UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

REGION III

	1650 Arch Street

	Philadelphia, Pennsylvania  19103

DATE:	June 14, 2007

SUBJECT:	Technical Support Document for the Notice of Proposed
Rulemaking – West Virginia; Clean Air Interstate Rule Budget Trading
Programs 

FROM:	Marilyn Powers, Environmental Engineer

Air Quality Planning Branch 

TO:		File

THRU: 	Christopher Cripps, Acting Branch Chief

Air Quality Planning Branch

A.  BACKGROUND

EPA promulgated new, more protective national ambient air quality
standards (NAAQS) for 8-hour ozone and fine particulate matter (PM2.5)
in July 1997.  States were required to submit SIP revisions for the new
standards three years after promulgation.  In June 2004, EPA designated
the areas that are not attaining the new ozone standard, and in December
2004 designated the areas that are not attaining the new PM2.5 standard.
 However, EPA determined that transported emissions from upwind states
constitute a major fraction of the 8-hour ozone and PM2.5 problem in the
eastern portion of the U.S.  Section 110(a)(2)(D) of the Clean Air Act
requires that States eliminate transported emissions that are
significantly contributing to or interfering with maintenance of
nonattainment areas in downwind states.  

The Clean Air Interstate Rule (CAIR) was published by EPA on May 12,
2005 (70 FR 25162).   In this rule, EPA determined that 28 States and
the District of Columbia contribute significantly to nonattainment and
interfere with maintenance of the NAAQS for PM2.5 and /or 8-hour ozone
in downwind States in the eastern part of the country.  As a result, EPA
required those upwind States to revise their SIPs to include control
measures that reduce emissions of SO2, which is a precursor to PM2.5
formation, and/or NOX, which is a precursor to both ozone and PM2.5
formation.  For jurisdictions that contribute significantly to downwind
PM2.5 nonattainment, CAIR sets annual State-wide emission reduction
requirements (i.e., budgets) for SO2 and annual State-wide emission
reduction requirements for NOX.  Similarly, for jurisdictions that
contribute significantly to 8-hour ozone nonattainment, CAIR sets
State-wide emission reduction requirements for NOX for the ozone season
(May 1st to September 30th).  Under CAIR, States may implement these
reduction requirements by participating in the EPA-administered
cap-and-trade programs or by adopting any other control measures.  CAIR
lays out to subject States what must be included in SIPs to address the
requirements of section 110(a)(2)(D) of the Clean Air Act (CAA) with
regard to interstate transport with respect to the 8-hour ozone and
PM2.5 NAAQS.

  EPA made national findings, effective on May 25, 2005, that the States
had failed to submit SIPs meeting the requirements of section
110(a)(2)(D).  The SIPs were due in July 2000, 3 years after the
promulgation of the 8-hour ozone and PM2.5 NAAQS.  These findings
started a 2-year clock for EPA to promulgate a Federal Implementation
Plan (FIP) to address the requirements of section 110(a)(2)(D).  Under
CAA section 110(c)(1), EPA may issue a FIP anytime after such findings
are made and must do so within two years unless a SIP revision
correcting the deficiency is approved by EPA before the FIP is
promulgated.  

	

	On April 28, 2006, EPA promulgated FIPs for all States covered by CAIR
in order to ensure the emissions reductions required by CAIR are
achieved on schedule.  Each CAIR State is subject to the FIPs until the
State fully adopts, and EPA approves, a SIP revision meeting the
requirements of CAIR.  The CAIR FIPs require EGUs to participate in the
EPA-administered CAIR SO2, NOX annual, and NOX ozone season trading
programs, as appropriate.  The CAIR FIP SO2, NOX annual, and NOX ozone
season trading programs impose essentially the same requirements as, and
are integrated with, the respective CAIR SIP trading programs.  The
integration of the FIP and SIP trading programs means that these trading
programs will work together to create effectively a single trading
program for each regulated pollutant (SO2, NOX annual, and NOX ozone
season) in all States covered by the CAIR FIP or SIP trading program for
that pollutant.  The CAIR FIPs also allow States to submit abbreviated
SIP revisions that, if approved by EPA, will automatically replace or
supplement certain CAIR FIP provisions (e.g., the methodology for
allocating NOX allowances to sources in the State), while the CAIR FIP
remains in place for all other provisions.  

