equal to the unit's lowest average emissions rate in a previous control
period plus a margin of 25 percent. To ensure that the data used to
establish the unit's lowest previous average emissions rate are
representative and of high quality, only past control periods where the
unit participated in a CSAPR trading program for ozone season
NOX and operated in at least ten percent of the hours in the
control period are considered. Further, to avoid causing units that
achieve emissions rates lower than 0.08 lb/mmBtu from becoming subject
to more stringent secondary emissions limitations in subsequent control
periods, the secondary emissions limitation formula uses a

floor emissions rate of 0.10 lb/mmBtu (which is 0.08 lb/mmBtu plus the
formula's 25 percent margin). In addition to making sure that
performance better than 0.08 lb/mmBtu is not disincentivized, the
inclusion of the floor emissions rate also ensures that no unit
achieving an average emissions rate of 0.10 lb/mmBtu or less in a given
control period will exceed a secondary emissions limitation in that
control period. Finally, the formula includes a 50-ton threshold, which
will avert violations for small performance deviations at large EGUs
and also ensure that no unit emitting less than 50 tons in a given
control period will exceed a secondary emissions limitation in that
control period.
    In summary, a secondary emissions limitation is applicable to a
unit for a given control period only if the state's assurance level is
exceeded, responsibility for the exceedance is apportioned at least in
part to the set of units represented by the unit's designated
representative, the unit is equipped with post-combustion controls, and
the unit operated for at least ten percent of the hours in the control
period. Where a secondary emissions limitation applies to a unit for a
given control period, the amount of the limitation is computed as the
sum of 50 tons plus the product of (1) the unit's heat input for the
control period times (2) a NOX emissions rate of 0.10 lb/
mmBtu or, if higher, 125 percent times the lowest seasonal average
NOX emissions rate achieved by the unit in a previous
control period when the unit participated in a CSAPR trading program
for ozone season NOX emissions and operated in at least ten
percent of the hours in the control period.\342\
---------------------------------------------------------------------------

    \342\ For the actual regulatory language, see 40 CFR 97.1025(c)
as added by this rule.
---------------------------------------------------------------------------

    Table VI.B.8-1 shows the secondary emissions limitations that the
formula would have produced and which units would have exceeded those
limitations if the limitations and formula had been in effect for the
Group 2 trading program in 2020 and 2021 when assurance level
exceedances occurred in Missouri. Following consideration of comments,
the EPA believes that in each case the formula functions in a
reasonable manner, and the Missouri units identified as exceeding their
respective secondary emissions limitations are sources for which an
enforcement deterrent under CAA sections 113 and 304 would have been
appropriate to compel better control of NOX emissions. Table
VI.B.8-1 does not show any units that would have been identified as
subject to secondary emissions limitations in the case of the 2019 and
2020 assurance level exceedances in Mississippi because no units in the
state meeting all conditions for applicability--including the
requirement to be equipped with post-combustion controls--exceeded
their respective limitations.

          Table VI.B.8-1--Illustrative Results of Applying Secondary Emissions Limitation in Previous Instances of Assurance Level Exceedances
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                125% of Lowest
                                                                                previously       Actual NOX     Secondary   Actual NOX
                Owner/operator                               Unit                  achieved NOX    emissions rate   emissions    emissions   Exceedance
                                                                                emissions rate     (lb/mmBtu)     limitation    (tons)       (tons)
                                                                                (lb/mmBtu)                        (tons)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     Missouri--2020
--------------------------------------------------------------------------------------------------------------------------------------------------------
Assoc. Elec. Coop............................  New Madrid 1...................              0.135           0.670          961       4,524         3,563
Assoc. Elec. Coop............................  New Madrid 2...................              0.131           0.497          866       3,108         2,242
Assoc. Elec. Coop............................  Thomas Hill 1..................              0.123           0.526          374       1,384         1,010
Assoc. Elec. Coop............................  Thomas Hill 2..................              0.122           0.537          548       2,187         1,639
Assoc. Elec. Coop............................  Thomas Hill 3..................              0.104           0.195          780       1,374           594
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     Missouri--2021
--------------------------------------------------------------------------------------------------------------------------------------------------------
Assoc. Elec. Coop............................  New Madrid 1...................              0.135           0.652          353       1,466         1,113
Assoc. Elec. Coop............................  New Madrid 2...................              0.131           0.611        1,054       4,700         3,646
Assoc. Elec. Coop............................  Thomas Hill 1..................              0.123           0.146          421         440            19
Assoc. Elec. Coop............................  Thomas Hill 2..................              0.122           0.400          600       1,801         1,201
--------------------------------------------------------------------------------------------------------------------------------------------------------

    For further illustrations of the application of the secondary
emissions limitation formula to other units in the states to be subject
to the expanded Group 3 trading program in the control periods from
2016 through 2021, see the spreadsheet ``Illustrative Calculations
Using Proposed Secondary Emissions Limitation Formula,'' available in
the docket. The EPA notes that, with the exception of the units listed
in Table VI.B.8-1, no unit shown in the spreadsheet as having emissions
exceeding the illustrative secondary emissions limitation calculated
for the unit would have violated the prohibition because no violation
would occur in the absence of an exceedance of the assurance level and
apportionment of responsibility for a share of the exceedance to the
unit under the assurance provisions.
    The secondary emissions limitation provisions are being finalized
as proposed except for the addition of the condition that a unit to
which the provisions apply must be equipped with post-combustion
controls. The EPA's responses to comments concerning the secondary
emissions limitation provisions, including the comments giving rise to
the change just mentioned, are in the remainder of this section and
section 5 of the RTC document.
    Comment: Some commenters stated that the secondary emissions
limitation is not necessary, or would be a disproportionate remedy,
because experience shows that exceedances of the assurance level have
been rare, and where exceedances of a state's assurance level have
occurred, the 3-for-1 surrender ratio under the existing regulations
has applied, providing a sufficient remedy.
    Response: The EPA disagrees with these comments. The purpose of the
assurance provisions in the CSAPR trading programs is to ensure that
the emissions reductions required to address a state's obligations
under the Good Neighbor Provision occur ``within the state'' as
mandated by the CAA. See North Carolina v. EPA, 531 F.3d 896, 906-08
(D.C. Cir. 2008). Prior to this action, the sole consequence for an
exceedance of a state's assurance level

has been a requirement to surrender two additional allowances for each
ton of the exceedance. The repeated, large, foreseeable, and easily
avoidable exceedances of Missouri's assurance level under the Group 2
trading program in 2020 and 2021 have made clear that a remedy based
solely on additional allowance surrenders is insufficient to address
this statutory requirement and that a materially stronger deterrent is
needed.
    Comment: Some commenters stated that the secondary emissions
limitation could apply to exceedances caused by factors outside the
control of the EGU operator, going beyond the EPA's intent of deterring
exceedances that are foreseeable and avoidable. For example, commenters
pointed out that some units that typically combust gas may sometimes be
ordered to combust oil at times when supplies of gas are constrained
and expressed concern that the resulting higher NOX
emissions could cause a unit to exceed its secondary emissions
limitation. Another commenter stated that it is not uncommon for units'
seasonal average NOX emissions rate to vary by more than 25
percent across control periods.
    Response: The EPA agrees that the secondary emissions limitation is
intended to apply to units in a position to avert an exceedance of a
state's assurance level. The contention that year-to-year variability
of 25 percent in units' seasonal average emissions rates is common is
not in itself a persuasive reason to omit the secondary emissions
limitation from the final rule, because the mere existence of such
variability says nothing about whether the operators of those units
could reduce that variability through their operational decisions, and
the commenter provided no data regarding the extent to which the
historical variability was avoidable. However, the EPA agrees that a
secondary emissions limitation should be designed to avoid application
to a unit whose increase in emissions rate was caused by mandated
combustion of a higher-NOX fuel than the unit's normal fuel.
Moreover, based on the analysis of the secondary emissions limitation
formula prepared for the proposal, the EPA has reviewed the
applicability of the limitation more generally and has determined that
it should apply only to units with post-combustion controls, which are
the units with the greatest ability to manage their emissions rates
through their operating behavior. This modification will avoid
application of a secondary emissions limitation in situations where a
unit's increase in seasonal average NOX emissions rate
relative to past control periods is caused by factors in that control
period beyond the operator's control, such as being mandated by a
regulator to combust a higher proportion of oil or operating for a
higher proportion of hours at load levels where the unit has a higher
NOX emissions rate for reasons other than non-operation of
emissions controls.
    Comment: Some commenters asserted that because it is not known if a
state's assurance level has been exceeded until after the end of the
control period, EGU operators would be unable to know whether the
secondary emissions limitation would apply to them during the control
period. Some of these commenters suggested that where a unit has been
found to have contributed to an assurance level exceedance, the EPA
should apply a secondary emissions limitation to the unit not in that
control period but instead in the following control period.
    Commenters suggested that uncertainty about whether a unit would be
subject to a secondary emissions limitation could have a variety of
undesirable consequences. For example, they asserted that some EGUs
could become unwilling to operate when needed for reliability because
they would be concerned that merely operating more than in previous
control periods could cause a unit to exceed its limitation. One
commenter asserted that the uncertainty would make it difficult for an
owner of multiple EGUs to use allowances allocated to one EGU to meet
another EGU's surrender requirements, possibly leading to operating
restrictions on multiple EGUs.
    Response: The EPA disagrees with these comments. While an operator
cannot be certain that the secondary emissions limitation will apply to
a particular EGU until after the end of a control period, the operator
can be certain that the limitation will not apply to a particular EGU
simply by ensuring that the unit's seasonal average NOX
emissions rate does not exceed the higher of 0.10 lb/mmBtu or 125
percent of the unit's lowest seasonal average NOX emissions
rate in a previous control period under a CSAPR trading program
(excluding control periods where the unit operated for less than 10
percent of the hours). Because any operator of a unit with post-
combustion controls can readily avoid being subject to the limitation,
there is no need for application of the limitation to be deferred to
the following control period. Deferral of the limitation's application
would also have the effect of excusing a unit's first contribution to
an assurance level exceedance, which the EPA views as inappropriate
when that exceedance could have been avoided.
    The asserted possible consequences of uncertainty about whether the
limitation would apply rest on mischaracterizations of the provision.
The formula for the limitation reflects the unit's actual heat input
for the control period, so there is no penalty for increased operation
as long as the unit's seasonal NOX average emissions rate
stays below the level just referenced. Finally, nothing about the
secondary emissions limitation disincentivizes an EGU fleet owner from
transferring allocated allowances among the fleet's EGUs, because
apportionment of responsibility for an assurance level exceedance--one
of the conditions for application of the secondary emissions
limitation--is determined at the level of the group of units
represented by a common designated representative (typically the set of
all units operated by a particular owner) rather than the individual
unit.
    Comment: Some commenters stated that the EPA should revise the
secondary emissions limitation formula so that where a limitation
applies to a unit, the unit's previous NOX emissions rate
used in the formula would not be subject to any floor. These commenters
also recommended that if the secondary emissions limitation provisions
are not finalized, the EPA instead should raise the allowance surrender
ratio applied to exceedances of the assurance level in this final rule.
    Response: The EPA disagrees with the suggestion to remove the
emissions rate floor from the secondary emissions limitation formula,
which would have the effect of making the limitation more stringent for
any unit that has achieved a seasonal average NOX emissions
rate lower than 0.08 lb/mmBtu in a past control period. As indicated by
their label, the secondary emissions limitation provisions play a
secondary role in the Group 3 trading program regulations, specifically
to provide the strongest possible deterrent against conduct leading to
foreseeable and avoidable exceedances of a state's assurance level. The
distinguishing feature of the secondary emissions limitation provisions
is therefore the remedy for an exceedance, which is potential
application of the CAA's enforcement authorities. The trading program's
primary role of achieving required emissions reductions in a more
flexible and cost-effective manner than command-and-control regulation
is played by the primary emissions limitation provisions, which are
structured as allowance surrender requirements. Within this overall

trading program structure, the EPA considers it sufficient for the
operation of units at emissions rates lower than 0.08 lb/mmBtu to be
incentivized through the allowance surrender requirements instead of
being mandated through potential application of the CAA's enforcement
authorities.
    The recommendation to raise the allowance surrender ratio
applicable to exceedances of the assurance level if the secondary
emissions limitation is not finalized is moot because the secondary
emissions limitation is being finalized.
9. Unit-Level Allowance Allocation and Recordation Procedures
    In this rule, the EPA is establishing default procedures for
allocating CSAPR NOX Ozone Season Group 3 allowances
(``Group 3 allowances'') in amounts equal to each state emissions
budget for each control period among the sources in the state for use
in complying with the Group 3 trading program. Like the allocation
processes established in CSAPR, the CSAPR Update, and the Revised CSAPR
Update, the revised allocation process finalized in this rule is
designed to provide default allowance allocations to all units that are
subject to allowance holding requirements. The EPA's allocations and
allocation procedures apply for the 2023 control period \343\ and, by
default, for subsequent control periods unless and until a state or
tribe provides state-determined or tribe-determined allowance
allocations under an approved SIP revision or tribal implementation
plan.\344\
---------------------------------------------------------------------------

