

[Federal Register: June 8, 2007 (Volume 72, Number 110)]
[Rules and Regulations]               
[Page 31727-31749]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08jn07-8]                         

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 51

[EPA-HQ-OAR-2003-0079, FRL-8324-3]
RIN 2060-AO00

 
Phase 2 of the Final Rule To Implement the 8-Hour Ozone National 
Ambient Air Quality Standard--Notice of Reconsideration

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final notice of reconsideration.

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SUMMARY: On December 19, 2006, EPA published, as a proposed rule, a 
notice of reconsideration for several aspects of the November 29, 2005, 
Phase 2 of the final rule to implement the 8-hour ozone national 
ambient air quality standard (NAAQS). These issues relate to nitrogen 
oxide (NOX) reasonably available control technology (RACT) 
for electric generating units (EGUs) in Clean Air Interstate Rule 
(CAIR) states and to certain new source review (NSR) provisions. The 
notice of reconsideration was published as a result of a petition for 
reconsideration which had been submitted by the Natural Resources 
Defense Council. In this action, EPA summarizes and responds to 
comments received in response to the notice of reconsideration, and EPA 
announces its final actions taken in response to these comments.
    As a result of this reconsideration process, EPA is changing the 
deadline for states in the CAIR region to submit EGU NOX 
RACT SIPs subpart 2 ozone nonattainment areas classified as moderate 
and above. EPA is also modifying its guidance on the issue of 
NOX RACT for EGUs in CAIR states.

DATES: This final rule is effective on July 9, 2007.

ADDRESSES: The EPA has established a docket for this action under 
Docket ID No. EPA-HQ-OAR-2003-0079. All documents in the docket are 
listed in http://www.regulations.gov. 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 
http://www.regulations.gov or in hard copy at the EPA Docket Center 

(Air Docket), EPA/DC, EPA West, Room 3334, 1301 Constitution Ave., NW., 
Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30 
p.m., Monday through Friday, excluding legal holidays. The telephone 
number for the Public Reading Room is (202) 566-1744.

FOR FURTHER INFORMATION CONTACT: For further information on the issue 
relating to NOX RACT for EGU sources in CAIR States, contact 
Mr. William L. Johnson, Office of Air Quality Planning and Standards, 
U.S. Environmental Protection Agency, (C539-01) Research Triangle Park, 
NC 27711, phone number 919-541-5245, fax number (919) 541-0824 or by e-
mail at johnson.williamL@epa.gov or Mr. John Silvasi, Office of Air 
Quality Planning and Standards, U.S. Environmental Protection Agency, 
(C539-01), Research Triangle Park, NC 27711, phone number (919) 541-
5666, fax number (919) 541-0824 or by e-mail at silvasi.john@epa.gov. 
For further information on the NSR issues discussed in this notice, 
contact Mr. David Painter, Office of Air Quality Planning and 
Standards, (C504-03), U.S. EPA, Research Triangle Park, North Carolina 
27711, telephone number (919) 541-5515, fax number (919) 541-5509, e-
mail: painter.david@epa.gov.

SUPPLEMENTARY INFORMATION:

I. General Information

A. Does This Action Apply to Me?

1. Issue on Determination of CAIR/RACT Equivalency for NOX 
EGUs
    Entities potentially affected by the subject rule for this action 
include States (typically State air pollution control agencies), and, 
in some cases, local governments that develop air pollution control 
rules, in the region affected by the CAIR.\1\ The EGUs are also 
potentially affected by virtue of State action in SIPs that implement 
provisions resulting from final rulemaking on this action; these 
sources are in the following groups:
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    \1\ Federal Register of May 12, 2005 (70 FR 25, 162).

[[Page 31728]]



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                                                SIC
               Industry group                   \a\                                                NAICS \b\
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Electric Services...........................     492  221111, 221112, 221113, 221119, 221121, 221122
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\a\ Standard Industrial Classification.
\b\ North American Industry Classification System.

2. NSR Issues
    Entities potentially affected by the subject rule for this action 
include sources in all industry groups. The majority of sources 
potentially affected are expected to be in the following groups:

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                                                SIC
               Industry group                   \a\                                                NAICS \b\
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Electric Services...........................     492  221111, 221112, 221113, 221119, 221121, 221122
Petroleum Refining..........................     291  324110
Industrial Inorganic Chemicals..............     281  325181, 325120, 325131, 325182, 211112, 325998, 331311, 325188
Industrial Organic Chemicals................     286  325110, 325132, 325192, 325188, 325193, 325120, 325199
Miscellaneous Chemical Products.............     289  325520, 325920, 325910, 325182, 325510
Natural Gas Liquids.........................     132  211112
Natural Gas Transport.......................     492  486210, 221210
Pulp and Paper Mills........................     261  322110, 322121, 322122, 322130
Paper Mills.................................     262  322121, 322122
Automobile Manufacturing....................     371  336111, 336112, 336211, 336992, 336322, 336312, 336330, 336340, 336350, 336399, 336212, 336213
Pharmaceuticals.............................     283  325411, 325412, 325413, 325414
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\a\ Standard Industrial Classification.
\b\ North American Industry Classification System.

    Entities potentially affected by the subject rule for this action 
also include State, local, and Tribal governments that are delegated 
authority to implement these regulations.

B. How Is This Notice Organized?

    The information presented in this notice is organized as follows:

I. General Information
    A. Does This Action Apply To Me?
    B. How Is This Notice Organized?
II. Background
    A. NOX RACT for EGUs in CAIR States
    1. Phase 2 Ozone Implementation Rule
    2. Petition for Reconsideration.
    B. Submission Date for EGU RACT SIPs for States in CAIR Regions
    1. Phase 2 Ozone Implementation Rule
    2. Notice of Reconsideration
    C. NSR Issues
    1. Our Previous and Final Rules.
    2. Petition for Reconsideration.
III. This Action
    A. NOX RACT for EGUs in CAIR States
    1. Final Action
    2. Response to Comments
    B. Submission Date for EGU RACT SIPs for States in CAIR Regions
    1. Final Action
    2. Response to Comments
    C. Provisions of Final Rule Addressing the Criteria for Emission 
Reduction Credits From Shutdowns and Curtailments
    1. Major Source NSR Criteria for Emission Reduction Credits 
(ERC) From Shutdowns and Curtailments
    2. Legal Basis for Changes to Criteria for Emission Reduction 
Credits From Shutdowns and Curtailments
    3. Reconsideration of Emission Reduction Credits Final Rule 
Language and Request for Public Comments
    4. Comments and Responses for Emission Reduction Credits Issues
    D. Applicability of Appendix S, Section VI
    1. Changes to Applicability of Appendix S, Section VI
    2. Legal Basis for Changes to Applicability of Appendix S and 
the Transitional NSR Program
    3. Reconsideration of Appendix S, Section VI Final Rule 
Amendments
    4. Comments and Responses for Appendix S, Section VI
IV. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review
    B. Paperwork Reduction Act
    C. Regulatory Flexibility Act (RFA)
    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 Risks and Safety Risks
    H. Executive Order 13211: Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use
    I. National Technology Transfer and Advancement Act
    J. Executive Order 12898: Federal Actions To Address 
Environmental Justice in Minority Populations and Low-Income 
Populations
    K. Congressional Review Act
    L. Judicial Review

II. Background

A. NOX RACT for EGUs in CAIR States

1. Phase 2 Ozone Implementation Rule
    In the Phase 2 Rulemaking to implement the 8-hour ozone NAAQS 
(Phase 2 Rule), EPA determined that EGU sources complying with rules 
implementing the CAIR requirements meet ozone NOX RACT 
requirements in states where all required CAIR emissions reductions are 
achieved from EGUs only.\2\ We noted that the CAIR establishes a 
region-wide NOX emissions cap, effective in 2009, at a level 
that, assuming the reductions are achieved from EGUs, would result in 
EGUs installing emission controls on the maximum total capacity on 
which it is feasible to install emission controls by that date. In 
addition, the CAIR's 2015 NOX cap will eliminate all 
NOX emissions from EGUs that are highly cost effective to 
control. The 2009 cap represents an interim step toward that end. In 
the Phase 2 Rule, EPA also explained that requiring source-specific 
RACT controls on EGUs in nonattainment areas would not reduce total 
NOX emissions below the levels that would be achieved under 
CAIR alone and that it could result in more costly emission reductions. 
For these and other reasons detailed in the Phase 2 Rule, EPA concluded 
that EGUs subject to the CAIR NOX controls meet the 
definition of RACT for NOX (in all states that obtain all 
required CAIR NOX

[[Page 31729]]

emission reductions from EGU emission reductions). EPA said it was 
making this finding for all areas in the CAIR region, such that states 
need not submit RACT analyses for sources subject to CAIR that are in 
compliance with a FIP or SIP approved as meeting CAIR. EPA noted that a 
state has discretion to define RACT to require greater emission 
reductions than specified in EPA guidance and also to require beyond-
RACT NOX reductions from any source it deems reasonable to 
provide for timely attainment of the ozone standards.
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    \2\ However, EPA also determined that a state that elects to 
bring its NOX SIP Call non-EGU sources into the CAIR 
ozone season trading program could continue to rely on EPA's 
determination that RACT is met for EGU sources covered by the CAIR 
trading program. EPA further noted that a state could rely on this 
determination if and only if the state retained a summer season EGU 
budget under the CAIR that was at least as restrictive as the EGU 
budget that was set in the state's NOX SIP Call SIP.
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2. Petition for Reconsideration.
    The EPA received a petition for reconsideration of the final Phase 
2 Rule from the NRDC. This petition raised several objections to EPA's 
determination that, in certain circumstances, EGUs in CAIR states may 
satisfy the NOX RACT requirement for ozone if they comply 
with rules implementing the CAIR. Specifically, NRDC argued that:
     The EPA unlawfully and arbitrarily failed to seek public 
comment on the final rule's determination that the CAIR satisfies 
NOX RACT requirements.
     The EPA's CAIR-RACT determinations are unlawful and 
arbitrary because EPA's action illegally abrogates the Act's RACT 
requirements.
    The EPA granted NRDC's petition by letter of June 21, 2006.
    In a notice of proposed reconsideration dated December 19, 2006, 
EPA announced the initiation of the reconsideration process and 
requested additional public comment on the issues raised by the 
petition. In this notice, EPA also explained and requested comment on 
the additional technical analyses it conducted to assess the 
determination that compliance with rules implementing CAIR may satisfy 
the NOX RACT requirement for certain EGUs. EPA included in 
the docket a background document explaining that technical analysis.

B. Submission Date for EGU RACT SIPs for States in CAIR Region

1. Phase 2 Ozone Implementation Rule
    The Phase 2 Rule established September 15, 2006 as the deadline for 
the submission of RACT SIPs for moderate and above subpart 2 areas. EPA 
explained that, since some states might rely on the submittal of SIP 
revisions meeting the CAIR (i.e., the CAIR SIP) to also satisfy RACT 
for some sources, it was extending the submittal date to 27 months 
after designations to be consistent with the date for submittal of the 
CAIR SIPs. For subpart 1 areas requesting an attainment date more than 
five years after designation, the rule provides that the State shall 
submit the RACT SIP for each area with its attainment demonstration 
that requests to extend the attainment date.
2. Petition for Reconsideration
    In the notice of proposed reconsideration dated December 19, 2006, 
EPA proposed to postpone the submission date for the portion of the 8-
hour ozone SIP that addresses NOX RACT for EGUs in the CAIR 
region pending reconsideration. EPA proposed a new submission date of 
June 15, 2007 and requested comments on that date.

C. NSR Issues

1. Our Previous Proposed and Final Rules
    The major NSR provisions in the November 29, 2005 Phase 2 
rulemaking were proposed as part of two different regulatory packages. 
On July 23, 1996 (61 FR 38250), we proposed changes to the major NSR 
program, including codification of the requirements of part D of title 
I of the 1990 CAA Amendments for major stationary sources of volatile 
organic compounds (VOC), NOX, particulate matter having a 
nominal aerodynamic diameter less than or equal to 10 microns 
(PM10), and CO. On June 2, 2003 (68 FR 32802), we proposed a 
rule to implement the 8-hour ozone NAAQS. In the 2003 action, we 
proposed a rule to identify the statutory requirements that apply for 
purposes of developing SIPs under the CAA to implement the 8-hour ozone 
NAAQS (68 FR 32802). We did not propose specific regulatory language 
for implementation of NSR under the 8-hour NAAQS. However, we indicated 
that we intended to revise the nonattainment NSR regulations to be 
consistent with the rule for implementing the 8-hour ozone NAAQS (68 FR 
32844). On April 30, 2004 (69 FR 23951), we published a final rule that 
addressed classifications for the 8-hour NAAQS. The April 2004 rule 
also included the NSR permitting requirements for the 8-hour ozone 
standard, which necessarily follow from the classification scheme 
chosen under the terms of subpart 1 and subpart 2.
    In 1996, we proposed to revise the regulations limiting offsets 
from emissions reductions due to shutting down an existing source or 
curtailing production or operating hours below baseline levels 
(``shutdowns/curtailments''). We proposed substantive revisions in two 
alternatives that would ease, under certain circumstances, the existing 
restrictions on the use of emission reduction credits from source 
shutdowns and curtailments as offsets.
    In 1996, we proposed to revise 40 CFR 52.24 to incorporate changes 
made by the 1990 CAA Amendments related to the applicability of 
construction bans (61 FR 38305). To clarify our intent, our proposed 8-
hour ozone NAAQS implementation rule in June 2003 explained that 
section 52.24(k) remained in effect and would be retained. In that 
action, we also proposed that we would revise section 52.24(k) to 
reflect the changes in the 1990 CAA Amendments (68 FR 32846). On June 
2, 2003 (68 FR 32802), we explained implementation of the major NSR 
program under the 8-hour ozone NAAQS during the SIP development period, 
and proposed flexible NSR requirements for areas that expected to 
attain the 8-hour NAAQS within 3 years after designation.
    In the final regulations, we included several revisions to the 
regulations governing the nonattainment NSR programs mandated by 
section 110(a)(2)(C) and part D of title I of the CAA. First, we 
codified requirements added to part D of title I of the CAA in the 1990 
Amendments related to permitting of major stationary sources in areas 
that are nonattainment for the 8-hour ozone, particulate matter (PM), 
and carbon monoxide (CO) NAAQS. Second, we revised the criteria for 
crediting emissions reductions credits from shutdowns and curtailments 
as offsets. Third, we revised the regulations for permitting of major 
stationary sources in nonattainment areas in interim periods between 
designation of new nonattainment areas and EPA's approval of a revised 
SIP. Also, we changed the regulations that impose a moratorium (ban) 
prohibiting construction of new or modified major stationary sources in 
nonattainment areas where the State fails to have an implementation 
plan meeting all of the requirements of part D.
2. Petition for Reconsideration
    The NRDC petition for reconsideration raised two objections to the 
major NSR aspects of the Phase 2 rulemaking:
     Allowing sources to use pre-permit application emission 
reductions as offsets if they occur ``after the last day of the base 
year for the SIP planning process''; and
     Changes to Section VI of Appendix S, which is the section 
allowing for waiver of nonattainment major NSR requirements in certain 
circumstances.
    The EPA granted the petition by letter of June 21, 2006 and, on 
December 19,

[[Page 31730]]

2006, EPA published, as a proposed rule, a notice of reconsideration. 
This action presents the comments we received upon the proposal, our 
responses to the comments and our decisions on whether to amend the 
current regulation in response to the public comments.

