CAIR Replacement Rule

Discussions between OTC and EPA

March 18, 2009

I.  Introduction

	On Wednesday, March 18, 2009, EPA held a call with the Ozone Transport
Commission (OTC) to discuss the CAIR replacement rule.  See Appendix A
for a list of the participants in the call.  The notes that follow are a
detailed summary of the call.

II.  EPA Opening Comments

	Sam Napolitano, CAMD, opened the call by thanking the OTC directors and
staff.  He said that EPA sees this call as the beginning of a dialogue
with the states, regional groups, and other key stakeholders.  EPA had a
very productive conversation with LADCO on Monday (March 16) and heard a
number of good suggestions about how to move forward.  The Agency sees
this call as the start of a similar dialogue with OTC about the
different elements that should be included in a replacement CAIR rule. 
As part of the dialogue effort, EPA has pulled together the staff who
will actually write the rule, develop technical analyses, and perform
modeling.  The Agency hopes to complete the rule in the next couple of
years.  CAIR will remain in effect as a new rule is being developed.

	EPA has a topic guide to work from that is aimed at helping to organize
the discussion.  The purpose of this call is to gather different ideas
and thoughts to present to the new Assistant Administrator for Air (AA).
 This first series of teleconferences will include calls with states and
other stakeholders, including LADCO, NACAA, the southern states, Texas,
industry representatives, and environmental groups.  When this series
has concluded, EPA will meet with states to report what EPA has heard
from all of the groups.  This will provide a way for the states to
react, and to continue the general dialogue.  The Agency hopes to get
back to the states around April 20th.

	EPA is still waiting for the new AA, but staff have heard positive
things about the likely AA and expect her to arrive soon.  The staff
will discuss the input from these conversations with the AA to give her
a sense of the analytical and technical work that has been completed.

	The upcoming meeting in June might be a good time for interaction
between state and EPA personnel.  Also, the staff might have a better
sense at that time of how the AA wants to move on a replacement CAIR
rule.  During the process, EPA will be sure to include states on any key
issues that arise.



	At the moment EPA has many options to present to the new AA for
direction.  The political management structure is not yet fully in
place.  Thus, the Agency has not decided on how to address many of the
difficult issues.  However, this does afford an opportunity for the
Agency to listen to all stakeholder viewpoints and consider new
approaches to meeting air quality standards.  There are many current
programs and requirements, such as MACT, BART, and regional haze that
will affect the replacement rule.  However, it is unclear at this time
whether changes in those programs will have an effect on the replacement
CAIR program.

	EPA is interested in including industrial boilers, and will be
discussing ICI boilers with CIBO.  Although their inclusion is not
certain, these boilers are definitely on the table for consideration.

	EPA has received OTC's letter and understands the detailed work OTC is
doing.  The Agency looks forward to the results of that work being
presented through the State Collaborative in the near future.  

III.  OTC Opening Comments

	Anna Garcia, Executive Director of the OTC, said that OTC was very
interested in many of the issues on EPA's topic list.  It should not
surprise EPA that baseline, significant contribution, timing, trading,
and coverage are all issues the Commission and its member states have
been discussing.  By May or June, OTC hopes to be able to share with EPA
some of the technical work the Commission has completed.  

	OTC shared the letter it and LADCO sent to EPA outlining the emission
limits that the Commission thought would be required.  The letter has
been made public and was also shared with industry.  OTC expects to hear
reactions soon, and it has cost information and a preliminary technical
support document, both of which will be shared with EPA once they are
finalized. 

	OTC is updating its information on electric utility controls and
emissions.  The Commission hopes to perform detailed analysis in an
effort to see the full range of reductions that would be possible, and
at what price.  

	Trading remains an issue of concern to OTC members, who are interested
in how EPA will approach the policy and the court decision.  OTC has
seen cost benefits in most of its analyses, but there are concerns about
whether allowing trading will really solve transport issues.  

IV.  OTC Discussion

1.  Timing

	Tad Aburn, MDE, noted that states are particularly concerned with
whether the CAIR replacement rule process would line up with the process
that states have to go through to meet attainment deadlines.  It is
important to get the reductions by the attainment dates, if not three
years beforehand, because states have to work within those dates.  The
big challenge is to make sure a replacement program happens quickly.  

	Sam Napolitano, asked what years the states were considering.  Tad
replied that states were looking to have controls in place for 2013,
2014, and 2015 because they are anticipating that they will have to meet
attainment in 2016.  

	Bill O'Sullivan, NJ DEP, suggested that performance standards would
need to be considered in order to adequately address the court's
concerns with the current CAIR rule.  Because it will probably take
longer than that timeframe to fully implement the performance standards,
trading should be used as a way to encourage earlier deeper reductions
from units that can reduce cheaply and quickly.  He suggested that the
phases of a replacement plan should coincide with attainment dates.  It
is important to pick performance standards that are not too high or too
low, and to then allow trading to encourage reductions beyond the
standard.  

2.  Performance Standards

	Sam Napolitano asked Bill O'Sullivan to define what performance
standards he foresaw by pollutant and program.  Bill replied that EPA
would have to look at the different state programs, but that there
should be performance standards for all three pollutants, and even
tighter trading schemes for SO2 and NOx.

