[Federal Register: September 12, 2007 (Volume 72, Number 176)]
[Proposed Rules]
[Page 52205-52261]
[DOCID:fr12se07-23]

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Part II

Environmental Protection Agency

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40 CFR Parts 51, 52, 70, and 71

Operating Permit Programs and Prevention of Significant Deterioration
(PSD) and Nonattainment New Source Review (NSR); Flexible Air
Permitting Rule; Proposed Rule

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 51, 52, 70, and 71

[EPA-HQ-OAR-2004-0087, FRL-8462-9]
RIN 2060-AM45

Operating Permit Programs and Prevention of Significant
Deterioration (PSD) and Nonattainment New Source Review (NSR); Flexible
Air Permitting Rule

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: We are proposing to revise the regulations governing State and
Federal operating permit programs required by title V of the Clean Air
Act (CAA or the Act) and the New Source Review (NSR) programs required
by parts C and D of title I of the Act. These proposed actions are
based, in large part, on the lessons learned through EPA's pilot
experience in which EPA worked closely with States and certain sources
subject to title V permitting requirements to develop flexible air
permitting approaches that provide greater operational flexibility and,
at the same time, ensure environmental protection and compliance with
applicable laws.
    In pilot permits, increased flexibility is primarily achieved
through advance approvals under NSR and alternative operating scenarios
(AOSs). The proposed revisions clarify how this can often be done in
the existing regulatory framework of the operating permit programs. The
proposed revisions also add major NSR requirements for Green Groups,
which allow future changes to occur within a group of emissions
activities, provided that they are ducted to a common air pollution
control device which is determined to meet ``best available control
technology'' (BACT) or ``lowest achievable emission rate'' (LAER), as
applicable and that they are determined to comply with all relevant
ambient requirements.

DATES: Comments. Written comments must be received on or before
November 13, 2007. Under the Paperwork Reduction Act, comments on the
information collection provisions must be received by OMB on or before
October 12, 2007.
    Public Hearing. If anyone contacts EPA requesting to speak at a
public hearing by October 2, 2007, we will hold a public hearing
approximately 30 days after publication in the Federal Register.
Additional information about the hearing would be published in a
subsequent Federal Register notice.

ADDRESSES: Comments. Submit your comments, identified by Docket ID No.
EPA-HQ-OAR-2004-0087, by one of the following methods:
     http://www.regulations.gov: Follow the on-line

instructions for submitting comments.
     E-mail<EMAIL_ADDRESS>     Fax:<PHONE_NUMBER>.
     Mail: Environmental Protection Agency, EPA Docket Center
(EPA/DC), Air and Radiation Docket, Mail Code 2822T, 1200 Pennsylvania
Avenue, NW., Washington, DC 20460. Please include two copies. In
addition, please mail a copy of your comments on the information
collection provisions to the Office of Management and Budget (OMB),
Attn: Desk Officer for EPA, 725 17th St., NW., Washington, DC 20503.
     Hand Delivery: EPA Docket Center, (Air Docket), U.S.
Environmental Protection Agency, Room 3334, 1301 Constitution Ave.,
NW., Washington, DC. Such deliveries are only accepted during the
Docket's normal hours of operation, and special arrangements should be
made for deliveries of boxed information.
    Instructions: Direct your comments to Docket ID No. EPA-HQ-OAR-
2004-0087. EPA's policy is that all comments received will be included
in the public docket without change and may be made available online at
http://www.regulations.gov, including any personal information provided,

unless the comment includes information claimed to be Confidential
Business Information (CBI) or other information whose disclosure is
restricted by statute. Do not submit information that you consider to
be CBI or otherwise protected through http://www.regulations.gov or e-mail.

The http://www.regulations.gov Web site is an ``anonymous access'' system,

which means EPA will not know your identity or contact information
unless you provide it in the body of your comment. If you send an e-
mail comment directly to EPA without going through http://www.regulations.gov,

your e-mail address will be automatically captured and included as part
of the comment that is placed in the public docket and made available
on the Internet. If you submit an electronic comment, EPA recommends
that you include your name and other contact information in the body of
your comment and with any disk or CD-ROM you submit. If EPA cannot read
your comment due to technical difficulties and cannot contact you for
clarification, EPA may not be able to consider your comment. Electronic
files should avoid the use of special characters, any form of
encryption, and be free of any defects or viruses. For additional
instructions on submitting comments, go to I C & D of the SUPPLEMENTARY
INFORMATION section of this document.
    Docket: All documents in the docket are listed in the index at
http://www.regulations.gov. Although listed in the index, some information is

not publicly available, i.e., CBI or other information whose disclosure
is restricted by statute. Certain other material, such as copyrighted
material, is not placed on the Internet and will be publicly available
only in hard copy form. Publicly available docket materials are
available either electronically in http://www.regulations.gov or in hard copy

at the EPA Docket Center (Air Docket), EPA West, Room 3334, 1301
Constitution Ave., NW., Washington, DC. The Public Reading Room is open
from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal
holidays. The telephone number for the Public Reading Room is (202)
566-1744, and the telephone number for the Air Docket is (202) 566-
1742.