    \343\ The rule does not include an option for states to replace
the EPA's unit-level allocations for the 2023 control period because
the Agency believes a process for obtaining appropriately authorized
allowance allocations determined by a state or tribe could not be
completed in time for those allocations to be recorded before the
end of the 2023 control period.
    \344\ The options for states to submit SIP revisions that would
replace the EPA's default allowance allocations are discussed in
sections VI.D.1, VI.D.2, and VI.D.3 of this document. Similarly, for
a covered area of Indian country not subject to a state's CAA
implementation planning authority, a tribe could elect to work with
the EPA under the Tribal Authority Rule to develop a full or partial
tribal implementation plan under which the tribe would determine
allowance allocations that would replace the EPA's default
allocations for subsequent control periods.
---------------------------------------------------------------------------

    The default allocation process for the Group 3 trading program as
updated in this rule involves three main steps. First, portions of each
state emissions budget for each control period are reserved for
potential allocation to units that are subject to allowance holding
requirements and that might not otherwise receive allowance allocations
in the overall allocation process, including both ``existing'' units in
any areas of Indian country not subject to a state's CAA implementation
planning authority as well as ``new'' units anywhere within a state's
borders.\345\ Second, in advance of each control period, the unreserved
portion of the state budget is allocated among the state's eligible
existing units, any portion of the state budget reserved for existing
units in Indian country not subject to the state's CAA implementation
planning authority is allocated among those units, and the allocations
are recorded in the respective sources' compliance accounts. Finally,
after the control period but before the compliance deadline by which
sources must hold allowances to cover their emissions for the control
period, allowances from the portion of the budget reserved for new
units are allocated to qualifying units, any remaining reserved
allowances not allocated to qualifying units are allocated among the
state's existing units, and the allocations are recorded in the
respective sources' compliance accounts.
---------------------------------------------------------------------------

    \345\ Under this rule, the unit-level allocations to
``existing'' units are generally computed in the year before the
year of each control period, and the determination of whether to
treat a particular unit as existing for purposes of that control
period's allocations is made as part of the allocation process,
generally based on whether the Agency has the data needed to compute
an allocation for the unit as an existing unit. A unit that is
subject to allowance holding requirements for a given control period
and that did not receive an allocation for that control period as an
existing unit is generally eligible to receive an allocation from
the portion of the budget reserved for ``new'' units. For further
discussion of which units are considered eligible for allocations as
existing units or new units in particular control periods, see
sections VI.B.9.b and VI.B.9.c.
---------------------------------------------------------------------------

    While the overall three-step allocation process summarized in this
section was also followed in CSAPR, the CSAPR Update, and the Revised
CSAPR Update, in this rule the EPA is making revisions to each step to
better address units in Indian country and to better coordinate the
unit-level allocation process with the dynamic budget-setting process
discussed in section VI.B.4 of this document. The revisions to the
three steps are discussed in sections VI.B.9.a, VI.B.9.b, and VI.B.9.c,
respectively.
a. Set-Asides of Portions of State Emissions Budgets
    The first step of the overall unit-level allocation process for a
given control period involves reserving portions of each state's budget
for the control period in ``set-asides.'' In this rule, the EPA is
making several revisions affecting the establishment of set-asides. The
first revision, which is largely unrelated to the other aspects of this
rulemaking, will update the regulations for the Group 3 trading program
\346\ to reflect the D.C. Circuit's holding in ODEQ v. EPA that the
relevant states have initial CAA implementation planning authority in
non-reservation areas of Indian country until displaced by a
demonstration of tribal jurisdiction over such an area.\347\ Consistent
with this holding, the EPA is revising language in the Group 3 trading
program regulations that prior to this rule, for purposes of allocating
allowances from a given state's emissions budget, distinguished between
(1) the set of units within the state's borders that are not in Indian
country and (2) the set of units within the state's borders that are in
Indian country. As revised, the provisions now distinguish between (1)
the set of units within the state's borders that are not in Indian
country or are in areas of Indian country covered by the state's CAA
implementation planning authority and (2) the set of units within the
state's borders that are in areas of Indian country not covered by the
state's CAA implementation planning authority. The revised language
more accurately distinguishes which units are, or are not, covered by a
state's CAA implementation planning authority, which is the underlying
purpose for which the term ``Indian country'' is currently used in the
allowance allocation provisions. The effect of the revision is that any
units located in areas of ``Indian country'' as defined in 18 U.S.C.
1151 that are covered by a state's CAA implementation planning
authority will be treated for allowance allocation purposes in the same
manner as units in areas of the state that are not Indian country,
consistent with the ODEQ holding.\348\
---------------------------------------------------------------------------

    \346\ As discussed in section VI.B.13, the EPA is also making
this revision to the regulations for the other CSAPR trading
programs in addition to the Group 3 trading program.
    \347\ For additional discussion of the ODEQ v. EPA decision and
other issues related to the CAA implementation planning authority of
states, tribes, and the EPA in various areas of Indian country, see
section III.C.2.
    \348\ The EPA notes that the units that will be treated for
allocation purposes in the same manner as units not in Indian
country will include units in any areas of Indian country subject to
a state's CAA implementation planning authority, whether those are
non-reservation areas (consistent with ODEQ) or reservation areas
(such as areas of Indian country within Oklahoma's borders covered
by the EPA's October 1, 2020 approval of Oklahoma's request under
SAFETEA, as discussed in section III.C.2).
---------------------------------------------------------------------------

    The remaining revisions, which are interrelated, concern the types
of set-asides that in the context of this rule will best accomplish the
goal of ensuring the availability of allocations to units that are
subject to allowance holding requirements and that would

not otherwise receive allowance allocations. One revision to the types
of set-asides addresses allocations to existing units in Indian
country. The revised geographic scope of the Group 3 trading program
under this rule will for the first time include an existing EGU in
Indian country not covered by a state's CAA implementation planning
authority--the Bonanza coal-fired unit in the Uintah and Ouray
Reservation within Utah's borders. To provide an option for Utah (or a
similarly situated state in the future) to replace the Agency's default
allowance allocations to most existing units with state-determined
allocations through a SIP revision while continuing to ensure the
availability of a default allocation to the Bonanza unit, which is not
subject to the state's jurisdiction or control (or similarly situated
units in the future), the EPA is revising the Group 3 trading program
regulations to provide for ``Indian country existing unit set-asides.''
Specifically, for each state and for each control period where the set
of units within a state's borders eligible to receive allocations as
existing units includes one or more units \349\ in an area of Indian
country not covered by the state's CAA implementation planning
authority, the EPA will reserve a portion of the state's emissions
budget in an Indian country existing unit set-aside for the unit or
units. The amount of each Indian country existing unit set-aside will
equal the sum of the default allocations that the units covered by the
set-aside would receive if the allocations to all existing units within
the state's borders were computed according to EPA's default allocation
procedure (which is discussed in section VI.B.9.b of this document).
Immediately after determining the amount of a state's emissions budget
for a control period (and after reserving a portion for potential
allocation to new units, as discussed later in this section), the EPA
will first determine the default allocations for all existing units
within the state's borders, then allocate the appropriate quantity of
allowances to the Indian country existing unit set-aside, then allocate
the allowances from the set-aside to the covered units in Indian
country, and finally record the allocations in the sources' compliance
accounts at the same time as the allocations to other sources not in
Indian country. The existence of the Indian country existing unit set-
aside thus will have no substantive effect unless and until the
relevant state chooses to replace the EPA's default allowance
allocations through a SIP revision, in which case the state would have
the ability to establish state-determined allocations for the units
subject to the state's CAA implementation planning authority while the
EPA would continue to administer the Indian country existing unit set-
aside for the units in Indian country not covered by the state's CAA
implementation planning authority.\350\ The EPA believes the
establishment of Indian country existing unit set-asides accomplishes
the objective of allowing states to control allowance allocations to
units covered by their CAA implementation planning authority while
ensuring that the allocations to units in Indian country not covered by
such authority remain under Federal authority (unless replaced by a
tribal implementation plan).
---------------------------------------------------------------------------

    \349\ In coordination with the dynamic budgeting process
discussed in section VI.B.4, each unit included in the unit
inventory used to determine a state's dynamic emissions budget for a
given control period in 2026 or a later year will be considered an
``existing'' unit for that control period for purposes of the
determination of unit-level allowance allocations. In other words,
there will no longer be a single fixed date that divides
``existing'' from ``new'' units.
    \350\ As noted in section VI.D, a tribe could elect to work with
EPA under the Tribal Authority Rule to develop a full or partial
tribal implementation plan under which the tribe would determine
allowance allocations for units in the relevant area of Indian
country that would replace EPA's default allocations for subsequent
control periods.
---------------------------------------------------------------------------

    The remaining revisions to the types of set-asides address the set-
asides used to ensure availability of allowance allocations to new
units in light of the division of the budget for existing units into a
reserved portion for existing units in Indian country and an unreserved
portion for other existing units. Under the Group 3 trading program
regulations as in effect before this rule, allowances for new units
have been provided from separate new unit set-asides and Indian country
new unit set-asides. Under this rule, the EPA is combining these two
types of set-asides starting with the 2023 control period by
eliminating the Indian country new unit set-asides and expanding
eligibility for allocations from the new unit set-asides to include
units anywhere within the relevant states' borders. However, as with
the Indian country new unit set-asides under the current regulations,
the EPA will continue to administer the new unit set-asides in the
event a state chooses to replace the EPA's default allocations to
existing units with state-determined allocations, thereby ensuring the
availability of allocations to any new units not covered by a state's
CAA implementation planning authority.
    The reason for the revisions to the new unit set-asides and Indian
country new unit set-asides is to avoid unnecessary and potentially
inequitable changes to the degree to which individual existing units
contribute to, or benefit from, the new unit set-asides. The allowances
used to establish these set-asides are reserved from each state
emissions budget before determination of the allocations from the
unreserved portion of the budget to existing units, so that certain
existing units--generally those receiving the largest allocations--
contribute to creation of the set-asides through roughly proportional
reductions in their allocations. Later, if any allowances in a set-
aside are not allocated to qualifying new units, the remaining
allowances are reallocated to the existing units in proportion to their
initial allocations from the unreserved portion of the budget, so that
certain existing units--again, generally those receiving the largest
allocations--benefit from the reallocations in rough proportion to
their previous contributions.\351\ The EPA believes maintaining this
symmetry, where the same existing units--whether in Indian country or
not--both contribute to and potentially benefit from the set-asides, is
a reasonable policy objective, and doing so requires that the EPA
continue to administer the new unit set-asides in the event a state
chooses to replace the EPA's default allocations to existing units with
state-determined allocations, because otherwise the EPA would be unable
to maintain Federal implementation authority and ensure that the units
in Indian country would receive an appropriate share of any reallocated
allowances.\352\ The principal difference between the new unit set-
asides and the Indian country new unit set-asides under the regulations
in effect before this rule was that, if a state chose to replace the
EPA's default allocations with state-determined allocations, the state
would take over administration of the new unit set-aside, but not any
Indian country new unit set-aside.

