ENVIRONMENTAL PROTECTION AGENCY

	40 CFR Part 52

	[EPA-R03-OAR-2009-0370; FRL-       ]

	Approval and Promulgation of Air Quality Implementation Plans;

	Pennsylvania; Clean Air Interstate Rule; NOx SIP Call Rule; Amendments
to NOx Control Rules

AGENCY:  Environmental Protection Agency (EPA).

ACTION:  Proposed rule.

SUMMARY:  EPA is proposing to approve a revision to the Pennsylvania
State Implementation Plan (SIP).  The revision addresses the
requirements of EPA’s Clean Air Interstate Rule (CAIR) and modifies
other requirements in Pennsylvania’s SIP that interact with CAIR
including:  the termination of Pennsylvania’s NOx Budget Trading
Program; statewide provisions for large, stationary internal combustion
engines; statewide provisions for large cement kilns; provisions for
small sources of NOx in the Pennsylvania portion of the Philadelphia
8-hour ozone nonattainment area; and emission reduction credits. 
Although the D.C. Circuit found CAIR to be flawed, the rule was remanded
without vacatur and remains in place.  Thus, EPA is continuing to take
action on CAIR SIPs as appropriate.  CAIR, as promulgated, requires
States to reduce emissions of sulfur dioxide (SO2) and nitrogen oxides
(NOx) that significantly contribute to, or interfere with maintenance
of, the national ambient air quality standards (NAAQS) for fine
particulates and/or ozone in any downwind state.  CAIR establishes
budgets for SO2 and NOX for States that contribute significantly to
nonattainment in downwind States and requires the significantly
contributing States to submit SIP revisions that implement these
budgets.  States have the flexibility to choose which control measures
to adopt to achieve the budgets, including participation in
EPA-administered cap-and-trade programs addressing SO2, NOX annual, and
NOX ozone season emissions.  In the SIP revision that EPA is proposing
to approve, Pennsylvania will meet CAIR requirements by participating in
these cap-and-trade programs.  EPA is proposing to approve the SIP
revision, as interpreted and clarified herein, as fully implementing the
CAIR requirements for Pennsylvania.  Of note, a final approval action of
this SIP revision will result in the automatic withdrawal of the CAIR
FIP in Pennsylvania.

DATES:   Written comments must be received on or before [insert date 30
days from date of publication].  

ADDRESSES:  Submit your comments, identified by Docket ID Number
EPA-R03-OAR-2009-0370 by one of the following methods:

A.    www.regulations.gov. Follow the on-line instructions for
submitting comments.

B.    E-mail:    HYPERLINK "mailto:fernandez.cristina@epa.gov" 
fernandez.cristina@epa.gov  

C.    Mail:   EPA-R03-OAR-2009-0370, Cristina Fernandez, Chief, Air
Quality Planning Branch, Mailcode 3AP21, U.S. Environmental Protection
Agency, Region III, 1650 Arch Street, Philadelphia, Pennsylvania 19103.

D.   Hand Delivery: At the previously-listed EPA Region III address. 
Such deliveries are only accepted during the Docket(s normal hours of
operation, and special arrangements should be made for deliveries of
boxed information.

 

Instructions:  Direct your comments to Docket ID No.
EPA-R03-OAR-2009-0370.  EPA's policy is that all comments received will
be included in the public docket without change, and may be made
available online at www.regulations.gov, including any personal
information provided, unless the comment includes information claimed to
be Confidential Business Information (CBI) or other information whose
disclosure is restricted by statute. Do not submit information that you
consider to be CBI or otherwise protected through www.regulations.gov or
e-mail.  The www.regulations.gov website is an (anonymous access(
system, which means EPA will not know your identity or contact
information unless you provide it in the body of your comment.  If you
send an e-mail comment directly to EPA without going through 
www.regulations.gov, your e-mail address will be automatically captured
and included as part of the comment that is placed in the public docket
and made available on the Internet.  If you submit an electronic
comment, EPA recommends that you include your name and other contact
information in the body of your comment and with any disk or CD-ROM you
submit.  If EPA cannot read your comment due to technical difficulties
and cannot contact you for clarification, EPA may not be able to
consider your comment.  Electronic files should avoid the use of special
characters, any form of encryption, and be free of any defects or
viruses.