On April 28, 2006, EPA published two additional CAIR-related final rules
that added the State of Delaware and New Jersey to the list of States
subject to CAIR for PM2.5 and announced EPA’s final decisions on
reconsideration of five issues, without making any substantive changes
to the CAIR requirements.

B.  EPA REQUIREMENTS

CAIR establishes State-wide emission budgets for SO2 and NOX and is to
be implemented in two phases.  The first phase of NOX reductions starts
in 2009 and continues through 2014, while the first phase of SO2
reductions starts in 2010 and continues through 2014.  The second phase
of reductions for both NOX and SO2 starts in 2015 and continues
thereafter.  CAIR requires States to implement the budgets by either:
(1) requiring EGUs to participate in the EPA-administered cap-and-trade
programs; or (2) adopting other control measures of the State's choosing
and demonstrating that such control measures will result in compliance
with the applicable State SO2 and NOX budgets. 

The May 12, 2005 and April 28, 2006 CAIR rules provide model rules that
States must adopt (with certain limited changes, if desired) if they
want to participate in the EPA-administered trading programs.  The model
rules apply to stationary fossil fuel-fired boilers or stationary fossil
fuel-fired turbines serving at any time, since the start-up of the
unit’s combustion chamber, a generator with a nameplate capacity of
more than 25 megawatt (MWe) producing electricity for sale.  They also
apply to units that qualify as cogeneration units that serve at any time
a generator with a 25 MWe capacity and supplying more than one-third of
the units potential electric output capacity or 219,000 MWe, whichever
is greater, to any utility power distribution system.

With two exceptions, only States that choose to meet the requirements of
CAIR through methods that exclusively regulate EGUs are allowed to
participate in the EPA-administered trading programs.  One exception is
for States that adopt the opt-in provisions of the model rules to allow
non-EGUs individually to opt into the EPA-administered trading programs.
 The other exception is for States that include all non-EGUs from their
NOX SIP Call trading programs in their CAIR NOX ozone season trading
programs.

States have the flexibility to choose the type of control measures they
will use to meet the requirements of CAIR.  EPA anticipates that most
States will choose to meet the CAIR requirements by selecting an option
that requires EGUs to participate in the EPA-administered CAIR
cap-and-trade programs.  For such States, EPA has provided two
approaches for submitting and obtaining approval for CAIR SIP revisions.
 States may submit full SIP revisions that adopt the model CAIR
cap-and-trade rules.  If approved, these SIP revisions will fully
replace the CAIR FIPs.  Alternatively, States may submit abbreviated SIP
revisions.  These SIP revisions will not replace the CAIR FIPs; however,
the CAIR FIPs provide that, when approved, the provisions in these
abbreviated SIP revisions will be used instead of or in conjunction
with, as appropriate, the corresponding provisions of the CAIR FIPs
(e.g., the NOX allowance allocation methodology). 

A State submitting a full SIP revision may either adopt regulations that
are substantively identical to the model rules or incorporate by
reference the model rules.  CAIR provides that States may only make
limited changes to the model rules if the States want to participate in
the EPA-administered trading programs.  A full SIP revision may change
the model rules only by altering their applicability and allowance
allocation provisions to:

Include  NOX SIP Call trading sources that are not EGUs under CAIR in
the CAIR NOX ozone season trading program;

Provide for State allocation of  NOX annual or ozone season allowances
using a methodology chosen by the State;

Provide for State allocation of  NOX annual allowances from the
compliance supplement pool (CSP) using the State’s choice of  allowed,
alternative methodologies; or

Allow units that are not otherwise CAIR units to opt individually into
the CAIR SO2, NOX annual, or NOX ozone season trading programs under the
opt-in provisions in the model rules. 