III. This Action

A. NOX RACT for EGUs in CAIR States

1. Final Action
    In response to comments received during the reconsideration 
process, EPA in this action modifies its guidance regarding when 
compliance with the CAIR may satisfy NOX RACT requirements 
for EGUs in CAIR states.\3\ EPA believes it is appropriate for the CAIR 
states, under the conditions outlined in this action, to presume, in 
general, that EGU NOX RACT requirements are satisfied 
through implementation of the CAIR program. Further, in this action EPA 
makes a determination that in certain areas compliance with the CAIR is 
sufficient to satisfy the NOX RACT requirement for EGUs 
covered by the CAIR program. The areas covered by this determination 
are those where EPA's December 2006 emissions analysis \4\ shows that 
the CAIR is projected to achieve greater emissions reductions than 
application of source-by-source RACT within the nonattainment area or 
state. For areas where EPA's emissions analysis does not clearly 
demonstrate that the CAIR program is projected to achieve greater 
emissions reductions than source-by source RACT, this action 
establishes a separate presumption that compliance with CAIR, in 
certain circumstances, satisfies NOX RACT requirements for 
EGUs in any area subject to CAIR. As explained below, states may rely 
initially on this presumption whether or not the aforementioned CAIR-
RACT determination applies.
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    \3\ In this rule, the phrase ``compliance with the CAIR'' is 
used to mean compliance with a FIP or an EPA-approved SIP meeting 
the requirements of the CAIR.
    \4\ Technical Support Document for Phase 2 of the Final Rule To 
Implement the 8-Hour Ozone National Ambient Air Quality Standard --
Notice of Reconsideration; NOX RACT for EGUs in CAIR 
States--Supplemental Technical Analysis. (Docket ID No. EPA-HQ-OAQ-
2003-0079, item number EPA-HQ-OAR-2003-0079-1044.2.)
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    More specifically, in this action, EPA determines that compliance 
by EGUs with an EPA-approved CAIR SIP or a CAIR FIP satisfies the 
nonattainment area NOX RACT requirements in CAA sections 
172(c)(1) and 182(f) if: (1) The EGU is located in a state where all 
required CAIR emission reductions are achieved from EGUs only \5\; and 
(2) the emissions analysis presented by EPA in the December 16, 2006 
notice of proposed reconsideration shows that the CAIR will achieve 
greater or equal annual and ozone-season emissions reductions than 
source-by-source RACT in the relevant nonattainment area.\6\ EPA also 
determines that compliance by EGUs with an EPA-approved CAIR SIP or a 
CAIR FIP satisfies the NOX RACT requirements for OTR states 
in sections 184(b) and 182(f) if: (1) The EGU is located in a state 
where all required CAIR emission reductions are achieved from EGUs 
only; and (2) the emissions analysis presented by EPA in the December 
16, 2006 notice of reconsideration shows that the CAIR will achieve 
greater or equal annual and ozone-season emissions reductions than 
source-by-source RACT in the relevant OTR state \7\. The determination 
for OTR states is separate from the determination for nonattainment 
areas within the OTR states. This means that the conditions of the 
determination may be met for an OTR state, in its entirety, but a 
particular nonattainment within the State may not meet the conditions 
of the determination based on the results of the EPA's emissions 
analysis.
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    \5\ However, a state that elects to bring its NOX SIP 
Call non-EGU sources into the CAIR ozone season trading program need 
not show that all the CAIR reductions are achieved solely from EGUs 
if, and only if, the state retained a summer season EGU budget under 
the CAIR that was at least as restrictive as the EGU budget that was 
set in the state's NOX SIP Call SIP.
    \6\ 6 The EPA emissions analysis shows that for the following 
nonattainment areas the CAIR is projected to achieve equal or 
greater annual emissions reductions than source-by-source RACT: 
Baltimore, MD, Buffalo-Niagara Falls, NY (Subpart 1); Charlotte-
Gastonia-Rock Hill, NC-SC; Chicago-Gary-Lake County, IL-IN; 
Cleveland-Akron-Lorain, OH; Dallas-Fort Worth, TX; Greater 
Connecticut, CT; Houston-Galveston-Brazoria, TX; Jefferson Co, NY; 
Milwaukee-Racine, WI; New York-New Jersey-Long Island, NY-NJ-CT; 
Philadelphia-Wilmington-Atlantic City, PA-NJ-MD-DE; Sheboygan, WI; 
St Louis, MO-IL; Washington, DC-MD-VA. The emissions analysis shows 
that for the following nonattainment areas the CAIR is projected to 
achieve equal or greater summer emission reductions than source-by-
source RACT: Charlotte-Gastonia-Rock Hill, NC-SC; Cleveland-Akron-
Lorain; Dallas-Fort Worth, TX; Greater Connecticut, CT; Houston -
Galveston-Brazoria, TX; Jefferson Co., NY; Milwaukee-Racine, WI; New 
York-N. New Jersey-Long Island, NY-NJ-CT; Philadelphia -Wilmington-
Atlantic City, PA-NJ-MD-DE; Sheboygan, WI; Springfield (Western MA), 
MA; St. Louis, MO-IL; Washington, DC-MD-VA.
    \7\ EPA's emissions analysis shows that for the following OTR 
states, the CAIR is projected to achieve equal or greater annual 
emissions reductions than source-by-source RACT: Delaware, Maryland, 
New Jersey, New York, Pennsylvania, and OTR portion of Virginia 
(Alexandria and Prince Counties). For the following OTR states, the 
CAIR is projected to achieve equal or greater summer emission 
reductions than source-by-source RACT: Maryland, Pennsylvania and 
OTR portions of Virginia (Alexandria and Prince William Counties).
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    In their RACT SIP submissions, states choosing to rely on a 
determination that compliance with the CAIR satisfies NOX 
RACT requirements for EGUs, should document their reliance on the 
determination.
    In areas covered by the CAIR that do not meet the conditions 
outlines in the preceding paragraph, EPA still believes it is 
appropriate for these areas to presume that compliance with the CAIR 
will satisfy the NOX RACT requirements for EGUs if all 
required CAIR reductions in that state are achieved by EGUs only. 
States may rely on this presumption in the first instance regardless of 
whether the relevant nonattainment area or OTR state is covered by the 
aforementioned determination. In their RACT SIP submissions, states 
choosing to rely on this presumption should document their reliance on 
the presumption. This presumption is rebuttable and the State's 
documentation of reliance on this presumption must provide additional 
justification if necessary.
    These final positions are based on a number of factors previously 
identified in the Phase 2 Rule, and in the December 2006 notice of 
proposed reconsideration. In evaluating RACT for EGUs, EPA believes it 
is appropriate to consider the special attributes of EGUs, including 
the unique interrelated nature of the power supply network, and the 
facilities' compliance with rules implementing the CAIR. EPA also 
asserts that the term ``reasonable'' in RACT may be construed to allow 
consideration of the air quality impact of required emissions 
reductions from region-wide cap-and-trade programs such as the CAIR 
NOX trading programs.
    Due to the nature of regional emissions transport, EPA believes 
that a combination of local and broader regional reductions, such as 
those driven by the CAIR requirements for EGUs, will achieve a more 
effective and economically efficient air quality improvement in 
nonattainment areas than application of source-by-source RACT. This is 
consistent with EPA's recognition in our 1986 emissions trading policy 
that a ``bubble'' approach has a number of advantages including faster 
compliance with RACT limits and earlier reductions. EPA does not 
interpret the RACT provisions of CAA section 172(c)(1) to preclude 
states' use of a cap-and-trade approach as a means of achieving RACT 
reductions from existing sources, and believes such an approach is 
consistent with Congresses' express authorization to auction emission 
rights in section 172(c)(6). Many ozone nonattainment areas are

[[Page 31731]]

projected to achieve significant NOX reductions under the 
CAIR program and EPA does not believe that requiring source-specific 
RACT controls on specified EGUs in nonattainment areas would reduce 
total NOX emissions from sources covered by CAIR below the 
region-wide levels that will be achieved under CAIR alone. The region-
wide CAIR NOX EGU emissions cap for 2009 was established 
based on the maximum total capacity on which EPA believes it is 
possible to install controls by that date. So by design, the 2009 CAIR 
region-wide NOX emissions cap for EGUs represents the most 
reductions that are reasonable to achieve in the CAIR region by that 
date. Because the CAIR achieves more annual and summer season EGU 
NOX emission reductions overall across the CAIR region than 
source-by-source application of RACT \8\, EPA believes this will result 
in more region-wide air quality improvements than application of RACT 
in the absence of the CAIR. As explained in greater detail in the 
preamble to the CAIR rule, the CAIR is projected to improve ozone air 
quality across much of the eastern half of the country, including many 
current and projected future nonattainment areas. 70 FR 25254-25255 
(May 12, 2005). The CAIR is projected to improve air quality in all of 
the 40 projected 2010 nonattainment counties, and in all 22 of the 
projected 2015 nonattainment counties, that were identified in the CAIR 
rule modeling. The modeling also showed air quality improvement in 
numerous counties projected to be in attainment.
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    \8\ For 2010, annual NOX emission reductions expected 
from implementation of the CAIR in the entire CAIR region are 1.3 
million tons/year. This compares with annual NOX emission 
reductions projected from application of source-by-source RACT from 
within the Ozone Transport Region (OTR) plus other nonattainment 
areas in the CAIR region, but outside of the OTR, of 166,780 tons/
year. Ozone-season NOX emission reductions expected from 
implementation of the CAIR in the entire CAIR region are 200,000 
tons/season. This compares with summer time RACT-only emission 
reductions from within the OTR plus other nonattainment areas in the 
CAIR region, but outside of the OTR, of 19,210 tons/summer. These 
estimates show that CAIR is projected to get overwhelmingly greater 
NOX reductions than source-by-source RACT in the CAIR 
region. The CAIR region emissions estimates are from ``Regulatory 
Impact Analysis for the Final Clean Air Interstate Rule,'' EPA-452/
R-05-002, March 2005. This document can be found at http://www.epa.gov/interstateairquality/pdfs/finaltech08.pdf
 and is also in 

the CAIR docket no. EPA-HQ-OAR-2003-0053. The RACT emission 
estimates for OTR states and nonattainment areas in the CAIR region, 
but outside OTR states, are found in ``Technical Support Document 
for Phase 2 of the Final Rule To Implement The 8-Hour Ozone National 
Ambient Air Quality Standard--Notice of Reconsideration; 
NOX RACT For EGUs In CAIR states--Supplemental Technical 
Analysis.'' (Docket ID No. EPA-HQ-OAQ-2003-0079, document number 
EPA-HQ-OAR-2003-0079-1044.2).
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    For most EGUs in the CAIR region, based on the conclusions 
explained here, states may rely on EPA's determination that RACT 
requirements for these sources are satisfied by compliance with the 
CAIR. However, this determination applies only to EGUs in states 
achieving all required CAIR reductions from EGUs, except as noted 
below. As explained in the preamble to the Phase 2 Rule, if only part 
of the CAIR reductions are required from EGUs, and the balance of the 
reductions obtained from non-EGU sources, then the stringency of the 
CAIR EGU control would be diminished to some extent (an amount that 
cannot be determined until a state submits a SIP indicating which 
sources are participating in the program). Therefore, in these cases, 
the rationale for our conclusions (either determinations or 
presumptions) that these sources satisfy the RACT requirement would not 
necessarily apply.
    EPA determined in the final Phase 2 Rule that sources complying 
with the requirements of the NOX SIP Call trading system 
meet their ozone NOX RACT obligations. A state that elects 
to bring its NOX SIP Call non-EGU sources into the CAIR 
ozone season trading program may under certain conditions continue to 
rely on the determination that RACT is met for EGU sources covered by a 
CAIR NOX trading program. It may rely on this presumption if 
and only if the state retains a summer season EGU budget under the CAIR 
that is at least as restrictive as the EGU budget that was set in the 
state's NOX SIP call SIP. Therefore, if the summer season 
EGU budget under CAIR is at least as restrictive as the budget in the 
NOX SIP Call SIP, and if non-EGU sources after 2008 continue 
to be subject to a SIP requirement that regulates those non-EGU sources 
equally or more stringently than the state's current rules meeting the 
NOX SIP Call, then those EGUs are meeting a level of control 
at least as stringent as RACT.
    In addition, as we noted in the Phase 2 Rule, a state has 
discretion to define RACT to require greater emission reductions than 
specified in EPA guidance and also to require beyond-RACT 
NOX reductions from any source (including sources covered by 
the CAIR or NOX SIP Call programs), and has an obligation to 
demonstrate attainment of the 8-hour ozone standard as expeditiously as 
practicable. In certain areas, states may decide to require 
NOX controls based on more advanced control technologies as 
necessary to provide for attainment of the ozone standards.
    Based upon South Coast Air Quality Mgt District v. EPA (No. 04-
1200) (D.C. Cir. 2006), the status of nonattainment classifications for 
8-hour ozone nonattainment areas is unclear at this time. EPA has 
petitioned the court for rehearing of this issue. However, until this 
issue is resolved, there will be continuing uncertainty regarding which 
areas must submit RACT SIPs separate from attainment demonstrations. 
Currently, all areas classified under subpart 2 as moderate or higher, 
and areas classified under subpart 1 that are planning to request an 
attainment date that extends beyond April 2009 are required to submit a 
RACT SIP separate from attainment demonstrations. EPA is unable to 
determine at this time if any areas in addition to those included in 
the cited emissions analysis will be required to submit separate RACT 
SIPs. Based on the outcome of EPA's petition for rehearing, EPA may 
review and revise, as appropriate, the determinations made in this 
action.
2. Response to Comments
    a. Comment: Commenters argue that the Clean Air Act (CAA) calls for 
State Implementation Plans (SIPs) to provide for ``such reductions in 
emissions from existing sources in the nonattainment area as may be 
obtained through adoption'' of RACT. Therefore, they argue, each 
particular affected source in a non-attainment area is required by law 
to have the lowest emission limitation it is capable of meeting. One 
commenter says that the CAA does not give EPA the option of requiring 
CAIR or some other strategy in lieu of RACT, and that by deeming CAIR 
controls to be equivalent to RACT, EPA is seeking to insulate 
uncontrolled or poorly controlled EGUs in current or future 
nonattainment areas from cost effective controls that would qualify as 
RACT. Another commenter says that EPA's NOX Supplement to 
the General Preamble (57 FR 55620, Nov. 25, 1992) concludes that it is 
``permissible under the statute for individual sources to have greater 
or lesser emissions reductions so long as the area wide average 
emission rates associated with a RACT level of NOX emission 
controls [are] met.'' They argue that it is consistent with the Act for 
EPA and states to determine that compliance with an area-wide emission 
trading program may constitute RACT in lieu of source-by-source 
emission control requirements. The commenter adds that neither the 
CAA's language nor EPA's 1979 statement [44 FR 53762] defining RACT 
supports the arguments in the petition for reconsideration that

[[Page 31732]]

emission controls must be installed on all major stationary sources in 
a nonattainment area, nor is there anything in these documents that 
indicates that the rule's CAIR = NOX RACT provision is 
illegal. The commenter notes that Congress's choice of the phrase 
``reasonably available'' bespeaks its intention that the EPA exercise 
discretion in determining which control measures must be implemented.
    Response: As explained in the preamble to the Phase 2 Rule, EPA 
disagrees with the commenters' assertion that RACT necessarily requires 
every major source to install controls. See 70 FR 71656. To the 
contrary, EPA allows states to demonstrate that RACT is met by groups 
of sources. For example, the NOX Supplement to the General 
Preamble, November 25, 1992 (57 FR 55625) permits states to ``allow 
individual owners/operators in the nonattainment area * * * to have 
emission limits which result in greater or lesser emission limits so 
long as the area wide average emission rates * * * are met on a Btu-
weighted average.'' The General Preamble also ``encourage[s] states to 
structure their RACT requirements to inherently incorporate an 
emissions averaging concept (i.e., installing more stringent controls 
on some units in exchange for lesser control on others).'' This 
approach was based on EPA's conclusion that it was permissible under 
the CAA for individual sources to have ``greater or lesser emission 
reductions so long as the area wide average emissions rates'' 
associated with a RACT level of NOX emissions control were 
met.
    In addition, EPA does not believe that requiring source-specific 
RACT controls on EGUs in nonattainment areas will reduce total 
NOX emissions from EGU sources covered by the CAIR below the 
levels that would be achieved under the CAIR alone. EPA also believes 
that EGU source-specific RACT would result in more costly emission 
reductions on a per ton basis. The combination of EGU source specific 
RACT and the CAIR emissions cap would not reduce the collective total 
emissions from EGUs covered by the CAIR, but would likely achieve the 
same total emissions reductions as the CAIR alone, in a more costly 
way.
    Further, EPA's analysis for the CAIR shows the CAIR program will 
result in EGUs installing emission controls on the maximum total 
capacity on which it is feasible to install emission controls by the 
2009 date. (70 FR 22515-22225) The CAIR budgets are based on the level 
of emissions that can be achieved through the application of highly 
cost-effective controls to EGUs in the CAIR region. Due to feasibility 
constraints, EPA required a phased approach for achieving highly cost 
effective emissions reduction. For NOX, the first phase 
starts in 2009 (covering 2009-2014); the second phase of NOX 
reductions begins in 2015 (covering 2015 and thereafter). (70 FR 
71621). We also noted in the June 2, 2003 CAIR proposal that we 
considered highly-cost effective controls for NOX for EGUs 
and non-EGUs that were used to establish the statewide NOX 
emission caps in the NOX SIP call to constitute a greater 
level of control than RACT (68 FR 32839).
    EPA also disagrees with the comment arguing that EPA is seeking to 
insulate uncontrolled or poorly controlled EGUs in current or future 
nonattainment areas from cost effective controls that would qualify as 
RACT. The final rule does not displace the RACT requirement for any 
sources. Instead, EPA is exercising its authority to interpret the 
section 172, 182, and 184 RACT requirements for purposes of 
implementing the 8-hour ozone standards. For the reasons described in 
this section, we believe that states can rely on EPA's conclusion that 
compliance with a CAIR FIP or SIP, meeting certain requirements, will 
satisfy the EGU NOX RACT requirement in certain areas.
    Moreover, EPA has predicted that the majority of large coal-fired 
utilities will install advanced control technologies under the CAIR 
because the larger and higher emitting sources offer opportunities to 
obtain the most cost-effective emissions reductions. EPA expects that 
the largest-emitting sources will be the first to install 
NOX control technology and that such control technology will 
gradually be installed on progressively smaller-emitting sources until 
the ultimate emissions cap is reached.
    b. Comment: Several commenters argue that EPA's determination that 
CAIR may be equivalent to RACT would illegally substitute controls on 
sources outside of ozone nonattainment areas for controls on sources 
within each nonattainment area. The commenters argue that reductions 
must occur within the nonattainment area. They also argue that EGUs in 
nonattainment areas may have significant NOX emissions if 
they are not meeting a minimum level of NOX control, and 
that the rule does not guarantee that any RACT level controls would 
actually be installed in a CAIR state. Thus, one commenter argues, the 
non-CAIR states and the public will bear the cost of EGUs not 
installing RACT controls and continuing nonattainment of the NAAQS. The 
commenter also argues that the public residing in nonattainment areas 
would continue to suffer from the emissions from those EGUs located in 
the CAIR state portion of the nonattainment area that purchase and use 
allowances for compliance instead of installing controls. Another 
commenter argues that CAIR is a cap-and-trade program which cannot 
guarantee that a reasonable level of control will be installed where 
most needed. On the other hand, other commenters emphasize that CAIR 
achieves greater overall emissions reductions across the CAIR region 
than would be achieved through the implementation of source-specific 
RACT controls.
    Response: In this action, EPA has determined that EGU sources 
complying with rules implementing the CAIR requirements meet ozone 
NOX RACT requirements in states where all required CAIR 
emissions reductions are achieved from EGUs only and EPA's emissions 
analysis in the December 16, 2006 notice of reconsideration shows that 
CAIR will achieve greater or equal reductions than source-by-source 
RACT in the relevant nonattainment area (for CAA section 172 and 182 
requirements) or the relevant OTR state (for CAA 184 requirements).\9\ 
For nonattainment areas and OTR states not covered by this 
determination, states may still presume that compliance with CAIR will 
satisfy the NOX RACT requirement for EGUs if all CAIR 
reductions are achieved by EGUs. These states will have the option of 
providing additional analysis to support this presumption. This 
presumption is rebuttable and the state's documentation of reliance on 
this presumption must address any information available that would 
undermine this presumption.
---------------------------------------------------------------------------

    \9\ However, a state that elects to bring its NOX SIP 
Call non-EGU sources into the CAIR ozone season trading program may 
continue to rely on EPA's determination that RACT is met for EGU 
sources covered by the CAIR trading program. It may rely on this 
determination if and only if the state retains a summer season EGU 
budget under the CAIR that is at least as restrictive as the EGU 
budget that was set in the state's NOX SIP call SIP.
---------------------------------------------------------------------------

    As explained in greater detail above, EPA believes that it is 
appropriate for states that achieve all CAIR NOX reductions 
from EGUs to consider, when evaluating RACT for EGUs, the special 
attributes of EGUs including the unique interrelated nature of the 
power supply network, and the facilities' compliance with rules 
implementing the CAIR. EPA also believes that the term, ``reasonable'' 
in RACT may be construed to allow consideration of the air quality 
impact of required emissions reductions from region-wide cap-and-trade 
programs such as the CAIR NOX trading programs.