	Sam asked Bill what he would base the standards on.  Bill replied that
he would use RACT, which, while taking cost into account, does not
require that controls are at the cheapest cost available.  He suggested
that the original CAIR had paid too much attention to cost, and that EPA
should look at what the Agency had used for RACT and retrofit BACT.

	Ali Mirzakhalili, DNREC, suggested that EPA should look at anything
above 25 MW for these performance standards, with 24-hour average limits
set at around 0.26 pounds per mmBtu for SO2 and 0.125 pounds per mmBtu
for NOx.  He thought those limits could be met with retrofit and hybrid
controls.  He also noted that because small units were able to meet
those requirements, large units should have an even easier time. 

	Ali also agreed that timing is critical.  He noted that plenty of work
has been done, much of the groundwork has been laid, and he suggested
that EPA could move faster than the two-year time frame to develop and
promulgate a rule.  If the Agency cannot move faster, he urged it to
stick to the timeline and put the rule development in high gear.  

	Sam acknowledged that EPA understood the states' concerns, but that two
years is a very fast schedule for EPA.  How to define "significant
contribution" certainly is one factor that will lengthen the rule
development process because EPA is still trying to figure out exactly
what significant contribution is and how it compares to a base year. 
EPA also is working hard to get the inventories set up so they can
perform the modeling that is needed to fully understand and demonstrate
the elimination of significant contribution as required by section
110(a)(2)(D).  The Agency would welcome any state help with either
inventories or modeling.  

	Tad Aburn suggested that one option for a CAIR replacement would be to
disconnect it as a complete solution for  section 110(a)(2)(D).  EPA
could classify the new rule as another national rule that helps solve
transport, but disconnect it from the section 110(a)(2)(D)
demonstration.  He has never believed that section 110(a)(2)(D) could be
solved by looking at a single sector.  

	Tim Smith, OAQPS, replied that under the section 110 findings of
failure, EPA was now under FIP obligations to address section
110(a)(2)(D) transport issues.  Therefore, the Agency is concerned about
whether it has the flexibility to solve the section 110 findings of
failure through another program.  At the same time, the Agency is very
sensitive to timing because it is already late, which means that EPA
potentially could be sued and put on a schedule for rule completion.  

	Tad pointed out that if EPA could disconnect the replacement rule from
the obligation o f fully satisfying section 110(a)(2)(D), the Agency
might face fewer legal challenges, which would clearly make the whole
process easier and possibly faster.  Section 110(a)(2)(D) is not simply
satisfied by passing a CAIR-type rule, and he would like to continue
exploring the idea of disconnecting the replacement rule from the 110
finding.  EPA noted that it welcomes ideas for fresh thinking and would
like to hear more from the states about this issue.

3.  Baseline

	Susan Wierman, MARAMA, said that she does not understand how EPA could
use future year emission projections, which may or may not happen, as
the baseline for determining a significant contribution.  Based on the
meeting agenda distributed before the call, it appears that EPA is still
considering this approach, but she indicated that she does not think it
makes sense as a concept.  If EPA projects forward, the Agency cannot
know where the emissions will come from in the future because new
sources are created and old ones shut down.  Also, the Agency cannot
predict where emissions will occur under a trading program as allowances
can move between states.  She concluded that she thought EPA would have
to look at existing emissions that everyone knows have occurred.  

	Sam Napolitano replied that using the 2010 baseline was one of the few
concepts EPA won in the court case.  The Agency chose to use a future
year baseline because it wanted to be able to take into account future
reductions from settlement agreements and mobile source controls, as
well as from other programs such as RACT.  EPA is considering
approaching the CAIR replacement rule baseline in a similar manner
because an accurate projection of future emissions would require taking
into account rules that EPA knows will have a quantifiable impact on
emissions.  Furthermore, inventories are works in progress; thus, some
level of uncertainty is unavoidable.  He added, however, that EPA would
still welcome other ideas on this subject.

	In response, other participants noted that EPA also won on the issue of
what year the rule would take effect, as well as on some aspects of
significant contribution.  Tim Smith explained that for EPA the big
issue in the July 11, 2008 court decision was the determination that EPA
had not come up with a rule that guaranteed to eliminate the significant
contribution from each state.  The court held that EPA had neither
adequately quantified each state's significant contribution nor provided
a remedy to eliminate the significant contribution which had been
identified.  The court did accept EPA's thresholds for consideration of
geographical areas and its choice of a baseline year. 

	Susan suggested that in order to understand significant contribution
EPA would be required to use current year emissions data rather than
projecting what the Agency thinks emissions will be at some point in the
future and using those data to create the baseline for the programs.  In
response to Sam asking for further explanation of her rationale, Susan
replied that states would have to comment on which specific years should
be used, but as a general principle she thought using a year that is
known would be better than a technique that not everyone understands.   

	Rob Sliwinski, NYSDEC, agreed with Susan, noting that the emissions
causing the attainment problems are current emissions.  Thus, it makes
the most sense to use actual data for the baseline rather than something
based on conjecture and future forecasts.  EPA should focus on
eliminating the emissions that people know are actually causing or
contributing to non-attainment.  Susan added that she thought it might
make sense to take into account future controls for mobile sources. 
However, because EPA knows what the emissions from EGUs are, it should
rely on current year quality-assured data.