FOR FURTHER INFORMATION CONTACT: For issues concerning advance
approvals and AOSs, contact Michael Trutna, Air Quality Policy Division
(C504-01), U.S. Environmental Protection Agency, Research Triangle
Park, NC 27711; telephone<PHONE_NUMBER>, fax number<PHONE_NUMBER>; or
electronic mail at<EMAIL_ADDRESS>    For issues concerning ARMs and EPA's pilot permits, contact David
Beck, Office of Policy, Economics, and Innovation, Innovative Pilots
Division (C304-05), U.S. Environmental Protection Agency, Research
Triangle Park, NC 27711; telephone<PHONE_NUMBER>, fax number (919)
541-2664; or electronic mail at<EMAIL_ADDRESS>    For issues relating to monitoring, recordkeeping, and reporting for
flexible air permits, contact Barrett Parker, Sector Policies and
Programs Division, Measurement Policy Group (D243-03), U.S.
Environmental Protection Agency, Research Triangle Park, NC 27711;
telephone<PHONE_NUMBER>, fax number<PHONE_NUMBER>; or electronic mail
at<EMAIL_ADDRESS>    For other part 70 issues, contact Juan Santiago, Operating Permits
Group, Air Quality Policy Division (C504-05), U.S. Environmental
Protection Agency, Research Triangle Park, NC 27711; telephone (919)
541-1084, fax number<PHONE_NUMBER>; or electronic mail at
<EMAIL_ADDRESS>
    For issues relating to Green Groups, contact Dave Painter, New
Source Review Group, Air Quality Policy Division (C504-03), U.S.
Environmental Protection Agency, Research Triangle Park, NC 27711;
telephone (919) 541-

5515, fax number<PHONE_NUMBER>; or electronic mail at
<EMAIL_ADDRESS>
    To request a hearing or information pertaining to a hearing on this
document, please contact Pam Long, Air Quality Policy Division, U.S.
EPA, Office of Air Quality Planning and Standards (C504-03), Research
Triangle Park, North Carolina 27711, telephone number<PHONE_NUMBER>,
facsimile number<PHONE_NUMBER>; electronic mail e-mail address:
<EMAIL_ADDRESS>

SUPPLEMENTARY INFORMATION:

I. General Information

A. What are the regulated entities?

    Entities potentially affected by these proposed actions are
facilities currently required to obtain title V permits under State,
local, tribal, or Federal operating permits programs, and State, local,
and tribal governments that are authorized by EPA to issue such
operating permits. Other entities potentially affected by this proposed
action are facilities required to obtain major NSR permits under State,
local, tribal, or Federal major NSR programs, and State, local, and
tribal governments that issue such permits pursuant to approved part 51
major NSR programs. Potentially affected sources are found in a wide
variety of industry groups. In particular, we believe based on our
experience in implementing our flexible air permit pilot program that
these groups will include, but are not limited to, the following:

------------------------------------------------------------------------
        Industry group                SIC a               NAICS b
------------------------------------------------------------------------
Aerospace Manufacturing.......  372..............  336411, 336412,
                                                    332912, 336411,
                                                    335413.
Automobile Manufacturing......  371..............  336111, 336112,
                                                    336712, 336211,
                                                    336992, 336322,
                                                    336312, 33633,
                                                    33634, 33635,
                                                    336399, 336212,
                                                    336213.
Industrial Organic Chemicals..  286..............  325191, 32511,
                                                    325132, 325192,
                                                    225188, 325193,
                                                    32512, 325199.
Chemical Processes............  281..............  325181, 325182,
                                                    325188, 32512,
                                                    325131, 325998,
                                                    331311.
Converted Paper and Paperboard  267..............  322221, 322222,
 Products.                                          322223, 322224,
                                                    322226, 322231,
                                                    326111, 326112,
                                                    322299, 322291,
                                                    322232, 322233,
                                                    322211.
Magnetic Tape Manufacturing...  369..............  334613.
Petroleum Refining............  291..............  32411.
Other Coating Operations......  226, 229, 251,     313311, 313312,
                                 252, 253, 254,     314992, 33132,
                                 267, 358, 363.     337122, 337121,
                                                    337124, 337215,
                                                    337129, 37125,
                                                    337211, 337214,
                                                    337127, 322221,
                                                    322222, 322226,
                                                    335221, 335222,
                                                    335224, 335228,
                                                    333312, 333415,
                                                    333319.
Paper Mills...................  262..............  322121, 322122.
Pharmaceutical Manufacturing..  283..............  325411, 325412,
                                                    325413, 325414.
Printing and Publishing.......  275..............  323114, 323110,
                                                    323111, 323113,
                                                    323112, 323115,
                                                    323119.
Pulp and Paper Mills..........  262..............  32211, 322121,
                                                    322122, 32213.
Semi-conductors...............  367..............  334413.
Specialty Chemical Batch        282, 283, 284,     3251, 3252, 3253,
 Processes.                      285, 286, 287,     3254, 3255, 3256,
                                 289, 386.          3259, except 325131
                                                    and 325181.
------------------------------------------------------------------------
a Standard Industrial Classification
b North American Industry Classification System.