Under the revised regulations finalized in this rule, states will not
be able to take over administration of the new unit set-asides in this
situation. Therefore, there is no longer any reason to establish
separate Indian country new unit set-asides in order to preserve
Federal (and potentially tribal) authority to implement the rule in
areas of Indian country subject to tribal jurisdiction.
---------------------------------------------------------------------------

    \351\ Under the regulations in effect before this final rule,
allowances from an Indian country new unit set-aside that are not
allocated to qualifying new units in Indian country are first
transferred to the state's new unit set-aside, and if the allowances
are not allocated to qualifying new units elsewhere within the
state's borders, the allowances are then reallocated to the state's
existing units.
    \352\ If units in Indian country were unable to share in the
benefits of reallocation of allowances from the new unit set-asides,
it would be possible to achieve a different form of symmetry by
simultaneously exempting the units in Indian country from the
obligation to share in the contribution of allowances to the new
unit set-asides. However, some stakeholders might view this
alternative as potentially inequitable because existing units in
Indian country would then make no contributions toward the new unit
set-aside while other existing units would still be required to do
so.
---------------------------------------------------------------------------

    With respect to the total amounts of allowances that will be set
aside for potential allocation to new units from the emissions budgets
for each state, for the control periods in 2023 through 2025 (but not
for subsequent control periods, as discussed later in this section),
the EPA is establishing total set-aside amounts equal to the projected
amounts of emissions from any planned units in the state for the
control period, plus an additional base 2 percent of the state
emissions budget to address any unknown new units, with a minimum total
amount of 5 percent. For example, if planned units in a state are
projected to emit 4 percent of the state's NOX ozone season
emissions budget, then the new unit set-aside for the state would be
set at 6 percent, which is the sum of the 4 percent for planned units
plus the base 2 percent for unknown new units. Alternatively, if
planned new units are projected to emit only 1 percent of the state's
budget, the new unit set-aside would be set at the minimum 5 percent
amount. Except for the addition of the 5 percent minimum, which is a
change being made in response to comments, the approach to setting the
new unit set-aside amounts is generally the same approach previously
used to establish the amounts of new unit set-asides in CSAPR, the
CSAPR Update, and the Revised CSAPR Update for all the CSAPR trading
programs. See, e.g., 76 FR 48292 (August 8, 2011).
    As under the Revised CSAPR Update, the EPA is making an exception
for New York for the 2023 through 2025 control periods, establishing a
total new unit set-aside amount for each control period of 5 percent of
the state's emissions budget, with no additional consideration for
planned units, because this approach is consistent with New York's
preferences as reflected in an approved SIP addressing allowance
allocations for the Group 2 trading program.
    The final regulations issued under this rule specify the new unit
set-aside amounts in terms of the percentages of the state emissions
budgets. The amounts are shown in Tables VI.B.9.a-1, VI.B.9.a-2, and
VI.B.9.a-3 of this document show the tonnage amounts of the new unit
set-asides for the control periods in 2023 through 2025 that are
computed by multiplying the new unit set-aside percentages by the
preset budgets finalized in this rule for those control periods. The
amounts of the 2023 new unit set-asides are illustrative because they
do not reflect the impact of transitional adjustments included in the
rule that that are likely to affect the 2023 budgets as
implemented.\353\ The amounts of the 2024 and 2025 new unit set-asides
are the actual amounts, because the 2024 and 2025 budgets computed in
this rule are the budgets that will be implemented, without any need
for transitional adjustments.
---------------------------------------------------------------------------

    \353\ As discussed in section VI.B.12, the EPA expects that this
final rule will become effective after May 1, 2023, causing the
emissions budgets for the 2023 control period to be adjusted under
the rule's transitional provisions so as to ensure that the new
budgets will apply only after the rule's effective date. The actual
new unit set-asides for the 2023 control period will be computed
using the adjusted budgets, but the 2023 budget amounts shown in
Table VI.B.9.a-1 do not reflect these adjustments.

  Table VI.B.9.a-1--Illustrative CSAPR NOX Ozone Season Group 3 New Unit Set-Aside (NUSA) Amounts for the 2023
                                                 Control Period
----------------------------------------------------------------------------------------------------------------
                                                                                New unit set-   New unit set-
                              State                                  Emissions     aside amount    aside amount
                                                                  budgets (tons)     (percent)        (tons)
----------------------------------------------------------------------------------------------------------------
Alabama.........................................................           6,379               5             319
Arkansas........................................................           8,927               5             446
Illinois........................................................           7,474               5             374
Indiana.........................................................          12,440               5             622
Kentucky........................................................          13,601               5             680
Louisiana.......................................................           9,363               5             468
Maryland........................................................           1,206               5              60
Michigan........................................................          10,727               5             536
Minnesota.......................................................           5,504               5             275
Mississippi.....................................................           6,210               5             311
Missouri........................................................          12,598               5             630
Nevada..........................................................           2,368               9             213
New Jersey......................................................             773               5              39
New York........................................................           3,912               5             196
Ohio............................................................           9,110               6             547
Oklahoma........................................................          10,271               5             514
Pennsylvania....................................................           8,138               5             407
Texas...........................................................          40,134               5           2,007
Utah............................................................          15,755               5             788
Virginia........................................................           3,143               5             157
West Virginia...................................................          13,791               5             690
Wisconsin.......................................................           6,295               5             315
----------------------------------------------------------------------------------------------------------------

 Table VI.B.9.a-2--CSAPR NOX Ozone Season Group 3 New Unit Set-Aside (NUSA) Amounts for the 2024 Control Period
----------------------------------------------------------------------------------------------------------------
                                                                                New unit set-   New unit set-
                              State                                  Emissions     aside amount    aside amount
                                                                  budgets (tons)     (percent)        (tons)
----------------------------------------------------------------------------------------------------------------
Alabama.........................................................           6,489               5             324
Arkansas........................................................           8,927               5             446
Illinois........................................................           7,325               5             366
Indiana.........................................................          11,413               5             571
Kentucky........................................................          12,999               5             650
Louisiana.......................................................           9,363               5             468
Maryland........................................................           1,206               5              60
Michigan........................................................          10,275               5             514
Minnesota.......................................................           4,058               5             203
Mississippi.....................................................           5,058               5             253
Missouri........................................................          11,116               5             556
Nevada..........................................................           2,589               9             233
New Jersey......................................................             773               5              39
New York........................................................           3,912               5             196
Ohio............................................................           7,929               6             476
Oklahoma........................................................           9,384               5             469
Pennsylvania....................................................           8,138               5             407
Texas...........................................................          40,134               5           2,007
Utah............................................................          15,917               5             796
Virginia........................................................           2,756               5             138
West Virginia...................................................          11,958               5             598
Wisconsin.......................................................           6,295               5             315
----------------------------------------------------------------------------------------------------------------

 Table VI.B.9.a-3--CSAPR NOX Ozone Season Group 3 New Unit Set-Aside (NUSA) Amounts for the 2025 Control Period
----------------------------------------------------------------------------------------------------------------
                                                                                New unit set-   New unit set-
                              State                                  Emissions     aside amount    aside amount
                                                                  budgets (tons)     (percent)        (tons)
----------------------------------------------------------------------------------------------------------------
Alabama.........................................................           6,489               5             324
Arkansas........................................................           8,927               5             446
Illinois........................................................           7,325               5             366
Indiana.........................................................          11,413               5             571
Kentucky........................................................          12,472               5             624
Louisiana.......................................................           9,107               5             455
Maryland........................................................           1,206               5              60
Michigan........................................................          10,275               5             514
Minnesota.......................................................           4,058               5             203
Mississippi.....................................................           5,037               5             252
Missouri........................................................          11,116               5             556
Nevada..........................................................           2,545               9             229
New Jersey......................................................             773               5              39
New York........................................................           3,912               5             196
Ohio............................................................           7,929               6             476
Oklahoma........................................................           9,376               5             469
Pennsylvania....................................................           8,138               5             407
Texas...........................................................          38,542               5           1,927
Utah............................................................          15,917               5             796
Virginia........................................................           2,756               5             138
West Virginia...................................................          11,958               5             598
Wisconsin.......................................................           5,988               5             299
----------------------------------------------------------------------------------------------------------------

    For control periods in 2026 and later years, the EPA will allocate
a total of 5 percent of each state emissions budget to a new unit set-
aside, with no additional amount for planned new units. The amounts of
the set-asides for each state and control period will be computed when
the emissions budgets for the control period are established, by May 1
of the year before the year of the control period. The procedure for
determining the amounts of the set-asides based on the amounts of the
state emissions budgets is being codified in the Group 3 trading
program regulations and will reflect the same percentage of the
emissions budget for all states.
    The purpose of the change to the procedure for establishing the
amounts of the set-asides is to coordinate with the dynamic budget-
setting process that may be used to determine budgets beginning with
the 2026 control period. As discussed in section VI.B.4 of this
document, under the dynamic budget-setting process, each state's budget
for each control period will be computed using fleet composition
information and the total ozone season heat input reported by all
affected units in the state

for the most recent control periods before the budget-setting
computations. (For example, 2026 emissions budgets would be based on
2022-2024 state-level heat input data.) Moreover, as discussed in
section VI.B.9.b of this document, the set of units eligible to receive
allocations as ``existing'' units in a given control period will
generally be the set of units that operated in the control period two
years earlier (with the exception of any units whose monitor
certification deadlines fell after the start of that earlier control
period). Consequently, by the 2025 control period, all or almost all
units that commenced commercial operation before issuance of this rule
will be considered ``existing'' units for purposes of budget-setting
and allocations, and units commencing commercial operation after
issuance of this rule generally will be considered ``existing'' units
for all but their first two full control periods of operation (and
possibly a preceding partial control period). Given that new units will
not be relying on the new unit set-asides as a permanent source of
allowances, as is the case for ``new'' units under the other CSAPR
trading programs, the EPA believes it is unnecessary to establish set-
aside percentages for some states that are permanently larger than 5
percent based solely on the fact that projected emissions from planned
new units happen to be a somewhat larger proportion of those states'
overall budgets at the time of this rule's issuance.
    The changes to the structure and amounts of set-asides in this rule
largely follow the proposal. The EPA received few comments on these
topics. As noted previously, one commenter expressed the view that if
the amounts of the new unit set-asides were based on 2 percent of the
respective states' budgets, the set-asides would be too small in
certain circumstances, and in response the final rule bases the amounts
of the set-asides on a floor percentage of 5 percent instead of 2
percent. The remaining commenters expressed a concern that the final
rule's provisions regarding set-asides should ensure that any tribal
decisions relating to allowance allocations would not be constrained by
state decisions. The EPA had this same concern in mind when designing
the rule and believes that the final set-aside structure--encompassing
Indian country existing unit set-asides as well as EPA-administered new
unit set-asides for sources in all areas within each state's borders--
fully addresses the concern, is equitable, and preserves Federal and
tribal authority under this rule for areas of Indian country subject to
tribal jurisdiction. The comments and the EPA's responses are discussed
in greater detail in section 1 of the RTC document.
b. Allocations to Existing Units, Including Units That Cease Operation
    In conjunction with the new and revised state emissions budget-
setting methodology for the Group 3 trading program finalized in this
rulemaking, the EPA is necessarily establishing a revised procedure for
making unit-level allocations of Group 3 allowances to existing
units.\354\ The procedure that the EPA is employing to compute the
unit-level allocations is very similar but not identical to the
procedure used to compute unit-level allocations for units subject to
the Group 3 trading program in the Revised CSAPR Update. The steps of
the procedure for determining allocations from each state emissions
budget for each control period are described in detail in the Unit-
Level Allowance Allocations Final Rule TSD. The steps are summarized in
the following paragraphs, with changes from the procedure followed in
the Revised CSAPR Update noted.
---------------------------------------------------------------------------