	Tim Smith said that EPA is considering what baseline to use, and he
thanked everyone for their input.  Potential legal challenges may impact
any final decision, and it will be important to look also at the
criticism that might be leveled at the Agency if data from a current
year were used for the baseline.  Tim noted two areas of concern.  The
first concern is that there are definitive settlements in place which
EPA knows will have a quantifiable effect on emissions.  The second
concern involves the SO2 bank, which could play a large role depending
on the overall direction of a replacement rule and where allowance
prices end up.  A no-CAIR-baseline would have to take into account the
possibility of an increase in emissions due to banked allowances.  These
are two major issues for EPA when considering what year to use for the
baseline.  

	Sam then asked Susan whether the 2008 inventories were ready to be used
for creating a baseline.  Susan replied that 2008 was not yet completed.
 Sam responded that even with the current year's data forecasting would
be required.  Susan replied that there was a one-year lag; thus, 2007
data are available and quality-assured.  However, she added, even with
2007 data there are issues with some of the modeling inventory data. 
Another participant noted that states just received a request from EPA
to see what controls are in place on EGUs and that there are some issues
with the inventories that were submitted.  States are currently trying
to correct the data in the inventory that was circulated.

	Susan suggested that EPA use the 2007 data to generate the baseline
because those are the data states are using for the next round of
modeling.  States would be willing to work with EPA to fix any issues
with the data so as to ensure the Agency and the states agree on the
baseline.  There will be concerns in any year about future settlements
and other programs that are coming on line.  Those programs and
settlements could be considered in the remedy rather than the baseline. 


	Susan then noted that industry had raised the bank issue in recent
meetings with the states, noting that if CAIR were in place for only a
short period of time most sources would use up some of the banked
allowances rather than put on further controls.  Sam agreed this was a
likely scenario and noted that EPA was left by the Court with the
shortened version of CAIR from the options EPA had analyzed last fall. 
The decision allowed CAIR to stay in place, but only while EPA develops
a replacement rule.  

	Chris Salmi, NJ DEP, urged EPA to use the available information and
move forward quickly.  It is critical not to wait longer for more data
because states have people breathing bad air, suffering health effects,
and even dying.  He stressed the importance of moving swiftly and
decisively.  

	Bill O'Sullivan strongly agreed with Chris.  He also agreed with Susan
that banking was something to be addressed in the remedy not the
baseline.  The baseline should be built on data that have been monitored
and quality-assured rather than on future year projections.  The same
applies to concerns about future year settlements, which should be
addressed in the remedy.  The baseline should account for the situation
as it exists in the most current data.  

	Tim replied that EPA will consider all the comments about the baseline
and will move as quickly as possible.  However, one of the biggest
concerns remains legal risk.  The Agency wants to be sure that any
replacement rule will fully satisfy the courts because no matter how the
rule is constructed, litigation is expected.  

4.  Scope of the Replacement Rule

	Ali Mirzakhalili suggested that EPA not try to do too much with the
replacement rule.  He thought one of the weaknesses with the last CAIR
rule was that it tried to address contribution through a cap and trade
program married to the Acid Rain Program.  EPA would not have to deal
with the bank if the Agency did not allow trading.  Also, if EPA were to
leave out provisions claiming that the rule fixes contribution then it
would not be required to demonstrate the elimination of significant
contribution.  

	Anne Gobin, CT DEP, thought that EPA should bifurcate the rule process
and get the deepest and quickest reductions possible because people have
unhealthy air, and states have to meet these attainment levels.  The
rule does not have to be perfect and does not have to fix everything in
one step.  She agreed with Ali that taking on too much with a
replacement rule would open it to a high level of litigation risk.  

	Sam Napolitano acknowledged that EPA understood and heard the states'
desire to move quickly.  Two years is a very fast time frame for EPA,
and the Agency intends to move with all deliberate speed.  However, as
others have pointed out, one of the primary concerns is making sure the
rule is legally defensible.  

	Tim Smith said one of the core issues EPA needs to resolve is
determining the purpose of the CAIR replacement rule.  What is the rule
trying to accomplish?  

	Tad Aburn said that he believes the key to a new rule would be
separating out section 110(a)(2)(D).  Although EPA tried to make section
110(a)(2)(D) only about EGUs in the original CAIR, he believes it covers
cars and other sources.  Clearly, section 110(a)(2)(D) is something EPA
needs to deal with, but disconnecting it from a CAIR replacement rule
might be best.  It appears that EPA is mostly concerned with section
110(a)(2)(D), while states are mostly concerned with getting controls in
place as fast as possible.  

	Sara Schneeberg, OGC, replied that it might be possible legally to
replace CAIR with a rule that does not rely on section 110(a)(2)(D) and
to deal with the section 110 requirements through a FIP, but that would
require significant work.  State participants generally agreed but said
they believed that EPA might be able to move faster by disconnecting
from section 110(a)(2)(D). 