B. What should I consider as I prepare my comments for EPA?

1. Submitting CBI
    Do not submit this information to EPA through http://www.regulations.gov

or e-mail. Clearly mark the part or all of the information that you
claim to be CBI. For CBI information in a disk or CD-ROM that you mail
to EPA, mark the outside of the disk or CD-ROM as CBI and then identify
electronically within the disk or CD-ROM the specific information that
is claimed as CBI. In addition to one complete version of the comment
that includes information claimed as CBI, a copy of the comment that
does not contain the information claimed as CBI must be submitted for
inclusion in the public docket. Information so marked will not be
disclosed except in accordance with procedures set forth in 40 CFR part
2.
2. Suggestions for Preparing Your Comments
    When submitting comments, remember to:
     Identify the rulemaking by docket number and other
identifying information (subject heading, Federal Register date and
page number).
     Follow directions. The Agency may ask you to respond to
specific questions or organize comments by referencing a Code of
Federal Regulations (CFR) part or section number.
     Explain why you agree or disagree; suggest alternatives
and substitute language for your requested changes.
     Describe any assumptions and provide any technical
information and/or data that you used.
     If you estimate potential costs or burdens, explain how
you arrived at your estimate in sufficient detail to allow for it to be
reproduced.
     Provide specific examples to illustrate your concerns, and
suggest alternatives.
     Explain your views as clearly as possible, avoiding the
use of profanity or personal threats.
     Make sure to submit your comments by the comment period
deadline identified.

C. Where Can I Get a Copy of This Document and Other Related
Information?

    In addition to being available in the docket, an electronic copy of
this proposal will also be available on the http://WWW. Following signature by

the EPA Administrator, a copy of this notice will be posted in the
regulations and standards section of our NSR home page located at
http://www.epa.gov/nsr.

D. How Can I Find Information About a Possible Hearing?

    Persons interested in presenting oral testimony should contact Pam
Long, Air Quality Policy Division (C504-03), U.S. EPA, Research
Triangle Park, NC 27711, telephone number<PHONE_NUMBER> or e-mail
<EMAIL_ADDRESS>at least 2 days in advance of the public hearing.

Persons interested in attending the public hearing should also contact
Pam Long to verify the time, date, and location of the hearing. The
public hearing will provide interested parties the opportunity to
present data, views, or arguments concerning these proposed rules.

E. How is this preamble organized?

    The information presented in this preamble is organized as follows:

I. General Information
    A. What are the regulated entities?
    B. What should I consider as I prepare my comments for EPA?
    C. Where can I get a copy of this document and other related
information?
    D. How can I find information about a possible hearing?
    E. How is this preamble organized?
II. What is a flexible air permit and the background related to this
action?
    A. What is a flexible air permit?
    B. What is the statutory background?
    C. What is the regulatory background relating to the proposed
revisions to parts 70 and 71?
    D. What is the regulatory background relating to the proposed
revisions to parts 51 and 52?
III. What is the purpose of this action?
IV. What experience did we gain from our 12-year pilot permit
experience?
    A. What were the benefits of the pilot permits?
    B. What were the conclusions of the sources, permitting
authorities, and EPA about flexible permits?
    C. What are EPA's recommendations for public participation in
flexible permitting?
V. What are the key elements of this proposal?
    A. What are the key elements of proposed revisions to parts 70
and 71?
    B. What are the key elements of proposed revisions to parts 51
and 52?
VI. What changes are we are proposing to parts 70 and 71?
    A. What is our proposed definition of an AOS, and how does it
provide a source operational flexibility?
    B. What information is necessary in a title V permit application
to seek approval of an AOS?
    C. What terms and conditions must be included in the title V
permit for approved AOSs?
    D. What are some examples of how AOSs and advance approvals can
be used to provide operational flexibility?
    E. What is the process for adding or revising advance approvals,
AOSs, and ARMs in issued permits?
    F. How do the proposed AOS provisions differ between parts 70
and 71?
VII. What changes are we proposing in parts 51 and 52?
    A. What are the benefits of Green Groups?
    B. What is a Green Group?
    C. How is a Green Group designation incorporated into a title V
permit?
    D. What is the legal rationale for Green Groups?
    E. What are the conforming regulatory changes we must make to
implement the Green Group concept?
    F. What is an example of how a Green Group might be used in
combination with a title V permit?
VIII. What is the effect of these proposed revisions?
    A. If these proposed revisions are finalized, what are the
implications for approved part 70 programs?
    B. What are the implications for NSR programs?
IX. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review
    B. Paperwork Reduction Act
    C. Regulatory Flexibility Act (RFA)
    D. Unfunded Mandates Reform Act
    E. Executive Order 13132: Federalism
    F. Executive Order 13175: Consultation and Coordination With
Indian Tribal Governments
    G. Executive Order 13045: Protection of Children From
Environmental Health and Safety Risks
    H. Executive Order 13211: Actions That Significantly Affect
Energy Supply, Distribution, or Use
    I. National Technology Transfer and Advancement Act