    \354\ The revisions to the procedures for computing unit-level
allowance allocations in this rulemaking apply only to the Group 3
trading program. In this rulemaking, the EPA is not reopening the
methodology for computing the amounts of allowances allocated to any
unit under any other CSAPR trading program.
---------------------------------------------------------------------------

    In the first step, the EPA identifies the list of units eligible to
receive allocations for the control period. The unit inventories used
to compute unit-level allocations for the control periods in 2023
through 2025 are the same inventories that have been used to determine
the preset emissions budget for these control periods. These
inventories have been determined in this rulemaking in essentially the
same manner as in the Revised CSAPR Update. The procedures for updating
the unit inventories for these control periods are discussed in section
VI.B.4 of this document, and the criteria that the EPA has applied to
determine whether a unit's scheduled retirement is sufficiently certain
to serve as a basis for adjusting emissions budgets and unit-level
allocations, are discussed in section V.B of this document and in the
Ozone Transport Policy Analysis Final Rule TSD.
    The unit inventories used to compute unit-level allocations for
control periods in 2026 and later years will be determined in the year
before the control period in question based on the latest reported
emissions and operational data, which is an extension of the
methodology used in the Revised CSAPR Update to reflect more recent
data (for example, the unit inventories used to compute 2026 budgets
and allocations will reflect reported data up through the 2024 control
period). These inventories, which are generally the same as the
inventories used to compute dynamic budgets for each control period,
include any unit whose monitor certification deadline was no later than
the start of the relevant historical control period and that reported
emissions data during the relevant historical control period. The EPA
notes that basing the list of eligible units on the list of units that
reported heat input in the control period two years earlier than the
control period for which allocations are being determined represents a
revision to the Group 3 trading program regulations as in effect before
this rule concerning the treatment of allocations to retired units.
Under the prior regulations, units that cease operations for two
consecutive control periods would continue to receive allocations as
existing units for three additional years (that is, a total of five
years) before the allowances they would otherwise have received are
reallocated to the new unit set-aside for the state. Under the
regulations as revised in this rule, units that cease operation will
receive allocations for only two full control periods of non-operation.
While the EPA has in prior transport rulemakings noted a qualitative
concern that ceasing allowance allocations prematurely could distort
the economic incentives of EGUs to continue operating when retirement
is more economical, the EPA believes that anticipated market conditions
(in particular, the incentives toward power sector transition to
cleaner generating sources), particularly in the later 2020s, are such
that a continuation of allowance allocations to retiring units likely
has no more than a de minimis effect on the consideration of an EGU
whether to retire or not.
    In the second step of the procedure for determining allocations to
existing units, the EPA will compile a database containing for each
eligible unit the unit's historical heat input and total NOX
emissions data for the five most recent ozone seasons. For each unit,
the EPA will compute an average heat input value based on the three
highest non-zero heat input values over the 5-year period, or as the
average of all the non-zero values in the period if there are fewer
than three non-zero values. For each unit, the EPA will also determine
the maximum total NOX emissions value over the 5-year
period. For coal-

fired units of 100 MW or larger, the EPA will further determine a
``maximum controlled baseline'' NOX emissions value,
computed as the unit's maximum heat input over the 5-year period times
a NOX emissions rate of 0.08 lb/mmBtu. The maximum
controlled baseline will serve as an additional cap on unit-level
allocations for all such coal-fired units starting with the control
periods in which the assumed use of SCR controls at the units is
reflected in the state emissions budgets. Thus, the maximum controlled
baseline will apply for purposes of allocations to units with existing
SCR controls for all control periods starting with the 2024 control
period and for all other coal-fired units of 100 MW or more (except
circulating fluidized bed units) starting with the 2027 control period.
These procedures are nearly identical to the procedures used in the
Revised CSAPR Update, with three exceptions. First, instead of using
only the data available at the time of the rulemaking, for each control
period the EPA will use data from the most recent five control periods
for which data had been reported. (For example, for the 2026 control
period, the EPA will use data for the 2020-2024 control periods.)
Second, to simplify the data compilation process, the EPA will use only
a five-year period for NOX mass emissions, in contrast to
the 8-year period used in the Revised CSAPR Update for NOX
mass emissions. Third, the use of the maximum controlled baseline as an
additional cap on emissions is a change adopted in this rule in
response to comments received on the proposal. Specifically, commenters
observed that if a state's emissions budget is decreased to reflect an
assumption that a particular unit in the state is capable of reducing
its emissions through the installation of new SCR controls, but the
historical emissions cap applied to that unit in the unit-level
allocation methodology does not reflect use of the new controls, then
the allocation methodology could have the effect of reducing unit-level
allocations to the other units in the state whose historical emissions
already reflect use of existing controls rather than the unit assumed
to install new controls. The EPA agrees with the comment and in this
rule has added the maximum controlled baseline provision to the
allocation methodology to mitigate the potential effect identified by
the commenters.
    In the third step of the procedure for determining allocations to
existing units in each state, the EPA will allocate the available
allowances for that state among the state's eligible units in
proportion to the share each unit's average heat input value represents
of the total of the average heat input values for all the state's
eligible units, but not more than the unit's maximum total
NOX value or, if applicable, the unit's maximum controlled
baseline. If the allocations to one or more units are curtailed because
of the units' applicable caps, the EPA will iterate the calculation
procedure as needed to allocate the remaining allowances, excluding
from each successive iteration any units whose allocations have already
reached their caps. (If all units in a state reach their caps, any
remaining allowances are allocated in proportion to the units' average
heat input values, notwithstanding the caps.) This calculation
procedure is identical to the calculation procedure used in the Revised
CSAPR Update (as well as the CSAPR Update and CSAPR), but using caps
that reflect both the units' maximum historical NOX values
and also, where applicable, the maximum controlled baseline values.
    Illustrative unit-level allocations for the 2023 control period and
final unit-level allocations for the 2024 and 2025 control periods are
being determined in this rulemaking based on the emissions budgets for
those control periods also determined in the rulemaking and are
included in the docket. The 2023 allocations are only illustrative
because, as discussed in section VI.B.12.a, the EPA expects the
effective date of the rule to occur after the start of the 2023 control
period and consequently expects the 2023 control period to be a
transitional period in which the emissions budgets determined in this
rulemaking apply only for the portion of the control period occurring
on and after the rule's effective date, while any previously determined
emissions budgets apply for the portion of the control period before
the rule's effective date. The rule's effective date will become known
when the rule is published in the Federal Register. As soon as
practicable thereafter, the EPA will calculate the final prorated or
blended 2023 state emissions budgets and 2023 unit-level allocations
based on the transitional formulas finalized in this action (see
section VI.B.12.a of this document) and will communicate the
information to the public through a notice of data availability. The
2023 and 2024 allocations will then be recorded 30 days after the
effective date of the final rule (to provide an interval in which to
execute the recall of 2023 and 2024 Group 2 allowances, as discussed in
section VI.B.12.c of this document), while the 2025 allocations will be
recorded by July 1, 2024.\355\
---------------------------------------------------------------------------

    \355\ The recordation schedule for the 2023 and 2024 allocations
represents an expected acceleration of the recordation schedule in
effect immediately before this final rule, which called for
allocations of 2023 and 2024 Group 3 allowances to existing units to
be recorded by September 1, 2023. See Deadlines for Submission and
Recordation of Allowance Allocations Under the Cross-State Air
Pollution Rule (CSAPR) Trading Programs and the Texas SO2
Trading Program (the ``Recordation Rule''), 87 FR 52473 (August 26,
2022).
---------------------------------------------------------------------------

    The default unit-level allocations for each control period in 2026
or a later year will be computed immediately following the
determination of the state emissions budgets for the control period.
The EPA will perform the computations and issue a notice of data
availability concerning the preliminary unit-level allocations for each
control period by March 1 of the year before the control period. There
will be a 30-day period in which objections to the data and preliminary
computations may be submitted, and the EPA will then make any
appropriate revisions and issue another notice of data availability by
May 1 of the year before the control period. The EPA will then record
the allocations by July 1 of the year before the control period.\356\
---------------------------------------------------------------------------

    \356\ The current recordation schedule, which provides for
almost all allowance allocations to existing units for a given
control period under all the CSAPR trading programs to be recorded
by July 1 of the year before the year of that control period, was
adopted in the Recordation Rule.
---------------------------------------------------------------------------

    All covered states also have options to establish state-determined
allowance allocations for control periods in 2024 and later years. As
discussed in section VI.D.1 of this rule, a state choosing to establish
state-determined allocations for the 2024 control period would need to
submit a letter of intent to the EPA by August 4, 2023, and would need
to submit the SIP revision with the allocations by September 1, 2023.
The EPA would defer recordation of the 2024 allocations for the state's
sources until March 1, 2024, to provide time for this process to be
completed. As discussed in sections VI.D.2 and VI.D.3 of this rule, a
state choosing to establish state-determined allocations for control
periods in 2025 and later years would need to submit a SIP revision by
December 1 of the year two years before the first year for which state-
determined allocations are being established--e.g., by December 1,
2023, for allocations for the 2025 control period--and would need to
submit the allocations for each control period by June 1 of the year
before the control period--e.g., by June 1, 2024, for allocations for
the 2025

control period.\357\ The EPA would record any state-determined
allocations for control periods in 2025 and later years by July 1 of
the year before the control period, simultaneously with the recordation
of allocations to units in states where the EPA determines the unit-
level allocations.
---------------------------------------------------------------------------

    \357\ The current deadlines for states to submit state-
determined allowance allocations to the EPA were adopted in the
Recordation Rule and are coordinated with the schedule for
computation of state emissions budgets for control periods in 2026
and later years. For example, for the 2026 control period, by May 1,
2025, the EPA will publish the final state emissions budgets and the
EPA's default unit-level allocations; by June 1, 2025, states will
submit any state-determined unit-level allocations that would
replace the default allocations; and by July 1, 2025, the EPA will
record the default unit-level allocations or the state-determined
unit-level allocations, as applicable, in sources' compliance
accounts.
---------------------------------------------------------------------------