[[Page 31733]]

The region-wide CAIR NOX emissions cap for 2009 was 
established based on the maximum total capacity on which it was 
possible to install controls by that date. So by design, the 2009 CAIR 
region-wide NOX emissions cap for EGUs represents the most 
reductions that are reasonable to achieve in that timeframe.
    EPA acknowledges that the RACT mandate applies in specific 
geographic areas and determines that, in certain circumstances, the 
specific RACT requirements in CAA sections 172, 182 and 184 are 
satisfied by compliance with CAIR rules. As a practical matter, in most 
nonattainment areas, the actual emissions reductions projected to occur 
under CAIR are greater than the projected reductions from application 
of source-by-source RACT. Further, in this action, EPA provides that 
the determination that compliance with CAIR rules satisfies 
NOX RACT requirements can only apply if the technical 
analysis presented by EPA in the December 16, 2006 notice of 
reconsideration shows that CAIR will achieve greater or equal annual 
and ozone-season emissions reductions than source-by-source RACT in the 
relevant nonattainment area or OTR state. Also, note that the 
determination for an OTR state and a nonattainment area within that 
State must be made separately, i.e., the determination may apply for an 
OTR state but not for a particular nonattainment area in that State, 
based on results of the technical analysis.
    In addition, the comments suggesting that EGUs many not meet a 
``minimum level of NOX control'' and that the rule does not 
guarantee that any ``RACT level controls'' would actually be installed 
in a CAIR state, appear to assume that to satisfy RACT, each individual 
source must achieve a specific level of control. As explained below, 
EPA disagrees with this assumption. Further, in states that achieve all 
CAIR reductions from EGUs, requiring source-specific RACT on EGUs and 
compliance with rules implementing CAIR would not achieve greater 
collective total emissions reductions from EGUs covered by the CAIR and 
the collective reductions would likely be achieved at a higher overall 
cost.
    c. Comment: Several commenters challenged EPA's suggestion that the 
CAIR will achieve greater reductions than RACT. These commenters argued 
that the suggestion that the CAIR will achieve greater reductions 
without RACT is unsupportable. EPA, they argue, can and must require 
RACT reductions on top of CAIR reductions. Not doing so ignores the 
possibility that requiring both RACT and the CAIR will produce faster 
RFP and earlier attainment than the CAIR alone.
    Response: EPA's emissions analyses prepared for the December 2006 
notice of proposed reconsideration generally show that the CAIR will 
achieve greater EGU NOX emission reductions across the CAIR 
region and also in most of the designated nonattainment areas and OTR 
states, than would be achieved by requiring EGUs in these areas to meet 
a specific level of NOX control deemed to be RACT. The 
analyses show that the CAIR obtains equal or greater summer season 
emission reductions than source-by-source RACT in 13 out of 18 specific 
nonattainment areas in the CAIR region, and in 3 out of 9 OTR states. 
It also shows that CAIR obtains equal to or greater annual emission 
reductions than source-by-source RACT in 15 out of 18 specific 
nonattainment areas in the CAIR region and in 6 out of 9 OTR states. 
The docket contains a Technical Support Document \10\ describing the 
analysis.
---------------------------------------------------------------------------

    \10\ ``Technical Support Document for Phase 2 of the Final Rule 
To Implement the 8-Hour Ozone National Ambient Air Quality 
Standard--Notice of Reconsideration; NOX RACT for EGUs in 
CAIR States--Supplemental Technical Analysis'' (Docket ID No. EPA-
HQ-OAR-2003-0079, item 1044.2).
---------------------------------------------------------------------------

    EPA also disagrees with the commenter's assertion that EPA can and 
must require RACT reductions on top of the CAIR reductions. While EPA 
agrees that the RACT requirement, and the requirement to address ozone 
transport under CAA section 110(a)(2)(d) are separate requirements, EPA 
asserts that the Act does not specify that these are additive or 
mutually exclusive requirements. As such EPA has determined that the 
CAIR may satisfy, under certain conditions, both requirements.
    As previously explained, requiring source-by-source RACT as an 
additional constraint on EGU control strategy in the CAIR, in certain 
areas would mean that controls would not necessarily be placed on the 
sources for which it is most cost-effective to control. The result 
would be the same emission reductions area wide, but at higher cost. 
Further, by design, the 2009 CAIR region-wide NOX emissions 
cap for EGUs represents the most reductions that are reasonable to 
achieve. Consequently, EPA does not believe that further controls could 
be considered reasonably available.
    Finally, as we have also previously noted, states have an 
overarching obligation to provide such controls as are necessary to 
attain the 8 hour ozone standard as expeditiously as practical. At a 
minimum, this must include application of RACT to major sources, but 
may also require beyond-RACT NOX reductions from any source 
(including sources covered by the CAIR or NOX SIP Call 
programs). In certain areas, states may determine that NOX 
controls based on more advanced control technologies are necessary to 
provide for timely attainment of the ozone standards.
    d. Comment: Several commenters argue that the EPA's analyses to 
support its determination that the CAIR may satisfy certain RACT 
requirements are flawed because they rely on improper assumptions. The 
commenter notes that EPA's technical analysis relies on a number of 
assumptions regarding source conduct, allowance pricing, and the like. 
One Commenter argues that the 1992 and 1994 agency guidance referred to 
by EPA is outdated and not consistent with RACT controls being imposed 
by states today. Another commenter stated that new controls have been 
developed in the 14 years since the early RACT guidance was issued. 
These controls such as selective catalytic reduction (SCR) and 
selective non-catalytic reduction (SNCR) will give a level of control 
beyond what EPA assumed 14 years ago. One commenter claimed that there 
are many new controls being studied that can reduce NOX 
emissions at a fraction of the cost assumed in the CAIR rulemaking. 
These new controls, which the commenter asserts would fall under RACT, 
are a refinement of existing combustion control technologies, along 
with injection of an inexpensive reagent in the boiler.
    Response: EPA believes the technical analyses are based on 
reasonable assumptions. EPA's views on NOX RACT were set 
forth in the ``NOX Supplement to the General Preamble,'' 
November 25, 1992 (57 FR 55620). In that document, EPA determined that 
in the majority of cases, RACT will result in an overall level of 
control equivalent to specified maximum allowable emission rates (in 
pounds of NOX per million Btu) for certain specified 
electric utility boilers. Section 4.6 of the NOX Supplement 
to the General Preamble (57 FR 55625) noted in part, ``In general, EPA 
considers RACT for utilities to be the most effective level of 
combustion modification reasonably available to an individual unit. 
This implies low NOX burners, in some cases with overfire 
air and in other instances without overfire air; flue gas 
recirculation; and conceivably some situations with no control at 
all.'' The assumptions in EPA's technical analysis are consistent with 
this guidance.
    EPA assumed that RACT is represented by combustion controls for 
EGUs defined as: (1) Low NOX burners with overfire air for 
wall-fired units; and

[[Page 31734]]

(2) low NOX coal-and-air nozzles with close-coupled and 
separated overfire air for tangentially-fired units. For oil and gas 
steam EGUs, the RACT-level of control was assumed to be 0.20 pounds of 
NOX per million BTU for tangentially-fired gas or oil 
burning and 0.30 for wall-fired gas or oil burning. As EPA's CAIR 
technical analysis has shown, and as previously noted the CAIR 
requires, the installation of NOX controls on the maximum 
capacity on which it is feasible to install such controls by 2009. 
Therefore, additional controls are not ``reasonably available.''
    EPA does not restrict individual states from requiring EGU 
NOX control levels more stringent than what EPA has 
determined is RACT in order to achieve compliance with the ozone NAAQS. 
EPA believes more stringent levels of NOX control 
(represented by SCR and SNCR) are beyond RACT. The fact that some 
states may chose to require controls that go beyond RACT to attain the 
ozone standards does not necessarily mean that this level of control 
should be considered RACT.
    e. Comment: EPA received several comments regarding the cost of 
RACT. These commenters argue that states have adopted RACT requirements 
for ozone precursors with costs per ton in excess of the $900/ton 
control cost estimated for the CAIR. The commenter argues that the EGU 
sector can make reasonably effective emission reductions up to a $4500/
ton threshold. Further, commenters state that in connection with the 
adoption of the 1997 ozone and PM NAAQS, the President issued a 
memorandum indicating EPA's agreement with control costs of up to 
$10,000 per ton as being within the reasonable range. One commenter 
also points out that the Washington DC-MD-VA region has required RACT 
with costs of approximately $4,000-$10,000 per ton.
    Response: EPA believes the assumptions in its technical analysis 
regarding the controls that would be considered RACT (if RACT were to 
be applied on a source-by-source basis) are reasonable. This level of 
control is consistent with EPA's past NOX RACT guidance [see 
``NOX Supplement to the General Preamble,'' November 25, 
1992 (57 FR 55620)]. EPA considers the combustion modification guidance 
from the early 1990's to express what is RACT for NOX 
control of EGUs considering technical feasibility and cost.
    In making a general determination of what controls are 
representative of RACT, EPA does not necessarily recommend the highest 
level of stringency that is imposed by any state. However, EPA does not 
restrict states from imposing controls with relatively high costs if 
the states determine they are necessary to attain the ozone NAAQS. EPA 
cautions that if all states choose to impose beyond RACT controls on 
all EGUs by 2009 it could create shortages of labor and materials that 
would substantially increase the cost of compliance or make it 
infeasible to meet the 2009 deadline. EPA's analysis shows that the 
CAIR achieves the maximum level of control that is feasible by 2009 on 
a region-wide basis.
    f. Comment: Several commenters argue that EPA's technical analysis 
shows that at least some nonattainment areas would achieve greater 
emission reduction with implementation of source by source RACT than 
with CAIR. They argue that, in these areas, CAIR would not be 
``equivalent'' to RACT for EGUs.
    Response: In this action we are determining that compliance with 
CAIR satisfies NOX RACT requirements for EGUs in areas where 
EPA's emissions analysis shows that CAIR is projected to achieve 
greater emissions reductions than application of source-by-source RACT. 
As explained above, other areas may still rely on the presumption that 
compliance with the CAIR satisfies NOX RACT requirements in 
certain circumstances. This presumption is rebuttable and the State may 
choose to provide supporting analyses and will have to respond to any 
comments received during the comment period that address the 
presumption.
    g. Comment: One commenter suggested that EPA adopt the Ozone 
Transport Commission's (OTC) approach to cap-and-trade programs where 
RACT was applied first. Thus, the cap-and-trade program operates in an 
environment that assumes RACT is in force, not in lieu of RACT. Another 
commenter argued that an effective attainment strategy requires both 
area wide programs like CAIR and nonattainment area specific program 
such as source-by-source RACT on EGUs. Thus, the commenter argues that 
in its technical analysis, EPA should have looked at CAIR + RACT versus 
RACT, rather than CAIR alone versus RACT.
    Response: The supplemental technical analysis prepared by EPA for 
the reconsideration proposal was designed to analyze whether compliance 
with a SIP or FIP meeting the requirements of CAIR may also satisfy the 
NOX RACT requirement for certain EGUs. Thus, it was 
appropriate for EPA to compare the reductions under CAIR alone with the 
reductions that would be achieved by another possible method of 
satisfying RACT requirements (i.e. the application of source-by-source 
RACT controls). The comparison that the commenter suggests should have 
been prepared would not have shed light on the question the analysis 
sought to answer, namely whether compliance with CAIR satisfies the 
nonattainment program requirement in question.
    In addition, as noted above, by design, the 2009 CAIR region-wide 
NOX emissions cap for EGUs represents the most reductions 
that are reasonable to achieve. Further, as explained in the 
reconsideration notice, source-specific control requirements layered on 
top of the overall allowance-based emissions cap might affect the 
temporal distribution of emissions or the spatial distribution of 
emissions but would not affect total allowed emission in the CAIR 
region. EPA expects that, under the CAIR trading programs the largest-
emitting EGU sources (and those with the most cost effective reductions 
available) will be the first to install NOX control 
technology. If states were to require smaller-emitting EGU sources in 
nonattainment areas to meet source-specific RACT requirements, they 
would likely use labor and other resources that would otherwise be used 
for emission controls on larger sources and the cost of achieving the 
regional reductions would be greater on a per ton basis.
    h. Comment: One commenter argues that EPA's determination that 
compliance with the CAIR, in some circumstances, satisfies 
NOX RACT requirements for EGUs will create inequality 
between CAIR states and bordering non-CAIR states. They argue that 
EPA's determination creates an inequity where the geographic boundary 
of a nonattainment area crosses state lines from a CAIR state into a 
non-CAIR state. In the CAIR state portion of the non-attainment area, 
EPA would allow compliance with CAIR rules to satisfy NOX 
RACT for EGUs while in the non-CAIR state portion of the nonattainment 
area NOX RACT for EGUs would still be a source-specific 
requirement.
    Response: Since sources in non-CAIR states are not subject to rules 
implementing the CAIR emission reduction requirements, those states 
naturally could not rely on compliance with those rules to show that 
the NOX EGU RACT requirements has been satisfied. The fact 
that the non-CAIR states may use a different method to show that the 
same RACT requirement has been met does not create an inequity between 
states. Further, none of the nonattainment areas covered by the EPA's 
determination that compliance