II. What is a flexible air permit and the background related to this
action?

    In this section, we first explain what is a flexible air permit. We
then provide an overview of the relevant statutory provisions and
describe the regulatory and other actions taken over the course of the
last decade that are relevant to this proposal.

A. What is a flexible air permit?

    A flexible air permit is a title V permit that facilitates
flexible, market-responsive operations at a source through the use of
one or more permitting approaches, while ensuring equal or greater
environmental protection as achieved by conventional permits.\1\ In
particular, flexible permitting approaches allow the source, under
protection of the permit shield, to make certain types of physical and
operational changes without further review or approval by the
permitting authority. One approach includes, for example, obtaining
advance approval for anticipated changes (such as through a minor NSR
action), incorporating the advance approval into the title V permit,
and adding terms in the title V permit as necessary to assure
compliance with all other applicable requirements implicated by the
anticipated changes. Another approach is to establish one or more
alternative operating scenarios (AOSs) in a title V permit to allow
existing emissions units the flexibility to operate in varying ways
and/or at varying rates of production, where such variations would be
subject to different applicable requirements but would not require
prior authorization (i.e., advance approval).
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    \1\ We first addressed the concept of a flexibile air permit in
May 1991. See 56 FR 21712, 21748 (May 10, 1991).
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    For more than a decade, we participated in a pilot flexible air
permitting program with certain title V sources and permitting
authorities through which we tested and evaluated various permitting
approaches that afford operational flexibility. The lessons learned
through the pilot program, in part, served as the basis for our
adoption of the plantwide applicability limitation (PAL) provisions of
the 2002 NSR Improvement rule. They also serve as a basis for this
rule, where we seek to build upon existing regulatory provisions that
afford operational flexibility. We believe that the flexible permitting
approaches in this proposed rulemaking provide a path forward for
sources to more effectively and proactively manage their title V and
NSR permitting obligations, while ensuring environmental protection.

B. What is the statutory background?

    There are two aspects of the CAA that are relevant to this proposed
rule: title V and parts C and D of title I of the Act. In 1990,
Congress promulgated title V and established the operating permit
program. That program requires certain stationary sources to obtain
operating permits as a mechanism for gathering all applicable
requirements of the Act for each affected source into one comprehensive
document.\2\ See H.R. Conference Report No. 101-952, reprinted in
U.S.C.C.A.N. 3867, 3877 (1990).
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    \2\ ``Applicable requirements'' is a term that is used in title
V. The EPA has defined the term to include, among other things,
State implementation plan (SIP) rules, the terms and conditions of
preconstruction permits issued under a SIP-approved NSR program, and
requirements pursuant to the new source performance standards
(NSPS), national emission standards for hazardous air pollutants
(NESHAP), and Acid Rain Programs. See 40 CFR 70.2.
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    One of the key purposes of the title V operating permit program is
to enable the source, the State or local permitting authority, EPA, and
the public to gain a better understanding of the requirements of the
Act to which the source is subject. The ability to assess and achieve
compliance with the law is improved by virtue of having one
comprehensive operating permit containing all applicable requirements
for a source. The title V permit program does not impose new
substantive air quality control requirements. It does, however, require
that fees be imposed on sources and that certain procedural measures be
followed, especially with respect to determining compliance with
applicable requirements. See, e.g., CAA sections 502(b)(3), 503(b)(2),
and 504(a).

