UNITED STATES ENVIRONMENTAL PROTECTION AGENCY

REGION III

	1650 Arch Street

	Philadelphia, Pennsylvania  19103

DATE:	 

SUBJECT:	Technical Support Document for the Direct Final Rulemaking
Notice – Maryland; Clean Air Interstate Rule 

FROM:	Marilyn Powers, Environmental Engineer   /s/      7/17/09

Air Quality Planning Branch 

TO:		File

THRU:	Cristina Fernandez,   /s/      7/17/09

		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 nitrogen oxides (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 determined, based on air quality
modeling and cost analyses, that 28 States, including Maryland, and the
District of Columbia contribute significantly to nonattainment or
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 for 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 successful 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, 550 F.3d 1176, 2008 WL 533481 (D.C. Cir.
Dec. 23, 2008). The Court thereby left CAIR in place in order to
“temporarily preserve the environmental values covered by CAIR”
until EPA replaces it with a rule consistent with the Court’s opinion.
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 is in effect and the CAIR FIP
is currently in place in Maryland. 

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 establish 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 unit’s 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.  STATE’S SUBMITTAL:

On October 24, 2007 the Maryland Department of the Environment submitted
a full SIP revision to address the requirements of CAIR.  This
submission consists of adopted regulation COMAR 26.11.28 – Clean Air
Interstate Rule, and is comprised of Regulations .01 through .08, as
follows:

.01 – Definitions

.02 – Incorporation by Reference

.03 – Affected Units and General Requirements

.04 – Requirements for New Affected Trading Units and NOx Set Aside
Pool

.05 – NOx Allowances for Renewable Energy Projects and Consumers of
Electric Power

.06 – NOx Allowances to be Distributed to Consumers of Electric Power

.07 – Distribution of Unused NOx allowances in the Set Aside Pool

.08 – Allocation of NOx Allowances

On June 30, 2008, Maryland submitted a supplementary SIP revision
comprised of revisions to Regulations .01 to .07 to assure that the
State’s CAIR rule requirements are consistent with those of the CAIR
model rule.

D.  EVALUATION OF STATE SUBMITTAL:

Maryland has chosen to incorporate by reference the CAIR model rules. 
Specifically, Regulation .02A and .02B incorporate by reference, with
one exception, the following documents:  

40 CFR 96.101 – 96.188 CAIR NOx Annual Trading Program

40 CFR 96.201 – 96.288 CAIR SO2 Annual Trading Program

40 CFR 96.301 – 96.388 CAIR NOx Ozone Season Trading Program

Regulation .02C explains that the lone exception pertains to the
requirements under 40 CFR 142 (d) and 40 CFR 342 (d) which are the
provisions that set forth the requirements for distribution of
allowances from the NOx annual set aside pool and the NOx ozone season
set aside pool, respectively.  Replacing these model rule provisions
with the State’s preferred requirements falls within the allocation
methodology flexibility that States can choose to exercise, and is
detailed more explicitly in the following discussion of Maryland’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 under the NOx SIP Call are being met in some other way.  

Maryland has chosen not to bring its non-EGUs into its CAIR NOx ozone
season trading program.  Therefore, Maryland must, in a separate
submission, demonstrate that it is meeting 40 CFR 51.121(f)(2) and
(h)(4), which sets forth requirements for control measures or other
regulatory requirement(s) to ensure that the State continues to comply
with its NOx SIP Call requirements.  Continuous emissions monitoring
(CEMS) in accordance with 40 CFR Part 75 is required.

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

Regulation .02 of COMAR 26.11.28 incorporates by reference the allowance
allocation methodology set forth in 40 CFR 96.141, 96.142, 96.341,
96.342, with the exception of the provisions pertaining to the set aside
pool.  The requirements in 40 CFR 96.142 (d) and 40 CFR 96.342 (d)
pertaining to the distribution of allowances from the set aside pool are
changed to incorporate the State’s preferred choices.  