Docket:  All documents in the electronic docket are listed in the
www.regulations.gov index. Although listed in the index, some
information is not publicly available, i.e., CBI or other information
whose disclosure is restricted by statute.  Certain other material, such
as copyrighted material, is not placed on the Internet and will be
publicly available only in hard copy form.  Publicly available docket
materials are available either electronically in www.regulations.gov or
in hard copy during normal business hours at the Air Protection
Division, U.S. Environmental Protection Agency, Region III, 1650 Arch
Street, Philadelphia, Pennsylvania 19103.  Copies of the State submittal
are available at the Pennsylvania Department of Environmental
Protection, Bureau of Air Quality Control, P.O. Box 8468, 400 Market
Street, Harrisburg, Pennsylvania 17105.

FOR FURTHER INFORMATION CONTACT:  Marilyn Powers, (215) 814-2308, or by
e-mail at powers.marilyn@epa.gov. 

SUPPLEMENTARY INFORMATION:  

Table of Contents

What Action is EPA Proposing?

What is the Regulatory History of CAIR and the CAIR Federal
Implementation Plans (FIPs)?

What are the General Requirements of CAIR and the CAIR FIPs?

What are the Types of CAIR SIP Submittals?

Analysis of Pennsylvania’s CAIR SIP Submittal

	A.  State Budgets for Allowance Allocations

	B.  CAIR Cap-and-Trade Programs

	C.  Applicability Provisions 

	D.  NOX Allowance Allocations

	E.  Allocation of NOX Allowances from Compliance Supplement Pool

 	F.  Individual Opt-in Units

	G. Clarifications and Interpretations

	H.  Other Requirements in this SIP Revision

VI.   		Proposed Action

VII.  		Statutory and Executive Order Reviews

     What Action is EPA Proposing?  

EPA is proposing to approve the SIP revision submitted by Pennsylvania
on May 23, 2008, as meeting the applicable CAIR requirements by
requiring certain electric generating units (EGUs) to participate in the
EPA-administered CAIR cap-and-trade programs addressing SO2, NOX annual,
and NOX ozone season emissions.  The SIP revision also includes
provisions that terminate Pennsylvania’s NOx Budget Trading Program
under the NOx SIP Call and establishes emission caps for the non-EGUs
that were affected by the NOx Budget Trading Program.  EPA is also
proposing to approve revisions that address NOX ozone season emission
reduction requirements for internal combustion engines and cement kilns
statewide, and small sources of NOx in the five counties that comprise
the Pennsylvania portion of the Philadelphia 8-hour ozone nonattainment
area, all of which were originally approved as part of the Pennsylvania
SIP on September 29, 2006.  

II. 	What is the Regulatory History of CAIR and the CAIR FIPs?

EPA published CAIR 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 fine particles (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 or budgets 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 explains 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 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.  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.  Further, as provided in a rule published by EPA on
November 2, 2007, a State’s CAIR FIPs are automatically withdrawn when
EPA approves a SIP revision, in its entirely and without any conditions,
as fully meeting the requirements of CAIR.  Where only portions of the
SIP revision are approved, the corresponding portions of the FIPs are
automatically withdrawn and the remaining portions of the FIP stay in
place.  Finally, 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. 

On October 19, 2007, EPA amended CAIR and the CAIR FIPs to clarify the
definition of “cogeneration unit” and thus the applicability of the
CAIR trading program to cogeneration units. 

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 and remand both CAIR and the
associated CAIR FIPs in their entirety.  North Carolina v. EPA, 531 F.3d
836 (D.C. Cir. Jul. 11, 2008).  However, in response to EPA's petition
for rehearing, the Court issued an order remanding CAIR to EPA without
vacating either CAIR or the CAIR FIPs.  North Carolina v. EPA, 550 F.3d
1176 (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.  Id. at 1178.  The Court directed EPA to "remedy CAIR’s
flaws" consistent with its July 11, 2008 opinion, but declined to impose
a schedule on EPA for completing that action.  Id.  Therefore, CAIR and
the CAIR FIP are currently in effect in Pennsylvania. 

III.  	What are the General Requirements of CAIR and the CAIR FIPs?

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.  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.

IV.  	What are the Types of CAIR SIP Submittals? 

States have the flexibility to choose the type of control measures they
will use to meet the requirements of CAIR.  All States are meeting the
CAIR requirements through 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 all 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 emissions.  As discussed above, EPA approval in
full, without any conditions, of a CAIR full SIP revision causes the
CAIR FIPs to be automatically withdrawn. 