An approved CAIR full SIP revision addressing EGUs’ SO2, NOX annual,
or NOX ozone season emissions will replace the CAIR FIP for that State
for the respective EGU.

The CAIR NOX annual and ozone season budgets were developed from
historical heat input data for EGUs.  Using these data, EPA calculated
annual and ozone season regional heat input values, which were
multiplied by 0.15 lb/mmBtu, for Phase 1, and 0.125 lb/mmBtu, for Phase
2, to obtain regional NOX budgets for 2009-2014 and for 2015 and
thereafter, respectively. EPA derived the State NOX annual and ozone
season budgets from the regional budgets using State heat input data
adjusted by fuel factors.

The CAIR State SO2 budgets were derived by discounting the tonnage of
emissions authorized by annual allowance allocations under the Acid Rain
Program under title IV of the CAA.  Under CAIR, each allowance allocated
in the Acid Rain Program for the years in phase 1 of CAIR (2010 through
2014) authorizes 0.5 ton of SO2 emissions in the CAIR trading program,
and each Acid Rain Program allowance allocated for the years in phase 2
of CAIR (2015 and thereafter) authorizes 0.35 ton of SO2 emissions in
the CAIR trading program

C.  EVALUATION OF STATE SUBMITTAL:

West Virginia adopted the model rule that was promulgated as part of the
May 12, 2005 final CAIR rulemaking and submitted its CAIR SIP revision
to EPA on June 1, 2006.  However, the model rule was revised when the
FIP was finalized on April 28, 2006.  The changes to the model rule were
necessary in order to allow sources in states having approved SIPs to
trade with sources in states that are under the FIP, and must be
included in a state’s CAIR rules.  Because West Virginia’s June 1,
2006 submittal did not include the revisions made on April 28, 2006, it
did not fully meet the requirements of CAIR.  West Virginia plans to
submit a full CAIR SIP that incorporates all the model rule revisions,
but because of the schedule for its annual legislative process, it
cannot do so in sufficient time for the State’s allocations to be
recorded in lieu of the FIP allocations.  As part of its full CAIR SIP,
West Virginia plans to incorporate into CAIR all requirements pertaining
to the NOx SIP Call non-EGUs.

On June 8, 2007, West Virginia submitted a letter requesting an
abbreviated SIP.   Specifically, the State requested that the NOx
budget, timing, and allowance allocation methodology provisions for EGUs
subject to the annual and ozone season trading programs under sections
40 through 42 of its rules 45CSR39 and 45CSR40, as submitted in its June
1, 2007 SIP revisions, also be designated as an abbreviated SIP, for
Phase I of CAIR.  As discussed above, under an abbreviated SIP, these
provisions from the State’s June 1, 2006 submission would replace or
supplement the corresponding provisions in the FIP, while the rest of
the FIP provisions remain in effect.  

D.  EPA EVALUATION:

States have flexibility in allocation of NOx allowances.  The allocation
methodology, budget, and timing for EGUs adopted by West Virginia is
consistent with the provisions in Part 96, as promulgated on May 12,
2005, thus an abbreviated SIP addressing allocations is approvable.  

 EPA is approving as an abbreviated SIP only the portions of the West
Virginia NOx Annual (45CSR39) and NOx Ozone Season (45CSR40) CAIR rules
pertaining to allocation methodology, budget, timing, and allocations
that are applicable to EGUs.  These are Sections 45-39-40, 45-39-41, and
45-39-42  of the NOx Annual rule, and Sections 45-40-40, 45-40-41, and
45-40-42 of the NOx Ozone Season rule.  Sections 45-40.3, 45-40-42.2.c,
45-40-42.2.d, 45-40-42.2.e, 45-40-42.3.a.2, and 45-40-42.4.b, which
apply to non-EGUs that are subject to the NOx SIP Call, are not part of
the approved abbreviated SIP.

E.  CONCLUSIONS AND RECOMMENDED AGENCY ACTION:

The SIP revision strengthens the West Virginia SIP and is recommended
for approval.

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