    The EPA notes that for the three states with approved SIP revisions
establishing their own methodologies for allocating Group 2
allowances--Alabama, Indiana, and New York--the EPA will follow the
states' methodologies to the extent possible in developing the EPA's
allocations of Group 3 allowances to the units in those states for the
control periods in 2023 through 2025.\358\ The EPA will not follow any
state-specific methodologies as part of the procedures for determining
default unit-level allocations of Group 3 allowances for control
periods in 2026 or later years. However, like other states, these three
states have options to replace the EPA's default allocations with
state-determined allocations through SIP revisions starting with the
2024 control period.
---------------------------------------------------------------------------

    \358\ For discussion of how the EPA is using the previously
approved allocation methodologies for Alabama, Indiana, and New York
to determine allocations to units in these states for the 2023-2025
control periods, see the Allowance Allocation Final Rule TSD.
---------------------------------------------------------------------------

    As an exception to all of the recordation deadlines that would
otherwise apply, the EPA will not record any allocations of Group 3
allowances in a source's compliance account unless that source has
complied with the requirements to surrender previously allocated 2023-
2024 Group 2 allowances. The surrender requirements are necessary to
maintain the previously established levels of stringency of the Group 2
trading program for the states and sources that remain subject to that
program under this final rule. The EPA finds that it is reasonable to
condition the recordation of Group 3 allowances on compliance with the
surrender requirements because the condition will spur compliance and
will not impose an inappropriate burden on sources. The EPA considers
establishment of this condition, which will facilitate the continued
functioning of the Group 2 trading program, to be an appropriate
exercise of the Agency's authority under CAA section 301 (42 U.S.C.
7601) to prescribe such regulations as are necessary to carry out its
functions under the Act.
    The provisions governing allocations to existing units are being
finalized substantially as proposed, except for the addition of an
additional cap on unit-level allocations in response to comments. The
EPA's responses to comments on the unit-level allocation provisions for
existing units are in section 5 of the RTC document.
c. Allocations From Portions of State Emissions Budgets Set Aside for
New Units
    The Group 3 trading program regulations provide for the EPA to
allocate allowances from each new unit set-aside after the end of the
control period at issue. An eligible new unit for purposes of
allocations from a set-aside for a given control period is generally
any unit in the relevant area that reported emissions subject to
allowance surrender requirements during the control period and that was
not eligible to receive an allowance allocation as an ``existing'' unit
for the control period. Thus, in addition to units that have not yet
completed two full control periods of operation since their monitor
certification deadlines, units eligible for allocations from the new
unit set-asides may also include existing coal-fired units that first
lose their eligibility for allocations from the unreserved portion of
the applicable state budget by ceasing operation, and then resume
operation in a later control period. The regulations call for the EPA
to allocate allowances to any eligible ``new'' units in the state
generally in proportion to their respective emissions during the
control period, up to the amounts of those emissions if the relevant
set-aside contains sufficient allowances, and not exceeding those
emissions. However, in the case of a unit whose allocation for the
control period would have been subject to a maximum controlled baseline
if the unit was eligible to receive allocations as an existing unit,
the unit's allocation from the new unit set-aside will not exceed a cap
equal to the unit's reported heat input for the control period times an
emissions rate of 0.08 lb/mmBtu.
    Any allowances remaining in a new unit set-aside after the
allocations to new units are reallocated to the existing units in the
state in proportion to those units' previous allocations for the
control period as existing units. The EPA issues a notice of data
availability concerning the proposed allocations by March 1 following
the control period, provides an opportunity for submission of
objections, and issues a final notice of data availability and record
the allocations by May 1 following the control period, one month before
the June 1 compliance deadline.
    This EPA notes that the revisions to other provisions of the Group
3 trading program regulations discussed elsewhere in this document will
reduce the portions of the state emissions budgets that are allocated
through the new unit set-asides. Specifically, because the new unit
set-asides will no longer receive any additional allowances when units
retire, for control periods in 2025 and later years the amounts of
allowances in the new unit set-asides will always be 5 percent of the
respective state emissions budgets for the respective control periods.
This limit on growth of the new unit set-asides is appropriate given
that the number of consecutive control periods for which any particular
unit is likely to receive allocations from a state's new unit set-aside
will be reduced to two full control periods (and possibly a partial
control period before those two control periods) before the unit
becomes eligible to receive allocations as an ``existing'' unit from
the unreserved portion of the state's emissions budget. This approach
contrasts with the approach under the other CSAPR trading programs
where a new unit never becomes eligible to receive allocations from the
unreserved portion of the emissions budget and where the new unit set-
aside therefore needs to grow to accommodate an ever-increasing share
of the state's total emissions.
    The EPA also notes that, as discussed in sections VI.D.2 and VI.D.3
of this document, in the event that a state chooses to replace EPA's
default allowance allocations under the Group 3 trading program with
state-determined allocations through a SIP revision, the EPA will
continue to administer the portion of each state emissions budget
reserved in a new unit set-aside to ensure the availability of
allowance allocations to new units in any areas of Indian country
within the state not covered by the state's CAA implementation planning
authority.
    The final rule's provisions concerning unit-level allocations from
the new unit set-asides are unchanged from the proposal except for the
addition of the allocation cap in a given control period for any unit
that would have been subject to a maximum controlled baseline if the
unit was eligible to receive an allocation as an existing unit

for that control period.\359\ This change was made to address the same
comments discussed in section VI.B.9.b of this document that caused the
Agency to add the maximum controlled baseline provision to the
procedure for allocating allowances to existing units. The Agency did
not receive any other comments on the proposed provisions concerning
unit-level allocations of allowances from the new unit set-asides.
---------------------------------------------------------------------------

    \359\ As discussed in section IX.B of this rule, the EPA is
relocating some of the regulatory provisions relating to
administration of the new unit set-asides and is also removing
certain provisions that are made obsolete by revisions to other
provisions of the Group 3 trading program regulations.
---------------------------------------------------------------------------

d. Incorrectly Allocated Allowances
    The Group 3 trading program regulations as promulgated in the
Revised CSAPR Update include provisions addressing incorrectly
allocated allowances. With regard to any allowances that were
incorrectly allocated and are subsequently recovered, the provisions as
in effect prior to this rule have generally called for the recovered
allowances to be reallocated to other units in the relevant state (or
Indian country within the borders of the state) through the process for
allocating allowances from the new unit set-aside (or Indian country
new unit set-aside) for the state. If the procedures for allocating
allowances from the set-asides have already been carried out for the
control period for which the recovered allowances were issued, the
allowances would be allocated through the set-asides for subsequent
control periods.
    The EPA continues to view the current provisions for disposition of
recovered allowances as reasonable in the case of any allowances that
are recovered before the deadline for recording allocations of
allowances from the new unit set-aside for the control period for which
the recovered allowances were issued. However, in the case of any
allowances that are recovered after that deadline, adding the recovered
allowances to the new unit set-aside for a subsequent control period,
as provided in the current regulations, would be inconsistent with the
trading program enhancements discussed elsewhere in this document,
where the amounts of allowances provided in the state emissions budgets
for each control period are designed to reflect the most current
available information on fleet composition and utilization and where
the quantities of banked allowances available for use in each control
period are recalibrated for consistency with the state emissions
budgets. The EPA is therefore finalizing revisions to provide that,
starting with allowances allocated for the 2024 control period, any
incorrectly allocated allowances that are recovered after the deadline
for allocating allowances from the new unit set-aside for that control
period (i.e., May 1 of the year following the control period) will be
transferred to a surrender account instead of being reallocated to
other units in the state. The EPA received no comments on this proposed
revision, which is being finalized as proposed.
10. Monitoring and Reporting Requirements
    The Group 3 trading program requires monitoring and reporting of
emissions and heat input data in accordance with the provisions of 40
CFR part 75. Under 40 CFR part 75, a given unit may have several
options for monitoring and reporting. Any unit can use CEMS. Qualifying
gas- or oil-fired units can use certain excepted monitoring
methodologies that rely in part on fuel-flow metering in combination
with CEMS-based or testing-based NOX emissions rate data.
Certain non-coal-fired, low-emitting units can use a low mass emissions
(LME) methodology, and sources can seek approval of alternative
monitoring systems approved by the Administrator through a petition
process. Each CEMS must undergo rigorous initial certification testing
and periodic quality assurance testing thereafter, including the use of
relative accuracy test audits and 24-hour calibrations. In addition,
when a monitoring system is not operating properly, standard substitute
data procedures are applied to produce a conservative estimate of
emissions for the period involved. Further, 40 CFR part 75 requires
electronic submission of quarterly emissions reports to the
Administrator, in a format prescribed by the Administrator. The
quarterly reports will contain all the data required concerning ozone
season NOX emissions under the Group 3 trading program.
    In this rulemaking, as proposed, the EPA is making two changes to
the Group 3 trading program's previous requirements related to
monitoring, recordkeeping, and reporting. First, the EPA is revising
the monitor certification deadline in the Group 3 trading program
regulations applicable to certain units that have not already certified
monitoring systems for use under 40 CFR part 75. This revision is
expected to provide approximately 15 EGUs in Nevada and Utah with 180
days following the rule's effective date to certify monitoring systems,
with the consequence that the units are expected to become subject to
allowance holding requirements under the Group 3 trading program
starting with the 2024 control period. Second, to implement the trading
program enhancements, the EPA is adding certain new recordkeeping and
reporting requirements, which will be implemented through amendments to
the regulations in 40 CFR part 75 and will apply starting January 1,
2024. Sources generally will be able to meet the additional
recordkeeping and reporting requirements using the data that are
already collected by their current monitoring systems, and the EPA is
not requiring the installation of additional monitoring systems at any
source. However, a small number of sources with common stacks could
find it advantageous to upgrade their monitoring systems so as to
monitor at the individual units instead of monitoring at the common
stack. The Group 3 trading program monitor certification deadline
revisions and the additional recordkeeping and reporting requirements
are discussed in sections VI.B.10.a and VI.B.10.b, respectively.\360\
---------------------------------------------------------------------------

    \360\ The EPA is not amending the existing provisions of the
Group 3 trading program regulations that govern whether units
covered by the program must record and report required data on a
year-round basis or may elect to record and report required data on
an ozone season-only basis. See 40 CFR 97.1034(d)(1); see also 40
CFR 75.74(a)-(b). Thus, for units that are required or elect to
report other data on a year-round basis, the additional
recordkeeping and reporting requirements will also apply year-round,
while for units that are allowed and elect to report other data on
an ozone season-only basis, the additional requirements will also
apply for the ozone season only.
---------------------------------------------------------------------------

a. Monitor Certification Deadlines
    In general, a unit subject to the Group 3 trading program must
monitor and report emissions data using certified monitoring systems
starting as of the date the unit enters the trading program or, if
later, 180 days after the unit commences commercial operation. Where an
EGU has already certified and maintained monitoring systems in
accordance with 40 CFR part 75 for purposes of another trading program,
no recertification solely for purposes of entering the Group 3 trading
program is required. Under these pre-existing provisions of the Group 3
trading program regulations, nearly all currently operating EGUs
transitioning to the trading program under this rule are positioned to
begin monitoring and reporting under the trading program as of their
dates of entry (or if later, 180 days after they commence commercial
operation) because of the units' previous requirements to monitor and
report emissions under other programs including the CSAPR
NOX Ozone Season Group 2 Trading Program (for

units in Alabama, Arkansas, Mississippi, Missouri, Oklahoma, Texas, and
Wisconsin), the CSAPR NOX Annual Trading Program (for units
in Minnesota), and the Acid Rain Program (for most units in Nevada and
Utah).
    As discussed in section VI.B.3 of this document, the EPA has
identified 15 potentially affected units in Nevada and Utah that
commenced commercial operation more than 180 days before the effective
date of this rule and that do not currently report emissions data to
the Agency under 40 CFR part 75.\361\ To ensure that units in this
situation have sufficient time to certify monitoring systems as
required under this rule, the final rule establishes a monitoring
certification deadline of 180 days after the effective date of the rule
for affected units that are not already required to report emissions
under 40 CFR part 75 under another program, equivalent to the 180-day
window already provided to units commencing commercial operation after
(or less than 180 days before) the final rule's effective date. The
180th day for units in this situation will likely fall after the end of
the 2023 ozone season, with the result that the certification deadline
will be extended until May 1, 2024, the first day of the 2024 ozone
season. Because the Group 3 trading program's allowance holding
requirements apply to a given unit only after that unit's monitor
certification deadline, the units in this situation consequently will
become subject to allowance holding requirements as of the 2024 ozone
season rather than the 2023 ozone season.
---------------------------------------------------------------------------