Maryland is requiring, for all control periods, a set-aside pool of 5
percent of the NOx annual allowance budget and 5 percent of the NOx
ozone season allowance budget.  Newly affected units, renewable energy
projects, and consumers of electric power (as defined in Regulation .01)
will be distributed NOx allowances from the set aside pool in accordance
with the following requirements:  

a. Regulation .03C establishes the priority for distribution of
allowances from the set-aside pool.  After distribution of allowances to
new units and if there are any allowances left in the set-aside pool,
Maryland may distribute allowances to renewable energy projects and
consumers of electric power.

b. Regulation .04 sets forth the applicability, timing, and general
requirements for new affected trading units, and generally follows the
model rule.  New units will be allocated NOx allowances in the year
after the year the unit commenced operation equal to the number of tons
of NOx emissions from the previous control period (the unit must
therefore purchase allowances during its initial year of operation).  

c. Regulation .05 sets forth the allocation methodology, priority,
timing and other requirements for distribution of allowances to
renewable energy projects in Maryland.  Allowances, if available, will
be allocated to qualifying sources based on applying a factor of 1.5
pounds per megawatt hour to the design capacity of the proposed project
for the first year, with allowances in each of the next three years
equal to the actual annual generation in each year.  Renewable energy
projects in other States (Delaware, District of Columbia, Pennsylvania,
Virginia, or West Virginia) may also apply for allowances, with
distribution based on applying the 1.5 factor to the project’s actual
annual generation for each of the four years after commencement of
operation.

d. Regulation .06 sets forth the allocation methodology and other
requirements for distribution of allowances to consumers of electric
power, and requires that the allowances under such a distribution be
transferred into a CAIR retirement account.  Consumers of electric power
may obtain allowances based on applying the 1.5 factor to the total
megawatt hours purchased from any renewable energy project located in
Maryland, Delaware, District of Columbia, Pennsylvania, Virginia, or
West Virginia.

e. Regulation .07 requires that following the end of each control
period, 20 percent of the unused NOx annual set aside and 20 percent of
the unused NOx ozone season set aside allowances from the prior control
period be transferred to a CAIR retirement account.  The remaining
unused set-aside allowances will be returned to trading units that
received allowances during the prior year, in accordance with the
proportions of the units’ initial allocations.

These modifications to the model rule set aside provisions are
approvable as the State has addressed the pertinent requirements related
to the set aside pool.

For 2009, the new unit set-aside allowances were allocated under the
provisions of the CAIR Federal Implementation Plan (FIP).

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. 

The deadline for requesting the CSP allowances was May 1, 2009,
therefore, the CSP allowances will be distributed under the provisions
of the CAIR FIP for the sources in Maryland.  In Maryland, the CSP
consists of 4,670 allowances.

Regulation .02B of COMAR 26.11.28 incorporates by reference 40 CFR part
96.143, which sets forth the requirements pertaining to the CSP.

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. 

	

Regulation .02B incorporates by reference 40 CFR part 96.180 through
96.188 and 40 CFR part 96.380 through 96.388, which pertain to
individual unit opt-ins under the CAIR NOx annual and NOx ozone season
trading programs, respectively.

E.  EVALUATION OF OTHER PROVISIONS

1.  Definition of “Affected Trading Unit” and CAIR applicability

Maryland’s CAIR rule incorporates by reference the model trading rule
applicability in 40 CFR 96.104 and 96.304 for the NOx annual and NOx
ozone season programs, respectively.  Maryland’s CAIR rule also
includes the use of the term “fuel burning equipment” to define an
“affected trading unit”.  The definition of fuel burning equipment
in COMAR 26.11.01.01 encompasses all units that are subject to CAIR,
therefore, the term “affected trading unit” is consistent with the
applicability in CAIR.   

2.  Explanation of the phrase “began commercial operation”

Paragraph .04A(1) explains when a new affected trading unit can request
allowances and uses the phrase “began commercial operation”.  This
phrase has the same meaning as “commence commercial operation” as it
is defined in 40 CFR 96.102, which is incorporated by reference in
Regulation .02.  

