UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

REGION III

	1650 Arch Street

	Philadelphia, Pennsylvania  19103

DATE:	1/29/09

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

FROM:	Marilyn Powers, Environmental Engineer   /s/ 1/29/09

Air Quality Planning Branch 

TO:		File

THRU:	Cristina Fernandez,   /s/  2/3/09

		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 United States.  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.  As in the NOx SIP Call (63 FR
57356 dated October 27, 1998), eliminating significant contribution is
not designed to eliminate all contributions to transport, but rather to
balance the burden for achieving attainment between regional-scale and
local-scale control programs.

The Clean Air Interstate Rule (CAIR) was published by EPA on May 12,
2005 (70 FR 25162).   In this rule, EPA, based on air quality modeling
analyses and cost analyses, determined that 28 States, including West
Virginia, 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 State
Implementation Plans (SIPs) to include control measures that reduce
emissions of sulfur dioxide (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 for SO2 and annual State-wide emission reduction
requirements for NOx, from which State budgets are calculated. 
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).
These emission reductions were established using an approach based on
application of controls that EPA has determined to be highly cost
effective.   For CAIR, EPA has determined that highly cost effective
controls are available on electric generating units (EGUs).  This
approach for determining the state budgets was used in the NOx SIP Call,
a program that has proven to be a successful program for addressing
regional emissions.  

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 States 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.

EPA was sued by a number of parties on various aspects of CAIR, and on
July 11, 2008, the U.S. Court of Appeals for the District of Columbia
Circuit issued its decision to vacate both CAIR and the associated CAIR
FIP in their entirety. North Carolina v. EPA, 531 F.3d 836 (D.C. Cir.
2008).  In response to EPA's petition for rehearing, the Court issued an
order remanding CAIR to EPA without vacating either CAIR or the CAIR
FIP.  North Carolina v. EPA, ___ F.3d ___, 2008 WL 533481 (D.C. Cir.
Dec. 23, 2008). The Court directed EPA to "remedy the CAIR flaws"
consistent with its July 11, 2008 opinion, but declined to impose a
schedule on EPA for completing that action.  Therefore, CAIR and the
CAIR FIP are currently in effect in West Virgina. 

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; and

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.  PRIOR WEST VIRGINIA CAIR SUBMITTALS:	

	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, Part 96 was revised as part
of the FIP that was finalized on April 28, 2006.  The changes to Part 96
were necessary in order to allow sources in states having approved SIPs
to trade with sources in states that are under the FIP.  These changes
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, the submittal did not fully meet the requirements of CAIR.  On
June 8, 2007, West Virginia requested that certain portions of its June
1, 2006 submittal be considered as also being submitted for purposes of
an abbreviated SIP.   Specifically, the State requested that Sections 40
through 42 of both state rules 45CSR39 (NOx annual trading program) and
45CSR40 (NOx ozone season trading program) replace the corresponding FIP
provisions in Subpart EE and EEEE of Part 97 in accordance with 40 CFR
51.123(p) and 51.123(ee).  These provisions set forth the NOx budget,
timing, and allowance allocation methodology for West Virginia’s
annual and ozone season trading programs.  West Virginia’s abbreviated
SIP submittal did not address any of the other three areas of
flexibility available to States under CAIR.  EPA approved West
Virginia’s abbreviated SIP on December 18, 2007 (72 FR 71576). 

D.  EVALUATION OF STATE’S (FULL CAIR) SUBMITTAL:

On April 22, 2008, the West Virginia Department of Environmental
Protection (WVDEP) submitted a SIP revision consisting of three fully
adopted legislative rules which address the requirements of CAIR.  These
rules are 45CSR39 – Control of Annual Nitrogen Oxides Emissions,
45CSR40 – Control of Ozone Season Nitrogen Oxides Emissions, and
45CSR41 – Control of Annual Sulfur Dioxide Emissions.  West Virginia
is submitting these rules as a SIP revision to replace its currently
approved abbreviated SIP and to remove the CAIR FIP.

West Virginia’s submittal of April 22, 2008 requests approval of its
full CAIR SIP to replace the FIP.  The SIP revision is comprised of a
cap and trade program for NOx annual, NOx ozone season, and SO2 annual
emissions that substantively mirror EPA’s model rule with changes as
allowed under CAIR.  The following discusses West Virginia’s choices
regarding the four areas of flexibility:

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

The NOx SIP Call trading program will not be administered by EPA after
2008, therefore States have the choice of either bringing in their
non-EGUs that were subject to the NOx SIP Call into their CAIR trading
program or submitting a demonstration that the non-EGU reduction
obligations are being met in some other way.  

West Virginia has chosen to bring its non-EGUs into its CAIR NOx ozone
season trading program.  In order to do so, West Virginia has expanded
its regulation 45CSR40 to cover all the non-EGUs that would otherwise be
covered by its NOx SIP Call trading program under 45CSR1.  

