[Federal Register Volume 84, Number 101 (Friday, May 24, 2019)]
[Proposed Rules]
[Pages 24064-24069]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-10798]


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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 49

[EPA-R08-OAR-2019-0002; 9991-98-Region 8]


Federal Implementation Plan To Establish a Bank for Ozone 
Precursor Emission Reduction Credits From Existing Sources on Indian 
Country Lands Within the Uinta Basin Ozone Nonattainment Area

AGENCY: Environmental Protection Agency (EPA).

ACTION: Advance notice of proposed rulemaking.

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SUMMARY: The purpose of this Advance Notice of Proposed Rulemaking 
(ANPRM) is to solicit broad feedback on different approaches to 
establishing a voluntary emission reduction credit (ERC) bank for ozone 
precursors, specifically volatile organic compounds (VOCs) and nitrogen 
oxides (NOX), as part of a Clean Air Act (CAA) Federal 
Implementation Plan (FIP) applicable to stationary sources on Indian 
country lands within the Uintah and Ouray Indian Reservation (U&O 
Reservation) that are part of the Uinta Basin Ozone Nonattainment Area. 
The EPA designated portions of the ``Uinta Basin'' region nonattainment 
for the 2015 Ozone NAAQS, effective August 3, 2018. The ERCs described 
in this ANPRM could be generated and used for several air quality 
planning purposes: assisting in achievement of the ozone National 
Ambient Air Quality Standard (NAAQS), general conformity 
demonstrations, and nonattainment new source review (NNSR) permitting 
related to development of new VOC and NOX emissions sources 
in Indian country portions of the Uinta Basin Ozone Nonattainment Area 
in Utah. We are also inviting comment on the potential for the bank to 
interact with sources that are outside the nonattainment area or the 
U&O Reservation.

DATES: Comments must be received on or before July 8, 2019.

ADDRESSES: Submit your comments, identified by Docket ID No. EPA-R08-
OAR-2019-0002, at http://www.regulations.gov. Follow the online 
instructions for submitting comments. Once submitted, comments cannot 
be edited or removed from www.regulations.gov. The EPA may publish any 
comment received to its public docket. Do not submit electronically any 
information you consider to be Confidential Business Information (CBI) 
or other information whose disclosure is restricted by statute. 
Multimedia submissions (audio, video, etc.) must be accompanied by a 
written comment. The written comment is considered the official comment 
and should include discussion of all points you wish to make. The EPA 
will generally not consider comments or comment contents located 
outside of the primary submission (i.e., on the web, cloud, or other 
file sharing system). For additional submission methods, the full EPA 
public comment policy, information about CBI or multimedia submissions, 
and general guidance on making effective comments, please visit http://www2.epa.gov/dockets/commenting-epa-dockets.

FOR FURTHER INFORMATION CONTACT: Chris Dresser, U.S. EPA, Region 8, Air 
Program, Mail Code 8P-AR, 1595 Wynkoop Street, Denver, Colorado 80202-
1129, (303) 312-6385, dresser.chris@epa.gov.

SUPPLEMENTARY INFORMATION: Throughout this document, ``reviewing 
authority,'' ``we,'' ``us'' and ``our'' refer to the EPA.

ANPRM: Advance Notice of Proposed Rulemaking.
APA: The Administrative Procedure Act.
Act or CAA: Clean Air Act, unless the context indicates otherwise.
CBI: Confidential Business Information.
EIP: Economic Incentive Programs.
EPA: The United States Environmental Protection Agency.
ERC: Emission Reduction Credit.
FIP: Federal Implementation Plan.
NAAQS: National Ambient Air Quality Standards.
NAICS: North American Industry Classification System.
NESHAP: National Emission Standards for Hazardous Air Pollutants.
NOX: Nitrogen oxides.
NPRM: Notice of Proposed Rulemaking.
NNSR: Nonattainment New Source Review.
NSR: New Source Review.
NTTAA: National Technology Transfer and Advancement Act.
OMB: Office of Management and Budget.
RACT: Reasonably Available Control Technology.
RFA: Regulatory Flexibility Act.
RFP: Reasonable Further Progress.
SIP: State Implementation Plan.
TAR: Tribal Authority Rule.
TAS: Treatment in the same manner as a state.
TIP: Tribal Implementation Plan.
TPY: Tons Per Year.
UDEQ: Utah Department of Environmental Quality's Division of Air 
Quality.
U&O Reservation or the Reservation: Uintah & Ouray Indian 
Reservation.
VOC: Volatile organic compound(s).