    The Act affirms that State and local governments have primary
responsibility for air quality. See CAA section 101(a)(3). Title V
vests primary responsibility for issuing operating permits with State
and local governments. See CAA section 502. Congress required EPA to
promulgate regulations establishing the minimum elements of a title V
operating permits program. See CAA section 502(b) (articulating ten
minimum elements for State programs). In establishing such minimum
elements, Congress directed that EPA develop ``[a]dequate, streamlined,
and reasonable procedures'' for processing and reviewing permit
applications and for the expeditious review of permit actions. See CAA
section 502(b)(6).
    As explained below, EPA promulgated regulations establishing the
minimum requirements for a State operating permit program in 1992.
These regulations are codified at 40 CFR part 70 and are often
referenced as ``part 70.'' In addition to requiring EPA to establish
the minimum elements for the operating permits program, Congress
required each State to develop and submit to EPA for approval an
operating permit program that meets the requirements of the Act and
part 70. See CAA section 502(d)(1). In areas that do not have an
approved State, local, or tribal title V program, EPA administers the
operating permit program as a Federal program pursuant to regulations
set out in 40 CFR part 71. See CAA section 502(d)(3). Title V requires
that each operating permit contain terms sufficient to assure
compliance with all applicable air requirements. See CAA section
504(a).
    The other parts of the Act relevant to this rule include part C,
entitled ``Prevention of Significant Deterioration of Air Quality''
(typically referred to as ``PSD''), and part D, entitled ``Plan
Requirements for Nonattainment Areas'' (typically referred to as
``nonattainment major NSR''), of title I of the Act. See CAA sections
160 through 169B (part C) and 171 through 193 (part D). These parts
together are commonly referred to as the major NSR program. This
program is a preconstruction review and permitting program applicable
to new or modified major stationary sources of air pollutants regulated
under the Act. The implementing regulations for the program are
contained in 40 CFR 51.165, 51.166, 52.21, 52.24, and part 51, appendix
S.
    The PSD provisions apply to new major sources and to major
modifications at existing major sources for pollutants where the area
in which the source is located is in attainment or unclassifiable with
the national ambient air quality standards (NAAQS). A source that is
subject to PSD must install BACT and perform an air quality analysis
and an additional impacts analysis, and there must be an opportunity
for public participation. See CAA section 165(a). The BACT is an
emissions limitation that is based on the maximum degree of control
that can be achieved, as determined on a case-by-case basis for each
source considering energy, environmental, and economic impacts. See CAA
section 169(3); 40 CFR 51.166(b)(12), 52.21(b)(12), and
51.165(a)(1)(xl). The source's air quality analysis must demonstrate
that the source will not cause or contribute to a violation of any
NAAQS or any maximum allowable increase in ambient concentration either
for a Class I area or as established under the PSD program (typically
referred to as ``PSD increments''). See CAA section 165(a)(3).
    Nonattainment major NSR applies to new major sources and to major
modifications at existing major sources for pollutants where the area
in which the source is located is not in attainment with the NAAQS.\3\
Nonattainment major NSR requires the source to comply with lowest
achievable emission rate (``LAER'') and to obtain sufficient emissions
offsets, and there must be an opportunity for public involvement. See
CAA section 173(a); 40 CFR 51.161. The LAER is determined for each
source to reflect the more stringent of the following: (1) The most
stringent emissions limitation that is contained in any State
implementation plan (SIP) for that type of source (if achievable for
the proposed source), or (2) the most stringent emissions limitation
that is achieved in practice for that type of source. See CAA section
171(3); 40 CFR 51.165(a)(1)(xiii).\4\
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    \3\ ``Major stationary source'' is defined at 40 CFR
51.165(a)(1)(iv), 51.166(b)(1), and 52.21(b)(1), and ``major
modification'' is defined at 40 CFR 51.165(a)(1)(v), 51.166(b)(2),
and 52.21(b)(2).
    \4\ This is a section 307(d) rulemaking. See CAA section
307(d)(1)(J) (addressing regulations under part C of Subchapter I)
and 307(d)(1)(V) (authorizing the Administrator to designate any
action a 307(d) rulemaking).
---------------------------------------------------------------------------

    In addition to a major NSR program, States are required to have
``minor'' NSR programs, which apply to new and modified sources that do
not meet the emissions thresholds for major NSR. See section
110(a)(2)(C) of the Act. The minor NSR program is part of a State's
implementation plan and is designed to ensure that the construction or
modification of an affected source does not violate any portion of the
SIP and does not interfere with the attainment of the NAAQS or cause
the exceedance of any applicable PSD increments.

C. What is the regulatory background relating to the proposed revisions
to parts 70 and 71?

    This proposed rule addresses certain permitting mechanisms for
providing operational flexibility. The concept of operational
flexibility is not a new one. In July 1992, under the authority of
title V of the Act, we finalized the part 70 State operating permit
program regulations.\5\ See 57 FR 32250 (July 21, 1992); 40 CFR part
70. Those regulations include operational flexibility provisions, one
of which is the AOS provision found at 40 CFR 70.6(a)(9). It is this
provision that is the primary subject of these proposed revisions.\6\
This section 40 CFR 70.6(a)(9) generally provides that any permit
issued under part 70 must include terms and conditions for reasonably
anticipated operating scenarios approved by the permitting authority.
EPA promulgated 40 CFR 70.6(a)(9) pursuant to the authority of section
502(b)(6) of the CAA, which directs that operating permit programs
include ``[a]dequate, streamlined, and reasonable procedures'' for
processing and reviewing permit applications and for the expeditious
review of permit actions.
---------------------------------------------------------------------------