    \361\ The units are listed in Table VI.B.3-1.
---------------------------------------------------------------------------

    The EPA received no comments on the provisions establishing a
monitor certification deadline 180 days after the effective date of
this rule for affected units that are not already required to report
emissions under 40 CFR part 75, and the provisions are being finalized
as proposed.
b. Additional Recordkeeping and Reporting Requirements
    To facilitate implementation of the backstop daily NOX
emissions rates for certain coal-fired units, the secondary emissions
limitations for units contributing to assurance level exceedances, and
the revised default unit-level allowance allocation procedures, the
final rule amends 40 CFR part 75 to establish two sets of additional
recordkeeping and reporting requirements. The first set of additional
recordkeeping and reporting requirements is specific to the backstop
daily emissions rate provisions. Starting January 1, 2024, units
listing coal as a fuel in their monitoring plans, serving generators of
100 MW or larger, and equipped with SCR controls on or before the end
of the previous control period (except circulating fluidized bed units)
will be required to record and report total daily NOX
emissions and total daily heat input, daily average NOX
emissions rate, and daily NOX emissions exceeding the
backstop daily NOX emissions rate. The units will also be
required to record and report cumulative NOX emissions
exceeding the backstop daily NOX emissions rate for the
ozone season and any portion of such cumulative NOX
emissions exceeding 50 tons. Starting January 1, 2030, the same
recordkeeping and reporting requirements will apply to all units
listing coal as a fuel in their monitoring plans and serving generators
of 100 MW or larger (except circulating fluidized bed units), including
units not equipped with SCR controls. These data will be used to
determine the allowance surrender requirements related to the backstop
daily NOX emissions rates. Implementation of these
additional recordkeeping and reporting requirements would necessitate a
one-time update to the units' data acquisition and handling systems but
would not require any changes to the monitoring systems already needed
to meet other requirements under 40 CFR part 75.
    The second type of additional recordkeeping and reporting
requirements applies to units exhausting to common stacks. For these
units, 40 CFR part 75 includes options that often allow monitoring to
be conducted at the common stack on a combined basis for all the units
as an alternative to installing separate monitoring systems for the
individual units in the ductwork leading to the common stack. The units
then keep records and report hourly and cumulative NOX mass
emissions and in many cases heat input data on a combined basis for all
units exhausting to the common stack. With respect to heat input data,
but not NOX mass emissions data, most such units have also
been required historically to record and report hourly and cumulative
data on an individual-unit basis, and where necessary they typically
have computed the necessary unit-level hourly heat input values by
apportioning the combined hourly heat input values for the common stack
in proportion to the individual units' recorded hourly output of
electricity or steam. See generally 40 CFR 75.72.
    In this rulemaking, the provisions governing default unit-level
allowance allocations, backstop daily NOX emissions rates
for certain coal-fired units, and secondary emissions limitations for
units contributing to assurance level exceedances all require the use
of unit-level reported data on NOX mass emissions (or unit-
level NOX emissions rates computed in part based on unit-
level reported data on NOX mass emissions). To facilitate
the implementation of these provisions, the final rule requires all
units covered by the Group 3 trading program exhausting to common
stacks to record and report unit-level hourly and cumulative
NOX mass emissions data starting January 1, 2024. To obtain
the necessary unit-level hourly mass emissions values, the revised
regulations rule allow the units to apportion hourly mass emissions
values determined at the common stack in proportion to the individual
units' recorded hourly heat input. The apportionment procedure is very
similar to the apportionment procedure that most such units already
apply to compute reported unit-level heat input data. Where sources
choose to obtain the additional required data values through
apportionment, implementation of the additional recordkeeping and
reporting requirements will necessitate a one-time update to the units'
data acquisition and handling systems but will not require any changes
to the monitoring systems already needed to meet other requirements
under 40 CFR part 75.
    For most units sharing common stacks, the EPA expects that the
reported unit-specific hourly NOX emissions values computed
through the apportionment procedures will reasonably approximate the
values that could be obtained through installation and operation of
separate monitoring systems for the individual units, because the units
exhausting to the common stack would be expected to have similar
NOX emissions rates. However, the EPA also recognizes that
at some plants, particularly those where SCR-equipped and non-SCR-
equipped coal-fired units share a common stack, unit-level values
determined through apportionment based on electricity or steam output
could overstate the reported NOX mass emissions for the SCR-
equipped units and correspondingly understate the reported
NOX mass emissions for the non-SCR-equipped units.\362\ As
proposed, the

final rule leaves in place the existing options under 40 CFR part 75
for plants to upgrade their monitoring equipment to monitor on a unit-
specific basis instead of at the common stack. Plant owners may find
this option attractive if they believe it would reduce the quantities
of reported emissions exceeding the backstop daily emissions rate.
---------------------------------------------------------------------------

    \362\ The EPA is aware of five plants in the states covered by
this rule where SCR-equipped and non-SCR-equipped coal-fired units
exhaust to a common stack: Clifty Creek in Indiana; Cooper, Ghent,
and Shawnee in Kentucky; and Sammis in Ohio. The owners of the
Sammis plant have announced plans to retire the plant in 2023.
---------------------------------------------------------------------------

    The EPA is finalizing the additional recordkeeping and reporting
requirements generally as proposed, with modifications as needed to
accommodate the changes in the backstop daily emissions rate provisions
from proposal discussed in sections VI.B.1.c.i and VI.B.1.7. No
comments were received on the recordkeeping and reporting requirements
added to facilitate implementation of the backstop daily emissions
rate. Comments on the requirement to report unit-specific
NOX emissions data for units sharing common stacks are
addressed in the following paragraphs.
    Comment: Some commenters claimed that for plants where SCR-equipped
and non-SCR-equipped coal-fired units share common stacks, the rule as
proposed would have effectively mandated installation of unit-specific
monitoring systems in order to comply with the backstop daily emissions
rate provisions. The commenters generally requested that application of
the backstop daily rate provisions be delayed for plants with common
stacks until all units sharing the stacks were subject to the
provisions. Alternatively, they claimed that the EPA should consider
the cost of the additional unit-specific monitoring system to be a cost
of the rule.
    One commenter claimed that the option to install unit-specific
monitoring systems for the units sharing a common stack at its plant
was not feasible because of a lack of locations in the units' ductwork
suitable for installation of the monitoring equipment. Specifically,
the commenter claimed that EPA Method 1 requires monitoring equipment
to be located at least eight duct diameters downstream and two duct
diameters upstream of any flow disturbance and stated that the units
had no straight runs of ductwork sufficiently long to meet these
criteria.
    Response: The EPA's response to comments about the application of
backstop rate requirements to units sharing common stacks is in section
VI.B.7 of this document. With respect to assertions that the rule
effectively mandates installation of unit-specific monitoring systems,
the EPA disagrees. Although the EPA pointed out the option in the
proposal, anticipating that owners of some units sharing common stacks
might find it advantageous to upgrade their monitoring systems, the
final rule does not mandate such upgrades and explicitly provides a
reporting option that can be used if a plant owner continues to monitor
only at the common stack. For example, a plant owner might choose not
to upgrade monitoring systems if the owner does not plan to operate the
non-SCR-equipped units sharing the stack frequently. Regarding the
contention that the cost of additional monitoring systems should be
considered a cost of the rule, the EPA notes that the monitoring cost
estimates that the Agency regularly develops for 40 CFR part 75 already
reflect the conservative assumption that all affected units perform
monitoring on a unit-specific basis.
    With respect to the comment asserting an inability to install unit-
specific monitoring equipment because of a lack of suitable locations,
the EPA does not believe the commenter has provided sufficient
information to support the assertion. Although the commenter cites the
EPA Method 1 location criteria, the CEMS location provisions in 40 CFR
part 75 do not reference those location criteria but instead reference
the EPA Performance Specification 2 location criteria, which recommend
that a CEMS be located at least two duct diameters downstream and a
half duct diameter upstream from a point at which a change in pollutant
concentration may occur.\363\ Thus, while the commenter states that its
units do not have straight runs of ductwork ten duct diameters long,
the relevant siting criteria actually call for straight runs of
ductwork only 2.5 duct diameters long, and the commenter has not
provided information indicating that these criteria could not be met.
Moreover, even EPA Method 1 does not require monitoring equipment to be
located eight duct diameters upstream and two duct diameters downstream
of any flow disturbance. While the method recommends those distances as
the first option, the method also allows for locations two duct
diameters upstream and a half duct diameter upstream from any flow
disturbance, as well as other locations if certain performance criteria
can be met.\364\
---------------------------------------------------------------------------

    \363\ Appendix B to 40 CFR part 60, Performance Specification 2,
sec. 8.1.2; see also appendix A to 40 CFR part 75, section 1.1.
    \364\ Appendix A-1 to 40 CFR part 60, Method 1, sec. 11.1.
---------------------------------------------------------------------------

11. Designated Representative Requirements
    As noted in section VI.B.1.a of this document, a core design
element of all the CSAPR trading programs is the requirement that each
source must have a designated representative who is authorized to
represent all of the source's owners and operators and is responsible
for certifying the accuracy of the source's reports to the EPA and
overseeing the source's Allowance Management System account. The
necessary authorization of a designated representative is certified to
the EPA in a certificate of representation.
    The existing designated representative provisions in the Group 3
trading program regulations already provide that the EPA will interpret
references to the Group 2 trading program in certain documents--
including a certificate of representation as well as a notice of
delegation to an agent or an application for a general account--as if
the documents referenced the Group 3 trading program instead of the
Group 2 trading program. For these reasons, sources that have
participated in the Group 2 trading program and that are transitioning
to the Group 3 trading program under this rule will not need to submit
any new forms as part of the transition, because previously submitted
forms will be valid for purposes of the Group 3 trading program.
    For a source that is newly affected under the Group 3 trading
program and that is not currently affected under the Group 2 trading
program, a designated representative who has been duly authorized by
the source's owners and operators must submit a new or updated
certificate of representation to the EPA. The EPA will not record any
Group 3 allowances allocated to a source in the source's compliance
account until a certificate of representation has been submitted for
the source. If a source is also affected under other CSAPR trading
programs or the Acid Rain Program, the same individual must be the
source's designated representative for purposes of all the programs.
    The EPA did not propose and is not finalizing any changes to the
designated representative requirements. The EPA received no comments on
the provisions of the proposal relating to these requirements.
12. Transitional Provisions
    This section discusses several provisions that the EPA will
implement to address the transition of sources into the Group 3 trading
program as revised. The purposes of the transitional provisions are
generally the same as the

purposes of the analogous transitional provisions promulgated in the
Revised CSAPR Update: first, addressing the likelihood that the
effective date of this rule will fall after the starting date of the
first affected ozone season (which in this case is, May 1, 2023);
second, establishing an appropriately-sized initial allowance bank
through the conversion of previously banked allowances; and third,
preserving the intended stringency of the Group 2 trading program for
the sources that will continue to be subject to that program.\365\
However, the sources that will be participants in the revised Group 3
trading program under this rule are transitioning from several
different starting points--with some sources already in the existing
Group 3 trading program, some sources coming from the Group 2 trading
program, and some sources not currently participating in any seasonal
NOX trading program. The EPA is therefore finalizing
transitional provisions that differ across the sets of potentially
affected sources based on the sources' different starting points.
---------------------------------------------------------------------------