V.	Analysis of Pennsylvania’s CAIR SIP Submittal 

Pennsylvania’s SIP revision is comprised of amendments to Pennsylvania
regulations codified at 25 Pa. Code Chapters 121, 129, and 145.  These
requirements were adopted by the Commonwealth to implement the
requirements of CAIR, terminate the Commonwealth’s NOx Budget Trading
Program, require NOx emission limits for the non-EGUs that were trading
sources in the NOx Budget Trading Program, revise provisions relating to
the use of allowances by non-CAIR sources and address provisions related
to emission reduction credits.  A more detailed discussion of the
State’s submittal may be found in section C of the TSD.

A.  State Budgets for Allowance Allocations

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.

In today’s action, EPA is proposing to approve Pennsylvania’s SIP
revision that incorporates by reference the budgets established in  the
CAIR rules.  These budgets are: 99,049 tons for NOX annual emissions
from 2009 through 2014 and 82,541 tons from 2015 and thereafter; 42,171
tons for NOX ozone season emissions from 2009 through 2014 and 35,143
tons from 2015 and thereafter; and 275,990 tons for SO2 annual emissions
from 2009 through 2014 and 193,193 tons from 2015 and thereafter.  These
are the total amounts of allowances available for allocation for each
year under the EPA-administered cap-and-trade programs.

EPA notes that, in North Carolina, id. at 916-21, the Court determined,
among other things, that the State SO2 and NOX budgets established in
CAIR were arbitrary and capricious.  However, as discussed above, the
Court also decided to remand CAIR but to leave the rule in place in
order to “temporarily preserve the environmental values covered by
CAIR” pending EPA’s development and promulgation of a replacement
rule that remedies CAIR’s flaws.  Id. at 1178.  EPA had indicated to
the Court that development and promulgation of a replacement rule would
take about two years.  Reply in Support of Petition for Rehearing or
Rehearing en Banc at 5 (filed Nov. 17, 2008 in North Carolina v. EPA,
Case No. 05-1224, D.C. Cir.).  The process at EPA of developing a
proposal that will undergo notice and comment and result in a final
replacement rule is ongoing.  In the meantime, consistent with the
Court’s orders, EPA is implementing CAIR by approving State SIP
revisions that are consistent with CAIR (such as the provisions setting
State SO2 and NOX budgets for the CAIR trading programs) in order to
“temporarily preserve” the environmental benefits achievable under
the CAIR trading programs.  North Carolina, 550 F.3d  at 1178.

B.  CAIR Cap-and-Trade Programs

The CAIR NOX annual and ozone-season model trading rules both largely
mirror the structure of the NOX SIP Call model trading rule in 40 CFR
part 96, subparts A through I.  While the provisions of the NOX annual
and ozone-season model rules are similar, there are some differences. 
For example, the NOX annual model rule (but not the NOX ozone season
model rule) provides for a CSP, which is discussed below, and under
which allowances may be awarded for early reductions of NOX annual
emissions.  As a further example, the NOX ozone season model rule
reflects the fact that the CAIR NOX ozone season trading program
replaces the NOX SIP Call trading program after the 2008 ozone season
and is coordinated with the NOX SIP Call program.  The NOX ozone season
model rule provides incentives for early emissions reductions by
allowing banked, pre-2009 NOX SIP Call allowances to be used for
compliance in the CAIR NOX ozone-season trading program.  In addition,
States have the option of continuing to meet their NOX SIP Call
requirement by participating in the CAIR NOX ozone season trading
program and including all their NOX SIP Call trading sources in that
program.

The provisions of the CAIR SO2 model rule are also similar to the
provisions of the NOX annual and ozone season model rules.  However, the
SO2 model rule is coordinated with the ongoing Acid Rain SO2
cap-and-trade program under CAA title IV.  The SO2 model rule uses the
title IV allowances for compliance, with each allowance allocated for
2010-2014 authorizing only 0.50 ton of emissions and each allowance
allocated for 2015 and thereafter authorizing only 0.35 ton of
emissions.  Banked title IV allowances allocated for years before 2010
can be used at any time in the CAIR SO2 cap-and-trade program, with each
such allowance authorizing 1 ton of emissions.  Title IV allowances are
to be freely transferable among sources covered by the Acid Rain Program
and sources covered by the CAIR SO2 cap-and-trade program.

EPA also used the CAIR model trading rules as the basis for the trading
programs in the CAIR FIPs.  The CAIR FIP trading rules are virtually
identical to the CAIR model trading rules, with changes made to account
for federal rather than state implementation.  The CAIR model SO2, NOX
annual, and NOX ozone season trading rules and the respective CAIR FIP
trading rules are designed to work together as integrated SO2, NOX
annual, and NOX ozone season trading programs.  The CAIR FIP for
Pennsylvania is in place and will be automatically withdrawn upon final
approval of this SIP revision.