    This preamble is organized as follows:

I. General Information
    A. Would this potential action apply to me?

[[Page 24065]]

    B. What should I consider as I prepare my comments to the EPA?
    C. Where can I get a copy of this document and other related 
information?
II. Purpose of This Advance Notice of Proposed Rulemaking
III. What is an emission reduction credit bank?
IV. Background on the U&O Reservation
V. Areas Where the EPA Is Requesting Comment
    A. Conceptual Support for an EPA-run U&O ERC Bank
    B. Participation in the U&O ERC Bank
    C. ERC Bank Format
    D. Creditable Emission Reductions
    E. Trading of ERCs
    F. Use of ERCs
    G. Withdrawal of ERCs From the Bank
    H. Emissions Reductions Achieved Prior to the Effective Date of 
Final U&O ERC Banking Rule
    I. Geographic Considerations and Interaction With Utah State 
Land CAA Planning Requirements
    J. General Comments
VI. Statutory and Executive Order Reviews

I. General Information

A. Would this potential action apply to me?

    Entities potentially affected by this upcoming proposed FIP consist 
of existing sources of emissions of ozone precursors (VOC and 
NOX) on Indian country lands that are both (1) within the 
U&O Reservation \1\ and (2) part of the Uinta Basin Ozone Nonattainment 
Area. All the Indian country lands within the Uinta Basin Ozone 
Nonattainment Area of which the EPA is aware are within the U&O 
Reservation. Further, all of the Ute Indian Tribe Indian country lands 
of which the EPA is aware are located within the Reservation.\2\ To the 
extent that there are Ute Indian Tribe dependent Indian communities 
under 18 U.S.C. 1151(b) or allotted lands under 18 U.S.C. 1151(c) that 
are located outside the exterior boundaries of the Reservation, those 
lands would not be covered by this FIP unless the EPA or the Tribe 
demonstrates that the Tribe has jurisdiction over the area. In 
addition, there are parts of the Uinta Basin Ozone Nonattainment Area 
that are not within Indian country. Any proposed FIP will not apply to 
any sources on non-Indian-country lands, including any non-Indian-
country lands within the exterior boundaries of the Reservation. The 
EPA expects that entities with operations in the oil and natural gas 
production and natural gas processing segments of the oil and natural 
gas sector would be the primary depositors of ERCs in a U&O ERC bank, 
while new or modified major sources of VOC or NOX emissions 
in various source categories would be the primary purchasers of banked 
ERCs to support Nonattainment New Source Review (NNSR) permitting. 
However, other source categories may choose to participate in either 
depositing ERCs or purchasing banked ERCs to support NNSR permitting of 
new or modified major or minor sources of VOC or NOX 
emissions.
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    \1\ See discussion at section IV below, for more information on 
the establishment of the Reservation.
    \2\ Under the CAA, lands held in trust for the use of an Indian 
tribe are reservation lands within the definition at 18 U.S.C. 
1151(a), regardless of whether the land is formally designated as a 
reservation. See 63 FR 7254, 7258 (Feb. 12, 1998) (``Tribal 
Authority Rule''); Arizona Pub. Serv. Co. v. EPA, 211 F.3d 1280, 
1285-86 (D.C. Cir. 2000). EPA's references in this FIP to Indian 
country lands within the exterior boundaries of the U&O Reservation 
include any such tribal trust lands that may be acquired by the Ute 
Indian Tribe.
     In 2014, the U.S. Court of Appeals for the D.C. Circuit 
addressed EPA's authority to promulgate a FIP establishing certain 
CAA permitting programs in Indian country. Oklahoma Dept. of 
Environmental Quality v. EPA, 740 F. 3d 185 (D.C. Cir. 2014). In 
that case, the court recognized EPA's authority to promulgate a FIP 
to directly administer CAA programs on Indian reservations but 
invalidated the FIP at issue as applied to non-reservation areas of 
Indian country in the absence of a demonstration of an Indian 
tribe's jurisdiction over such non-reservation area. Because the 
current proposed rule would apply only on Indian country lands that 
are within the exterior boundaries of the U&O Reservation, i.e., on 
reservation areas, the Oklahoma court decision is not implicated.