	One state participant asked how EPA thought section 110(a)(2)(D) would
be addressed by looking only at the power sector, suggesting that the
Agency would have to look at other sectors.  EPA replied that it does
not have an answer as to whether section 110(a)(2)(D) requirements can
be met by controlling the power sector only, and that the Agency is open
to looking at additional sectors.  The state participant then suggested
that it depends on how significant contribution is defined and what
categories EPA defines as contributing.  All source categories should be
considered, and reasonable screening criteria are needed to determine
which sources are actually playing a role in significant contribution. 
Section 110(a)(2)(D) is not solved by just going after EGUs. 
Furthermore, seasonal or annual programs do not necessarily solve the
transport issue.  

	Sam mentioned that detaching the replacement program from the section
110(a)(2)(D) finding might bring up authority issues.  The court clearly
instructed EPA to be sure the Agency based the replacement rule on clear
legislative authority.  EPA is uncertain where that authority would come
from, except from section 110(a)(2)(D).  The Agency is interested in the
idea of bifurcation, but it is concerned about the legal foundation. 

	Andy Bodnarik, NH DES, said that one thing the court made clear is that
EPA must quantify each state's contribution, as well as each state's
contribution to other states.  Quantifying those contributions is not
something that can be addressed without taking all sectors into account,
along with all the state-specific requirements for those sectors.  He
also suggested that intrastate trading might provide flexibility. 

	A participant from NJ DEP raised concerns about getting out of the
significant contribution classification once a state had been determined
to contribute to another state.  For instance, one way to determine if a
significant contribution has been addressed would be to look at the
contributing state's rules and determine if the receiving state had at
least as stringent controls as the contributing state.  If both states
have equally stringent rules, then the contribution might be considered
satisfied, for example.  

5.  Trading

	Sam Napolitano noted that trading had not appeared to be a legal issue
for most states, and that only North Carolina had brought up legal
concerns with trading.  Other states had concerns about stringency and
how many allowances were given out, but most states did not oppose the
concept of trading.  However, one of the most significant choices EPA
must make in a replacement rule is between direct control and trading. 
EPA is considering direct control, but "significant contribution" issues
remain even if EPA were to choose a direct control (e.g., performance
standard) approach.  Direct control still leaves the same problem of
trying to identify what parts of contribution are significant and then
demonstrating that the remedy eliminates that quantified significant
contribution. 

	Susan Wierman indicated that the idea that only North Carolina had an
issue with trading might be too narrow.  Other states, such as New
Jersey, Maryland, and Delaware, adopted state-specific rules that
limited trading by requiring EGUs to put on controls and by curtailing
their ability to buy or sell allowances.  Although states did not argue
against trading on legal grounds in CAIR litigation, they clearly had
policy concerns.  Sam agreed that some states had added local controls
which the CAIR program allowed.  In those states direct control exists
with the ability for facilities also to trade.  Originally, when he said
that only North Carolina had a problem with trading he was speaking in
the legal context regarding states that made a legal challenge.  

	Susan noted that some states were concerned that transport issues could
not be solved by trading.  She suggested that if an area in a state were
contributing to non-attainment in another state, that area should itself
be considered in non-attainment.  There are clearly political
ramifications to such a determination.  This concept has been discussed
by OTC but has not necessarily been supported by other states.  However,
she did think there was legal authority to move forward with something
other than CAIR. 

	Tim Smith raised concerns about how a strictly performance-based system
can have a lowest common denominator effect.  With command and control,
sources control only down to the required level, even if they might
easily and cheaply control more emissions.  Trading adds an economic
incentive to reduce immediately and beyond the required level so sources
can sell or bank allowances.  One idea EPA is considering is to
establish minimum standards and allow any source that reduces below
those to participate in trading.  

	Ali Mirzakhalili agreed that trading should be used to encourage
additional reductions beyond the standard.  He supports using a
performance standard and allowing trading to help eliminate the lowest
common denominator problem.  

	Another state participant pointed out that regardless of trading, the
key point of the North Carolina case was that EPA needs to eliminate
significant contribution. 

6.  Sectors to Include

	Barbara Kwetz, Massachusetts DEP, said that she believed a replacement
program would have to look at more than just utilities.  Massachusetts
gets the most response in modeling from the on-road sector.  She was
unsure if EPA had the authority to look at on-road through significant
contribution, but that the on-road sector plays a large role in their
modeling.  

	Barbara also said that she believed EPA needed to build efficiency
factors into the consideration of EGUs.  States were concerned with how
the allowances were distributed between the states last time.  She
thought the new AA would support considering efficiency.  

	Sam Napolitano replied that it seemed that Barbara was suggesting that
EPA needed to look at more than EGUs.  Was she considering cars?  Or
more broadly, what other sectors do the states think EPA should look at?
 Barbara replied that she was just reporting on what the modeling was
demonstrating.  She supports bifurcating and dealing with significant
contribution in a separate rulemaking because far more than just
utilities are involved in transport.  