[[Page 31735]]

with CAIR rules satisfies certain NOX RACT requirements 
(i.e. those for which our technical analysis shows that CAIR provides 
equal or greater annual and ozone-season emissions reductions than 
source-by-source RACT) lie across the boundary of two states, one of 
which is a CAIR state and the other of which is a non-CAIR state.
    j. Comment: EPA received several comments arguing that EPA's 
determination that CAIR may satisfy the EGU NOX RACT 
requirements for some areas is improper because the purpose of RACT is 
not the same as the purpose served by the CAIR. The commenters argue 
that the purpose of the CAIR is to address interstate transport of 
NOX from EGUs that contributes to nonattainment in downwind 
states, while the RACT requirement is intended to reduce emissions 
within a nonattainment area. They argue that RACT is intended to reduce 
emissions in nonattainment areas by requiring emission control 
technologies to be installed at particular sources, where CAIR does not 
require such emission controls. The commenter asserts that the CAIR is 
not intended as an attainment strategy.
    Response: We find the attempt by commenters to characterize CAIR as 
a strategy to address only regional pollution transport as overly 
simplistic. The EPA analyses for the CAIR show that there are 
significant emissions reductions and air quality benefits projected for 
individual nonattainment areas as a result of NOX reductions 
across the multistate CAIR region. The Clean Air Act does not prevent 
states from properly crediting measures that achieve multiple 
objectives (e.g. regional transport and local nonattainment). Moreover, 
CAA section 110(a)(2)(D) requires SIPs to contain adequate provisions 
to assure that sources in the state do not contribute significantly to 
nonattainment in any other state. The CAIR rule is an integral element 
in meeting the states' section 110 attainment obligations. Accordingly, 
it is reasonable to incorporate this consideration in determining what 
measures qualify as RACT. Even though the CAIR may have been initially 
designed to get regional reductions, if it produces the most reductions 
that are feasible it can also represent RACT for subject areas.
    j. Comment: One commenter says the EPA ignores the impact on non-
EGU sources of its determination that compliance with the CAIR may 
satisfy the RACT requirement for certain EGUs. The commenter argues 
that states may be required to impose more costly controls on non-EGUs 
to make up for lost reductions due to the failure to impose RACT on 
EGUs.
    Response: As explained above, EPA disagrees with the commenters' 
assertion that EPA's determination that compliance with the CAIR may 
satisfy NOX RACT requirements for EGUs constitutes ``failure 
to impose RACT on EGUs.'' Nothing in the final rule displaces the RACT 
requirement for EGUs. Further, CAIR will achieve widespread 
SO2 and NOX emission reductions from EGUs and 
will provide significant air quality benefits for ozone and 
PM2.5 nonattainment areas. In developing attainment SIPs and 
identifying control measures, states may need to consider more 
stringent controls on all sources, including EGUs, in order to reach 
attainment as expeditiously as practicable. States must also consider 
the economic feasibility of implementing a given control measure, and 
EPA has determined that the CAIR will result in EGUs installing 
controls on the maximum total capacity on which it's feasible to do so 
by 2009 in the CAIR region. Further, EPA acknowledges that to achieve 
attainment as expeditiously as practicable, some states may need to 
adopt control measures for some sources which cost more per ton than 
the controls on EGUs, but which are still considered to be reasonable 
and cost-effective. Because of facility-specific factors (e.g. input 
costs in the geographic area and the facility's ability to sustain the 
cost), EPA does not believe it would be appropriate to establish a 
threshold of control effectiveness (e.g. dollars per ton) based on 
control of EGUs and apply this threshold to all source categories.
    k. Comment: Another commenter argues that states such as Illinois 
may be forced to require additional emission reductions, including 
application of RACT within their nonattainment areas, that must be 
achieved earlier than CAIR reductions. They argue that these additional 
controls on non-EGU sources will be very costly and that EGUs are 
usually the largest and most easily controlled NOX sources 
in a nonattainment area. More specifically, they note that there are 15 
coal-fired boilers in two ozone nonattainment areas in Illinois, none 
of which have installed SCRs. EPA projects that only two of those units 
will install SCRs in response to CAIR. However, based on that 
projection, the Chicago area will not meet the 8-hour standard by 2010.
    Response: Just because the RACT requirement results in relatively 
less control on one source category compared to another is no reason 
why the RACT determination for a source category is invalid, since the 
two categories may be sufficiently dissimilar so as to render a 
comparison irrelevant. RACT represents only such technology as is 
reasonably available, not all controls that may be necessary to attain 
as expeditiously as practicable. The State is still required to 
demonstrate attainment as expeditiously as practicable and has the 
discretion to choose in its public process how to apportion 
responsibility for emission reductions to meet that requirement.
    l. Comment: Several commenters, all associated with electric power 
companies, agreed that CAIR will likely achieve the same emissions 
controls as RACT, but in a more cost effective manner. One commenter 
points out that CAIR will achieve substantially more area wide emission 
reductions that source-by-source RACT controls, and says this is true 
in most nonattainment areas also. The commenter points out that in the 
few areas where source-by-source RACT is projected to produces greater 
emission reductions than CAIR under EPA's conservative analysis, the 
differences are relatively small.
    Response: EPA agrees that CAIR will achieve the same or lower 
NOX emissions over the CAIR area than source-by-source RACT 
and that it will achieve these NOX reductions in the most 
cost effective manner.
    m. Comment: Several commenters addressed the contention in EPA's 
analysis that CAIR will result in EGUs installing controls on the 
maximum total capacity on which it is feasible to do so by 2009. One 
commenter agreed with this contention and noted that further controls 
will be installed by 2015. Another commenter says that this contention 
is contradicted by a 2004 analysis conducted by the Institute of Clean 
Air Companies (ICAC) which concluded that labor is available to install 
2015 CAIR levels of reduction by 2010. If CAIR 2015 controls are closer 
to RACT, they argue, ``EPA's implication that RACT requirements on EGUs 
in the CAIR regions would not achieve more reductions than those 
achieved by CAIR by 2010 is incorrect. However, another commenter says 
that CAIR requires controls as quickly as they can be practically 
installed given the constraints of specialized labor needed for this 
type of construction.
    Response: EPA considered a number of analyses related to 
boilermaker labor availability provided by various commenters, 
including the 2004 Institute of Clean Air Companies analysis, when it 
prepared the Clean Air Interstate Rule (CAIR) which was published May 
12, 2005 (70 FR 25162). EPA prepared its own technical analysis as part 
of the CAIR development, and

[[Page 31736]]

decided as a result of its analysis that the dates in the final CAIR 
rule of January 1, 2009 for phase I for NOX controls, 
January 1, 2010 for phase II SO2 controls and 2015 for phase 
2 controls for both NOX and SO2 were appropriate 
based on projected labor availability. The EPA's analysis shows that 
the amount of additional NOX emissions control that will be 
obtained under the CAIR in 2015 is infeasible to obtain in 2009, when 
RACT emission reductions under the 8-hour ozone NAAQS must be 
implemented. EPA believes it has set the 2009 CAIR NOX cap 
at a level that, assuming the reductions are achieved from EGUs, would 
result in EGUs installing emission controls on the maximum total 
capacity on which it is feasible to install emission controls by that 
date. Thus, in that timeframe controls beyond CAIR cannot be considered 
``reasonably available''. The EPA analysis, titled ``Boilermaker Labor 
Analysis and Installation Timing'', March 2005, has been placed in the 
docket for the CAIR rule, docket number EPA-HQ-OAR-2003-0053, document 
number EPA-HQ-OAR-2003-0053-2092. This issue is also discussed in the 
preamble to the CAIR rule under the heading ``Schedule for Implementing 
SO2 and NOX Emissions Reductions Requirements for 
PM2.5 and Ozone'' starting at 70 FR 25215. EPA concluded 
that its analysis rather than the ICAC analysis of feasibility is 
correct and EPA believes it is still the most credible analysis 
addressing the issue.
    n. Comment: Several commenters argue that the economic test for 
CAIR is different from that for RACT. CAIR requires only ``highly cost 
effective controls,'' whereas RACT requires economically feasible 
controls. Thus, the commenters conclude, more controls ``pass the 
economic test'' under RACT than under CAIR.
    Response: EPA believes that the emission reductions achieved by 
CAIR, while still highly cost effective, also represent the level of 
control that is economically and technologically feasible as RACT for 
EGUs in states that achieve all their emission reductions from EGUs. 
The CAIR final rulemaking established a region-wide NOX 
emissions cap, effective in 2009, at a level that, assuming the 
reductions are achieved from EGUs, would result in EGUs installing 
emission controls on the maximum total capacity on which it is feasible 
to install emission controls by that date. Further, EPA does not 
believe that requiring source-specific RACT controls on EGUs in 
nonattainment areas would reduce total NOX emissions from 
EGU sources covered by the CAIR below the levels that would be achieved 
under the CAIR alone. The most expensive controls available, which 
might be chosen for BACT or LAER, are not always justified as RACT. 
States have the flexibility to require such controls as part of their 
attainment strategy if they find such controls are reasonable and 
necessary to achieve attainment of the ozone NAAQS as expeditiously as 
practicable.
    o. Comment: One commenter argued that the time frames for the CAIR 
and the RACT requirement are different. This commenter says RACT is 
required within 30 months of when the RACT SIP is due which would 
require controls to be installed by the 2009 ozone season, but that 
CAIR sources have until 2010 or 2015.
    Response: As explained in the final CAIR rule (70 FR 25226), the 
first phase of CAIR NOX emissions cap starts in 2009, not in 
2010 as the commenter states. For states affected by the CAIR annual 
NOX emission reduction requirements, the first phase cap 
begins on January 1, 2009. For states affected only by the CAIR ozone 
season NOX emission reduction requirements, the first phase 
starts May 1, 2009. EPA believes it has set the 2009 CAIR 
NOX cap at a level that, assuming the reductions are 
achieved from EGUs, would result in EGUs installing emission controls 
on the maximum total capacity on which it is feasible to install 
emission controls by that date.
    p. Comment: EPA received comments arguing that states are not free 
to require more control on EGUs, as EPA suggests, since the law in many 
states prohibits state air agencies from being more stringent that 
federal law. One survey found the 26 state agencies (of 50 respondents) 
and 9 local agencies (of 42 respondents) reported being precluded from 
adopting more stringent requirements than the federal government. A 
commenter said that the ``CAIR equals RACT'' determination removes 
state authority and obligation to impose NOX RACT 
requirements for some of the largest NOX sources in their 
nonattainment areas.
    One commenter said that the petition for reconsideration ignores 
the point that, entirely apart from what emission controls are deemed 
RACT, states must require emission controls as necessary to attain the 
NAAQS as expeditiously as practicable. Thus a state has discretion to 
require beyond-RACT NOX reductions.
    Response: There are no provisions in the CAA or federal law that 
prohibit state governments from imposing requirements more stringent 
than federal law. EPA recognizes, nonetheless, that some states have 
voluntarily chosen to adopt such limits. All states, regardless of 
whether such limits have been adopted, are required by section 172 of 
the CAA to attain the ozone NAAQS as expeditiously as practicable. 
Thus, requirements that are determined by the state to be necessary to 
attain as expeditiously as practicable with reasonably available 
control measures, are in fact required by federal law and cannot be 
considered more stringent than federal requirements. In this action, 
EPA has decided that it will accept a determination that NOX 
RACT for EGUs is satisfied by compliance with rules implementing CAIR 
in a state that achieves all CAIR emission reductions from EGUs and 
where EPA's technical analysis presented in the December 16, 2006 
notice of reconsideration shows that CAIR will achieve greater or equal 
annual and ozone-season emissions reductions than source-by-source RACT 
in the relevant nonattainment area (or for section 184 requirements, 
the relevant OTR state). If a state chooses to rely on this 
determination, it will not be required to perform NOX RACT 
analyses for sources in the relevant nonattainment area or OTR state 
that are subject to a CAIR NOX trading program.\11\ 
Nonattainment areas and OTR states that cannot rely on this 
determination, may still initially presume that CAIR will satisfy the 
NOX RACT requirements if all CAIR reductions are achieved by 
EGUs. Under this presumption, states are free to conduct case-by-case 
RACT determinations at their discretion. Further, the requirement to 
attain the NAAQS as expeditiously as practicable is distinct from the 
analysis of what specific emission controls are deemed RACT for a 
particular source. Thus, all states have discretion to require beyond-
RACT NOX reductions if necessary to comply with the 
requirements of CAA section 172.
---------------------------------------------------------------------------

    \11\ The determination for OTR states is separate from the 
determination for nonattainment within the OTR states, i.e., this 
determination applies to areas in these OTR states other than (a) 
moderate and above subpart 2 areas and (b) subpart 1 areas that 
request an attainment date more than 5 years after designation for 
the 8-hour NAAQS. This means that an OTR state can get a 
determination that CAIR equals RACT within the State, but a 
particular nonattainment within the State may not get this 
determination based on the results of the technical analysis.
---------------------------------------------------------------------------

    q. Comment: One commenter argues that EPA attempts to stretch Sec.  
172 (c)'s definition of ``reasonable,'' when EPA states that it 
believes that the term ``reasonable'' in RACT may be construed to allow 
consideration of the air quality impact of required emissions reduction 
from a region-wide cap-and-trade

[[Page 31737]]

program such as CAIR. Another commenter argues that EPA's theory that 
the term ``reasonable'' is ambiguous and ignores the statutory language 
which only speaks to RACT, with the term reasonably modifying the word 
available. The commenter said that it is not reasonable for EPA to 
interpret reasonable to apply in one manner for EGUs and a wholly 
different manner for other sources.
    Response: EPA disagrees with commenter's assertion that EPA 
interprets the term ``reasonable'' to apply in one manner for EGUs and 
in a different manner for other sources. Section 172(c)(1) of the CAA 
requires that nonattainment plans shall provide for the implementation 
of all reasonably available control measures as expeditiously as 
practicable. EPA has previously stated that reasonable control measures 
can include area wide averaging programs. (See NOX 
Supplement to the General Preamble, November 25, 1992 (57 FR 55620).) 
EPA's determination that the term ``reasonable'' in RACT may be 
construed to allow consideration of the air quality impact of required 
emissions reduction from a region-wide cap-and-trade program such as 
CAIR is consistent with past practice and appropriate for the reasons 
explained in this notice.
    Further, in determining a level of control which EPA recommends as 
RACT, EPA studies a variety of sources and controls and determines what 
level of control is applicable in the industry across a wide variety of 
sources at a reasonable cost. States are free to tailor this RACT 
guidance to the particular situation confronting individual sources in 
that state. Each permitting agency determines for each source or 
source-category in the state, the specific controls that constitute 
RACT. Thus, the precise requirements applied to ensure that RACT is met 
may differ from source to source and source-category to source-
category.
    EPA's determination that, in certain circumstances, compliance with 
CAIR will satisfy the RACT requirement for EGUs in most CAIR states, 
does not, as petitioner suggests, reinterpret the term RACT as it 
applies to EGUs. Instead, EPA has determined that the existing RACT 
requirement is satisfied by compliance with a rule implementing the 
CAIR requirements, if and only if a state achieves all its reductions 
from EGUs and the EPA's technical analysis presented in the notice of 
reconsideration shows that CAIR will achieve greater or equal 
reductions for annual and ozone-season emission reductions than source-
by-source RACT in the relevant nonattainment area or OTR state.\12\ If 
a state achieves all of its CAIR emission reductions from EGUs then the 
emissions of other source categories in the state are not controlled by 
the CAIR. Thus, it would be impossible for EPA to make a similar 
determination that they have met their RACT requirements through 
compliance with CAIR.
---------------------------------------------------------------------------

    \12\ The determination for OTR states is separate from the 
determination for nonattainment within the OTR states, i.e., this 
determination applies to areas in these OTR states other than (a) 
moderate and above subpart 2 areas and (b) subpart 1 areas that 
request an attainment date more than 5 years after designation for 
the 8-hour NAAQS. This means that an OTR state can get a 
determination that CAIR equals RACT within the State, but a 
particular nonattainment within the State may not get this 
determination based on the results of the technical analysis.
---------------------------------------------------------------------------

    r. Comment: EPA received several comments on whether the U.S. Court 
of Appeals for the D.C. Circuit decision in South Coast Air Quality 
Management District v. EPA, (No. 04-1200) (D.C. Cir. 2006), will affect 
the issues in the Ozone Phase 2 Rule that are currently under 
reconsideration. Specifically, commenters suggested that the South 
Coast decision may affect EPA's analysis and conclusions regarding 
whether compliance with rules implementing CAIR may satisfy 
NOX RACT for EGUs in certain circumstances. One commenter 
argued that the decision would affect the validity of the supplemental 
technical analysis discussed in the December 2006 notice of 
reconsideration. This commenter argued that the analysis would be 
affected since, as a result of the South Coast decision, certain areas 
may be moved from subpart 1 to subpart 2 nonattainment classifications. 
Another commenter urged that there be no further delay as a result of 
that ruling and argued that the issues being considered in the 
reconsideration of phase 2 are not affected by the South Coast 
decision. Another commenter argued that based on that decision, EPA 
cannot use its discretionary powers to replace source-specific 
provisions of the CAA such as RACT that were designed to achieve 
specific air quality goals with trading programs such as CAIR that were 
designed for other specific air quality goals.
    Response: EPA disagrees with the comment to the extent it suggests 
EPA is seeking to replace the RACT requirement with CAIR. The final 
rule does not displace the RACT requirement for any sources. EPA also 
disagrees with the comment to the extent it suggests that EPA's 
interpretation of the RACT requirements in sections 172(c)(1), 182(f) 
and 184(b) is inconsistent with the South Coast decision. Further, on 
March 22, 2007, EPA filed a petition for panel rehearing of the South 
Coast decision and thus the full impact of that decision cannot yet be 
assessed. At this time, EPA is unable to determine which areas, if any, 
in addition to those included in the analysis will be required to 
submit separate RACT SIPs. However, as indicated above in footnote 8, 
region-wide emissions reductions from the CAIR are projected to be 
significantly greater than reductions that would be projected to occur 
from application of source-by-source RACT, such that the possible 
movement of areas designated in the phase 1 rule as subpart 1 to 
subpart 2 area designations is not expected to alter the conclusion 
that the CAIR achieves greater emission reductions in the region than 
source-by-source RACT. In addition, as previously discussed, EPA is 
limiting the scope of its determination that compliance with the CAIR 
satisfies NOX RACT requirements. This determination applies 
in areas where EPA's emissions analysis in the December 16, 2006 notice 
of reconsideration shows that the CAIR will achieve greater or equal 
annual and ozone-season emissions reductions than source-by-source 
RACT.

B. Submission Date for EGU NOX RACT SIPs for States in the 
CAIR Region

1. Final Action
    In this action, EPA also extends the deadline for the submission, 
by states in the CAIR region, of EGU NOX RACT SIPs for 
moderate and above subpart 2 areas. Specifically, EPA has determined 
that states subject to the requirements of CAIR shall submit 
NOX RACT SIPs for EGUs no later than the due date for the 
area's attainment demonstration (prior to any reclassification under 
section 181(b)(3)) for the 8-hour ozone NAAQS or July 9, 2007, 
whichever comes later.\13\ EPA is therefore changing the deadline in 40 
CFR 51.912(a)(2) as it applies to that portion of the RACT SIPs 
addressing EGU NOX emissions in the CAIR region. EPA is not 
changing the deadline in 40 CFR 51.912(c)(2) that applies to RACT SIP 
submittals for subpart 1 areas that request an attainment date that 
extends beyond April 2009, since those RACT SIPs are already due with 
the area's attainment demonstration by June 15, 2007.
---------------------------------------------------------------------------

    \13\ The current deadline for submitting attainment 
demonstrations in these areas is June 15, 2007.
---------------------------------------------------------------------------

    EPA decided to extend the deadline for the submission of these EGU 
NOX RACT SIPs because of the continuing uncertainty 
regarding the required content of such SIPs and to avoid promulgating a 
retroactive deadline.