     Table 1--Source Categories Affected by This Anticipated Action
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                                                Examples of regulated
       Industry category         NAICS code    entities/description of
                                                  industry category
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Oil and Gas Production/               21111  Exploration for crude
 Operations.                                  petroleum and natural gas;
                                              drilling, completing, and
                                              equipping wells; operation
                                              of separators, emulsion
                                              breakers, desilting
                                              equipment, and field
                                              gathering lines for crude
                                              petroleum and natural gas;
                                              and all other activities
                                              in the preparation of oil
                                              and gas up to the point of
                                              shipment from the
                                              producing property.
                                              Production of crude
                                              petroleum, the mining and
                                              extraction of oil from oil
                                              shale and oil sands, the
                                              production of natural gas,
                                              sulfur recovery from
                                              natural gas, and the
                                              recovery of hydrocarbon
                                              liquids from oil and gas
                                              field gases.
Crude Petroleum and Natural          211111  Exploration, development
 Gas Extraction.                              and/or the production of
                                              petroleum or natural gas
                                              from wells in which the
                                              hydrocarbons will
                                              initially flow or can be
                                              produced using normal
                                              pumping techniques or
                                              production of crude
                                              petroleum from surface
                                              shales or tar sands or
                                              from reservoirs in which
                                              the hydrocarbons are
                                              semisolids.
Natural Gas Liquid Extraction.       211112  Recovery of liquid
                                              hydrocarbons from oil and
                                              gas field gases; and
                                              sulfur recovery from
                                              natural gas.
Drilling Oil and Gas Wells....       213111  Drilling oil and gas wells
                                              for others on a contract
                                              or fee basis, including
                                              spudding in, drilling in,
                                              redrilling, and
                                              directional drilling.
Support Activities for Oil and       213112  Performing support
 Gas Operations.                              activities on a contract
                                              or fee basis for oil and
                                              gas operations (except
                                              site preparation and
                                              related construction
                                              activities) such as
                                              exploration (except
                                              geophysical surveying and
                                              mapping); excavating slush
                                              pits and cellars, well
                                              surveying; running,
                                              cutting, and pulling
                                              casings, tubes, and rods;
                                              cementing wells, shooting
                                              wells; perforating well
                                              casings; acidizing and
                                              chemically treating wells;
                                              and cleaning out, bailing,
                                              and swabbing wells.
Engines (Spark Ignition and            2211  Provision of electric power
 Compression Ignition) for                    to support oil and natural
 Electric Power Generation.                   gas production where
                                              access to the electric
                                              grid is unavailable.
Fossil Fuel Electric Power           221112  Operating fossil fuel
 Generation.                                  powered electric power
                                              generation facilities
                                              using fossil fuels, such
                                              as coal, oil, or gas, in
                                              internal combustion or
                                              combustion turbine
                                              conventional steam process
                                              to produce electric
                                              energy. Electric energy
                                              production is provided to
                                              electric power
                                              transmission systems or to
                                              electric power
                                              distribution systems.

[[Page 24066]]

 
Petroleum Bulk Stations and          424710  Bulk liquid storage
 Terminals.                                   facilities primarily
                                              engaged in the merchant
                                              wholesale distribution of
                                              crude petroleum and
                                              petroleum products,
                                              including liquefied
                                              petroleum gas.
------------------------------------------------------------------------

    This list is not intended to be exhaustive, but rather provides a 
guide for readers regarding entities potentially affected by this 
anticipated action. If you have any questions regarding the 
applicability of this potential action to a particular entity, contact 
the appropriate person listed in the FOR FURTHER INFORMATION CONTACT 
section.