	Jeff Crawford, ME DEP, suggested that it is important timing-wise and
depth-wise to consider other programs that will affect mobile emissions.
 He thinks it might be better not to tie mobile sources directly into a
CAIR replacement rule, but he also said that mobile sources should not
be taken out of consideration.  He also thinks that the new rule would
need to include more than EGUs, most likely large stationary sources. 
Large stationary sources were originally considered under CAIR, but in
the end were not included because there was not enough information. 
Jeff believes the data have progressed to a point where EPA could
justify including the large stationary sources.  When asked if he was
referring to new information on ICI boilers, he replied yes, in part,
and that there was other new information that also supported inclusion
of large stationary sources.  

	Andy Bodnarik reiterated the idea of bifurcation, suggesting that EPA
create one program to deal with transportation and another that
addresses CAIR-like programs that use a combination of performance
standards and trading.  Mobile sources should be included as one of many
sectors in the rule addressing transportation.  

	Chris Salmi also believes that EPA should separate out section
110(a)(2)(D) and develop a comprehensive plan to address transportation.
 Such a plan could involve multiple smaller rules that combine to
control transportation across numerous sectors, allowing EPA to achieve
the objective in a timely fashion that the states believe is important. 
Sam thanked Chris for the suggestion and said that EPA would consider
it. 

7.  1997 versus 2006 NAAQS

	Bill Harnett noted that the 2007 deadline had passed for the FIP
required by the section 110(a)(2)(D) finding made in 2005 for the 1997
standards.  He also noted that the group had not even begun to talk
about the 2006 standards for PM and ozone and wondered how the states
foresaw these standards being addressed.

	The 2006 standards must be met in September 2009, so this is an
immediate issue for the states.  Would the states rather have EPA wait
and see if the states can meet the standards, or should EPA proceed with
creating the FIP?  Basically, should EPA consider the newer standards?

	States replied that it would depend on what type of FIP EPA intended to
create.  It was also noted that timing is difficult because the dates
are upcoming but not yet arrived.  It is hard to address a standard that
states are not yet officially failing, especially when standards exist
that are supposed to have been met, but were not in fact met.  However,
it is also true that the compliance date for the 2006 standards is fast
approaching.  

	One participant noted that the EPA Administrator has acknowledged in
publications that EPA had not fulfilled the section 110(a)(2)(D)
requirements over the past eight years and would have to do better. 
Thus, it seems as though EPA should admit that the approach to section
110(a)(2)(D) did not work, lay out a new plan for how to address
transport, and provide an indication of the role a CAIR replacement rule
will play in helping reduce future transport.  

V.  EPA Discussion

	Sam Napolitano noted that the group had addressed each of the three
topic areas on the agenda in a largely unstructured fashion, and asked
whether there were any more discussion on the baseline. 

1.  Baseline

	Andy Bodnarik raised the legal problem that EPA must confront in trying
to create a new rule.  The more assumptions EPA tacks onto the rule, the
harder it is to get the rule promulgated.  Last time there were
assumptions regarding BART, MACT, and RACT which he felt might endanger
the rule in the future. 

	EPA asked if he meant that the new rule should satisfy the BART, MACT,
and RACT requirements.  Andy responded that he did not mean this, but
that if the future rule attempted to satisfy all those requirements it
would face potential legal challenges because those requirements are
moving targets.  

	EPA acknowledged this point and said that in terms of the baseline
question the Agency is trying to understand what consideration, if any,
it should give to the reductions those programs will achieve when
creating the new baseline.  

	The states responded that in general they were in favor of using actual
emissions data to generate the baseline rather than using projected
reductions.  The states believe 2007 is the best year meteorologically
and the one for which states have good data.  Furthermore, 2007 is the
year the states are using to create their inventories for the next round
of SIPs.  States would like to work with EPA on these data to be sure
everyone has a complete inventory that is based on real, monitored data.
 

2.  Significant Contribution

	Sam Napolitano then moved the discussion to significant contribution. 
Clearly the states understand that significant contribution is a big
issue that EPA must be sure to adequately address.  EPA heard the
states' suggestion for disconnecting from section 110(a)(2)(D), which is
a good idea and will be considered.  Do the states have any further
comments or suggestions about how to deal with significant contribution?
 

	One participant replied that she had read the rules and the
methodologies and was still confused about how EPA arrived at the
significant contribution levels used in the original CAIR.  She said
that she understands the levels, but not the methodology used to
determine them.  She asked if EPA would be reviewing these
methodologies, and wondered what universe of factors EPA generally
considered when determining significant contribution or performing
related modeling.  

	Sam explained that there were two elements involved in a significant
contribution determination.  The first was a numeric metric used to
define which geographical areas should be in CAIR.  The court agreed
with EPA's process in terms of identifying the areas that should be
included.  The second element was the remedy; here sources were required
to put on highly cost-effective controls.  If cost-effective controls
were put in place, the unit was determined to have met its CAIR
obligations.  By definition, complying with CAIR also meant the unit was
in compliance with section 110(a)(2)(D) requirements. 

	States noted that the second section was what the court struck down. 
Cost can be considered as part of the control strategy, but EPA said
that if the cost were reasonable then the controls met the requirements.
 It was suggested that the court thought EPA had put the priorities in
the wrong order.  EPA agreed that clearly the court had found the old
method unacceptable, but the Agency was less certain about what the
court would find acceptable, which is part of what is driving the
solicitation of new ideas.