    \5\ In the 1990's, we proposed certain clarifications and
modifications to the part 70 regulations, none of which were ever
finalized. See generally 60 FR 45529 (Aug. 31, 1995), 59 FR 44460
(Aug. 29, 1994). In those proposals, among other things, we
discussed the concept of ``advance NSR'' in relation to AOSs, and
proposed a definition for ``alternative operating scenarios.''
    \6\ The EPA included other operational flexibility provisions in
the final part 70 regulations, including 40 CFR 70.4(b)(12), (b)(14)
and (b)(15), which implement section 502(b)(10) of the Act. This
proposed rule does not address these provisions.
---------------------------------------------------------------------------

    In the final part 70 rule, we emphasized the importance of 40 CFR
70.6(a)(9), noting that a permit that contains approved AOSs ``will be
a more complete representation of the operation at the permitted
facility.'' See 57 FR 32276. We also explained that once a flexible air
permit with approved AOSs is issued, the need for additional permit
modifications will be substantially reduced since the permit will
already contain appropriate terms and conditions to accommodate the
approved operating scenarios. In the final part 70 rule, we did not
place any restrictions on the types of operations that could qualify as
a reasonably anticipated operating scenario.\7\
---------------------------------------------------------------------------

    \7\ The Federal operating permit program at part 71 addresses
reasonably anticipated operating scenarios in the same fashion as
part 70. See 40 CFR 71.6(a)(9). These proposed revisions affect both
parts 70 and 71 and the revisions that we propose to each part are
virtually identical. For ease of reference, this preamble discussion
refers to the part 70 provisions. The discussion, of course, applies
equally to the part 71 program revisions proposed. Section numbers
given for the part 70 rules correspond directly to the analogous
sections in part 71. The term ``title V permit'' refers to permits
issued under either part 70 or part 71.

---------------------------------------------------------------------------

    Shortly after we finalized the part 70 State operating permit
program, we initiated a pilot title V permit program with interested
States, and our program continues to the present. See section IV of
this preamble for more discussion. Companies participating in the pilot
program sought to reduce the cost, time, and delays associated with a
permit revision for each operational change at a facility. We and the
States sought to increase the sources' operational flexibility, while
assuring compliance with applicable requirements, ensuring
environmental protection, and facilitating P2. These pilots typically
allowed for both changes to operations of existing emissions units and
the addition of entirely new emissions units, provided that the changes
were sufficiently well described in the permit application so that the
permitting authority could confirm that all applicable requirements
were identified and that the permit contained terms and conditions
assuring compliance with all applicable requirements.\8\
---------------------------------------------------------------------------

    \8\ In implementing the pilot projects, EPA and other permitting
authorities sometimes imposed certain constraints in the permits for
advance approvals and AOSs beyond those expressly contained in
applicable requirements or part 70. These additional constraints
varied and were designed to provide permitting authorities the
opportunity to gain experience with different flexible permitting
approaches. Some of these constraints were anticipated to be removed
at the time of permit renewal in the next version of the permit.
---------------------------------------------------------------------------

    To evaluate the flexible pilot permits program, we conducted a
thorough review of six of the pilot permits for which at the time there
was significant implementation experience.\9\ We reviewed on-site
records to track utilization of the flexible permit provisions,
assessed how well the permits worked, evaluated total emissions
reductions achieved, and analyzed the economic benefits associated with
the permits. Overall, we found that significant environmental benefits
had occurred for each of the permits reviewed. At the time of the
evaluation, each of the sources had achieved 25- to 80-percent
reductions in actual plantwide emissions or emissions per unit of
production. We made a series of findings based on our evaluation of the
permits. See ``Evaluation of the Implementation Experience with
Innovative Air Permits'' and section IV of this preamble, which
summarizes the findings of this study.\10\
---------------------------------------------------------------------------

    \9\ See ``Evaluation of the Implementation Experience with
Innovative Air Permits.'' A copy of this report is located in the
docket for this rulemaking, or can be accessed at http://www.epa.gov/ttn/oarpg/t5/memoranda/iap_eier.pdf
.