II. Purpose of This Advance Notice of Proposed Rulemaking

    The EPA is issuing this ANPRM to solicit comment on how to best 
design and implement an ERC banking and trading program for stationary 
sources located on the Indian country portion of the Uinta Basin Ozone 
Nonattainment Area.\3\ (As discussed previously, the Indian country 
lands within the Uinta Basin Ozone Nonattainment Area to which a U&O 
ERC bank would apply are on the U&O Reservation. There are, in 
addition, portions of the nonattainment area that are outside of Indian 
country; sources in those areas are subject to state law.\4\) Allowing 
sources to use an EPA-run bank to credit eligible emissions reductions 
would serve three purposes:
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    \3\ Effective August 3, 2018, certain parts of the Uinta Basin 
were classified as a Marginal nonattainment area for the 2015 ozone 
NAAQS. 83 FR 25776, 25837 (June 4, 2018); see also information and 
links posted at https://www.epa.gov/ozone-designations/additional-designations-2015-ozone-standards.
    \4\ As noted previously, our expectation is that the bank will 
apply only to stationary sources on Indian country lands within the 
U&O Reservation that are part of the Uinta Basin Ozone Nonattainment 
Area, but we are taking comment on the potential for the bank to 
interact with sources that are outside the nonattainment area or the 
U&O Reservation.
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    1. The requirement to obtain offsets (as ERCs) for permitting new 
or modified major sources would likely incentivize industry to 
voluntarily implement controls on existing operations, which would lead 
to emissions reductions sooner than would otherwise occur. We expect, 
based on the existing emissions inventory, that the primary generators 
of ERCs will be minor oil and natural gas production sources, while the 
primary users of ERCs as compensating emissions reductions will be new 
or modified major sources.
    2. The ability to bank emissions credits would facilitate continued 
economic development by providing a market for compensating emissions 
reductions and offsets, such as those required to construct new and 
modified major sources in the nonattainment area. The Uinta Basin Ozone 
Nonattainment Area is classified as a Marginal nonattainment area for 
the 2015 ozone NAAQS. At the Marginal level of nonattainment, offsets 
for permitting new or modified major sources could be purchased and 
used at a ratio of 1.1 ton of emissions reductions of an ozone 
precursor to every 1 ton of new emissions added to the Basin.\5\ This 
requirement for major source offsets ensures a declining emissions 
trend, while still allowing new major source development.\6\ As 
discussed below, other options exist to increase the effectiveness of 
this program as a means of reducing emissions and improving air 
quality.
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    \5\ CAA section 182(a)(4), 42 U.S.C. 7511a(a)(4) (setting 
general offset requirement for Marginal Areas).
    \6\ Although minor sources are not subject to this major source 
individual offset requirement, the EPA believes that 1:1 
compensating emissions reductions could be the simplest way to show 
that a new minor source does not ``cause or contribute'' to a NAAQS 
violation. The EPA is open to ideas about other ways to make this 
demonstration.
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    3. The ability to bank emissions credits for later use to satisfy 
CAA general conformity requirements applicable to federal actions would 
minimize delays in such actions.
    To ensure the integrity of the program and its consistency with the 
CAA, to qualify as ERCs, emissions reductions are required to be 
quantifiable, enforceable, permanent, and surplus of CAA 
requirements.\7\
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    \7\ For detailed discussion of the meaning of these terms 
(quantifiable, enforceable, permanent, and surplus) in this context, 
see Improving Air Quality with Economic Incentive Programs, EPA-452/
R-01-001 (EPA Office of Air and Radiation, 2001) (``EIP Guidance,'' 
available at https://www.epa.gov/sites/production/files/2015-07/documents/eipfin.pdf), chapter 4 (describing these ``fundamental 
principles'' of all banking and trading programs). For additional 
authorities establishing that CAA emission reduction credits must be 
quantifiable, enforceable, permanent, and surplus, see CAA section 
173(c), 42 U.S.C. 7503(c) (requiring that emissions offsets in 
nonattainment permitting be ``not otherwise required,'' ``in 
effect'' by the time a source commences operation, and 
``enforceable''); 40 CFR 51.165(a)(3)(ii)(C)(1)(i) (requiring that 
SIPs and TIPs provide that emission reduction credits from shutdowns 
or operational curtailments must be surplus, quantifiable, 
enforceable, and permanent); 40 CFR part 51, subpart U (rules for 
``mandatory'' economic incentive programs submitted as part of 
satisfying SIP requirements under CAA sections 182 and 187) (stating 
that programs must be ``state and federally enforceable,'' and that 
``[p]rograms in nonattainment areas for which credit is taken in 
attainment and RFP demonstrations shall be designed to ensure that 
the effects of the program are quantifiable and permanent over the 
entire duration of the program, and that the credit taken is limited 
to that which is surplus.''); Emissions Trading Policy Statement, 51 
FR 43814, 43831 (Dec. 4, 1986) (``To assure that emissions trades do 
not contravene relevant requirements of the Clean Air Act, only 
reductions which are surplus, enforceable, permanent, and 
quantifiable can qualify as ERCs and be banked or used in an 
emissions trade.''); Emissions Offset Interpretive Ruling, 44 FR 
3274, 3274-76 (Jan. 16, 1979) (``Emissions reductions achieved by 
shutting down an existing source or curtailing production or 
operating hours may be generally credited for offsets if they . . . 
are surplus, permanent, quantifiable, and federally enforceable. . 
.'').
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    The CAA allows the establishment of emissions banking and trading 
systems to meet applicable requirements, and allows for flexibility and 
tailoring of the program to specific geographic areas.\8\ As discussed 
in detail in Section V of this ANPRM, the EPA is requesting comments on 
a range of elements concerning whether and how an ERC banking rule 
should be designed and implemented for the Indian country portion of 
the Uinta Basin Ozone Nonattainment Area. We will take this feedback 
into consideration in developing a notice of proposed rulemaking (NPRM) 
for a FIP for crediting ozone precursor emissions reductions from 
existing Indian country sources within the Uinta Basin Ozone 
Nonattainment Area.
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    \8\ See, e.g., CAA sections 110(a)(2)(A), 42 U.S.C 
7410(a)(2)(A), and 172(c)(6) (state implementation plans must have 
``control measures, means, or techniques (including economic 
incentives such as fees, marketable permits, and auctions of 
emissions rights)''; see also EIP Guidance.
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III. What is an emission reduction credit bank?

    The following information is meant to give the reader a general 
overview of ERC banks. Specifics may vary depending on the design of 
the actual regulatory program.
    Generally speaking, source owners or operators can generate 
emissions reductions using a number of approaches, including curtailing 
emissions or shutting down emissions units. These emissions reductions 
can