[[Page 31738]]

The Administrative Procedures Act generally prohibits retroactive 
rulemaking. In this case, EPA also determined that it would not be 
reasonable to enact a retroactive deadline because it would only serve 
to potentially expose states to fines and suits for failure to make SIP 
revisions even though they previously faced substantial ambiguity 
regarding the required content of the SIP submissions. See Sierra Club 
v. Whitman, 285 F.3d 63, 68 (D.C. Cir. 2002).
    EPA recognizes that significant uncertainty regarding the EGU 
NOX RACT SIPs for states in the CAIR region was created by 
its decision to grant NRDC's petition for reconsideration. It was for 
this reason that, in the December 2006 notice of reconsideration, EPA 
proposed to extend the September 15, 2006 deadline to June 15, 2007 for 
this source category. This new deadline affects only moderate 8-hour 
ozone nonattainment areas in the CAIR region and only the portion of 
the RACT SIPs that covers EGUs. EPA is aware that uncertainty regarding 
area classifications, and hence the requirement for RACT SIPs was 
created by South Coast v. EPA, in which the court decided to vacate 
EPA's nonattainment classifications. These classifications determine, 
among other things, which nonattainment areas must submit RACT SIPs 
separate from their attainment demonstrations under the Phase 2 Rule. 
EPA does not believe it would be reasonable to retain the September 15, 
2006 deadline for submission of the EGU NOX RACT SIPs for 
states in the CAIR region since this date has now passed and the 
uncertainty regarding the required content of these SIPs has not been 
resolved. This final action removes the uncertainty created by the 
decision to grant reconsideration. The uncertainty regarding the 
classifications will be eliminated either by the reclassification of 
certain areas by EPA, or by a decision of the Court on rehearing not to 
vacate some or all of the original classifications.\14\ The due date 
for attainment demonstrations is tied to the date of the 
classification, and for any classifications that are upheld on 
rehearing, the attainment demonstrations for moderate areas will 
continue to be due on June 15, 2007. Because the classifications also 
determine what areas must submit RACT SIPs, and in light of the passage 
of time during this reconsideration process, EPA believes that the EGU 
RACT SIP submittal deadlines for states in the CAIR region should now 
also be linked to the deadline for submitting attainment 
demonstrations. EPA recognizes that for many areas this deadline may be 
June 15, 2007--a date prior to the effective date of this rule. EPA 
also recognizes that CAA section 172(b) requires states to make all 
nonattainment SIP submissions within 3 years of designation (i.e. by 
June 15, 2007). Nonetheless, to avoid creating a retroactive deadline 
and because of the continuing uncertainty regarding the 
classifications, EPA has decided to require the submission of EGU 
NOX RACT SIPs on the due date for the area's attainment 
demonstration under its original classification for the 8-hour 
standard, or the effective date of this rule, whichever is later.
---------------------------------------------------------------------------

    \14\ The decision of the Court in South Coast v. EPA vacated the 
Phase 1 ozone implementation rule, including the classifications 
contained within that Rule. On March 22, 2007, EPA filed a petition 
for panel rehearing of this decision. Among other things, EPA 
requested further briefing and panel rehearing on whether the Court 
erred in vacating the entire Rule even though many provisions of the 
Rule were not challenged or were upheld by the Court.
---------------------------------------------------------------------------

2. Response to Comments
    a. Comment: Several commenters opposed the extension of the EGU 
NOX RACT SIP submittal deadline. One commenter argued that 
EPA has no authority to extend the due date for RACT SIPs for EGUs to 
June 15, 2007 because section 182 of the CAA requires submittal of RACT 
SIPs within 2 years of designation. Other commenters urged EPA to 
finalize a rule that would expedite SIP submittals.
    Response: Section 182 does not explicitly provide that RACT SIPs 
must be submitted a certain number of months after an area is 
designated nonattainment for the 8-hour ozone NAAQS. EPA interprets the 
comment to suggest that the final rule contains requirements similar to 
the VOC RACT requirements in section 182(b)(2)(C), which must be 
submitted to the Administrator by two years after November 15, 1990 
(the date of enactment of the CAA Amendments of 1990). Therefore, the 
argument goes, the RACT SIPs must similarly be submitted within two 
years of the nonattainment designation, or June 15, 2006. In the final 
Phase 2 Rule, we determined that because some states might rely on the 
submittal of SIP revisions meeting the CAIR to also satisfy RACT for 
some sources, it was reasonable to extend the RACT submittal date to 
September 15, 2006 to correspond to the required date for submitting 
CAIR SIPs. This date has now passed, and for the reasons explained in 
section III.B.1 of this notice, EPA does not believe it would be 
appropriate to finalize this rule with a retroactive deadline.
    b. Comment: Other commenters supported the extension at least until 
June 15, 2007 and some argued a longer extension may be necessary given 
the uncertainties regarding classifications created by the decision in 
South Coast v. EPA.
    Response: As discussed in section III.B.1 of this notice, the RACT 
SIP submittal date in the final rule reflects EPA's recognition that 
the South Coast v. EPA decision has created some uncertainty about 
which areas, by virtue of their classification, would be required to 
address RACT requirements and in what timeframe.

C. Provisions of Final Rule Addressing the Criteria for Emission 
Reduction Credits From Shutdowns and Curtailments

1. Major Source NSR Criteria For Emission Reduction Credits (ERC) From 
Shutdowns snd Curtailments
    The November 29, 2005 Phase 2 rule removed the requirement that a 
State must have an approved attainment plan before a source may use 
pre-application credits from shutdowns or curtailments as offsets. It 
also revised the availability of creditable offsets, consistent with 
the requirements of section 173 of the CAA. We revised the provisions 
at 40 CFR 51.165(a)(3)(ii)(C) and appendix S concerning emission 
reduction credits generated from shutdowns and curtailments as proposed 
in Alternative 2 of the 1996 proposal, with one exception. Alternative 
2 of the 1996 proposal provided that, in order to be creditable, the 
shutdown of an existing emission unit or curtailing of production or 
operating hours must have occurred after the ``most recent emissions 
inventory.'' As described in prior notices referenced herein, a public 
comment raised concerns about usage of this terminology. Upon 
consideration of various aspects of the terminology, we amended the 
rules at 40 CFR 51.165(a)(3)(C)(1) and Appendix S paragraph IV.C.3. to 
specify the cutoff date after which the shutdown or curtailment of 
emissions must occur as ``the last day of the base year for the SIP 
planning process.'' In our responses to comments below, we further 
detail our rationale supporting this change. As explained previously, 
this regulatory language is consistent with our previous guidance on 
how emission reduction credits from shutdowns and curtailments are used 
in attainment planning.\15\ The base year inventory

[[Page 31739]]

includes actual emissions from existing sources and would not normally 
reflect emissions from units that were shutdown or curtailed before the 
base year, as these emissions are not ``in the air.'' To the extent 
that these emission reduction credits are to be considered available 
for use as offsets and are thus ``in the air'' for purposes of 
demonstrating attainment, they must be specifically included in the 
projected emissions inventory used in the attainment demonstration 
along with other growth in emissions over the base year inventory. This 
step assures that emissions from shutdown and curtailed units are 
accounted for in attainment planning.\16\ As with the prior rules, 
reviewing authorities thus retain the ability to consider a prior 
shutdown or curtailment to have occurred after the last day of the base 
year if emissions that are eliminated by the shutdown or curtailment 
are emissions that were accounted for in the attainment demonstration. 
However, in no event may credit be given for shutdowns that occurred 
before August 7, 1977, a provision carried over from the previous 
regulation. See 40 CFR 51.165(a)(3)(C)(1)(ii) and 40 CFR Part 51 
Appendix S Paragraph IV.C.3.
---------------------------------------------------------------------------

    \15\ See 57 FR 13553. After the 1990 CAA Amendments were 
enacted, 1990 was the base year for 1-hour ozone NAAQS attainment 
planning purposes. See 57 FR 13502. The EPA encouraged States to 
allow sources to use pre-enactment banked emissions reductions 
credits for offsetting purposes. States have been allowed to do so 
if the restored credits meet all other offset creditability 
criteria, and States consider such credits as part of the attainment 
emissions inventory when developing their post-enactment attainment 
demonstration.
    \16\ For a discussion of emission inventories for the 8-hour 
ozone standard, see our emission inventory guidance, ``Emissions 
Inventory Guidance for Implementation of Ozone and Particulate 
Matter National Ambient Air Quality Standards (NAAQS) and Regional 
Haze Regulations--Final,'' at http://www.epa.gov/ttn/chief/eidocs/eiguid/index.html.
 For a discussion of emission projections used in 

attainment demonstrations, see Emission Inventory Improvement 
Program, Volume X, Emission Projections, December 1999, available at 
http://www.epa.gov/ttn/chief/eiip/techreport/.

---------------------------------------------------------------------------

2. Legal Basis for Changes to Criteria for Emission Reduction Credits 
From Shutdowns and Curtailments
    The revisions made to the rules governing use of emissions 
reductions from shutdowns/curtailments as offsets were warranted by the 
more detailed attainment planning and sanction provisions of the 1990 
CAA Amendments. These provisions specifically address air quality 
concerns in nonattainment areas lacking EPA-approved attainment 
demonstrations. As a threshold matter, we noted (See 70 FR 71677, 
November 29, 2005) that CAA section 173 does not mandate the prior 
restrictions on shutdown credits, specifically, the requirement to have 
an approved attainment demonstration before shutdown credits may be 
allowed. (See 48 FR 38742, 38751; August 25, 1983). Rather, in 
promulgating these restrictions in 1989, EPA recognized that it had a 
large degree of discretion under the CAA to shape implementing 
regulations, as well as the need to exercise that discretion such that 
offsets are consistent with reasonable further progress (RFP) as 
required in CAA section 173. (See 54 FR 27286, 27292; June 28, 1989). 
Originally, EPA believed that areas without approved attainment 
demonstrations lacked adequate safeguards to ensure that shutdown/
curtailment credits would be consistent with RFP. We thus subjected 
those areas to more restrictive requirements to ensure a link between 
the new source and the source being shutdown/curtailed (that is, 
shutdown/curtailment must occur after the application for a new or 
modified major source is filed).
    The 1990 CAA Amendments changed the considerations involved. For 
areas subject to subpart 2 of CAA Part D, Congress emphasized the 
emission inventory requirement in section 172(c)(3) as a fundamental 
tool in air quality planning (See Section 182(a)(1). Congress also 
added new provisions keyed to the inventory requirement, including 
specific reduction strategies (e.g., section 182(b)(3) and (4) 
(regarding gasoline vapor recovery and motor vehicle inspection and 
maintenance programs)) and ``milestones'' that measure progress toward 
attainment from the base year emissions inventory or subsequent revised 
inventories (See section 182(b)(1)). Subpart 4 sets forth specific 
reduction strategies and milestones for attainment of the 
PM10 standards. Additionally, there are now several adverse 
consequences where States fail to meet the planning or emissions 
reductions requirements of the CAA. For example, the CAA contains 
mandatory increased new source offset sanctions at a 2:1 ratio where 
the Administrator finds that a State failed to submit a required 
attainment demonstration (See section 179). In areas that are subject 
to subpart 2 and subpart 4, failure to attain the air quality standard 
by the attainment deadline results in the area being bumped up to a 
higher classification (see sections 181(b)(2) and 188(b)(2)). 
Additional regulatory requirements are imposed as a result of the 
higher classification (see, e.g., section 182(c), (d), and (e), and 
section 189(b)). These statutory changes justify shifting the focus of 
the prior regulations from individual offset transactions between a 
specific new source and shutdown source and towards a systemic 
approach. Considering the changes to the 1990 CAA Amendments, we now 
believe that continuing the prohibition on the use of shutdown/
curtailment credits generated in a nonattainment area that is without 
an approved attainment demonstration is not warranted. We believe that 
use of emission reduction credits from shutdowns/curtailments will be 
consistent with RFP towards attainment under CAA section 173, even in 
the absence of an approved attainment demonstration, if the shutdown or 
curtailment occurs after the last day of the base year for the SIP 
planning process or is included in the projected emissions inventory 
used to develop the attainment demonstration. From an air quality 
planning perspective, emissions from the shutdown source actually 
impacted the measurements of air quality used in determining the 
nonattainment status of an area. Therefore, emissions reductions from 
such source shutdowns/curtailments are actual emissions reductions, and 
their use as emission offsets at a ratio of 1:1 or greater is 
consistent with RFP towards improved air quality as set forth in CAA 
section 173(a)(1)(A) provided they are included in the baseline 
emissions inventory.
3. Reconsideration of Emission Reduction Credits Final Rule Language 
and Request for Public Comments
    In its January 30, 2006, petition for reconsideration, NRDC 
requested that EPA reconsider provisions in the final Phase 2 Rule that 
pertain to ERC. NRDC argued that EPA failed to present portions of the 
rule's ``shutdown-curtailment offset provisions'' and accompanying 
rationales to the public for comment. In our December 19, 2006, 
proposal for reconsideration we presented our opinion that the basis 
for the ERC provisions of the final rule was adequately provided in the 
November 29, 2005, rule and in earlier actions leading to that rule. 
Petitioners asserted in their request for reconsideration that certain 
aspects of our clarifying amendments to the ERC provisions of the final 
rule were not a logical outgrowth of the ERC provisions we proposed. 
While disagreeing, we nonetheless presented certain changes made in the 
November 29, 2005, final rule for additional public comment as 
requested by the petitioners. Concerning emission reduction credits, 
our proposal for reconsideration drew twelve public comments. Of those 
comments, eight supported the rules as now written. Among those opposed 
were the

[[Page 31740]]

petitioners, who continued presentation of the concerns leading to 
today's notice. Detailed discussion and analysis of arguments raised by 
all of the commenters is given below.
4. Comments and Responses for Emission Reduction Credits Issues
    Two commenters objected to the inclusion of NSR program elements 
into the same action as the requirements for the implementation of the 
eight-hour ozone standard. Our response to that concern is that we 
considered it more efficient to combine the two actions. We observed in 
70 FR 71672 that we did not propose specific regulatory language for 
implementation of NSR under the 8-hour NAAQS. However, we indicated 
that we had intended to revise the nonattainment NSR regulations to be 
consistent with the rule for implementing the 8-hour ozone NAAQS. We 
found it expeditious to address these and other NSR matters in the same 
regulatory package as the phase 2 ozone rule. In the future, any 
combination of actions affecting multiple aspects of an overall program 
would be considered in light of the pros and cons of doing so at that 
time. In this instance, coordination of distinct program elements was a 
primary concern.
a. Comments on Emission Reduction Credits and Emissions Inventories
    In the January 30, 2006, NRDC petition for reconsideration, 
Earthjustice argued on behalf of NRDC that EPA failed to present 
portions of the rule's ``shut down-curtailment offset provisions'' and 
accompanying rationales to the public for comment. The petitioners 
asserted in their request for reconsideration that certain aspects of 
our clarifying amendments to the ERC provisions of the final rule were 
not a logical outgrowth of the ERC provisions we proposed on the July 
23, 1996 proposal. First, they identified the change in language 
regarding when shutdowns and curtailments must have occurred in order 
to be creditable. The proposed language (alternative 2) said that 
shutdowns and curtailments could be credited ``if such reductions 
occurred after the last day of the baseline year of the most recent 
base year emissions inventory used (or to be used) in the plan.'' In 
the final rule, after considering comments, we changed the language to 
say that such reductions could be credited if they occurred ``after the 
last day of the base year for the SIP planning process.'' Earthjustice 
objected to this change because, in their view, the final rule ``allows 
offsets from pre-application shutdowns and curtailments even in the 
absence of an emission inventory for the attainment plan.'' While we 
believe the ERC provisions in the final rule were a logical outgrowth 
of the proposal, we nevertheless granted their request for 
reconsideration with respect to this particular language change, as 
indicated in the December 19, 2006, notice. The NRDC/Earthjustice 
petition also contained a second argument, which was that the final 
rule ``could allow pre-baseline reductions from shutdowns or 
curtailments to be used as post-baseline offsets.'' This argument 
hinged on the second sentence of Sec.  51.165(a)(3)(C)(1)(ii), which 
now provides that ``a reviewing authority may choose to consider a 
prior shutdown or curtailment to have occurred after the last day of 
the base year if the projected emissions inventory used to develop the 
attainment demonstration explicitly includes the emissions from such 
previously shut down or curtailed emission units.'' While we did not 
specifically open this issue for reconsideration, we nevertheless 
address related comments below. For the purpose of providing potential 
commenters context and clarity, we included the full language of Sec.  
51.165(a)(3)(C)(1) and Appendix S paragraph IV.C.3 in our December 19, 
2006 notice of reconsideration.
    In its comments upon our proposal for reconsideration, Earthjustice 
essentially repeated the points made in the NRDC/Earthjustice petition, 
stating that the final ERC provisions ``would allow use of such pre-
application offsets before the state even knows the degree of emission 
reductions needed to assure RFP, and before the state has even 
developed a baseline emission inventory.'' Earthjustice also pursued 
the second issue, stating that ``the proposed rule further violates the 
Act to the extent that it allows the source to claim offsets from 
reductions that occurred prior to the baseline year for the attainment 
demonstration.'' In addition, Earthjustice offered broad comments that 
relate to aspects of the ERC provisions that pre-dated the Phase II 
rule. We will examine those comments after first addressing the 
discrete issues that were the subject of the reconsideration proposal.
    As summarized above, the first concern raised by NRDC/Earthjustice 
in the petition for reconsideration was with the replacement of the 
terminology ``most recent emissions inventory'' as used in the July 23, 
1996 proposal (61 FR 38250) with the terminology ``the last day of the 
base year for the SIP planning process.'' Alternative 2 of the 1996 
proposal provided that, in order to be creditable, the shutdown of an 
existing emission unit or curtailing of production or operating hours 
must have occurred after the ``most recent emissions inventory.'' We 
agreed with a commenter on the 1996 proposal who found the phase ``most 
recent emissions inventory'' confusing. In particular, that prior 
commenter believed this language could be read as meaning that the base 
year for the purpose of determining emissions that may be used as 
creditable offsets would continue to shift. The prior commenter noted 
that it would be more accurate to state that the base year emissions 
inventory is the starting point and all creditable emissions reductions 
must result from the shutdown or curtailment of emissions that have 
been reported in the base year inventory or a subsequent emissions 
inventory. (For the 8-hour ozone NAAQS, the base year is 2002.\17\) We 
agreed with the prior commenter that the terminology ``most recent 
emissions inventory'' was not desirable and revised Sec.  
51.165(a)(3)(C)(1) and Appendix S paragraph IV.C.3. Accordingly, 
specifying the cutoff date after which the shutdown or curtailment of 
emissions must occur as ``the last day of the base year for the SIP 
planning process.''
---------------------------------------------------------------------------

    \17\ 68 FR 32833, See also ``2002 Base Year Emission Inventory 
SIP Planning: 8-hr Ozone, PM2.5 and Regional Haze 
Programs,'' U.S. EPA, pg. 1 (November 18, 2002).
---------------------------------------------------------------------------

    Eight commenters voiced support for the ERC language as promulgated 
on November 29, 2005, and offered further comment on our December 19, 
2006 proposal. In general, the commenters noted the important role 
assigned by Congress to the usage of emissions inventories for air 
quality planning. The commenters were supportive of the availability of 
ERC as a tool for factoring managed growth into the planning process. 
As a whole, these commenters supported the change from the language 
``most recent emissions inventory'' as proposed July 23, 1996 to the 
final ``the last day of the base year for the SIP planning process.'' 
Speaking directly to the language that was the subject of the December 
19, 2006 proposal, several commenters remarked that ERC should not be 
lost every time an inventory is updated. One observed that losing ERC 
due to a moving target cannot be directly tied to attainment planning. 
Another commenter found EPA's rationale to be reasonable and saw no 
merit to the petition. This opinion was echoed by yet another commenter 
who found no new information in the petition for reconsideration to 
support changing the promulgated ERC rule.