First, the applicability provisions in Section 4 of 45CSR40 was amended
to include applicability to non-EGUs under 45CSR1 in order to include in
the CAIR NOx ozone season trading program all units required to be in
the West Virginia’s NOx SIP Call trading program that are not already
included under 45CSR40.  

Also, certain definitions were modified or amended to make clear the
distinctions between applicability in the two programs.  For example,
the definitions for “fossil fuel fired” and “cogeneration unit”
differ between CAIR and the NOx SIP Call, therefore West Virginia has
preserved and included these particular definitions that were part of
45CSR1 to apply expressly to the non-EGUs for determining applicability
for units that are not EGUs as defined in CAIR.  

Similarly, the “commence commercial operation” definition in 45CSR40
has been amended to address the fact that monitoring system
certification deadlines are based on commencement of commercial
operation and, because non-EGUs may not generate electricity, may never
"commence commercial operation," as currently defined in the CAIR NOx
ozone season trading rule.

Along with these definitions, the portion of the NOx SIP Call trading
budget attributed to non-EGUs (2,184 tons) has been added to West
Virginia’s CAIR NOx ozone season trading budget in Section 40.1. 
Non-EGU allocation provisions have been added to Section 42.2.c and
42.2.d, a separate new unit set-aside for non-EGUs is established in
Section 42.3.a.2, and new Section 43 added that applies to West
Virginia’s single NOx SIP Call opt in unit.

With these language changes and additions, West Virginia’s CAIR NOx
ozone season trading program under 45CSR40 will cover all non-EGUs that
were included in the NOx SIP Call trading program under West Virginia
regulation 45CSR1.  These sources are comprised of large industrial
boilers and combustion turbines having a maximum heat input greater than
250 mmBtu/hr that do not serve a generator producing electricity for
sale to the electric grid, as well as one unit that chose to participate
in the NOx Budget Trading program under the State’s opt-in provisions.


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

West Virginia’s NOx Annual (45CSR39) and NOx Ozone Season (45CSR40)
CAIR rules pertaining to allocation methodology, budget, timing, and
allocations that are applicable to EGUs are set forth in 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.  These
provisions are substantively identical to those approved in the
abbreviated SIP, with the exception of the provision related to
allowances to be recorded in the event the State does not submit its
allocations in a timely manner.  In this situation, Part 96 requires
that the number of allocations from the preceding year be recorded for
the current year for each source.  Allocations to sources in West
Virginia will only be recorded upon the State’s submission of
allowances to EPA.

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

	The CSP is a pool of NOx annual allowances for each State that may be
distributed to sources for early reductions achieved in 2007 and 2008,
or based on a demonstration of need to extend the compliance deadline
beyond 2009 because of unforeseen circumstances in complying that create
issues of reliability of electricity supply in 2009.  

	West Virginia has chosen to allocate the NOx annual allowances from the
compliance supplement pool.  West Virginia’s compliance supplement
pool is comprised of 4,898 allowances.  West Virginia has chosen to
distribute CSP allowances for any CAIR NOx Annual unit in the State
whose average annual NOx emission rate for 2007 or 2008 is less than
0.25 lb/mmBtu and, whose NOx averaging plan (if the unit is included in
an Acid Rain Program NOx averaging plan under 40 CFR §76.11) for that
year has an actual weighted average NOx emission rate that is equal to
or less than the actual weighted average NOx emission rate for the year
before the unit achieves NOx emission reductions in 2007 or 2008. 

.

4.  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. 

	

	West Virginia has chosen not to allow individual sources to opt-in to
the NOx annual, NOx ozone season or the SO2 annual trading program.

Finally, West Virginia has chosen to include provisions addressing its
NOx SIP Call Phase II non-trading sources into a separate section of 45
CSR 40 (CAIR NOx ozone season trading program). This is an
administrative action by West Virginia.  These sources continue to have
the same requirements as set forth in 45 CSR 26, and do not affect the
State’s CAIR requirements.  West Virginia’s NOx SIP Call Phase II
reductions were previously approved into the West Virginia SIP on
September 28, 2006 (71 FR 56881), therefore no action on these
provisions is necessary.

E.  CONCLUSIONS AND RECOMMENDED AGENCY ACTION

West Virginia has adopted rules for NOx annual, NOx ozone season, and
SO2 annual trading programs that implement the requirements of CAIR. 
For the most part, these rules are substantively identical to the Part
96 model rules.  They include modifications to the model rules that are
consistent with the limited changes allowed by CAIR in order for a State
to participate in the EPA-administered CAIR trading program. The SIP
revision, which meets the requirements of CAIR and strengthens the West
Virginia SIP, is recommended for approval.

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