	Barbara Kwetz suggested that significant contribution was a scientific
test which requires EPA to figure out and define the linkage between one
state's emissions and exactly what part of those emissions are
significantly contributing to non-attainment in a different state. 
Cost-effectiveness arises when looking at a remedy.  Sam agreed that
this was one way to approach significant contribution. 

	Barbara agreed that the court upheld the geographic metrics, but
thought that in order to meet the standards the metrics might have to be
lowered to include more areas.  However, once that significant
contribution is identified it must be removed; cost-effectiveness only
comes into consideration when choosing between the different strategies
that will eliminate significant contribution.  Cost-effectiveness alone
does not eliminate significant contribution.  

	Tim Smith noted that EPA needed to develop some method of measuring the
actual amount of significant contribution, not just whether an area did
indeed significantly contribute.  The court specifically held that under
section 110(a)(2)(D) EPA needed to identify the significant
contribution, and then eliminate what was identified.  In the original
CAIR, the court found that EPA had neither identified nor eliminated the
significant contribution.  

	Ali Mirzakhalili added that the geographic threshold of 0.2 that the
court agreed EPA had done correctly was based on a standard which is up
for review and will mostly like be revised.  However, another
participant noted that the court had sent only the annual standard back
to EPA for review.  It is impossible to prejudge what will happen during
the review because the court asked EPA to justify only the level at
which the annual standard was set.  Therefore, it is not certain that
the standard will change.  Ali agreed with this but noted that the ozone
NAAQS had already been lowered from 80 ppb to 75 ppb.  He suggested that
because the standard is more stringent, the thresholds for significant
contribution should be tightened as well.  

	Some states noted that section 110(a)(2)(D) requires SIPs to contain
adequate measures to deal with transport.  They suggested that the
difference between individual states' controls should be taken into
account when determining significant contribution.  This would level the
playing field and ensure that those states which already have
significant levels of control are given credit for those reductions.  

	As a participant from NJ DEP had noted earlier, as part of the review
it would be important to determine whether the receiving state has rules
at least as stringent as those of the contributing state.  

	The states have always been slightly confused about the way EPA makes
significant contribution determinations.  It was suggested that if an
upwind state does not have a SIP measure that provides a non-zero
benefit to the downwind area, the downwind area already has those types
of controls in the SIP, and the downwind state's controls are
cost-effective, then no matter how small the contribution is from the
upwind state, it should be considered significant.  The suggestion was
that EPA might look at using the SIP measures as the driver for section
110(a)(2)(D).

	Sam explained that EPA has always been concerned about industry
litigation risk.  The Agency has always tried to select levels that
industry would have difficulty arguing were not significant. 
Furthermore, requiring a 0.2 microgram reduction through a SIP requires
significant effort.  The entire CAIR program on average removed 1
microgram.  

	Tim asked the larger question of whether in determining what different
states need to do to meet section 110(a)(2)(D) requirements EPA should
look at significant contribution strictly through a level playing field
paradigm, or should it also weigh which states contribute more?  

	One state participant replied that the assumption is that states that
contribute more would have to control more.  Susan Wierman raised the
fact that states, specifically those in the Northeast, are smaller, and
that non-attainment areas overlap state boundaries.  For instance, the
District of Columbia non-attainment area includes three to four states. 
It would seem that if there is an approvable SIP for that non-attainment
area then the SIP itself is a demonstration that each of the states have
done what is required to address transport to the states in that
non-attainment area.  Using the SIPs as a significant contribution
metric would allow EPA to move away from a metric based on standards
which change over time.  

	Leah Weiss, NESCAUM, noted that all of the modeling numbers are based
on an average summer day.  However, many areas are affected by peak
emissions, which need to be considered because those emissions often
overwhelm an area and cause ozone non-attainment.  Tim asked whether the
states believe that the peak issue is linked to transport.  Jeff
Crawford responded that Maine has experienced high ozone levels between
2 a.m. and 3 a.m., which clearly points to a transport problem.

	EPA noted that its modeling has historically been aimed at a peak.  The
Agency would take an episode period, work through it, and think about
significant contribution relative to the peak.  EPA then asked if the
peak emission issue involved peaker plants coming on line during high
demand days, as those plants are often smaller and dirtier than usual. 
One participant suggested that EPA had not looked at the issue in that
light before.  Leah noted generally that the manner in which modeling is
performed may contribute to some difficulties in this area.  

	Tad Aburn asked if the section 110(a)(2)(D) demonstration was the
responsibility of the upwind area.  EPA said that it is the states'
responsibility to demonstrate compliance through the SIPs with section
110(a)(2)(D), and that the finding of failure to demonstrate section 110
compliance is what triggered this whole process. 

	Tad asked if EPA might be able to provide more guidance to the states
on how to meet the section 110(a)(2)(D) requirements and what that
demonstration would require.  Bill Harnett agreed that guidance might be
useful.  Especially as the section 110 transport requirements will
continue to be an issue in the eastern U.S.  In any demonstration there
would have to be both a modeling and a control component.  EPA expressed
an interest in knowing which elements of the demonstration, such as
state and regional modeling, have already been developed through the RPO
process.  