[[Page 31741]]

Several of the commenters supporting the cutoff date for ERC as being 
the last day of the base year for the SIP planning process went on to 
express opinions about implementation of the provision. A State air 
pollution control agency said that emissions included in the base year 
inventory will also be included in a modeled attainment demonstration. 
Their experience has been that emissions go down while ERC are 
employed. We agree with the commenters regarding the important role of 
emissions inventories in air quality planning and the retention of 
ERCs. There is no good rationale to support the removal of ERC as a 
consequence to updating of inventory. We provided a detailed rationale 
for our own conclusion at 70 FR 71676-71677.
    One commenter expressed appreciation of the specific clarifications 
we provided with regard to the ability to credit pre-emissions 
inventory shutdowns and curtailments if those emissions were included 
in the baseline SIP emission inventory. The commenter noted that this 
shutdown and curtailment policy provides incentive to remove old 
equipment without modern controls or to control emissions from such 
units with new technology or practically enforceable permit limits. The 
ban on the use of shutdowns and curtailments was counter-productive to 
improving air quality as it provided an incentive to keep older and 
higher emitting sources operating. The commenter opined that given the 
paucity of NOX emissions reduction opportunities in certain 
nonattainment areas, the new rule represents sound public policy by 
providing an incentive for sources that want to build or install new 
emissions equipment to purchase and or control NOX-emitting 
equipment at other sources that might have little incentive to reduce 
their emissions otherwise. Also, since an offset generates net 
emissions reductions because greater than one-to-one offset ratios are 
required for NSR permitting in these areas, such offsets do not 
interfere with attainment. We strongly agree with this commenter. The 
chosen approach to ERC should not encourage owner/operators to continue 
operating old inefficient equipment solely for the purpose of having 
those emissions available for credits at the time of a permit 
application. Establishing programmatic incentives to delay emission 
reductions that make good business sense (but are not otherwise 
required) is detrimental to the goal of achieving attainment as 
expeditiously as possible.
    Some comments were received upon the mechanics of implementing ERC 
provisions. A State air pollution control agency said that since 
curtailments, by definition, are temporary, the EPA also needs to 
review the procedures it employs for allowing sources to use emissions 
reductions from curtailments as offset credits to ensure that the 
emissions reductions from the curtailments are real, federally 
enforceable, quantifiable and surplus. The commenter thought emissions 
might resume at a later point in time after the curtailment ends and 
expressed concern about adequate tracking of both the generation and 
use of these emission reductions to ensure that the use of such credits 
would be discontinued as soon as the curtailment ends. According to the 
commenter, EPA also needs to ensure that prior to the end of the 
curtailment, other emission reductions are available to offset the 
increase in emissions that occur when the source recommences operation. 
The commenter recommends that in order to ensure consistency on a 
regional and national basis, EPA should perform a detailed evaluation 
of the current procedures used by its regional offices for reviewing 
and approving the use of emissions reductions from curtailments as 
emissions offsets. Another State air pollution control agency thought 
the term ``explicit'' should be clarified. The second agency opined 
that it may be appropriate to explicitly include a line item in the 
projected emissions inventory on expected use of pre base year shutdown 
and curtailment emission reduction credits. They thought it should not 
be necessary to list separately each company that shutdown or curtailed 
operations in the projected emissions inventory. The second commenter 
went on to note that not all ERC in its inventory were actually used 
and that they have a schedule for retiring unused credits. This 
commenter expressed the opinion that we should avoid basing 
requirements of the permitting program on an inventory, which is 
designed for planning purposes.
    Our interpretation of the two sets of comments referenced in the 
preceding paragraph is that they generally argue for opposite outcomes. 
We believe that emission inventories should be sufficiently detailed 
that the contributions of individual sources, particularly major 
sources, might be ascertained. The depth of detail yielded by periodic 
inventory updates is beyond the scope of this action. We do think the 
second commenter's concerns as to the status of particular credits 
should be addressed in the course of permitting. Applicants should be 
able to guarantee the continued existence of any credits upon which 
their permits might be based. Concerning the final point made by the 
second commenter regarding use of inventories, we disagree. The 
requirements of the NSR program provide growth management tools and are 
an integral part of the overall air quality attainment program. The ERC 
provisions which are the subject of this discussion are a tool to be 
used by States when tailoring programs to meet their individual needs. 
In the case just cited, the State has chosen to retire ERC according to 
a schedule. Used in this manner, ERC are available to encourage owner/
operators to close aging facilities more quickly than they might should 
they see a need to internally ``bank'' their emissions for anticipated 
future permit applications. At the same time, the State has flexibly 
implemented the availability of ERC to suit its planning needs.
    As noted above, the Earthjustice/NRDC petition for reconsideration 
and comments on the December 19, 2006 notice raised a discrete issue 
with respect to the phrase ``the last day of the base year for the SIP 
planning process.'' Earthjustice objected to the change from the 
proposed language because, in their view, the final language ``would 
allow use of such pre-application offsets before the state even knows 
the degree of emission reductions needed to assure RFP, and before the 
state has even developed a baseline emission inventory.'' We disagree 
with the commenter's suggestion that ERC may be employed with no 
consideration of consequences to air quality planning. In particular, 
the regulatory language in question from Sec.  51.165(a)(3)(C)(1)(ii) 
specifically conditions usage of ERC for shutdowns and curtailments 
that occur prior to the cutoff date on identification of the underlying 
emissions in the inventory being used to develop a particular 
attainment demonstration. Shutdowns or curtailments based on emissions 
that were ``in the air'' during the baseline year are based on 
emissions that would automatically form part of the inventory. All 
emissions whose reduction would be creditable as offsets must be at 
some point incorporated into inventories employed for demonstrations of 
attainment. Any ERC, whether eventually used for offsetting or not, 
must be accounted for within either the baseline inventory or within 
periodic inventory updates. Any ERC employed as offsets may be readily 
taken into account during attainment planning.
    The Earthjustice comments also contain the argument that the second 
sentence of Sec.  51.165(a)(3)(C)(1)(ii)

[[Page 31742]]

``violates the Act to the extent that it allows the source to claim 
offsets from reductions that occurred prior to the baseline year for 
the attainment demonstration.'' The complete second sentence provides 
that ``a reviewing authority may choose to consider a prior shutdown or 
curtailment to have occurred after the last day of the base year if the 
projected emissions inventory used to develop the attainment 
demonstration explicitly includes the emissions from such previously 
shutdown or curtailed emission units.'' In this argument the commenter 
cites to CAA Sec.  173(c)(1) as containing language precluding the 
offsets in question. As discussed below, this exception to the baseline 
provision predated the Phase 2 rule. The only change we made in the 
Phase 2 rule was to allow its use in a greater range of circumstances. 
This change was consistent with our overarching action in expanding the 
circumstances in which pre-application shutdowns and curtailments could 
be used to generate ERCs. We did not intend to revisit the exception as 
promulgated prior to the Phase 2 rule. We note that this exception is 
consistent with the policy on allowing pre-enactment banked emissions 
to be credited as set forth in the 1992 General Preamble (57 FR 13553). 
In that notice, we stated: ``For purposes of equity, EPA encourages 
States to allow sources to use pre-enactment banked emissions 
reductions credits for offsetting purposes. States may do so as long as 
the restored credits meet all other offset creditability criteria and 
such credits are considered by States as part of the attainment 
emissions inventory when developing their post-enactment attainment 
demonstration.'' We discuss CAA Sec.  173(c)(1) further below in 
conjunction with our discussion of CAA Sec.  173(a)(1)(A) and RFP.
    As previously noted, portions of Earthjustice's comments relate to 
aspects of the ERC provisions that pre-dated the Phase II rule. While 
we view these issues as outside the scope of the reconsideration, we 
provide background on these broader issues in order to put the Phase 2 
changes into context. We note, however, that Earthjustice had an 
opportunity to comment on these longstanding provisions at the time 
they were promulgated.
    The concept of generating credits for later use has been a 
fundamental part of the NSR program for decades. See, for example, the 
``General Preamble for Proposed Rulemaking on Approval of State 
Implementation Plan Revisions for Nonattainment Areas,'' 44 FR 20372 
(April 4, 1979), indicating that ``the state may allow emission 
reductions to be banked for later use under the [Emission Offset 
Interpretive] Ruling and under the state's preconstruction review 
program under Part D.''
    In 1989, EPA promulgated changes to the provisions that existed at 
that time regarding the extent to which source shutdowns and 
curtailments were creditable as emission offsets in nonattainment areas 
(54 FR 27286, June 28, 1989). In that notice, EPA pointed out that 
``the Act does not expressly mandate any particular treatment of 
shutdowns for offset crediting purposes. Rather, this question is a 
matter within the administrative discretion delegated to EPA under the 
Act.* * * Thus, although it is true, as noted in the proposed 
regulations, that section 173 requires EPA to allow the construction of 
new sources in nonattainment areas where such construction will be 
consistent with RFP toward attainment, EPA retains broad discretion to 
establish criteria for determining when RFP has been assured'' (54 FR 
27292). The version of 5.165(a)(3)(ii)(C)(1) & (2) promulgated in that 
1989 rule was the version that remained current up until the Phase 2 
revisions. In other words, as far back as 1989, EPA approved the 
concept of pre-application shutdown credits in certain circumstances 
(primarily where areas had EPA-approved attainment plans).
    In the 1989 final rule, EPA also adopted, for purposes of areas 
with approved attainment plans, a provision allowing permitting 
authorities ``to consider a prior shutdown or curtailment to have 
occurred after the date of its most recent emission inventory, if the 
inventory explicitly includes as current ``existing'' emissions the 
emissions from such previously shutdown or curtailed sources'' (54 FR 
27295). We explained that absent such explicit treatment, ``emissions 
from a new source whose construction is premised upon such shutdowns 
cannot reliably be said to be consistent with RFP.'' Our stated concern 
was that if the emissions were not included in the inventory, ``[i]t 
would constitute `double counting' of these emissions reductions to 
allow their unrestricted use as shutdown offset credits by potential 
new sources.'' With the inclusion of the emissions in the inventory, 
however, the concern about possible double counting was eliminated.
    Thus, our November 29, 2005 amendment to the ERC provisions 
introduced neither the concept of credits for pre-application shutdowns 
and curtailments nor the exception to the cutoff date for emissions 
explicitly included in the emissions inventory. What our November 29, 
2005 amendment accomplished was to broaden the scope of these 
provisions to acknowledge 1990 CAA changes that enhanced the role of 
inventories in attainment planning. In its comments Earthjustice called 
our attention to CAA Sec.  173(a)(1)(A), which they noted as requiring 
offsets to ensure that total allowable emissions will be sufficiently 
less than total emissions ``prior to the [NSR permit] application'' to 
ensure RFP. They also invoked CAA Sec.  173(c)(1) as requiring that 
increased emissions from a new or modified major source ``shall be 
offset'' by an equal or greater reduction in actual emissions. 
Earthjustice, however, failed to note the final language of 
173(a)(1)(A), which states that the difference between the pre-
application emissions and the post-application emissions is to be 
considered together with the plan provisions required under section 172 
in determining whether the difference represents reasonable further 
progress. In particular, we note that Sec.  172(c)(3) presents the 
framework for non-attainment planning and includes use of inventories 
in the development of non-attainment plan provisions, into which NSR 
factors as a management tool. The inventories under Sec.  172(c)(3) are 
to account for actual emissions from all sources. We consider the 
inclusion of emissions associated with pre-application shutdowns and 
curtailments in the inventory as ``actual emissions'' to be reasonable 
in that they represent emissions that would be ``in the air'' absent 
incentives to close or curtail sources. Reductions in these emissions 
thus fulfill the requirement for reductions in actual emissions as set 
forth in Sec.  173(c)(1).
    In light of the overall goal of RFP towards attainment, we have 
used our discretion to provide an incentive for sources to retire or 
curtail emissions sources early rather than continue operation of 
higher emission sources until such time as permit applications might be 
filed for replacement facilities. This construction is reinforced by 
Sec.  172(c)(6) which says that plans shall include necessary and 
appropriate ``measures, means, or techniques,'' including economic 
incentives such as marketable permits. ERCs are one such economic 
incentive. Should ERC be lost every three years when inventories are 
updated, their marketability would be greatly diminished.
    In Sec.  172(c)(6) we see direction to construct a coordinated and 
cohesive air quality management program to accomplish the goal of RFP. 
The inclusion of ERC as now allowed in the NSR component of the program 
is a

[[Page 31743]]