Pennsylvania has chosen to implement its CAIR budgets by requiring EGUs
to participate in EPA-administered cap-and-trade programs for SO2, NOX
annual, and NOX ozone season emissions.  Pennsylvania has adopted a full
SIP revision that incorporates by reference the CAIR model cap-and-trade
rules for SO2, NOX annual, and NOX ozone season emissions except for the
provisions pertaining to:  1) the timing of allocations, 2) the new unit
set aside, 3) the priority for issuance of allocations from its State
budget, and 4) the establishment of a set aside for certain units.   

C.  Applicability Provisions 

In general, the CAIR model trading rules apply to any stationary,
fossil-fuel-fired boiler or stationary, fossil-fuel-fired combustion
turbine serving at any time, since the later of November 15, 1990 or the
start-up of the unit's combustion chamber, a generator with nameplate
capacity of more than 25 MWe producing electricity for sale. 
Pennsylvania’s CAIR rule adopts, by reference, the CAIR model trading
rule applicability described in 40 CFR 96.104, 96.204 and 96.304.  

States have the option of bringing in, for the CAIR NOX ozone season
program only, those units in the State's NOX SIP Call trading program
that are not EGUs as defined under CAIR.  EPA advises States exercising
this option to add the applicability provisions in the State's NOX SIP
Call trading rule for non-EGUs to the applicability provisions in 40 CFR
96.304 in order to include in the CAIR NOX ozone season trading program
all units required to be in the State's NOX SIP Call trading program
that are not already included under 40 CFR 96.304.  Under this option,
the CAIR NOX ozone season program must cover all large industrial
boilers and combustion turbines, as well as any small EGUs (i.e. units
serving a generator with a nameplate capacity of 25 MWe or less) that
the State currently requires to be in the NOX SIP Call trading program.

Pennsylvania has chosen not to expand the applicability provisions of
the CAIR NOx ozone season trading program to include all non-EGUs that
participated in the Commonwealth’s NOx Budget Trading Program. 
Instead, Pennsylvania has adopted new requirements that establish
individual emissions caps for these units, as well as an overall
statewide emissions cap (see, Section V. H., below).

D.  NOX Allowance Allocations

Under the NOX allowance allocation methodology in the CAIR model trading
rules and in the CAIR FIP, NOX annual and ozone season allowances are
allocated to units that have operated for five years, based on heat
input data from a three-year period that are adjusted for fuel type by
using fuel factors of 1.0 for coal, 0.6 for oil, and 0.4 for other
fuels.  The CAIR model trading rules and the CAIR FIP also provide a new
unit set-aside from which units without five years of operation are
allocated allowances based on the units’ prior year emissions. 

States may establish in their SIP submissions a different NOX allowance
allocation methodology that will be used to allocate allowances to
sources in the States if certain requirements are met concerning the
timing of submission of units’ allocations to the Administrator for
recordation and the total amount of allowances allocated for each
control period.   In adopting alternative NOX allowance allocation
methodologies, States have flexibility with regard to:

The cost to recipients of the allowances, which may be distributed for
free or auctioned;

The frequency of allocations;

The basis for allocating allowances, which may be distributed, for
example, based on historical heat input or electric and thermal output; 
and

4.   The use of allowance set-asides and, if used, their size.

Pennsylvania has chosen to adopt, by reference, the allocation
methodology of the model rule for both the NOx annual and the NOx ozone
season trading programs, as modified within the flexibilities of CAIR. 
Pennsylvania has chosen to replace with its own requirements the
provisions of 40 CFR 96.141, 96.142, 96.341, and 96.342 relating to the
distribution of allocations and timing of allocations for the CAIR NOx
annual trading program and the CAIR NOx ozone season trading program 
The SIP revision requires that allowances for 2010 through 2012 will be
submitted to the Administrator by April 30, 2008, allowances for 2013
will be submitted by April 30, 2009, and allowances for each subsequent
year will be submitted by April 30 of the year four years prior to the
respective control period.  While this is different from the model rule
provisions, the requirement that allocations be made by the Commonwealth
four years in advance of the respective control period meets the CAIR
requirements in 40 CFR 51.123(o)(2)(ii)(B) for the NOx annual trading
program and 40 CFR 51.123(aa)(2)(ii)(C) for the NOx ozone season trading
program.  