	OTC asked about EPA's review process for determining section
110(a)(2)(D) compliance.  OTC said it also would be interested in
additional guidance from EPA on how to meet those requirements.  EPA
responded that most states do not submit anything on this issue.  This
means, of course, that the state automatically falls under the FIP. 
There was some discussion about the complexity of the demonstrations,
and it was suggested that in many ways the technical aspects of a
demonstration might be beyond the resources of states and that the SIP
process might not really be appropriate.  However, EPA understands the
concerns and will look into issuing more guidance. 

	David Wackter, CT DEP, indicated that he thought that addressing
significant contribution would require sector-by-sector modeling.  This
would allow EPA to define what part of the significant contribution
comes from EGUs and create a rule to deal with that specific part of the
significant contribution.  EPA would also be able to see what portion of
significant contribution came from mobile sources, point sources, and
area sources.  He added that he believes the modeling would show that
sources other than EGUs are playing a large role in contribution, which
would mean that reductions might be required from those other sources. 
He reiterated support for bifurcating the process.

	Sam acknowledged the suggestions and said that EPA would consider the
bifurcation ideas.  He then asked if the states had any more thoughts on
the remedy.

3.  Remedy

	Chris Salmi suggested that there are a number of area source categories
where national rules make more sense.  For instance, paint products, ICI
boilers, and many others.  Another participant noted that OTC was
re-examining area source rules and going back to the VOC rules
concerning consumer products.  The Commission is very interested in
working with EPA on new national rules controlling emissions from
sources other than EGUs, and  would be happy to share with EPA the work
done so far. 

	Bill Harnett noted that there appeared to be two different remedies to
address transport that states would like to see implemented.  The first
would be to look at area sources for contribution and set a level of
control that sources would be required to achieve for area sources per
state.  EPA could recommend to the state how to achieve those control
levels and what types of controls EPA believed would be cost-effective. 
However, it would be up to the state to meet the requirements.  A second
remedy would deal with national rules covering other sources, such as
future consumer products.  

	One participant suggested EPA use thresholds for other sources and
allow the states to decide how to meet the thresholds. 

	EPA indicated that it understands that the states are very interested
in getting a program in place as quickly as possible.  The Agency
understands that states want EPA to do whatever is possible with EGUs
and large stationary sources under the revised CAIR, and then to
consider separate programs to control other types of sources.

	Andy Bodnarik noted that some states already have area rules that cover
manufacturing and deal with more than just paints and coatings. 
Therefore, he believes states might support national standards that fit
into pre-existing rules.  For example, California dealt with some area
sources, such as water heaters, by adopting a manufacturing standard. 
There are clearly products other than VOC emitters that are contributing
to the overall emissions in large amounts.  

	Sam Napolitano asked if Andy was referring to building codes.  Andy
replied that he was thinking more along the lines of how EPA controlled
wood stoves.  Sam asked if he thought this would be regulated under
NSPS.  Andy said it could operate in a similar manner, depending on the
source.  For example, under the wood stove program, EPA set up a test
lab, and manufacturers either passed or failed.  Andy suggested EPA
could do with other sources the same as California did with water
heaters.  

	Bill Harnett agreed that using an approach similar to wood stoves for
other area sources would be one option.  However, Peter Tsirigotis,
OAQPS, might raise concerns with resources as his division can barely
keep up with current programs and litigation on MACT and residual risk. 
Standards have to be reviewed, and the group is reviewing about 80 rules
every two years.  In addition, the sheer volume of court-ordered work at
this time makes it difficult to look ahead.  Although it strains EPA's
resources, the Agency is required to comply with court orders.  Bill
said he would raise the issue with Peter, but wanted the states to bear
the resource situation in mind.  

4.  Coverage and Timing

	Sam Napolitano moved the discussion to coverage and timing, stating
that EPA understands that the states believe the program is late and
that they are pushing for fast action.  From this conversation he
understands that the states would like EPA to deal with the 2006 and
2008 revised NAAQS for ozone and particulates, as well as the 1997
standards.

	The states confirmed that a CAIR replacement rule on EGUs should
consider all three standards.  Using the 2006 and 2008 standards means
that EPA will have to define transport within the framework of these
newer, more stringent standards.  However, put simply, the states are
interested in the deepest and fastest emission reductions EPA can
achieve.  If combining source categories is necessary and will delay the
rule, states understand why EPA may have to take that path, but the
states encouraged the Agency to determine how to get some immediate
reductions.  

	Sam replied that EPA would be best able to look at utilities and
possibly large industrial boilers because other source categories have
not been focused on in recent years.  EPA will have to build up data and
research policy options concerning area and other sources.  EPA believes
utilities and large industrial boilers will be the easiest to get quick
reductions from because so much work has already been done with these
sources.  

VI.  Conclusion

	Sam Napolitano noted that the 2005–2008 data indicate that even with
the shortened CAIR and the court challenges, the current programs have
brought SO2 down by 2.4 million tons in the CAIR region.  Emissions are
still under the cap, and the bank did get bigger, but some progress was
made.  Additionally, the same data show that there was an annual NOx
reduction of over 0.5 million tons in the CAIR region.  The 2008 data
are not finalized, but it appears as though emissions will be under the
summer cap. 