viable measure entirely consistent with Congress' direction that 
implementation of Sec.  173(a)(1)(A) be accomplished in conjunction 
with the overarching requirements of Sec.  172. The ERC in question 
herein are properly tracked through required inventories built into 
demonstrations of attainment. They provide incentives for sources to 
reduce emissions in advance of planned future permit applications and 
thereby enhance RFP. The credits for ERC are marketable. To the extent 
they are included as offsets in NSR permits, they lock down reductions 
of emissions that might otherwise be legitimately discharged into the 
atmosphere as actual emissions up to the time of the permit 
application. We consider this to be entirely consistent with the spirit 
and requirements of the CAA.
b. Comments on Impact of DC Circuit Court of Appeals Decision on Phase 
2 Rule
    One commenter believes that the recent DC Circuit Court of Appeals 
decision in South Coast Air Quality Management District v. 
Environmental Protection Agency (2006 U.S. App. LEXIS 31451 (D.C. Cir. 
2006)) has a direct impact on the Phase 2 Rule and the issues under 
review in this reconsideration notice, particularly with respect to 
specific control measures such as the NSR program. The commenter opined 
that NSR program elements included in the Phase 2 Rule are in direct 
conflict with this DC Circuit Court opinion. Another commenter drew an 
opposite conclusion and said there is no need for further delay as a 
result of that same decision. The second commenter submits that the 
issues that are subject to the proposed EPA action are not affected by 
the Court of Appeals' recent ruling in SQAQMD v. EPA, and that it is 
critical for the Agency to take final action on the issues raised in 
the December 19, 2006 notice. The commenter's opinion is that the Phase 
2 rule addresses new source review requirements during the transition 
period until SIP revisions for the 8-hour ozone rule are adopted by 
jurisdictions and approved by EPA. This commenter said that in view of 
the Court of Appeals' opinion that many features of the Phase 1 ozone 
rule are not consistent with the Act, it is unlikely that States and 
regional air pollution control agencies will be able to adopt 
approvable SIP revisions for some time. Thus, transitional rules 
affecting new source review pursuant to the federal transitional 
requirements are essential.
    As discussed below, we do not believe that the issues under review 
in this reconsideration are in conflict with the South Coast decision. 
The first commenter gave no specifics. Earthjustice did provide a 
specific argument concerning the impact of the Court's decision.
    According to Earthjustice, the ERC provisions in the Phase 2 rule 
constitute a weakening of offset requirements and are contrary to CAA 
protections limiting EPA's discretion to provide flexibility to states 
in complying with the Act's mandates. They cite South Coast. They argue 
that the 1990 Amendments' more explicit rate of progress targets do not 
somehow relax the offset requirements for new major sources. Further 
they argue that, to the contrary, the 1990 Act sets out even more 
explicit offset requirements than before, making crystal clear that 
such minimum offsets are required regardless of whether the Act's rate 
of progress requirements in the Act are being met. See, e.g., CAA 
Sec. Sec.  182(a)(4), (b)(5), (c)(10), (d)(2), (e)(1). Thus, according 
to Earthjustice, the offset requirements are not mere subsets of the 
rate of progress requirements, but distinct mandates to ensure a net 
cut in emissions after the application for a new source permit. They 
maintain that EPA has attempted to weaken these mandates and that such 
action violates the Act's anti-backsliding provisions, by relaxing the 
level of pollution control required prior to revision of the ozone 
NAAQS.
    In response, EPA first notes that the South Coast decision relates 
to a different context. The anti-backsliding discussion in that 
decision revolved about Sec.  172(e) requirements that controls not be 
made less stringent in conjunction with relaxation of national ambient 
air quality standards. The ERC changes challenged by Earthjustice are 
not tied to any particular national ambient air quality standard or its 
revision. Rather, they are broader programmatic changes, as noted by 
some of the commenters. Earthjustice does not identify which anti-
backsliding provisions other than section 172(e) might be implicated by 
this action. The changes to 40 CFR 51.165 do not in and of themselves 
modify any requirements applicable to nonattainment areas. Thus, even 
assuming section 193, for example, is potentially applicable, this is 
not the appropriate time to determine its application. We believe the 
appropriate time to determine the applicability of and compliance with 
Section 193 is when a control requirement in a nonattainment area is 
changed. For States that undertake a SIP revision, we will address the 
applicability of Section 193 in our future actions to approve the SIP 
revisions. Similarly, the applicability of section 110(l) would only 
become an issue upon submission of a SIP revision to EPA. We disagree 
with the commenter who stated that the NSR changes are limited to the 
transitional period. The ERC changes are broader in nature, given that 
they amend section 51.165 as well as Appendix S. The extent to which 
the changes to Appendix S would affect areas that were nonattainment 
for the 1-hour standard is currently unclear. In the South Coast 
decision, the DC Circuit vacated certain aspects of EPA's phase 1 rule 
implementing the 8-hour ozone NAAQS. One possible effect of the court's 
vacatur of that rule is that it could require Federal, state, and local 
agencies to issue NSR permits in accordance with the area's 1-hour 
ozone nonattainment classification. Were that to occur, areas that were 
nonattainment for the 1-hour standard would presumably implement their 
1-hour NSR SIPs rather than Appendix S, at least until EPA had 
established appropriate 1-hour anti-backsliding provisions and had 
taken further action with respect to the 1-hour standard
    Similarly, Earthjustice's argument that the ERC changes weaken the 
offset requirements in CAA Sec. Sec.  182(a)(4), (b)(5), (c)(10), 
(d)(2), (e)(1) is unconvincing. The ERC changes do not affect the 
applicable offset ratios as mandated by those statutory provisions. 
They concern the cutoff date for offsets, rather than the degree of 
offset required. As previously discussed, the inventory required in 
Sec.  172(c)(3) is one component of the nonattainment plan provisions 
of Sec.  172(c). The components of Sec.  172(c) are not intended to 
stand alone. They complement one another. When we look to Sec.  
172(c)(6) we find direction that plans include a range of ``other 
measures, means, or techniques,'' including economic incentives, ``as 
may be necessary or appropriate to provide for attainment.'' ERCs are 
one such incentive. As discussed in more detail above, they are fully 
compatible with the provisions of sections 172 and 173. Furthermore, 
they do not interfere with the specific offset ratios mandated by 
Congress in section 182.
    Having considered the comments received, we have seen no new 
rationale presented that would lead us to change the current regulatory 
language describing the availability and usage of ERC. Accordingly, we 
are electing not to amend relevant rule language currently codified in 
the Code of Federal Regulations.

[[Page 31744]]

D. Applicability of Appendix S, Section VI

1. Changes to Applicability of Appendix S, Section VI
    Section VI allows new sources locating in an area designated as 
nonattainment to be exempt from the requirements of Section IV.A. of 
Appendix S under certain circumstances if the date for attainment has 
not yet passed. Section VI provides a management tool to provide a 
limited degree of flexibility in situations where a new source would 
not interfere with an area's ability to meet an attainment deadline. 
The final Phase 2 Rule made a procedural change to limit the 
applicability of appendix S, section VI to only those instances in 
which the Administrator has specifically approved its use. Although we 
did not include the regulatory language to accomplish this goal in the 
June 2, 2003 proposal, we did clearly state our intention of doing so. 
As we noted at 68 FR 32848, section VI as worded without any amendment 
could apply in any nonattainment area where the dates for attainment 
have not passed as long as the source met all applicable SIP emission 
limitations and would not interfere with the area's ability to meet its 
attainment date. As codified prior to the amendment in the Final Phase 
2 Rule, section VI contained no provision conditioning its 
applicability on approval by the Administrator. We noted at proposal, 
however, that States generally would not be able to show that a 
nonattainment area would continue to meet its attainment date if it did 
not apply LAER or offsets to major new sources and major modifications 
in the absence of safeguards (68 FR 32848).
    Further, we stated in the preamble to the Phase 2 Rule that we 
continued to believe, as we stated in its proposal, that States should 
not interpret section VI as allowing a blanket exemption from LAER and 
offsets for all major new sources and major modifications in a given 
area before attainment dates have passed for that area. Thus, in the 
final rule we added a further requirement that the Administrator 
independently determine and provide public notice that those 
requirements have been met. The purpose of the requirement is to assure 
that States do not interpret section VI to provide a broad exemption to 
all major new sources and major modifications in any nonattainment area 
for which the attainment date has not passed.
2. Legal Basis for Changes to Applicability of Appendix S and the 
Transitional NSR Program
    The legal basis for Appendix S, including section VI, was discussed 
in detail in section V.B.3.b. of the preamble to the final Phase 2 
Rule. We have historically recognized that the SIP development period 
provided for in section 172(b) leaves a gap in part D major NSR 
permitting and have determined that this gap is to be filled with an 
interim major NSR program that is substantially similar to the 
requirements of part D, including the LAER and offset requirements from 
part D, subject to a limited exemption where the attainment deadline 
will be met (57 FR 18070, 18076). This interim NSR program has been 
implemented to date through Appendix S.
    The section VI exemption, as limited by the final Phase 2 Rule, is 
consistent with the section 110(a)(2)(C) requirement that 
preconstruction permitting is implemented ``as necessary to assure that 
the [NAAQS] are achieved.'' While the Phase 2 Rule did not adopt the 
eligibility criteria that were proposed to ensure satisfaction of the 
original section VI conditions, we did add the proposed requirement 
that the Administrator determine that sources exempted from LAER and 
offsets under section VI will meet those conditions, in particular, 
noninterference with the attainment deadline. Section VI also is 
consistent with the exercise of our gap filling authority under section 
301, as informed by the legislative history. That is, Appendix S 
reflects Congressional intent that standards equivalent to part D 
govern the issuance of NSR permits, subject to a limited degree of 
flexibility under conditions where attainment of the NAAQS by the 
attainment deadline is assured.
3. Reconsideration of Appendix S, Section VI Final Rule Amendments
    In its January 30, 2006, petition, NRDC requested that EPA 
reconsider provisions in the final Phase 2 Rule that pertain to 
Appendix S, section VI. NRDC argued that EPA failed to provide the 
public with an opportunity to comment on the language of Appendix S, 
Section VI that was included in the final rule. As is the case with 
respect to the ERC provisions, EPA believes that our rationale was 
fully explained in the November 29, 2005 rulemaking and in earlier 
actions leading to that rulemaking. The preamble to the final rule 
included a lengthy description of preceding actions in which our 
rationale was developed. Further, the preamble to the final rule 
detailed our response to comments pertaining to the proposal. As noted 
above, what we did in the final rule was add one provision to the 
already existing language of Appendix S, section VI to limit use of 
Section VI to only those instances publicly approved by the 
Administrator. From our perspective, we made the smallest change 
possible and achieved closure of a gap in section VI. As well, we 
continue to disagree with the petitioner's assertion that section VI, 
as amended by the Phase 2 rule constitutes an open-ended scheme to 
evade the strictures of Part D. If anything, the prior rule language 
could have been construed as open-ended. The sole intention of our 
language change was to close what we perceived to be a loophole 
allowing just the type of outcome to which the petitioners object. 
Congress required just such closure through the provisions of the 
original section 129 as included in the August 7, 1977 amendments to 
the Act. At that time, Congress made clear its opinion that it would be 
the role of the Administrator to determine whether waiver of the 
appendix S provisions in question might be appropriate. The change made 
to Section VI in the final Phase 2 rule providing that the 
Administrator must determine whether the conditions of Section VI have 
been satisfied provides a positive safeguard to prevent just the kinds 
of unchecked application of its provisions as envisioned by the 
petitioners.
    As was the case for ERC, we saw value in presenting for public 
comment the changes made to Section VI of Appendix S in the final Phase 
2 Rule. Accordingly, on December 19, 2006 we requested comment on 
subsection C. of Section VI of Appendix S as added in the final Phase 2 
rule as requested by the petitioners. Concerning the new paragraph C. 
of section VI, our proposal for reconsideration drew ten public 
comments. Of those comments, five supported the rule amendments as now 
written and five were opposed. Among those opposed, were the 
petitioners and State air pollution control agencies. The petitioners 
continued presentation of the concerns leading to this notice and were 
echoed, in part, by the States. In short, those opposing the change to 
section VI see it as an opening which might be subject to abuse of 
discretion. We continue to see our change as a closing of a loophole. 
Five commenters agreed with our assessment. Detailed discussion and 
analysis of arguments raised by all of the commenters is given below.

[[Page 31745]]

4. Comments and Responses for Appendix S, Section VI
    We received ten comments upon the proposed section VI paragraph C 
language. A number of comments made it clear that the nature of our 
addition of paragraph C for the purposes of closing a loophole and 
constraining application of section VI was not completely understood. 
Also, we received comments questioning the legality and existence of 
Section VI along with requests for its removal from the Code of Federal 
Regulations. Such comments are outside the scope of this action. 
Section VI significantly predates the Phase 2 Rule. While it originally 
applied only to secondary NAAQS, EPA revised it to include primary 
standards following the 1977 Amendments (44 FR 3274, Jan. 16, 1979). 
EPA made an additional revision to Section VI in 1980 in the course of 
clarifying the applicability of Appendix S to sources located outside 
of nonattainment areas that cause or contribute to violations (45 FR 
31307, May 13, 1980). The version of Section VI established by that 
1980 rulemaking remained current up until the effective date of EPA's 
final Phase 2 rule. The time for challenging rules issued in 1979 and 
1980 is long past. If commenters believe Section VI as a whole is no 
longer desirable, then the appropriate vehicle for their concerns is a 
petition for rulemaking. The only matter opened for comment by the 
proposal for reconsideration was the appropriateness of paragraph C. 
Before reviewing those comments which were germane to the proposal, we 
will first recap the reasoning for our addition of paragraph C to 
section VI.
    Section VI allows new sources locating in an area designated as 
nonattainment to be exempt from the requirements of section IV.A. of 
appendix S under certain circumstances if the date for attainment has 
not yet passed. Section VI provides a management tool to provide a 
limited degree of flexibility in situations where a new source would 
not interfere with an area's ability to meet an attainment deadline. 
The final Phase 2 Rule made a procedural change to limit the 
applicability of appendix S, section VI to only those instances in 
which the Administrator has specifically approved its use. Contrary to 
the suggestions of comments to be discussed below, we had no intention 
of expanding usage of Section VI through our addition of paragraph C. 
Our purpose in making the change was to close what we saw as a loophole 
and constrain the application of Section VI. Although we did not 
include the regulatory language to accomplish this goal in the June 2, 
2003 proposal, we did clearly state our intention of doing so. As we 
noted at 68 FR 32848, section VI as worded prior to our amendment could 
have applied in any nonattainment area where the dates for attainment 
had not passed, even if the source met all applicable SIP emission 
limitations and would not have interfered with the area's ability to 
meet its attainment date. As codified prior to the amendment in the 
Final Phase 2 Rule, section VI contained no provision conditioning its 
applicability on approval by the Administrator. We noted at proposal, 
however, that States generally would not be able to show that a 
nonattainment area would continue to meet its attainment date if it did 
not apply Lowest Achievable Emission Rate (LAER) or offsets to major 
new sources and major modifications in the absence of safeguards (68 FR 
32848).
    Further, we stated in the preamble to the Phase 2 Rule that we 
continued to believe, as we also stated in its proposal, that States 
should not have interpreted section VI as allowing a blanket exemption 
from LAER and offsets for all major new sources and major modifications 
in a given area before attainment dates had passed for that area. In 
that proposal, we also offered for comment two broad programmatic 
proposals to modify the then-existing section VI for the purpose of 
providing greater flexibility. Overall, commenters considered the 
programmatic options to be impracticable. However most commenters did 
express support for the flexibility provided by section VI. For that 
reason, we retained the original eligibility conditions for determining 
when section VI might apply, but added the procedural requirement that 
the Administrator determine that the two previously existing conditions 
of Section VI are satisfied, and that the Administrator provide public 
notice of that determination. That requirement achieved the proposal's 
purpose of assuring that States could not interpret section VI to 
provide a broad exemption to all major new sources and major 
modifications in any nonattainment area for which the attainment date 
has not passed.
    Earthjustice/NRDC filed the petition for reconsideration leading to 
today's action and provided comment upon our proposal. This commenter 
referenced a prior comment on the proposed Phase 2 rule claiming EPA 
has no authority to waive NSR requirements in areas designated 
nonattainment under the Act and that the proposed rule was unlawful. 
Earthjustice acknowledged a need for EPA's gap-filling program as 
supported by Sec. Sec.  101(b)(1), 110(a)(2)(C), and 301 of the Act. 
This commenter disagrees that Sec.  110(a)(2)(C) implies an authority 
to waive NSR requirements, but rather expressly requires each SIP to 
include ``a permit program as required in parts C and D,'' and part D 
does not allow for waiver of NSR permitting requirements in 
nonattainment areas. They went on to question allowing section VI 
waivers after the statutory deadline for completion of the state's Part 
D SIP development process. They voiced their concern that the proposed 
rule appears to allow continued issuance of NSR waivers even if the 
state has failed to timely submit a part D SIP.
    Two commenters questioned the legal underpinnings of section VI 
pursuant to sections 110(a)(2)(C), 173, and 182 of the Act. One was of 
the opinion that EPA's revisions do not provide any incentive for the 
timely completion of the SIP, and the exemption appears to allow 
continued issuance of NSR waivers after a state fails to timely submit 
a SIP. Also, the commenter said we did not propose or establish an end 
date for the transitional period during which a waiver would apply, 
thus allowing NSR requirements to be waived indefinitely without any 
restrictions on such waiver.
    In response to these specific comments, we note that section VI 
pre-dated the Phase 2 rule and that our reconsideration did not open up 
the entirety of section VI for comment. Nevertheless, we will discuss 
these issues briefly. We recounted the history of appendix S in the 
preamble to the Phase 2 rule (70 FR 71677--71680). There, we noted that 
the SIP development period provided for in section 172(b) leaves a gap 
in part D major NSR permitting and that section 110(a)(2)(C) does not 
define specific requirements States must follow for issuing major 
source permits during this time. We further noted that EPA's 
regulations at 40 CFR section 52.24(k) require States to follow 
Appendix S during the period between nonattainment designation and EPA 
approval of a part D nonattainment NSR SIP. We also summarized the 
relationship of the construction ban to Appendix S, stating: ``When 
Congress removed the construction ban * * * it left in place 40 CFR 
section 52.25(k), implementing the interim major NSR program under 
appendix S'' (70 FR 71678). In adding paragraph (c) to Section VI, we 
did not disturb the existing requirements and incentives for timely SIP 
completion. Regarding the concern that waivers might be granted after a 
state fails to timely submit a SIP, EPA would be highly disinclined to

