements.
    The EPA has determined that today's notice of reconsideration does 
not contain a Federal mandate that may result in expenditures of $100 
million or more for State, local, and Tribal governments, in the 
aggregate, or the private sector in any 1 year. Today's notice of 
reconsideration of the CAIR does not add new requirements that would 
increase the cost of the CAIR. Thus, today's notice of reconsideration 
is not subject to the requirements of sections 202 and 205 of the UMRA. 
In addition, EPA has determined that today's notice of reconsideration 
does not significantly or uniquely affect small governments because it 
contains no requirements that apply to such governments or impose 
obligations upon them. Therefore, today's notice of reconsideration is 
not subject to section 203 of the UMRA.

E. Executive Order 13132: Federalism

    Executive Order 13132, entitled ``Federalism'' (64 FR 43255, August 
10, 1999), requires EPA to develop an accountable process to ensure 
``meaningful and timely input by State and local officials in the 
development of regulatory policies that have federalism implications'' 
``Policies that have federalism implications'' is defined in the 
Executive Order to include regulations that have ``substantial direct 
effects on the States, on the relationship between the national 
government and the States, or on the distribution of power and 
responsibilities among the various levels of government.''
    This action does not have federalism implications. It would not 
have substantial direct effects on the States, on the relationship 
between the national government and the States, or on the distribution 
of power and responsibilities among the various levels of government, 
as specified in Executive Order 13132. The CAA establishes the 
relationship between the Federal Government and the States, and this 
action would not impact that relationship. Thus, Executive Order 13132 
does not apply to this action.

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

    Executive Order 13175, entitled ``Consultation and Coordination 
with Indian Tribal Governments'' (65 FR 67249, November 9, 2000), 
requires EPA to develop an accountable process to ensure ``meaningful 
and timely input by Tribal officials in the development of regulatory 
policies that have Tribal implications.''
    For the same reasons stated in the final CAIR, today's notice does 
not have Tribal implications as defined by Executive Order 13175. It 
does not have a substantial direct effect on one or more Indian Tribes, 
since no Tribe has implemented a federally-enforceable air quality 
management program under the CAA at this time. Furthermore, this action 
does not affect the relationship or distribution of power and 
responsibilities between the Federal government and Indian Tribes. The 
CAA and the Tribal Air Rule establish the relationship of the Federal 
government and Tribes in developing plans to attain the NAAQS, and 
today's notice does nothing to modify that relationship. Because this 
notice does

[[Page 72282]]

not have Tribal implications, Executive Order 13175 does not apply.
    If one assumes a Tribe is implementing a Tribal implementation 
plan, the CAIR could have implications for that Tribe, but it would not 
impose substantial direct costs upon the Tribe, nor would it preempt 
Tribal Law.
    Although Executive Order 13175 does not apply to the CAIR or this 
notice of reconsideration of the CAIR, EPA consulted with Tribal 
officials in developing the CAIR.

G. Executive Order 13045: Protection of Children From Environmental 
Health and Safety Risks

    Executive Order 13045: ``Protection of Children From Environmental 
Health and Safety Risks'' (62 FR 19885, April 23, 1997) applies to any 
rule that (1) is determined to be ``economically significant'' as 
defined under Executive Order 12866, and (2) concerns an environmental 
health or safety risk that EPA has reason to believe may have a 
disproportionate effect on children. If the regulatory action meets 
both criteria, the Agency must evaluate the environmental health or 
safety effects of the planned rule on children, and explain why the 
planned regulation is preferable to other potentially effective and 
reasonably feasible alternatives considered by the Agency.
    This notice is not subject to Executive Order 13045 because it does 
not involve decisions on environmental health risks or safety risks 
that may disproportionately affect children. The EPA believes that the 
emissions reductions from the CAIR will further improve air quality and 
children's health.

H. Executive Order 13211: Actions That Significantly Affect Energy 
Supply, Distribution, or Use

    Executive Order 13211 (66 FR 28355, May 22, 2001) provides that 
agencies shall prepare and submit to the Administrator of the Office of 
Regulatory Affairs, OMB, a Statement of Energy Effects for certain 
actions identified as ``significant energy actions.'' Section 4(b) of 
Executive Order 13211 defines ``significant energy actions'' as ``any 
action by an agency (normally published in the Federal Register) that 
promulgates or is expected to lead to the promulgation of a final rule 
or regulation, including notices of inquiry, advance notices of final 
rulemaking, and notices of final rulemaking (1)(i) a significant 
regulatory action under Executive Order 12866 or any successor order, 
and (ii) likely to have a significant adverse effect on the supply, 
distribution, or use of energy; or (2) designated by the Administrator 
of the Office of Information and Regulatory Affairs as a ``significant 
energy action.'' The final CAIR is a significant regulatory action 
under Executive Order 12866, and EPA concluded that the final CAIR rule 
may have a significant adverse effect on the supply, distribution, or 
use of energy. The impacts are detailed in the final CAIR (70 FR 
25315). Today's notice of reconsideration of the CAIR is not a 
significant action under Executive Order 12866 and does not change 
EPA's previous conclusions.

I. National Technology Transfer Advancement Act

    Section 12(d) of the National Technology Transfer Advancement Act 
of 1995, Public Law 104-113, section 12(d) (15 U.S.C. 272 note) directs 
EPA to use voluntary consensus standards in its regulatory activities 
unless to do so would be inconsistent with applicable law or otherwise 
impractical. Voluntary consensus standards are technical standards 
(e.g., materials specifications, test methods, sampling procedures, and 
business practices) that are developed or adopted by voluntary 
consensus standards bodies. The National Technology Transfer 
Advancement Act of 1995 directs EPA to provide Congress, through OMB, 
explanations when the Agency decides not to use available and 
applicable voluntary consensus standards.
    Today's notice does not involve technical standards. Therefore, the 
National Technology Transfer and Advancement Act of 1995 does not 
apply.

J. Executive Order 12898: Federal Actions To Address Environmental 
Justice in Minority Populations and Low-Income Populations

    Executive Order 12898, ``Federal Actions to Address Environmental 
Justice in Minority Populations and Low-Income Populations,'' requires 
Federal agencies to consider the impact of programs, policies, and 
activities on minority populations and low-income populations. 
According to EPA guidance,\10\ agencies are to assess whether minority 
or low-income populations face risks or a rate of exposure to hazards 
that are significant and that ``appreciably exceed or is likely to 
appreciably exceed the risk or rate to the general population or to the 
appropriate comparison group.'' (EPA, 1998).
---------------------------------------------------------------------------

    \10\ U.S. Environmental Protection Agency, 1998. Guidance for 
Incorporating Environmental Justice Concerns in EPA's NEPA 
Compliance Analyses. Office of Federal Activities, Washington, DC, 
April, 1998.
---------------------------------------------------------------------------

    In accordance with Executive Order 12898, the Agency has considered 
whether the CAIR may have disproportionate negative impacts on minority 
or low-income populations. The EPA expects the CAIR to lead to 
reductions in air pollution and exposures generally. Therefore, EPA 
concluded that negative impacts to these sub-populations that 
appreciably exceed similar impacts to the general population are not 
expected. For the same reasons, EPA is drawing the same conclusion for 
today's notice to reconsider certain aspects of the CAIR.

List of Subjects

40 CFR Part 51

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

40 CFR Part 96

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

    Dated: November 22, 2005.
Stephen L. Johnson,
Administrator.
[FR Doc. 05-23501 Filed 12-1-05; 8:45 am]

BILLING CODE 6560-50-P