[[Page 24067]]

then be certified as ERCs and deposited in a bank provided they meet 
relevant requirements. ERCs can thus be viewed as financial incentives 
that can be saved for later use as emissions offsets by the depositor 
or sold or traded at the market price to other sources needing 
emissions offsets.
    ERCs are generated when owners or operators of a facility or source 
reduce emissions of criteria pollutants \9\ or their precursors below 
any applicable regulatory requirements, while complying with all other 
applicable requirements of the CAA.\10\ ERCs can be generated from 
permanent shutdown and removal of equipment; upgrade or retrofit to 
more stringent emissions controls; or change of process, methods, or 
operating guidelines that would affect emissions. These control methods 
and technologies must result in real, quantifiable, enforceable, and 
permanent reductions in emissions, and the reductions must be surplus 
of CAA requirements.\11\
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    \9\ While lead is a criteria pollutant, ERC banks should not 
address lead emissions. See EIP Guidance.
    \10\ An ERC must not conflict with or override other CAA 
requirements that may apply to an area or source(s) (e.g., part D 
nonattainment NSR offset requirements or part C PSD requirements) 
regardless of the attainment classification of an area. See EIP 
Guidance at 15.
    \11\ See n. 7, above.
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    The overall purpose of an ERC bank is to apply market-based 
strategies to encourage reductions in emissions for an area, which may 
help meet shared air quality goals. An ERC bank promotes flexibility 
and innovation in complying with state and federal air emissions 
requirements established in a SIP/FIP/TIP and SIP/FIP/TIP-approved air 
permitting programs. This flexibility should allow for the achievement 
of air quality goals (e.g., SIP/FIP/TIP requirements) more quickly and 
at a lower cost while still complying with all applicable requirements 
of the CAA.
    As mentioned in Section I, we expect that a principal use of 
emission reduction credits will be to offset new and modified major 
source emissions as part of NNSR permitting. Sections 172(c)(5) and 173 
of Part D of title I of the CAA and EPA's implementing regulations at 
40 CFR 51.165 contain the NSR requirements for areas designated 
nonattainment for a NAAQS. NNSR only applies to pollutants or their 
precursors for which the area is designated as nonattainment for a 
NAAQS under the CAA. The NNSR program has specific emissions thresholds 
for determining which new sources or modifications of existing sources 
are ``major'' based on the nonattainment classification of the specific 
pollutant.\12\ Once a stationary source is subject to the major NNSR 
program, the source must meet several criteria to receive a 
preconstruction permit. The most significant of these requirements are 
the application of the Lowest Achievable Emissions Rate (LAER) to the 
stationary source or project and the requirement to offset potential 
emissions increases from the project with decreases in actual emissions 
from the same or other stationary sources located in the same 
nonattainment area or a nonattainment area of equal or higher 
classification.
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    \12\ The ``major stationary source'' threshold for a marginal 
and moderate nonattainment areas is 100 tpy for a pollutant or 
precursor. NNSR also applies to existing major stationary sources 
that undertake a ``major modification,'' which occurs when the 
change ultimately results in a ``significant net'' emissions 
increase of the nonattainment pollutant (significance rates are 
defined in 40 CFR 51.165(a)(1)(v)). The significance threshold is 
lower in certain nonattainment areas with higher degrees of 
nonattainment, with the specific level based on the area's 
nonattainment classification.
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    Under existing EPA regulations, source owners seeking permits for 
construction of new or modified minor sources in a nonattainment area 
of Indian country must demonstrate that the source will not cause or 
contribute to a NAAQS violation. 40 CFR 49.155(a)(7)(ii). The EPA's 
Indian Country Oil and Natural Gas True Minor Source FIP allowed 
streamlined permitting of new and modified minor oil and natural gas 
sources on Indian country lands within the U&O Reservation before the 
designation of the Uinta Basin Ozone Nonattainment Area, but that FIP 
does not currently provide for streamlined permitting of sources in the 
nonattainment area.\13\ Instead, those sources must obtain source-
specific permits before beginning construction, under the rules at 40 
CFR 49.151 through 49.165.\14\
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    \13\ See 40 CFR 49.101(b)(1)(v).
    \14\ On May 8, 2018, EPA proposed to amend the Indian Country 
Oil and Natural Gas True Minor Source FIP to allow the FIP to apply 
in the Uintah Basin Ozone Nonattainment Area. See 83 FR 20775.
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IV. Background on the U&O Reservation