    \365\ As discussed in section VI.B.1.d, the EPA is not creating
a ``safety valve'' mechanism in this rule analogous to the voluntary
supplemental allowance conversion mechanism established under the
Revised CSAPR Update, but intends in the near future to propose and
take comment on potential amendments to the Group 3 trading program
that would add an auction mechanism to the regulations for the
purpose of further increasing allowance market liquidity in
conjunction with other appropriate changes to ensure program
stringency is maintained. While these changes may provide an
additional measure of assurance to the market that allowances will
be available for compliance to a degree consistent with the Step 3
emissions control stringency, the EPA does not anticipate that
market liquidity concerns pose a challenge to the feasibility of
sources to comply with the Group 3 trading program as finalized in
this action.
---------------------------------------------------------------------------

a. Prorating Emissions Budgets, Assurance Levels, and Unit-Level
Allowance Allocations in the Event of an Effective Date After May 1,
2023
    The EPA expects that the effective date of this rule will fall
after the start of the Group 3 trading program's 2023 control period on
May 1, 2023, because the effective date of the rule will be 60 days
after the date of the final rule's publication in the Federal Register.
The EPA is addressing this circumstance by determining the amounts of
emissions budgets and unit-level allowance allocations on a full-season
basis in the rulemaking and by also including provisions in the revised
regulations to prorate the full-season amounts as needed to ensure that
no sources become subject to new or more stringent regulatory
requirements before the final rule's effective date.\366\ Variability
limits, assurance levels, and unit-level allocations for 2023 will all
be computed using the appropriately prorated emissions budgets
amounts.\367\
---------------------------------------------------------------------------

    \366\ As discussed in sections VI.B.7 and VI.B.8, the revisions
establishing unit-specific backstop daily emissions rates and, for
units contributing to assurance level exceedances, secondary unit-
specific emissions limitations, will not take effect until the 2024
control period or later.
    \367\ The EPA notes that transitional provisions similar to the
prorating provisions being finalized in this rule were finalized and
implemented without issue under the Revised CSAPR Update.
---------------------------------------------------------------------------

    As discussed in section VI.B.2 of this document, in the case of the
three states (and Indian country within the states' borders) whose
sources do not currently participate in either the Group 2 trading
program or the Group 3 trading program--Minnesota, Nevada, and Utah--
the sources will begin participating in the Group 3 trading program on
the later of May 1, 2023, or the rule's effective date. For these
states, in the rulemaking the EPA has computed the full-season
emissions budgets that would have applied for the entire 2023 control
period if the final rule had become effective no later than May 1,
2023, and were therefore in effect for the entire 153-day control
period from May 1, 2023, through September 30, 2023. Assuming that the
final rule becomes effective after May 1, 2023, as expected, the EPA
will determine prorated emissions budgets for the 2023 control period
by multiplying each full-season emissions budget by the number of days
from the rule's effective date through September 30, 2023, dividing by
153 days, and rounding to the nearest allowance. The prorated
variability limits for the 2023 control period will be computed by
first determining for each state the percentage by which the state's
reported heat input for the full 2023 ozone season (i.e., May 1, 2023
through September 30, 2023) exceeds the heat input used to compute the
state's full-season 2023 emissions budget under this rule and then
multiplying the higher of this percentage or 21 percent by the state's
prorated emissions budget and rounding to the nearest allowance,
yielding prorated assurance levels that equal a minimum of 121 percent
of the prorated emissions budgets. To determine unit-level allocation
amounts from the prorated emissions budgets, the EPA will apply the
unit-level allocation procedure described in section VI.B.9 to the
prorated budgets. All calculations required to determine the prorated
emissions budgets, the minimum 21 percent variability limits, and the
unit-level allocations for the 2023 control period will be carried out
as soon as possible after the EPA learns the rule's effective date. The
unit-level allocations for both the 2023 and 2024 control periods will
be recorded in facilities' compliance accounts approximately 30 days
after the rule's effective date, as discussed in section VI.B.9.b of
this document.
    In the case of the states (and Indian country within the states'
borders) whose sources currently participate in the Group 3 trading
program--Illinois, Indiana, Kentucky, Louisiana, Maryland, Michigan,
New Jersey, New York, Ohio, Pennsylvania, Virginia, and West Virginia--
the sources will continue to participate in the Group 3 trading program
for the 2023 control period, subject to prorating procedures designed
to ensure that the changes in 2023 emissions budgets and assurance
levels will not substantively affect the sources' requirements prior to
the rule's effective date. For these states, in the rulemaking the EPA
has computed the full-season emissions budgets that would have applied
for the entire 2023 control period if the final rule had become
effective no later than May 1, 2023, but the EPA has also retained in
the regulations the full-season emissions budgets for the 2023 control
period that were established in the Revised CSAPR Update rulemaking.
The EPA has added a provision to the regulations indicating that the
emissions budgets promulgated in the Revised CSAPR Update will apply on
a prorated basis for the portion of the 2023 control period before the
final rule's effective date and the emissions budgets established in
this rulemaking will apply on a prorated basis for the portion of the
2023 control period on and after the final rule's effective date. Under
this provision, the EPA will determine a blended emissions budget for
each state for the 2023 control period, computed as the sum of the
appropriately prorated amounts of the state's previous and revised
emissions budgets. (For example, if the final rule becomes effective on
the eleventh day of the 153-day 2023 control period, the blended
emissions budget will equal the sum of 10/153 times the previous
emissions budget plus 143/153 times the revised emissions budget,
rounded to the nearest allowance.) Blended variability limits for the
2023 control period will be computed by first determining for each
state the percentage by which the state's reported heat input for the
full 2023 ozone season exceeds the heat input used to compute the
state's full-season 2023 emissions budget under this rule and then
multiplying the higher of this percentage or 21 percent by the state's
prorated emissions budget and rounding to the nearest allowance,

yielding blended assurance levels that equal a minimum of 121 percent
of the blended emissions budgets. Unit-level allocations will be
determined by applying the allocation procedure described in section
VI.B.9 to the blended budgets. Again, all calculations required to
determine the prorated emissions budgets, the minimum 21 percent
variability limits, and the unit-level allocations for the 2023 control
period will be carried out as soon as possible after the EPA learns the
effective date of this rule. The unit-level allocations for both the
2023 and 2024 control periods will be recorded in facilities'
compliance accounts approximately 30 days after the final rule's
effective date, as discussed in section VI.B.9.b of this document.
    In the case of the states (and Indian country within the states'
borders) whose sources currently participate in the Group 2 trading
program--Alabama, Arkansas, Mississippi, Missouri, Oklahoma, Texas, and
Wisconsin--the sources will begin to participate in the Group 3 trading
program as of May 1, 2023, regardless of the rule's effective date, as
discussed in section VI.B.2 of this document, subject to prorating
procedures designed to ensure that the transition from the Group 2
trading program to the Group 3 trading program will not substantively
affect the sources' requirements prior to the rule's effective date.
The prorating procedures for these states mirror the procedures for the
states currently in the Group 3 trading program, except that because no
emissions budgets currently appear in the Group 3 trading program
regulations for the states that are currently covered by the Group 2
trading program, the EPA has added two sets of emissions budgets for
these states to the Group 3 trading program regulations: first, the
states' emissions budgets for the 2023 control period that currently
appear in the Group 2 trading program regulations, which are being
included in the revised Group 3 trading program regulations to
represent the states' emissions budgets for the portion of the 2023
control period before the rule's effective date, and second, the
emissions budgets for the 2023 control period established for the
states in this rulemaking, which are being included in the revised
Group 3 trading program regulations to represent the state's emissions
budgets for the portion of the 2023 control period on and after the
rule's effective date. The procedures and timing for determining
blended emissions budgets, variability limits and assurance levels, and
unit-level allowance allocations, as well as the timing for the
recordation of unit-level allocations, are the same as for the states
currently in the Group 3 trading program.
    Beginning administrative implementation of the Group 3 trading
program starting on May 1, 2023, for sources currently in the Group 2
trading program imposes no new or different requirements on these
sources. It would serve the public interest and greatly aid in
administrative efficiency for most elements of the Group 3 trading
program--specifically, all elements of the trading program other than
the elements designed to establish more stringent emissions limitations
for the sources coming from the Group 2 trading program--to apply to
the sources starting on May 1, 2023. This is how the EPA handled the
earlier transition of twelve states from the Group 2 to the Group 3
trading program in the Revised CSAPR Update, which was accomplished
successfully and without incident. See 86 FR 23133-34. This approach
would facilitate implementation of the Group 3 trading program in an
orderly manner for the entire 2023 ozone season and reduce compliance
burdens and potential confusion. Each of the CSAPR trading programs for
ozone season NOX is designed to be implemented over an
entire ozone season. Implementing the transition from the Group 2
trading program to the Group 3 trading program in a manner that
required the covered sources to participate in the Group 2 trading
program for part of the 2023 ozone season and the Group 3 trading
program for the remainder of that ozone season would be complex and
burdensome for sources. Attempting to address the issue by splitting
the Group 2 and Group 3 requirements for these sources into separate
years is not a viable approach, because the EPA has no legal basis for
releasing the transitioning Group 2 sources from the emissions
reduction requirements found to be necessary in the CSAPR Update for a
portion of the 2023 ozone season, and the EPA similarly has no legal
basis for deferring implementation of the 2023 emissions reduction
requirements found to be necessary under this rule for the
transitioning Group 2 sources until 2024. Moreover, the requirements of
the current Group 2 trading program and the revised Group 3 trading
program for the 2023 control period are substantively identical as to
almost all provisions, such that with respect to those provisions, a
source will not need to alter its operations in any manner or face
different compliance obligations as a consequence of a transition from
the Group 2 trading program to the Group 3 trading program. Thus, the
EPA believes that no substantive concerns regarding retroactivity arise
from transitioning the sources currently in the Group 2 trading program
to the Group 3 trading program starting on May 1, 2023, as long as
those aspects of the revised Group 3 trading program for the 2023
control period that do meaningfully differ from the analogous aspects
of the Group 2 trading program--that is, the relative stringencies of
the two trading programs, as reflected in the emissions budgets and
associated assurance levels--are applied only as of the effective date
of the final rule.
    In all respects other than prorating the emissions budgets,
variability limits and assurance levels, and unit-level allowance
allocations, with respect to the sources currently participating in the
Group 2 trading program or the Group 3 trading program, the EPA will
implement the revised Group 3 trading program for the 2023 control
period in a uniform manner for the entire control period. Thus,
emissions will be monitored and reported for the entire 2023 ozone
season (i.e., May 1, 2023, through September 30, 2023), and as of the
allowance transfer deadline for the 2023 control period (i.e., June 1,
2024) each source will be required to hold in its compliance account
vintage-year 2023 Group 3 allowances not less than the source's
emissions of NOX during the entire 2023 ozone season. Any
efforts undertaken by one of these sources to reduce its emissions
during the portion of the 2023 ozone season before the effective date
of the rule will aid the source's compliance by reducing the amount of
Group 3 allowances that the source would need to hold in its compliance
account as of the allowance transfer deadline, increasing the range of
options available to the source for meeting its compliance obligations
under the revised Group 3 trading program.
    In the case of the sources in the three states that do not
currently participate in the Group 2 trading program or the Group 3
trading program, the 2023 control period will begin on the effective
date of the rule, and because the effective date of the rule is
expected to fall after May 1, 2023, the 2023 control period for the
sources in these states will be shorter than the 153-day length of the
2023 control period for the sources in the remaining states. However,
the EPA similarly will implement the revised Group 3 trading program
for the sources in these states in a uniform manner for the entire
shorter control period.