Similarly, the timing for allocation to new units in Pennsylvania is
modified.  These allocations will be issued for the fifth year after the
year the new unit first had NOx emissions.  The SIP revision specifies
that by April 30, 2011 and every April 30 thereafter, the allowance
allocation for new units will be submitted to the Administrator.  This
meets the CAIR timing requirements in 40 CFR 51.123(o)(2)(ii)(C) for the
NOx annual trading program and 40 CFR 51.123(aa)(2)(iii)(D) for the NOx
ozone season trading program, which require that EPA be notified of the
amount of allowances to be allocated to new units by October 31 and July
31 of the year of the allocation for the NOx annual trading program and
the NOx ozone season trading program, respectively.  

Also, Pennsylvania has chosen not to use a “set-aside” for
allocations to new units.  Instead, existing units, new units, and
qualifying resources will be allocated from the same allowance pool. 
Allocation priority is given to new units, after which existing units
and qualifying resources will receive allocations.  New unit allowance
allocations will be published, and opportunity for public comment
provided, by March 31, 2011 and March 31 every year thereafter.   The
allocation to new units will be based on the previous year’s
emissions.   Allowance allocations will be of a vintage year five years
later than the year in which the emissions were generated.   A new unit
may also receive an allocation based on qualifying converted baseline
heat input for existing units, with concurrent allocations continuing
each year until the new unit no longer qualifies for new unit
allocations.  The new unit will no longer qualify as a new unit five
years after the unit’s first NOx emissions.  After five years, the
unit will have transitioned into regular unit status and will no longer
be eligible for new unit allocations. Since the new units will receive
future year allowances (vintage five years later than the year the
emissions were generated) until the unit no longer qualifies as a new
unit, the owners and/or operators of the new unit will need to obtain
current or prior year (banked) allowances to comply with the current
year compliance obligations.  

Pennsylvania has chosen this methodology to avoid oversubscription of
the set-aside (in which case allowances are prorated and new units do
not receive all of its requested allowances), allow new sources to be
integrated into the allowance pool, and allow energy
efficiency/renewable energy resources a share of allowances allocated
from the Commonwealth’s budget.  CAIR NOx annual and CAIR NOx ozone
season allocations for new units in Pennsylvania were allocated under
the CAIR NOx Annual and CAIR NOx Ozone Season FIP for the 2009 control
periods. 

Pennsylvania has chosen to allocate CAIR NOx annual and CAIR NOx ozone
season allowances to renewable energy qualifying resources or demand
side management energy efficiency qualifying resources.  Pennsylvania
will determine the allocation of CAIR NOx annual and CAIR NOx ozone
season allowances based on conversion of the certified quantity of
electrical energy production, useful thermal energy, and the energy
equivalent value of the measures approved under the Pennsylvania
Alternative Energy Portfolio Standard to equivalent thermal energy.  The
equivalent thermal energy will be the unit’s baseline heat input for
determining the allowance allocations.

Finally, Pennsylvania has chosen to allocate up to 1.3 percent of its
CAIR NOx annual trading budget in each control period to certain
facilities that were exempted from the Acid Rain Program (see CAA
Section 405(g)(6)(A), 42 U.S.C. 7651d(g)(6)(A)).  Because they were not
subject to the Acid Rain Program, they received no SO2 allowances under
that program.  (Acid Rain Program allowances are used for SO2 compliance
in CAIR.)  These facilities are subject to CAIR and receive NOx annual
allowances and NOx ozone season allowances.  The additional NOx
allowances are distributed to these facilities for each control period
beginning in 2010 until 2015.  

E.  Allocation of NOX Allowances from Compliance Supplement Pool 

The CAIR establishes a CSP to provide an incentive for early reductions
in NOX annual emissions.   The CSP consists of 200,000 CAIR NOX annual
allowances of vintage 2009 for the entire CAIR region, and a State’s
share of the CSP is based upon the projected magnitude of the emission
reductions required by CAIR in that State.  States may distribute CSP
allowances, one allowance for each ton of early reduction, to sources
that make NOX reductions during 2007 or 2008 beyond what is required by
any applicable State or Federal emission limitation.  States also may
distribute CSP allowances based upon a demonstration of need for an
extension of the 2009 deadline for implementing emission controls.

The CAIR annual NOX model trading rule establishes specific
methodologies for allocations of CSP allowances.  States may choose an
allowed, alternative CSP allocation methodology to be used to allocate
CSP allowances to sources in the States. 

Pennsylvania sources are subject to the CAIR FIP for 2009 and CSP
allowances will be distributed under those provisions. 