    The Ute Indian Tribe is a federally recognized Indian tribe 
organized under the Indian Reorganization Act of 1934,\15\ with its 
Constitution and By-Laws adopted by the Tribe on December 19, 1936, and 
approved by the Secretary of the Interior on January 19, 1937.\16\ The 
Uintah and Ouray Indian Reservation was formerly the Uintah Valley and 
Uncompahgre Reservations, which were established in 1861 and 1882, 
respectively.\17\ The Tribe's Constitution and By-Laws reorganized 
three Ute Tribes into one, and clarified that tribal jurisdiction 
within the U&O Reservation extends to the territory within the original 
Uintah and Uncompahgre Reservations, which was later enlarged through 
the Hill Creek Extension Act of 1948.\18\ The U&O Reservation currently 
includes all Indian country lands within its exterior boundaries, as 
defined by the 1861 and 1882 Executive Orders, the Act of May 5, 1864, 
the Hill Creek Extension Act of 1948, and subsequent court 
decisions.\19\
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    \15\ See 83 FR 34863, 34866 (July 23, 2018) (list of federally 
recognized tribes); 48 Stat. 984, 25 U.S.C. 5123 (Indian 
Reorganization Act).
    \16\ Constitution and By-Laws of the Ute Indian Tribe, available 
at https://www.loc.gov/law/help/american-indian-consts/PDF/37026342.pdf.
    \17\ The U&O Reservation was established for the Ute Indian 
Tribe under Executive Order in 1861, 1 Kapp. 900, as confirmed by 
the Act of May 5, 1864, 13 Stat. 63, and under Executive Order of 
January 5, 1882, then enlarged through the Hill Creek Extension Act 
of 1948, 62 Stat. 72. The Reservation has been addressed in multiple 
federal court decisions, including Ute Indian Tribe v. Utah, 521 F. 
Supp. 1072, 1155 (D. Utah 1981); Ute Indian Tribe v. Utah, 716 F.2d 
1298 (10th Cir. 1983); Ute Indian Tribe v. Utah, 773 F.2d 1087 (10th 
Cir. 1985) (en banc), cert. denied, 479 U.S. 994 (1986); Hagen v. 
Utah, 510 U.S. 399 (1994); Ute Indian Tribe v. Utah, 935 F. Supp. 
1473 (D. Utah 1996); Ute Indian Tribe v. Utah, 114 F.3d 1513 (10th 
Cir. 1997), cert. denied, 522 U.S. 1107 (1998); Ute Indian Tribe v. 
Utah, 790 F.3d 1000 (10th Cir. 2015), cert. denied, 136 S. Ct. 1451 
(U.S. Mar. 21, 2016); and Ute Indian Tribe v. Myton, 835 F.3d 1255 
(10th Cir. 2016), cert. dismissed, 137 S.Ct. 2328 (2017). As a 
result of this line of cases, there are some non-Indian-country 
lands within the exterior boundaries of the Uintah and Ouray Indian 
Reservation.
    \18\ 62 Stat. 72.
    \19\ See n. 16, above.
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    Pursuant to CAA section 301(d),\20\ the EPA is authorized to treat 
eligible Indian tribes in the same manner as states (``treatment as 
state'' or TAS) for purposes of implementing CAA provisions over their 
entire reservations and over any other areas within their 
jurisdiction.\21\ The Ute Indian Tribe has not applied for TAS for the 
purpose of administering a TIP under the CAA. Thus, there is currently 
no EPA-approved plan implementing the functions and provisions of the 
CAA on Indian country lands within the U&O Reservation. We anticipate 
that the U&O ERC banking rule for which the EPA is providing this 
advance notice of proposed rulemaking and soliciting comment would 
apply to the Indian country lands within the exterior boundaries of the 
U&O Reservation that are part of the Uinta Basin Ozone Nonattainment 
Area.
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    \20\ See 42 U.S.C. 7601(d).
    \21\ See 63 FR 7254-57 (Feb. 12, 1998) (explaining that CAA 
section 301(d) includes a delegation of authority from Congress to 
eligible Indian tribes to implement CAA programs over all air 
resources within the exterior boundaries of their reservations).

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[[Page 24068]]