    The prorating provisions are being finalized as proposed. The EPA
received no comments on the portion of the proposal discussing these
provisions.
b. Creation of Additional Group 3 Allowance Bank for 2023 Control
Period
    In the CSAPR Update, where the EPA established the Group 2 trading
program and transitioned over 95 percent of the sources that had been
participating in what is now the CSAPR NOX Ozone Season
Group 1 Trading Program (the ``Group 1 trading program'') to the new
program, the EPA determined that it was reasonable to establish an
initial bank of allowances for the Group 2 trading program by
converting almost all allowances banked under the Group 1 trading
program at a conversion ratio determined by a formula. In the Revised
CSAPR Update, where the EPA established the Group 3 trading program and
transitioned approximately 55 percent of the sources that had been
participating in the Group 2 trading program to the new program, the
EPA similarly determined that it was reasonable to provide for an
initial bank of allowances for the Group 3 trading program by
converting allowances banked under the Group 2 trading program at a
conversion ratio determined by a formula, using a conversion procedure
that was modified to leave much of the Group 2 allowance bank available
for use by the approximately 45 percent of sources then in the Group 2
trading program that would remain in that program. Any conversion of
banked allowances from a previous trading program for use in a new
trading program must ensure that implementation of the new trading
program will result in NOX emissions reductions sufficient
to address significant contribution by all states that would be
participating in the new trading program, while also providing industry
certainty (and obtaining an environmental benefit) through continued
recognition of the value of saving allowances through early reductions
in emissions. The EPA's approach to balancing these concerns in the
CSAPR Update through the conversion of banked allowances from the Group
1 trading program to the Group 2 trading program was upheld in
Wisconsin v. EPA, 938 F.3d at 321.
    Under this final rule, applying the same balancing principle as in
the CSAPR Update and the Revised CSAPR Update, the EPA will carry out a
further conversion of allowances banked for control periods before 2023
under the Group 2 trading program into allowances usable in the Group 3
trading program in control periods in 2023 and later years. Because the
EPA is transitioning over 80 percent of the remaining sources in the
Group 2 trading program to the Group 3 trading program--much closer to
the situation in the CSAPR Update than the situation in the Revised
CSAPR Update--in this rule the EPA is applying a conversion procedure
similar to the procedure followed in the CSAPR Update. Under the
conversion procedure in this rule, the EPA has not set a predetermined
conversion ratio in the regulations (as was done in the Revised CSAPR
Update) but instead has established provisions identifying the target
amount of new Group 3 allowances that will be created and defining the
types of accounts whose holdings of Group 2 allowances will be
converted to Group 3 allowances (as was done in the CSAPR Update). The
conversion date will be carried out by September 18, 2023, which is
expected to be approximately 2 months after the compliance deadline for
the 2022 control period under the Group 2 trading program and
approximately ten months before the compliance deadline for the 2023
control period under the Group 3 trading program. The actual conversion
ratio will be determined as of the conversion date and will be the
ratio of the total amount of Group 2 allowances held in the identified
types of accounts prior to the conversion to the total amount of Group
3 allowances being created.
    With respect to the numerator of the conversion ratio--that is, the
total amount of Group 2 allowances being converted--the EPA has defined
the types of accounts included in the conversion to include all
accounts except the facility accounts of sources in states that will
remain in the Group 2 trading program, consistent with the approach
taken in the CSAPR Update.\368\ Thus, the accounts whose holdings of
Group 2 allowances will be converted to Group 3 allowances will include
(1) the facility accounts of all sources in the states transitioning
from the Group 2 trading program to the Group 3 trading program, (2)
the facility accounts of all sources in the states already
participating in the Group 3 trading program, (3) the facility accounts
of all sources in any other states not covered by the Group 2 trading
program that happen to hold Group 2 allowances as of the conversion
date, and (4) all general accounts (that is, accounts that are not
facility accounts, including other accounts controlled by source owners
as well as accounts controlled by non-source entities such as allowance
brokers). Creating the new Group 3 allowances through conversion of
previously banked Group 2 allowances will also help preserve the
stringency of the Group 2 trading program for the states that remain
covered by that trading program at levels consistent with the
stringency found to be appropriate to address those states' good
neighbor obligations with respect to the 2008 ozone NAAQS in the CSAPR
Update.
---------------------------------------------------------------------------

    \368\ The states whose sources will continue to participate in
the Group 2 trading program for the 2023 control period will be
Iowa, Kansas, and Tennessee.
---------------------------------------------------------------------------

    With respect to the denominator of the conversion ratio--that is,
the target amount of Group 3 allowances that will be created in the
conversion process--the EPA has followed the same approach for setting
the target amount that was used in the Revised CSAPR Update for
creation of the initial Group 3 allowance bank. Specifically, the
target amount of Group 3 allowances to be created in this rule will be
computed as the sum of the minimum 21 percent variability limits for
the 2024 control period \369\ established for the ten states being
added to the Group 3 trading program, prorated to reflect the portion
of the 2023 control period occurring on and after the effective date of
the final rule. Based on the amounts of the state emissions budgets and
variability limits, the full-season target amount for the conversion
would be 23,094 Group 3 allowances. The quantity of banked Group 2
allowances currently held in accounts other than the facility accounts
of sources in Iowa, Kansas, and Tennessee exceeding the quantity of
allowances likely to be needed for 2022 compliance is approximately
149,386 allowances. Thus, if the quantities of banked Group 2
allowances held in the accounts being included in the conversion do not
change between now and the conversion date, and if there was no
prorating adjustment, the conversion ratio would be approximately 6.5-
to-1, meaning that one Group 3 allowance would be created for every 6.5
Group 2 allowances deducted in the conversion process.\370\
---------------------------------------------------------------------------

    \369\ Similar to the approach taken in the Revised CSAPR Update,
because emissions reductions from some of the emissions controls
that EPA has identified as appropriate to use in setting budgets are
first reflected in the 2024 state budgets rather than the 2023 state
budgets, the EPA is basing the bank target amount on the sum of the
states' 2024 variability limits rather than the 2023 variability
limits.
    \370\ By comparison, the analogous conversion ratio under the
Revised CSAPR Update was 8-to-1.
---------------------------------------------------------------------------

    As noted in section VI.B.12.a of this document, the EPA expects
that the effective date of this rule will occur after

the start of the 2023 ozone season, and prorating provisions are being
promulgated in this rule to ensure that the increased stringency of
this rule's state budgets and state assurance levels (i.e., the sums of
the budgets and variability limits) will take effect only after the
rule's effective date. Consistent with these other procedures, the EPA
will similarly prorate the bank target amount used in the conversion
process. For example, if the effective date of the final rule is the
eleventh day of the 153-day 2023 ozone season, the full-season initial
bank target amount of 23,094 allowances would be prorated to an initial
bank target amount of 21,585 allowances.\371\ The EPA notes that
prorating the bank amount in this manner will not reduce sources'
compliance flexibility for the 2023 ozone season, because the amounts
of Group 3 allowances that sources will receive for the portion of the
2023 ozone season before the rule's effective date will be based on the
trading program budgets for the 2023 control period that were in effect
before this rulemaking. These trading program budgets exceed the
sources' collective 2022 emissions by approximately 29,789 tons,
indicating potentially surplus allowances roughly 1.3 times the full-
season bank conversion target amount of 23,094 allowances. Thus,
although the prorating procedure will reduce the amount of Group 3
allowances that would be available to sources in the form of an initial
bank, the reduction in the quantity of these allowances will be more
than offset by the quantities of Group 3 allowances that will be
allocated in excess of sources' recent historical emissions levels for
the portion of the ozone season before the final rule's effective date.
---------------------------------------------------------------------------

    \371\ 23,094 x (153-10) / 153 = 21,585.
---------------------------------------------------------------------------

    As in the CSAPR Update and the Revised CSAPR Update, the EPA's
overall objective in establishing the target amount for the allowance
conversion is to achieve a total target amount for the bank at a level
high enough to accommodate year-to-year variability in operations and
emissions, as reflected in states' variability limits, but not high
enough to allow sources collectively to plan to emit in excess of the
collective state budgets. The EPA believes that a well-established
trading program should be able to function with an allowance bank lower
than the full amount of the covered states' variability limits, as
discussed in section VI.B.6 of this document with respect to the bank
recalibration process that will begin with the 2024 control period.
However, the EPA also believes there are several compelling reasons in
this instance to use a bank target higher than the minimum practicable
level.
    First, making an allowance bank available for use in the 2023
control period that is somewhat higher than the minimum practicable
level will help to address concerns that might otherwise arise
regarding the transition to a new set of compliance requirements, for
some sources, and the transition to compliance requirements based on
revised emissions budgets different from the emissions budgets that the
sources had reason to anticipate under previous rulemakings, for the
remaining sources. Although the EPA is confident that the emissions
budgets being established in this rulemaking for the 2023 control
period are readily achievable, the EPA also believes that the existence
of a somewhat larger allowance bank at this transition point will
promote sources' confidence in their ability to meet their 2023
compliance obligations in general and in a liquid allowance market in
particular. Second, because the large majority of the remaining Group 2
allowances that will be converted to Group 3 allowances in this
rulemaking are held by the sources currently in the Group 2 trading
program, while the large majority of the initial bank of Group 3
allowances previously created in the conversion under the Revised CSAPR
Update are held by the sources already in the Group 3 trading program,
basing the conversion in this rulemaking on a target bank amount set in
the same manner as the target bank amount used in the Revised CSAPR
Update is expected to result in a less concentrated distribution of
holdings of banked Group 3 allowances following the conversion than
would be the case if a more stringent target bank amount were used
under this rulemaking than was used in the Revised CSAPR Update. A
lower concentration of holdings of banked Group 3 allowances would
generally be expected to help ensure allowance market liquidity. Third,
the EPA considers it equitable to treat the sources in the states
transitioning from the Group 2 trading program to the Group 3 trading
program in this rulemaking roughly similarly to the sources in the
states that transitioned between the same two trading programs in the
Revised CSAPR Update with respect to the benefit they would receive
under the Group 3 trading program for any efforts they may have made to
make emissions reductions under the Group 2 trading program beyond the
minimum efforts that were required to comply with the emissions budgets
under that program. Finally, to the extent that the conversion results
in a larger bank of allowances remaining after the 2023 control period
than is considered necessary to sustain a well-functioning trading
program in subsequent control periods, the excess will be removed from
the program in the bank recalibration process that will be implemented