F.  Individual Opt-in Units

The opt-in provisions of the CAIR SIP model trading rules allow certain
non-EGUs (i.e., boilers, combustion turbines, and other stationary
fossil-fuel-fired combustion devices) that do not meet the applicability
criteria for a CAIR trading program to participate voluntarily in (i.e.,
opt into) the CAIR trading program.  A non-EGU may opt into one or more
of the CAIR trading programs.  In order to qualify to opt into a CAIR
trading program, a unit must vent all emissions through a stack and be
able to meet monitoring, recordkeeping, and recording requirements of 40
CFR part 75.  The owners and operators seeking to opt a unit into a CAIR
trading program must apply for a CAIR opt-in permit.  If the unit is
issued a CAIR opt-in permit, the unit becomes a CAIR unit, is allocated
allowances, and must meet the same allowance-holding and emissions
monitoring and reporting requirements as other units subject to the CAIR
trading program.   The opt-in provisions provide for two methodologies
for allocating allowances for opt-in units, one methodology that applies
to opt-in units in general and a second methodology that allocates
allowances only to opt-in units that the owners and operators intend to
repower before January 1, 2015.

States have several options concerning the opt-in provisions.  States
may adopt the CAIR opt-in provisions entirely or may adopt them but
exclude one of the methodologies for allocating allowances.  States may
also decline to adopt the opt-in provisions at all.

 Pennsylvania has chosen to adopt, by reference, the provisions of the
model rule allowing opt-ins for the NOx annual, NOx ozone season, and
SO2 annual trading programs.

G. Clarifications and Interpretations                                   
                                                         

Use of “future” unallocated allowances to correct any errors in
allocations 

Sections 145.212(g) and 145.222(g) allow the use of “future”
allowances that have not been allocated to correct errors in past
allocation.  EPA is proposing to approve this revision to the
Pennsylvania SIP with the understanding that provisions in sections
145.212(g) and 145.222(g) impacting “future” allowances that have
not been allocated would rarely be implemented.   EPA understands that
any corrections to the allocations would be based on calculation errors
and would not be routine.  EPA understands that correcting errors in
allowance allocations would be unlikely since the data that is used to
determine allowance allocations is based on past emissions, heat input,
electrical energy production, or useful thermal energy and not on data
projections.  EPA understands that any correction to the “future”
allowance allocation under these provisions would not occur after the
allowances have been recorded by the Administrator. 

H.  Other Requirements in this SIP Revision

1.  Use of CAIR allowances for non-CAIR sources, Sections 129.201,
129.202, 129.204, Sections 145.113, 145.143

These provisions apply to sources not regulated by Pennsylvania’s CAIR
program.  Currently, owners and operators of small sources of NOx in the
five counties that comprise the Pennsylvania portion of the Philadelphia
8-hour ozone non-attainment area are subject to emission limits that, if
exceeded, require them to surrender NOx SIP Call allowances to the
Commonwealth.  These provisions were approved by EPA into the
Pennsylvania SIP on September 29, 2006 (71 FR 57428).  Similarly, large
stationary internal combustion engines and large cement kilns that are
subject to the NOx SIP Call are required to surrender NOx SIP Call
allowances to the Commonwealth if they exceed their NOx emission limits.
 Because the NOx SIP Call trading program has been discontinued and NOx
SIP Call allowances have been converted to CAIR NOx ozone season
allowances, these rules were modified to instead require CAIR NOx ozone
season allowance and CAIR NOx allowance surrenders for emission limit
exceedances.

EPA is proposing to approve this SIP revision with the understanding
that the impact of these surrendered allowances on the overall CAIR
market will be minimal.  Since these provisions were originally adopted
by the Commonwealth, the number of NOx SIP Call allowances surrendered
have been less than one percent of the Commonwealth’s total CAIR  NOx
ozone season budget , and would likely continue to be minimal in the
CAIR trading program (See TSD at (C)(4)).

2.  Chapter 145, Subchapter A, NOx Budget Trading Program; Section 145.8
“Transition to CAIR NOx Trading Programs” 

EPA will not administer the NOx Budget Trading Program after the 2008
ozone season.  The provisions in section 145.8(a) establish 2008 as the
final year for NOx allowance allocations under Chapter 145, subchapter
A, NOx Budget Trading Program.  Allocations for 2009 will be made in
accordance with the CAIR NOx Ozone Season FIP.  The CAIR NOx ozone
season allowance allocations for the control period starting May 1,
2010, and for each control period thereafter, will be distributed in
accordance with Chapter 145, Subchapter D, CAIR NOx Trading Programs
once Pennsylvania’s CAIR SIP is finally approved.  Under section
145.8(b), any allowances already allocated for 2009 or later under the
NOx Budget Trading Program are terminated.  EPA understands that, under
this provision and section 145.8(c), all allowances for these years
under the NOx Budget Trading Program are terminated or retired.