V. Areas Where the EPA Is Requesting Comment

    For purposes of formulating a Reservation-specific ERC banking 
rule, the EPA is seeking comment on the following issues:
    A. Conceptual support for an EPA-run U&O ERC bank: Should the EPA 
proceed with plans to propose a rule establishing such a voluntary ERC 
bank? The EPA seeks comment on whether industry (and potentially 
others) would use an ERC bank for the Indian country lands within the 
U&O Reservation that are part of the Uinta Basin Ozone Nonattainment 
Area. Are there any reasons not to create a U&O ERC bank, or are there 
suggestions to handle surplus emission reduction crediting through 
another approach? Finally, are there existing state-run ERC banking 
systems that may serve as a good example for developing a U&O ERC bank?
    B. Participation in the U&O ERC bank: The EPA expects that the 
principal clients of a U&O ERC bank would be industrial sources within 
the Indian country portions of the Uinta Basin Ozone Nonattainment Area 
depositing emission reduction credits for sale or for later use to 
support future development, as well as new and modified industrial 
sources needing offsets necessary to obtain a major NNSR permit. We 
seek comment on what other entities (besides companies implementing 
voluntary emissions controls and/or companies needing offsets to 
support new development) should be permitted to participate in a U&O 
ERC bank. Such entities might include non-governmental organizations, 
federal government agencies, local government, the Ute Indian Tribe and 
others. Are there any reasons to preclude any entities from purchasing 
ERC credits from such a bank?
    C. ERC bank format: The EPA seeks comment on the format and 
features of a U&O ERC bank. It is expected that (as with most ERC 
banks) a database would be created to track and manage ERCs, through 
their deposit, trading and use, that will be publicly available online. 
The EPA solicits comment on this expectation. Additionally, should the 
owner of an ERC be required to deposit the ERC into the bank before 
using it as an offset, in order to centralize tracking? Or, if an 
emissions reduction is created for a specific project, can it be 
evaluated as part of the project and avoid the U&O ERC bank? The EPA 
seeks comments on what information should be maintained in the database 
for each banking action.
    D. Creditable emissions reductions: The EPA intends to propose a 
rule that specifically outlines what emissions reductions qualify as 
creditable for deposit in a U&O ERC bank. Generally, qualifying ERCs 
are limited to emissions reductions that are real, quantifiable, 
enforceable, permanent, and surplus of CAA requirements. Such ERCs are 
typically generated by permanently shutting down equipment, modifying a 
process (i.e., using a lower VOC/sulfur containing material), or by 
adding emissions controls beyond those required by any applicable 
regulation.
    Some state-run ERC banks require that a certain percentage of 
reductions be removed and made ineligible for future use to ensure an 
environmental benefit to the banking system. For instance, if an 
operator achieves a 10 tpy reduction by implementing an emissions 
control on a given source, some percentage (such as 10%) may be retired 
for environmental benefit, and only 9 tpy would be deposited in the ERC 
bank for future offsets or compensating emissions reductions. This 
ensures that more accelerated progress is made towards attainment. The 
EPA seeks comment on whether this practice should be implemented for a 
U&O ERC bank, and if so, at what percentage?
    Given the seasonal nature of ozone generation in the Uinta Basin, 
are there legally and technically supported approaches to allowing 
seasonal emissions reductions to be credited? Should seasonal 
limitations be placed on the program? For instance, should the rule 
prevent summertime reductions from being used to support the addition 
of wintertime emissions?
    How should the ERC banking rule treat emissions reductions that 
occur from emissions unit shutdowns? What requirements should apply to 
shut-down equipment to ensure it meets the requirement to be a 
permanent reduction? There are restrictions on the use of reductions 
occurring from equipment shutdowns in 40 CFR 51.165(a)(3)(ii)(C)(1), 
such as only being eligible for use if the shutdown occurred after the 
last day of the baseline year for the plan. Additionally, use of 
reductions from equipment shutdowns must be restricted to prohibit 
operation of that unit elsewhere in the nonattainment area. Should the 
use of reductions from shut-down equipment be restricted further, such 
as disallowing operation in a broader area outside of the nonattainment 
area, or requiring destruction of the unit?
    E. Trading of ERCs: A principal use of an ERC bank would be to 
allow companies in need of emissions offsets to construct new and 
modified sources to purchase those credits from companies that have 
permanently reduced emissions and deposited those ERCs in the bank. The 
EPA expects that a U&O ERC bank would allow the purchase and exchange 
of ERCs, and such exchanges would be publicly documented. The EPA 
further anticipates that the price of ERCs would be determined by the 
open market based on the demand for such ERCs. The EPA intends to 
propose to require documentation from both the company selling a credit 
and the company acquiring the credit in order to process that 
transaction and would make publicly available such information--
including the number of ERCs purchased, the method of emissions 
reduction, and the purchase price. The EPA seeks comment on this 
expectation and any input on what additional information should be 
provided to document transactions within the anticipated U&O ERC bank 
database.
    F. Use of ERCs: In addition to using banked ERCs as offsets for new 
and modified major sources, these emissions reductions may also be used 
to show that a new or modified minor source does not cause or 
contribute to an ozone NAAQS violation, or to satisfy general 
conformity requirements. If such reductions are not available within 
the existing inventory of a company's emissions sources or are needed 
by a federal agency to demonstrate general conformity for a specific 
action, the U&O ERC bank could be used to facilitate the purchase of 
available ERCs. In such a case, the necessary amount of ERCs would be 
purchased from one (or more) entities in possession of ERCs. 
Documentation of the transaction would be provided to the EPA, and 
those credits would be withdrawn from the bank when used to support a 
permit action. The EPA intends to propose a U&O ERC banking rule that 
describes the specifics of this process, consistent with the principles 
and requirements described in the EIP Guidance.\22\ However, the EPA 
solicits comments on any additional considerations and flexibilities 
that should be made to allow this process to function efficiently for 
participants within the U&O Reservation. A primary goal of the program 
is to allow eligible ERCs to be certified for eventual use as offsets 
in accordance with major NNSR and general conformity requirements. Are 
there any other uses of an ERC that EPA

[[Page 24069]]

should be evaluating, such as for discretionary use in minor NNSR?
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    \22\ All offsets used for the purpose of satisfying general 
conformity requirements must meet the regulatory requirements 
relating to offsets in 40 CFR 93.158(a)(5)(iii).
---------------------------------------------------------------------------