2.  2009 CAIR NOx annual and CAIR NOx ozone season allowances

Maryland anticipated that its CAIR SIP would be in effect in time to
issue the allocations for 2009.  Because the Maryland CAIR SIP was not
in effect at that time, the 2009 allocations for sources in Maryland
were issued under the FIP.  However, starting with the 2010 control
period, allocations will be issued under the State’s CAIR SIP in
accordance with the table in Regulation .08.

3.  Deadline for Requests for Allowances from the Set aside pool

Paragraph .04A.(1) sets “March 15 of the year following the year the
unit began commercial operation …” as the date by which the owner or
operator of a “new affected trading unit” may request allowances
from the set aside pool.  Although Maryland incorporated by reference
the schedule in 40 CFR 96.142(c)(2) and 40 CFR 96. 342(c)(2) for
requests for distribution under the set aside pool, this paragraph
(.04A(1)) would govern as the date that sources in Maryland must request
allowances from the set aside pool. 

4.  Schedule for Recording Set Aside Pool Allowances

Section.05G. establishes a July 1 deadline for EPA to transfer NOx
allowances for renewable energy projects to a general account for the
owner or operator of a renewable energy project.  The owner or operator
of the renewable energy project is responsible for establishing the
general account according to 40 CFR 96.151and 96.152, or 96.351 and
96.352.  These accounts will need to be established sufficiently in
advance of the July 1 deadline to ensure timely allowance transfers to
the appropriate general accounts.  EPA requires that the allocation
information from the State be received about two weeks before the
deadline to give the Agency time to process the information and meet the
July 1 deadline for recording the allowances.

5.  Interaction of Maryland’s CAIR rule with COMAR 26.11.27

COMAR 26.11.27, entitled “Emission Limitations for Power Plants”,
was adopted by Maryland to implement the emission reductions required by
the State’s Healthy Air Act (Annotated Code of Maryland Environment
Title 2 Ambient Air Quality Control Subtitle 10 Health Air Act Sections
2-1001 – 2-1005), and sets emissions caps for fifteen of the largest
coal-fired power plants in the State.  All of these sources are also
subject to CAIR.  

COMAR 26.11.27.03B.(7)(a)(iii) requires that, if a unit exceeds its
Ozone Season NOx tonnage limitation as a result of certain specified
actions and alerts invoked by the independent system operator PJM
Interconnection, LLC (PJM), the unit is not in violation if, among other
things, the owner or operator surrenders one “ozone season NOx
allowances” to the State’s surrender account for every ton of NOx
emitted in excess of the cap.  EPA interprets the reference to “ozone
season NOx allowance” to mean CAIR NOx ozone season allowances because
the NOx Budget Trading Program was discontinued in 2008, and all banked
ozone season NOx allowances from that program have been converted to
CAIR NOx ozone season allowances.  

An owner or operator is required to surrender CAIR NOx ozone season
allowances under this provision only if PJM invokes certain specified
actions and alerts and the unit's emissions increase as a result.  Since
1999, PJM has invoked these actions and alerts relatively few times
(generally a few times a year but up to 22 times in one year) and only
for relatively short periods of time (generally about 24 hours and only
once slightly exceeding 48 hours).  However, the majority of these
actions and alerts involve load reductions and so are not likely to
result in increased emissions that would force a facility to exceed its
Ozone Season NOx tonnage limitation. Therefore, EPA believes that the
potential for CAIR allowances to be used outside of the CAIR trading
programs is very limited and will not interfere to any significant
extent with the CAIR trading programs.    

F.  CONCLUSIONS AND RECOMMENDED AGENCY ACTION

Maryland has adopted a State CAIR rule that incorporates by reference,
with one exception, the CAIR model rules for the NOx annual, NOx ozone
season, and SO2 annual trading programs.  The exception is a
modification to the model rules that is 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 Maryland SIP, is recommended
for approval.

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