Section 145.8(c) terminates the requirements of the NOx Budget Trading
Program by replacing that program’s emissions limitations and
monitoring requirements related to the 2010 ozone season (which starts
on May 1, 2010) by the CAIR trading program’s emissions limitations
and monitoring and other requirements related to that ozone season. 
This section also converts leftover NOx Budget Trading Program
allowances to CAIR NOx ozone season allowances and provides excess
emission procedures for the final year of the NOx Budget Trading
Program.  In summary, this section clarifies that: for the 2008 ozone
season, Pennsylvania’s NOx Budget Trading Program applies; for the
2009 ozone season, the CAIR FIP applies; and beginning with the 2010
ozone season, Pennsylvania’s CAIR NOx ozone season trading program
applies.

   

Because Pennsylvania has chosen not to expand its CAIR NOx ozone season
trading program to include non-EGUs that were subject to the State’s
NOx Budget Trading Program, Pennsylvania is required to meet 40 CFR
51.121(f)(2) and (i)(4).  These provisions require either a NOx mass
emissions cap on each source, NOx emissions rate limit on each source
assuming maximum operating capacity for purposes of estimating mass NOx
emissions, or any other regulatory requirement that can provide emission
reductions from those sources to meet the 2007 ozone season NOx budgets
established under the NOx SIP Call.  A State must also impose
enforceable mechanisms to assure that collectively all such sources,
including new or modified units, will not exceed the total ozone season
NOx budget.  Pursuant to 40 CFR 51.121(i)(4), these sources must also
comply with the monitoring provisions of 40 CFR 75, subpart H.  

Pennsylvania has added new section 145.8(d) to address requirements of
units subject to the NOx Budget Trading Program, but not subject to the
CAIR NOx Ozone Season trading Program.  Beginning with the 2009 ozone
season, these units will be required to meet an emissions cap and to
continue monitoring using 40 CFR part 75 (required through compliance
with 40 CFR part 96, Subpart HHHH and related subparts incorporated by
reference).  Pennsylvania’s non-EGU NOx ozone season emissions trading
budget under the NOx SIP Call totals 3,619 tons of NOx.  Pennsylvania
uses 3,438 tons as a State-wide ozone season emission limitation for
these units.  Each unit has an allowable emission rate, calculated by
January 31 of each year, based on the previous season’s heat input. 
If the combined NOx ozone season emissions from all the units subject to
section 145.8(d) exceed the statewide ozone season emission limit (3,438
tons), the units that exceed their individual allowable emissions for
that ozone season must surrender to the Commonwealth one CAIR NOx ozone
season allowance and one CAIR NOx annual allowance for each ton of
emissions over its allowable emission limit.  The Commonwealth has set
aside 181 tons of the non-EGU budget, including tons that will be
retired each year to compensate for sources that were exempted under the
“twenty-five ton exemption” in section 145.4(b).  The balance of
tons remaining in the set aside is available to the Pennsylvania
Department of Environmental Protection annually for accounting
corrections.  EPA understands that any unused amount from this set aside
would be retired by the Commonwealth each year.  

It is unlikely that the statewide NOx ozone season emission limitation
(3,438 tons) will be exceeded.  Pennsylvania’s non-EGU sources’
total emissions during each of the years they were trading under the NOx
Budget Trading Program have never exceeded Pennsylvania’s total
non-EGU trading budget (3,619 tons) or the statewide NOx ozone season
emission limitation (3,438 tons) (See TSD at (C)(4)).  Therefore, the
provision that the non-EGUs (that were formerly trading sources under
the NOx Budget Trading Program) surrender CAIR allowances when the
statewide NOx Ozone season emission limitation budget is exceeded is
unlikely to be invoked.  

Included in Subchapter D are provisions that integrate emission
reduction credits (ERCs) under new source review with CAIR allowances. 
The provisions require that to the extent a CAIR unit is reducing its
NOx emissions and generating emission reduction credits for use by
another source to meet new source review requirements, the CAIR NOx
annual and ozone season budgets must be reduced an amount equal to the
ERCs.  In years for which allowances have already been allocated,
allowances must be surrendered by the owner or operator of the CAIR unit
generating the ERC in order to reduce the budgets.  In years for which
allowances have not yet been recorded, the budgets will be reduced
before allowances are recorded and distributed.  