    \10\ In August 2000, based in large part on the experience we
gained through the pilot permit program, we issued a draft guidance
document called White Paper Number 3, on which we solicited comment.
See White Paper Number 3, 64 FR 49803 (Aug. 15, 2000). That draft
guidance addressed various flexible permitting approaches, including
the use of the reasonably anticipated AOS provision of 40 CFR
70.6(a)(9), Clean Buildings, and PALs. We received comments on the
proposed rules and draft guidance and, in fashioning this proposal,
considered those comments that addressed advance approval and AOSs
as contained in 40 CFR 70.6(a)(9). As explained further below, we
propose a definition of ``alternative operating scenario'' and
certain other revisions to the part 70 regulations. We also propose
revisions to parts 51 and 52 that provide for Green Groups.
---------------------------------------------------------------------------

D. What is the regulatory background relating to the proposed revisions
to parts 51 and 52?

    Based on our pilot permit evaluation and our 1996 proposed
modifications to the major NSR program, in December 2002, we finalized
the NSR Improvement rule. In that rule, we promulgated regulations for
PALs in response to comments received on draft White Paper Number 3. As
explained in the preamble to the December 2002 final rule, a PAL is an
alternative approach for determining NSR applicability on a plantwide
basis. Using PALs will allow sources ``to respond rapidly to market
changes,'' and will ``benefit the public and the environment.'' See 67
FR 80206. Specifically, sources with PALs can make changes without
triggering the major NSR preconstruction permitting requirements,
provided such changes remain below the limit established in their PAL
and do not otherwise violate the requirements of the PAL. A PAL is an
important technique that is oftentimes used in tandem with flexible
permitting approaches such as advance approvals and AOSs as described
more fully in this proposal.
    The major NSR program applies to ``major stationary sources,''
which include sources whose emissions exceed certain thresholds
established in the statute, and to ``major modifications'' at those
sources, which are modifications that exceed certain significance
levels established in EPA's regulations. Under minor NSR, an owner or
operator applies for a permit to construct or modify a facility,
building, or other emissions unit, where the new construction or
modification does not meet the emissions thresholds for major NSR. If
the proposed construction or modification is approved, the permitting
authority issues a permit that contains emissions limits and other
appropriate terms and conditions as necessary to protect the NAAQS and
the increments and to assure consistency with the SIP.
    Through our pilot experience, we found that State minor NSR
requirements are among the most important in designing a flexible air
permit for sources making frequent physical and operational changes
because, absent an up-front authorization for these changes, an
individual review and approval by the permitting authority is typically
required before the changes can be made. Any changes authorized under
minor NSR must be incorporated into the title V permit along with
permit terms as necessary to assure compliance with all applicable
requirements (for example, a MACT standard, which would be applicable
to the source in addition to the ones addressed in the advance approval
issued under minor NSR). The result is that the changes can be
implemented, under protection of the permit shield, without any further
review or approval by the permitting authority. In some cases, one or
more AOSs may be used to complement an advance approval, for example
where the source anticipates varying operation of the changed existing
emissions unit in a manner that would implicate a set of applicable
requirements different from those of the minor NSR advance approval, or
where a different control approach would not be effective until and
unless a particular change would be made to an existing emissions unit.
    Given the provisions of their minor NSR programs, most of the
States in which EPA supported flexible permit pilots (``pilot States'')
believed that they could issue construction approval for a wide
spectrum of changes using certain boundary conditions established up
front in the minor NSR permit. The actual conditions needed to
accomplish this varied depending upon the requirements of the different
State minor NSR programs. A number of techniques were successfully used
in pilot permits to authorize a category of changes (i.e., a range of
possible types of changes, such as ``any of various physical changes to
the rollers, drive mechanism, and other components of the coating
section within a coating line'') under minor NSR, including application
of one or more plantwide emissions caps, designation of an entire
process building or related activities as the ``emissions unit'' for
purposes of minor NSR, and designation of an

existing state-of-the-art emissions capture and control system as
fulfilling State control technology requirements (where they are
applicable) for authorized changes occurring over the 5-year term of
the title V permit. Pilot States, as part of granting advance approvals
under their existing minor NSR programs, frequently required sources to
send a notice to the permitting authority contemporaneous with the
operation of any entirely new emissions unit relying upon the advance
approval.
    A common technique for achieving advance approval under minor NSR
found in the pilots was the presence of one or more plantwide emissions
caps. These caps serve to limit the maximum aggregate emissions
associated with the anticipated changes so as to protect relevant
ambient standards and increments and to facilitate an advance approval
of a wide spectrum of changes under minor NSR. They also serve to limit
the potential to emit (PTE) of the source below certain applicability
thresholds in order to prevent implication of otherwise potentially
applicable requirements (e.g., major NSR) or to function as a PAL (in
the case of an existing major stationary source).