[[Page 31746]]

grant a waiver where the SIP submission deadline had passed and EPA had 
not received the required submission.
    The State also thought the original purpose of this exemption has 
long passed. Thus, there would be little or no use of the exemptions in 
practice and, consequently, EPA's proposed revision to this section 
amounts to encouraging states to reconsider its use. They see the 
proposal as EPA's encouragement of an NSR exemption that would create a 
new obstacle for them to surmount as we strive to attain the 8-hour 
ozone standard. Another State agency saw us as proposing to waive NSR 
provisions for LAER and emissions offsets requirements which many 
states need as part of their state implementation plans in order to 
attain and maintain compliance with the ozone NAAQS. They were of the 
opinion that the proposal constituted that kind of ``backsliding'' 
precluded by the South Coast decision
    We received additional comments echoing concerns that the addition 
of paragraph C. would encourage the use of section VI and expand its 
impacts. One commenter speaking on behalf of the nation's air pollution 
control agencies expressed concern that the new paragraph might create 
new difficulties for states attempting to meet attainment deadlines. 
Also given was a concern that new and existing modified sources would 
not achieve the level of emissions reductions that would be possible 
with installation of LAER without the usual NSR benefit of comparable 
or greater decreases in emissions. They continued that attainment dates 
are, in fact, highly likely to be affected by this exemption from LAER 
and offsets for new and modifying sources. In summation, they expressed 
concern that increased emissions resulting from the NSR exemption could 
jeopardize state and local attainment plans.
    We respond to the commenters by first noting that, as discussed 
above, section VI as a whole was not placed on the table for comment. 
We do believe that the commenter's concerns over the addition of the 
Administrator as a gatekeeper to application of section VI are 
misplaced. Their comments upon today's action and the concerns conveyed 
by Earthjustice in their petition for reconsideration make clear a 
misunderstanding by several parties who have come to believe our 
addition of paragraph C. is intended to open the door for widespread 
use and abuse of section VI. This is not the case. We added paragraph 
C. expressly to limit and minimize usage of Section VI. Further, 
paragraph C. brings to the public's attention any usage of section VI 
by requiring publication of any approvals for such use in the Federal 
Register. So, the concerns that EPA is encouraging States to apply 
section VI, making it open-ended, or encouraging backsliding are 
unfounded. Quite the contrary, our intention with the addition of 
paragraph C. is to decrease the likelihood that section VI might be 
applied by first requiring close scrutiny by the EPA and by 
communicating any decisions in a public forum. Tightening pre-existing 
requirements does not constitute backsliding.
    Several commenters perceived the intent of our addition of 
paragraph C. and offered comments in support of re-proposed rule 
language. Their comments expressed viewpoints opposite to the just-
described comments of Earthjustice and the air pollution control 
agencies. Four commenters expressed their opinions that the revision 
adding EPA as the determining authority to application of section VI 
would not interfere with achieving attainment in a timely manner. Two 
offered their expectations that section VI provides a limited 
flexibility that would be seldom used. One commenter does not believe 
that the waiver of certain LAER or offset requirements would often be 
approved, but may make sense and should be provided when there is a 
public need. The commenter opined that, in many instances, there is 
little difference between BACT and LAER. With the modeling 
demonstrations that require the use of worst-case scenarios to 
demonstrate that neither attainment nor progress towards attainment 
would be interfered with, there is little opportunity ``to evade the 
strictures of Part D.'' Another commenter believes States should be 
given the limited flexibility provided in the rule to allow new sources 
to locate in nonattainment areas without applying LAER or obtaining 
offsets if such action is reviewed by EPA and found not to interfere 
with attaining the NAAQS. They agreed that the additional safeguard of 
EPA determining that the conditions of the rule have been satisfied 
(i.e., non-interference) provides a positive safeguard to ensure areas 
meet their attainment deadlines. Another commenter found the EPA 
rationale reasonable and saw no merit to the petition for 
reconsideration.
    EPA appreciates the comments in support of the addition of 
paragraph C. These commenters have correctly identified our purpose of 
adding a requirement that EPA oversee application of Section VI in 
order to limit its usage while preserving its flexibility for those 
limited instances where its application might be justified.
    Three commenters specifically endorsed the requirement for the 
Administrator to publish in the Federal Register all approvals of 
section VI actions. The commenters said EPA's requirement for 
publication in the Federal Register ensures public awareness of the use 
of this provision as an added safeguard.
    At proposal we provided two possible outcomes for today's action. 
First, we said that should we receive compelling arguments that it was 
inappropriate for us to add the section VI.C. requirement for the 
Administrator approval, we would remove the language in question so as 
to revert the text of section VI to that which existed prior to 
November 29, 2005. The second possibility was that we would leave the 
rule language unchanged from that currently codified in the Code of 
Federal Regulations. None of the comments received made a good case for 
removing the language change from November 29, 2005 and we have elected 
to make no amendments removing that provision.

IV. STATUTORY AND EXECUTIVE ORDER REVIEWS

A. Executive Order 12866: Regulatory Planning and Review

    Under Executive Order (EO) 12866 (58 FR 51735, October 4, 1993), 
this action is a ``significant regulatory action.'' This action is 
significant because it raises novel legal or policy issues. 
Accordingly, EPA submitted this action to the Office of Management and 
Budget (OMB) for review under EO 12866 and any changes made in response 
to OMB recommendations have been documented in the docket for this 
action.

B. Paperwork Reduction Act

    The information collection requirements in this reconsideration 
notice have been submitted for approval to the Office of Management and 
Budget (OMB) under the Paperwork Reduction Act, 44 U.S.C. 3501 et seq. 
They were addressed along with those covering the Phase 1 Rule (April 
30, 2004; 69 FR 23951) and the Phase 2 Rule (November 29, 2005; 70 FR 
71612) under EPA ICR 2236.01. The information collection 
requirements are not enforceable until OMB approves them other than to 
the extent required by statute.
    This action announces EPA's final decision on reconsideration of 
several provisions of the Phase 2 Rule, namely the RACT provisions and 
selected NSR provisions. This action does not establish any new 
information

[[Page 31747]]

collection burden on States beyond what was required in the Phase 2 
Rule.
    The EPA has projected cost and hour burden for the statutory SIP 
development obligation for the Phase 2 Rule, and prepared an 
Information Collection Request (ICR). Assessments of some of the 
administrative cost categories identified as a part of the SIP for an 
8-hour standard are already conducted as a result of other provisions 
of the CAA and associated ICRs (e.g. emission inventory preparation, 
air quality monitoring program, conformity assessments, NSR, inspection 
and maintenance program).
    The burden estimates in the ICR for the Phase 2 rule are 
incremental to what is required under other provisions of the CAA and 
what would be required under a 1-hour standard. Burden means the total 
time, effort, or financial resources expended by persons to generate, 
maintain, retain, or disclose or provide information to or for a 
Federal agency. This includes the time needed to review instructions; 
develop, acquire, install, and utilize technology and systems for the 
purposes of collecting, validating, and verifying information, 
processing and maintaining information, and disclosing and providing 
information; adjust the existing ways to comply with any previously 
applicable instructions and requirements; train personnel to be able to 
respond to a collection of information; search data sources; complete 
and review the collection of information; and transmit or otherwise 
disclose the information.
    An agency may not conduct or sponsor, and a person is not required 
to respond to a collection of information unless it displays a 
currently valid OMB control number. The OMB control numbers for EPA's 
regulations in 40 CFR are listed in 40 CFR part 9. When the ICR for the 
Phase 2 rule is approved by OMB, the Agency will publish a technical 
amendment to 40 CFR part 9 in the Federal Register to display the OMB 
control number for the approved information collection requirements 
contained in this final rule. However, the failure to have an approved 
ICR for this rule does not affect the statutory obligation for the 
States to submit SIPs as required under part D of the CAA.
    The information collection requirements associated with NSR 
permitting for ozone are covered by EPA's request to renew the approval 
of the ICR for the NSR program, ICR 1230.17, which was approved by OMB 
on January 25, 2005. The information collection requirements associated 
with NSR permitting were previously covered by ICR 1230.10 and 1230.11. 
The OMB previously approved the information collection requirements 
contained in the existing NSR regulations at 40 CFR parts 51 and 52 
under the provisions of the Paperwork Reduction Act, and assigned OMB 
control number 2060-0003. A copy of the approved ICR may be obtained 
from Susan Auby, Collection Strategies Division; U.S. Environmental 
Protection Agency (2822T); 1200 Pennsylvania Ave., NW., Washington, DC 
20460 or by calling (202) 566-1672.

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 this reconsideration 
action on small entities, small entity is defined as: (1) A small 
business as defined by the Small Business Administration's (SBA) 
regulations at 13 CFR 121.201; (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 the Phase 1 and Phase 2 
Rules, we concluded that those actions did not have a significant 
economic impact on a substantial number of small entities. For those 
same reasons, I certify that this action will not have a significant 
economic impact on a substantial number of small entities. This action 
of reconsideration will not impose any requirements on small entities.
    Concerning the NSR portion of this notice of reconsideration, a 
Regulatory Flexibility Act Screening Analysis (RFASA) was developed as 
part of a 1994 draft Regulatory Impact Analysis (RIA) and incorporated 
into the September 1995 ICR renewal. This analysis showed that the 
changes to the NSR program due to the 1990 CAA Amendments would not 
have an adverse impact on small entities. This analysis encompassed the 
entire universe of applicable major sources that were likely to also be 
small businesses (approximately 50 ``small business'' major sources). 
Because the administrative burden of the NSR program is the primary 
source of the NSR program's regulatory costs, the analysis estimated a 
negligible ``cost to sales'' (regulatory cost divided by the business 
category mean revenue) ratio for this source group. The incorporation 
of the major source thresholds and offset ratios from the 1990 CAA 
Amendments in section 51.165 and appendix S for the purpose of 
implementing NSR for the 8-hour standard does not change this 
conclusion. Under section 110(a)(2)(C), all States must implement a 
preconstruction permitting program ``as necessary to assure that the 
[NAAQS] are achieved,'' regardless of the changes in the Phase 2 rule. 
Thus, small businesses continue to be subject to regulations for 
construction and modification of stationary sources, whether under 
State and local agency minor NSR programs, SIPs to implement section 
51.165, or appendix S, to ensure that the 8-hour standard is achieved.

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 to State, local, and Tribal governments, in 
the aggregate, or to the private sector, of $100 million or more in any 
one year. Before promulgating an EPA rule for which a written statement 
is needed, section 205 of the UMRA generally requires EPA to identify 
and consider a reasonable number of regulatory alternatives, and 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

[[Page 31748]]

to have meaningful and timely input in the development of EPA 
regulatory proposals with significant Federal intergovernmental 
mandates, and informing, educating, and advising small governments on 
compliance with the regulatory requirements.
    The EPA has determined that this reconsideration action 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. In promulgating the 
Phase 1 and Phase 2 Rules, we concluded that they were not subject to 
the requirements of sections 202 and 205 of the UMRA. For those same 
reasons, this notice of reconsideration and request for comment is not 
subject to the UMRA.
    The EPA has determined that this notice of reconsideration contains 
no regulatory requirements that may significantly or uniquely affect 
small governments, including Tribal governments.

E. Executive Order 13132: Federalism

    Executive Order 13132 (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 will 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. This reconsideration action 
pertains to three aspects of the Phase 2 Rule. For the same reasons 
stated in the Phase 1 and Phase 2 Rules, Executive Order 13132 does not 
apply to this action.

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

    Executive Order 13175 (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.'' This reconsideration action does not 
have ``Tribal implications'' as specified in Executive Order 13175.
    The purpose of this reconsideration action is to announce our 
decision following reconsideration of specific aspects of the Phase 2 
Rule. The CAA provides for States and Tribes to develop plans to 
regulate emissions of air pollutants within their jurisdictions. The 
Tribal Authority Rule (TAR) gives Tribes the opportunity to develop and 
implement CAA programs such as the 8-hour ozone NAAQS, but it leaves to 
the discretion of the Tribes whether to develop these programs and 
which programs, or appropriate elements of a program, they will adopt.
    For the same reasons stated in the Phase 1 and Phase 2 Rules, this 
action 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 CAA program to attain 
the 8-hour ozone NAAQS at this time. If a Tribe does implement such a 
plan, it would not impose substantial direct costs upon it. 
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 TAR establish the 
relationship of the Federal government and Tribes in developing plans 
to attain the NAAQS, and this action does nothing to modify that 
relationship. Because this action does not have Tribal implications, 
Executive Order 13175 does not apply.

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

    Executive Order 13045: ``Protection of Children from Environmental 
Health Risks and Safety Risks'' (62 FR 19885, April 23, 1997) applies 
to any rule that (1) Is determined to be ``economically significant'' 
as defined under Executive Order 12866, and (2) concerns an 
environmental health or safety risk that EPA has reason to believe may 
have disproportionate effect on children. If the regulatory action 
meets both criteria, the Agency must evaluate the 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 final rule is not subject to the Executive Order because it is 
not economically significant as defined in Executive Order 12866, and 
because the Agency does not have reason to believe the environmental 
health or safety risk addressed by this action present a 
disproportionate risk to children.

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

    This action is not a ``significant energy action'' as defined in 
Executive Order 13211, ``Actions That Significantly Affect Energy 
Supply, Distribution, or Use,'' (66 FR 28355, May 22, 2001) because it 
is not likely to have a significant adverse effect on the supply, 
distribution, or use of energy. The reconsideration action announces 
our decision following reconsideration of several aspects of the Phase 
2 Rule, for which EPA did perform an analysis of the energy impacts 
under Executive Order 13211.\18\
---------------------------------------------------------------------------

    \18\ Technical Appendix: Potential Impacts of Implementation of 
the 8-Hour Ozone NAAQS; Technical Support Document. July 21, 2005. 
Docket Document EPA-HQ-OAR-2003-0079-0860.
---------------------------------------------------------------------------

I. National Technology Transfer Advancement Act

    Section 12(d) of the National Technology Transfer Advancement Act 
of 1995 (NTTAA), Public Law No. 104-113, section 12(d) (15 U.S.C. 272 
note) directs EPA to use voluntary consensus standards (VCS) 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 VCS bodies. The NTTAA directs EPA to provide Congress, 
through OMB, explanations when the Agency decides not to use available 
and applicable VCS.
    This action does not involve technical standards. Therefore, EPA 
did not consider the use of any VCS.
    The EPA will encourage the States and Tribes to consider the use of 
such standards, where appropriate, in the development of the 
implementation plans.

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

    Executive Order 12898 (59 FR 7629 (Feb. 16, 1994)) establishes 
federal executive policy on environmental justice. Its main provisions 
direct federal agencies, to the greatest extent practicable and 
permitted by law, to make environmental justice part of their mission 
by identifying and addressing, as appropriate, disproportionately high 
and adverse human health or environmental effects of their programs,

[[Page 31749]]

policies, and activities on minority populations and low-income 
populations in the United States.
    The EPA concluded that the Phase 2 Rule does not raise any 
environmental justice issues (See 70 FR at 71695, col. 2; (November 29, 
2005)); for the same reasons, since this action concerns several 
aspects of the Phase 2 rule, this reconsideration action does not raise 
any environmental justice issues. This action will not have 
disproportionately high and adverse human health or environmental 
effects on minority or low-income populations because the 8-hour ozone 
national ambient air quality standard is designed to protect public 
health and is intended to apply equally to all portions of the 
population. In addition, this rule makes only minor changes to the 
previous Phase 2 implementation rule and these changes are intended to 
strengthen the rule, which should not disproportionately affect 
minority or low income populations. The health and environmental risks 
associated with ozone were considered in the establishment of the 8-
hour, 0.08 ppm ozone NAAQS [62 FR 38856 (July 18, 1997)]. The level is 
designed to be protective with an adequate margin of safety. The Phase 
2 Rule provides a framework for improving environmental quality and 
reducing health risks for areas that may be designated nonattainment.

K. Congressional Review Act

    The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the 
Small Business Regulatory Enforcement Fairness Act of 1996, generally 
provides that before a rule may take effect, the agency promulgating 
the rule must submit a rule report, which includes a copy of the rule, 
to each House of the Congress and to the Comptroller General of the 
United States. EPA will submit a report containing this reconsideration 
action and other required information to the U.S. Senate, the U.S. 
House of Representatives, and the Comptroller General of the United 
States prior to publication of the reconsideration action in the 
Federal Register. A Major rule cannot take effect until 60 days after 
it is published in the Federal Register. This action is not a ``major 
rule'' as defined by 5 U.S.C. 804(2). This action will be effective 
July 9, 2007.

L. Judicial Review

    Section 307(b)(1) of the CAA indicates which Federal Courts of 
Appeal have venue for petitions of review of final actions by EPA. This 
section provides, in part, that petitions for review must be filed in 
the Court of Appeals for the District of Columbia Circuit if (i) the 
agency action consists of ``nationally applicable regulations 
promulgated, or final action taken, by the Administrator,'' or (ii) 
such action is locally or regionally applicable, if ``such action is 
based on a determination of nationwide scope or effect and if in taking 
such action the Administrator finds and publishes that such action is 
based on such a determination.''
    Final actions described in this Final Action on Reconsideration are 
``nationally applicable'' within the meaning of section 307(b)(1). This 
action explains the final actions EPA is taking on the petitions for 
reconsideration of several aspects of the Phase 2 rule. EPA has 
determined that all of these actions are of nationwide scope and effect 
for purposes of section 307(d)(1) because these actions clarify the 
obligations of all states with respect to the nationwide implementation 
of the 8-hour ozone NAAQS and concern the basic program elements of 
nonattainment new source review SIPs. Thus, any petitions for review of 
the final action described in this Notice must be filed in the Court of 
Appeals for the district of Columbia Circuit within 60 days from the 
date this Notice is published in the Federal Register.

List of Subjects in 40 CFR Part 51

    Environmental protection, Air pollution control, Carbon monoxide, 
Lead, Nitrogen dioxide, Ozone, Particulate matter, Sulfur oxides.

    Dated: May 31, 2007.
Stephen L. Johnson,
Administrator.

0
For the reasons stated in the preamble, title 40, chapter I of the Code 
of Federal Regulations is amended as follows:

PART 51--REQUIREMENTS FOR PREPARATION, ADOPTION, AND SUBMITTAL OF 
IMPLEMENTATION PLANS

0
1. The authority citation for part 51 continues to read as follows:

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

Subpart X--[Amended]

0
2. Section 51.912 is amended by revising paragraph (a)(2) to read as 
follows:


Sec.  51.912  What requirements apply for reasonably available control 
technology (RACT) and reasonably available control measures (RACM) 
under the 8-hour NAAQS?

    (a) * * * * *
    (2) The State shall submit the RACT SIP for each area no later than 
27 months after designation for the 8-hour ozone NAAQS, except that for 
a State subject to the requirements of the Clean Air Interstate Rule, 
the State shall submit NOX RACT SIPs for electrical 
generating units (EGUs) no later than the date by which the area's 
attainment demonstration is due (prior to any reclassification under 
section 181(b)(3)) for the 8-hour ozone national ambient air quality 
standard, or July 9, 2007, whichever comes later.
* * * * *
[FR Doc. E7-11113 Filed 6-7-07; 8:45 am]

BILLING CODE 6560-50-P