    G. Withdrawal of ERCs from the bank: The EPA intends to evaluate 
banked credits for compliance with the ``surplus of Clean Air Act'' 
requirement at the time of their use as compensating offsetting 
emissions (e.g., upon issuance of a permit). In the event of future 
promulgation of emissions controls as part of a federal or tribal 
implementation plan, or to satisfy CAA requirements such as reasonably 
available control technology (RACT) or RFP, the EPA does not expect 
sources that have already provided offsets to need to pursue additional 
offsetting emissions. The EPA seeks comment on this anticipated 
expectation and on whether any other factors should be considered. We 
also seek comment as to whether banked credits should be discounted or 
expire after some period of time, even if they remain surplus of CAA 
requirements.
    H. Emissions reductions achieved before the effective date of final 
U&O ERC banking rule: The EPA expects that because the final 2015 Ozone 
Implementation Rule \23\ defines a primary base year of 2017, that year 
will likely be an appropriate base year for the Uinta Basin Ozone 
Nonattainment Area banking and trading program. To allow for near-term 
surplus emissions reductions that would benefit air quality, the EPA 
intends to include as a component of the proposed rule that qualifying 
emissions reductions achieved before the final rule's effective date, 
but after the nonattainment baseline year, may be banked; effectively, 
any emissions reduction achieved after January 1, 2018. The EPA seeks 
comment on the inclusion of this flexibility.
---------------------------------------------------------------------------

    \23\ Implementation of the 2015 National Ambient Air Quality 
Standards for Ozone: Nonattainment Area State Implementation Plan 
Requirements. 83 FR 62998 (Dec. 6, 2018). https://www.govinfo.gov/content/pkg/FR-2018-12-06/pdf/2018-25424.pdf.
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    I. Geographic considerations and interaction with Utah-managed CAA 
planning requirements: As explained previously, we anticipate that any 
proposed U&O ERC bank would only apply to sources on Indian country 
lands within the U&O Reservation that are within the Uinta Basin Ozone 
Nonattainment Area. There may, however, be situations where sources on 
land managed by Utah have a need for ERCs and wish to purchase them 
from a source in Indian country. Conversely, sources covered by the 
EPA-run bank may wish to purchase ERCs from a source managed by Utah. 
From a scientific standpoint, ozone precursor emissions are generally 
uniformly mixed across jurisdictions beneath the inversion during high-
ozone events in the Uinta Basin Ozone Nonattainment Area; the original 
location within the nonattainment area of emissions (and emissions 
reductions) is irrelevant to the nonattainment area's overall ozone 
design values. However, as a legal matter, the EPA is limited in the 
scope of applying any potential U&O ERC bank rulemaking to sources in 
Indian country. Accordingly, we seek comment on whether, and under what 
criteria and constraints, an EPA-run bank for sources on the Indian 
country portion of the Uinta Basin Ozone Nonattainment Area should 
interact with any state-run bank that may be developed for sources on 
land under Utah CAA regulatory jurisdiction. We also seek comment on 
whether the EPA should pursue collaboration with Utah in allowing for 
cross-jurisdictional exchange of ERCs. Finally, is there any 
justification to allow the use, or banking of credits outside of the 
Uinta Basin Nonattainment Area, but within the general geographic 
extent of the Uinta Basin?
    J. General comments: The EPA also invites the public's comment on 
any other questions associated with developing an emissions banking and 
trading program to address the goals described previously in the 
``Purpose'' section of this ANPRM.

VI. Statutory and Executive Order Reviews

    Under Executive Order 12866, entitled Regulatory Planning and 
Review (58 FR 51735, Oct. 4, 1993), the OMB has determined that this is 
a not a ``significant regulatory action.'' Because this ANPRM does not 
propose or impose any requirements, and instead seeks comments and 
suggestions for the Agency to consider in possibly developing a 
subsequent proposed rule, the various statutes and Executive Orders 
that normally apply to rulemaking do not apply in this case. Should the 
EPA subsequently determine to pursue a rulemaking, the EPA will address 
the statutes and Executive Orders as applicable to that rulemaking.
    The EPA seeks any comments or information that would help the 
Agency ultimately to assess the potential impact of a rule on small 
entities pursuant to the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 
et seq.); to consider voluntary consensus standards pursuant to section 
12(d) of the National Technology Transfer and Advancement Act of 1995 
(NTTAA) (15 U.S.C. 272 note); to consider environmental health or 
safety effects on children pursuant to Executive Order 13045, entitled 
``Protection of Children from Environmental Health Risks and Safety 
Risks'' (62 FR 19885, April 23, 1997); or to consider human health or 
environmental effects on minority or low-income populations pursuant to 
Executive Order 12898, entitled ``Federal Actions to Address 
Environmental Justice in Minority Populations and Low-Income 
Populations'' (59 FR 7629, Feb. 16, 1994).
    The Agency will consider such comments during the development of 
any subsequent proposed rule.

List of Subjects in 40 CFR Part 49

    Environmental protection, Administrative practices and procedures, 
Air pollution control, Indians, Indians-law, Indians-tribal government, 
Intergovernmental relations, reporting and recordkeeping requirements.

    Dated: May 18, 2019.
Debra Thomas,
Acting Regional Administrator, EPA Region 8.
[FR Doc. 2019-10798 Filed 5-23-19; 8:45 am]
 BILLING CODE 6560-50-P