	Clearly, everyone would like to achieve greater reductions.  However,
EPA does believe these results will be helpful in trying to meet
attainment requirements.   While the SO2 bank is clearly an issue, EPA
believes the NOx reductions are very real and binding.  Sam noted that
while most people were satisfied with the reductions under Phase I, OTC
had wanted further reductions, and EPA looks forward to making sure
reductions continue to occur.  Finally, it is important to note that
there are many control equipment projects under construction that will
bring even more reductions.  

	States and OTC said that they were pleased to hear about the
reductions.  However, they are concerned because preliminary work (which
has not yet been made public) based on the last round of modeling
indicates that another 500,000 tons of NOx reductions will be required
in the region.  They cautioned that all the data had not been finalized,
but noted that a large reduction would be required just from the
Northeast region.  That does not even take into account reductions that
will be required from other regions such as the Midwest and South.  In
response to further questions from EPA, they explained that the
predicted 500,000 ton reduction requirement applied not just to EGUs but
to all sectors.  In the power sector, it appears that a reduction of a
few hundred thousand tons might be required.  Sam then announced that
Maryland was the big reducer for NOx, and he congratulated Tad Aburn. 

	Ali Mirzakhalili thanked EPA for the renewed efforts at dialogue and
mentioned that he hoped the dialogue would continue.  In the past,
starting with the Clear Skies initiative, the states' message has been
that the federal reductions are too little and too late.  The federal
response to the states' concerns was usually that EPA was doing the best
it possibly could and that the reductions offered were the best the
states were going to get.  He hopes that the state comments were clear
that this time EPA needs to do better and develop more stringent number
and caps.  States need reductions immediately to help meet attainment
dates.  

	Sam acknowledged that EPA had heard the states and suggested that the
new AA would be a good listener.  Bill Harnett agreed with Sam and
thought the new AA would want to engage with states to make sure EPA
understands the issues states are facing and the support they need from
the Agency.  Both Sam and Bill indicated that they understand that the
states would like to have been more involved in the development of CAIR,
and they reiterated EPA's interest and commitment to a strong dialogue
with the states.  

	Anna Garcia expressed OTC's approval of the renewed commitment to
dialogue.  OTC and the states then asked EPA how it thought regular
communication between states and EPA could be structured.  They
suggested that EPA staff discuss the issue once the political leadership
was settled.  

	Bill Harnett indicated that he thought that arranging a phone call
similar to this one would be one way EPA could keep the lines of
communication open.  For now, EPA will stay in touch with OTC and let
OTC decide at what point another discussion would be useful.  As noted
at the beginning of this call, at some point after April 20th, EPA will
present a summary of this series of preliminary calls with states and
other stakeholders.  The semi-annual meeting was also mentioned as a
good place for some direct contact, though the states noted that it is
difficult at this time to get travel approval.  

	Ali offered to develop a draft model rule to share with EPA.  EPA
agreed to consider it and suggested that he email it to Bill or Sam,
either of whom would then circulate the draft to the whole team.  

	Anna Garcia concluded by thanking EPA, noting that OTC would be
speaking with LADCO the next day during the collaborative call, and she
said that if there is anything OTC can do to help EPA, the Agency should
not hesitate to call.  The states and OTC do understand that there is
lot of work facing the Agency. 

	Sam thanked OTC and reiterated that EPA understands the states want a
rule back in place as soon as possible.  He concluded by noting that if
the states had concerns about specific details they should not hesitate
to call or email EPA.



Appendix A:

Participants

OTC and Other Groups:

Anna Garcia (OTC)

Doug Austin (OTC)

Seth Barna (OTC)

Amy Royden-Bloom (NACAA)

Leah Weiss (NESCAUM)

Susan Wierman (MARAMA)

States:

Anne Gobin (Connecticut)

David Wackter (Connecticut) 

Ali Mirzakhalili (Delaware)

Cecily Beall (District of Columbia)

Jeff Crawford (Maine)

Diane Nelson (Maryland)

Frank Courtright (Maryland)

George (Tad) Aburn (Maryland)

Barbara Kwetz (Massachusetts)

Andrew (Andy) Bodnarik (New Hampshire)

Jeff Underhill (New Hampshire)

David Shaw (New York)

Robert Sliwinski (New York)

Jared Snyder (New York)

William (Bill) O’Sullivan (New Jersey)

Chris N. Salmi (New Jersey)

Joyce Epps (Pennsylvania)

Barbara Morin (Rhode Island)

Mike Dowd (Virginia) 

Tamera Thompson (Virginia)

Tom Ballou (Virginia)

EPA:

CAMD:

Sam Napolitano

Larry Kertcher 

Beth Murray

Gabrielle Stevens

Meg Victor

Tamara Saltman

OAPQS:

Bill Harnett

Rich Damberg

Todd Hawes

Gobeail McKinley

Tim Smith

OGC:

Sara Schneeberg

Representatives from EPA Regions 1 and 2 

March 27, 2009

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Appendix A:  Participants

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