EPA expects that the amount of allowances removed from the CAIR budgets
as a result of these provisions would likely be minimal.  EPA is
therefore proposing to approve these provisions. 

VI.	Proposed Action

EPA is proposing to approve Pennsylvania’s full CAIR SIP revision
submitted on May 23, 2008. The SIP revision meets the applicable
requirements of CAIR, set forth in 40 CFR 51.123(o) and (aa), with
regard to NOX annual and NOX ozone season emissions, and 40 CFR
51.124(o), with regard to SO2 emissions.  EPA is also proposing to
approve revisions to other Pennsylvania regulations submitted as part of
this SIP revision as discussed in this notice.  EPA is soliciting public
comments on the issues discussed in this document.  These comments will
be considered before taking final action.

 

VII.	Statutory and Executive Order Reviews   

Under the Clean Air Act, the Administrator is required to approve a SIP
submission that complies with the provisions of the Act and applicable
Federal regulations.  42 U.S.C. 7410(k); 40 CFR 52.02(a).  Thus, in
reviewing SIP submissions, EPA’s role is to approve state choices,
provided that they meet the criteria of the Clean Air Act.  Accordingly,
this action merely proposes to approve state law as meeting Federal
requirements and does not impose additional requirements beyond those
imposed by state law.  For that reason, this proposed action:

is not a "significant regulatory action” subject to review by the
Office of Management and Budget under Executive Order 12866 (58 FR
51735, October 4, 1993);  

does not impose an information collection burden under the provisions of
the Paperwork Reduction Act (44 U.S.C. 3501 et seq.);

is certified as not having a significant economic impact on a
substantial number of small entities under the Regulatory Flexibility
Act (5 U.S.C. 601 et seq.);  

does not contain any unfunded mandate or significantly or uniquely
affect small governments, as described in the Unfunded Mandates Reform
Act of 1995 (Public Law 104-4);

does not have Federalism implications as specified in Executive Order
13132 (64 FR 43255, August 10, 1999);

is not an economically significant regulatory action based on health or
safety risks subject to Executive Order 13045 (62 FR 19885, April 23,
1997); 

is not a significant regulatory action subject to Executive Order 13211
(66 FR 28355, May 22, 2001); 

is not subject to requirements of Section 12(d) of the National
Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272 note)
because application of those requirements would be inconsistent with the
Clean Air Act; and 

does not provide EPA with the discretionary authority to address, as
appropriate, disproportionate human health or environmental effects,
using practicable and legally permissible methods, under Executive Order
12898 (59 FR 7629, February 16, 1994).

In addition, this proposed approval of the Pennsylvania SIP revision to
meet the requirements of CAIR and transition from the NOx Budget Program
does not have tribal implications as specified by Executive Order 13175
(65 FR 67249, November 9, 2000), because the SIP is not approved to
apply in Indian country located in the state, and EPA notes that it will
not impose substantial direct costs on tribal governments or preempt
tribal law.

List of Subjects in 40 CFR Part 52  

Environmental protection, Air pollution control, Nitrogen dioxide,
Ozone, Particulate matter, Reporting and recordkeeping requirements,
Sulfur oxides.



Authority: 42 U.S.C. 7401 et seq.

_September 15, 2009			     	                  /s/                       
                                 

Dated						 William C. Early,

                                                              	 Acting
Regional Administrator,

                                                              	 Region
III.

1 The Court also determined that the CAIR trading programs were unlawful
(id. at 906-8) and that the treatment of title IV allowances in CAIR was
unlawful (id. at 921-23).  For the same reasons that EPA is approving
the provisions of Pennsylvania’s SIP revision that use the SO2 and NOX
budgets set in CAIR, EPA is also approving, as discussed below,
Pennsylvania’s SIP revision to the extent the SIP revision adopts the
CAIR trading programs, including the provisions addressing
applicability, allowance allocations, and use of title IV allowances.

 Because the Pennsylvania CAIR SIP was not in effect at the time, the
2009 allocations for sources in Pennsylvania were issued under the FIP. 
Allocations beginning with vintage year 2010 will be issued in
accordance with the Commonwealth’s CAIR SIP when finally approved.

 Sources that were exempted under the “25 ton exemption” provisions
of the NOx Budget Trading Program must continue to have the same
Federally enforceable permits limits (as were required under the NOx
Budget Trading Program), including restricting the units to burning only
natural gas or fuel oil and NOx emissions to 25 tons or less in a
control period.

 PAGE   

 PAGE  29 