III. What is the purpose of this action?

    The Agency has learned a great deal over the past decade through
its pilot permit program. In light of that experience, the recent NSR
Improvement rule promulgated in December 2002, and the comments we
received on the proposed revisions to part 70 and draft White Paper
Number 3, we propose revising the part 70 and 71 regulations and part
51 and 52 regulations.
    As explained further below, the proposed revisions to the operating
permit programs of parts 70 and 71 add a definition and clarify
requirements for ``alternative operating scenario'' (or ``AOS'') and
add a definition for ``approved replicable methodology'' (or ``ARM'').
The proposed revisions to the major NSR program add a definition and
codify requirements for Green Groups.
    The primary purpose of these revisions to parts 70 and 71 is to
build upon the existing regulatory framework and ensure that the
flexible permitting approaches with which we have experience are more
readily and widely used. We recognize that many States' minor NSR and
part 70 programs may already provide for the flexible permitting
approaches proposed and that such States are currently able to
implement these approaches. Because of the diversity of existing State
minor NSR programs and our pilot experience indicating the ability of
many programs to approve categories of future changes in advance of
making those changes, we are not proposing any revisions to the rules
governing State minor NSR programs at 40 CFR 51.160 through 51.164. By
undertaking the part 70 rulemaking, it is not our intention to preclude
States from continuing to develop and use flexible permit approaches,
where their current regulatory structure provides authority to do so.
This rulemaking is instead intended to encourage the use of advance
approvals where available and appropriate, and to eliminate any
uncertainty that may exist with respect to AOSs and to provide a clear
regulatory pathway governing flexible air permit development in that
area by clarifying our 1992 part 70 regulations.\11\
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    \11\ Note that other approaches to AOSs and advance approval may
also be acceptable, although they may not provide as much
flexibility as the approaches proposed. For example, some States
include in a title V permit a type of conditional approval under
which a source cannot construct or operate otherwise approved
changes until a minor NSR approval is obtained for them.
Essentially, this approach creates in a title V permit a structure
that is a precursor to an AOS or an advance approval. Once the minor
NSR permit is issued, the source can construct and operate the
changes under the conditional approval, but a title V permit
revision is needed to incorporate the now-available minor NSR terms
and to award the permit shield (where available from the permitting
authority). Where an AOS is involved, this incorporation is also
needed to complete the AOS consistent with 40 CFR 70.6(a)(9). Our
pilot permit experience suggests that in many instances changes
subject to minor NSR can be approved in advance, although the
ability for a State to provide such approvals will vary depending on
the actual provisions of individual State rules. As a result, where
advance approval of changes subject to minor NSR is available, we
encourage its incorporation into the title V permit after or
concurrent with obtaining the necessary minor NSR approvals in order
to provide a permitting strategy with greater operational
flexibility, certainty, and permitting efficiency than does a
conditional approval approach.
---------------------------------------------------------------------------

    The proposed revisions to parts 51 and 52 affecting major NSR
programs will increase options for flexible permits under that program.
Namely, the proposed provisions for Green Groups will offer operational
flexibility options for a defined section of a plant. This option would
augment the plantwide strategy previously promulgated in the NSR
Improvement rule (i.e., PALs). The proposed revisions would modify the
major NSR regulations in a limited way. Consistent with the current NSR
requirements, we propose to clarify that the definition of emissions
unit would allow a number of emission activities, meeting certain
criteria, to be treated as a single emissions unit (i.e., a ``Green
Group''). We are proposing to change the current NSR requirements to
provide expressly for Green Groups so as to authorize in a major NSR
permit that emissions increases and changes within such a group can
occur over a 10-year period, provided the increases and changes are
authorized in advance through major NSR and the emissions activities
associated with the Green Group are controlled to the level determined
to be BACT/LAER. Also, the requirements of 40 CFR 52.21(j)(4) and
51.166(j)(4) requiring reevaluation of BACT for phased construction
projects and of 40 CFR 52.21(r)(2) requiring continuous construction to
commence within 18 months would not apply to NSR permits involving
Green Groups.
    We believe that these proposed revisions will increase operational
flexibility, while ensuring environmental protection and compliance
with applicable requirements. Moreover, based on our pilot experience,
we anticipate that these revisions will promote improved environmental
performance, although we recognize that the nature of the improvements
will depend on the numbers and types of sources that opt to use the
flexible permitting approaches described in this document.

IV. What experience did we gain from the 14-year pilot permit program?

    This section summarizes the benefits of the pilot permits; includes
an overview of the sources', permitting authorities', and our
conclusions concerning the effectiveness of the pilot permits; and
presents our recommendations regarding public participation in flexible
permitting. Through the pilot permit program,\12\ which began in 1993,
we sponsored various projects, including projects undertaken through
the Agency's ``Pollution Prevention in Permitting Program'' (P4). The
pilot program generally involved the issuance of flexible air permits
designed to accommodate operational flexibility.
---------------------------------------------------------------------------

    \12\ Sources at the following locations participated in our
pilot permit program: (1) 3M (St. Paul, MN); (2) Intel (Aloha, OR);
(3) Lasco Bathware (Yelm, WA); (4) Imation (Weatherford, OK); (5)
Cytec (Connecticut); (6) DaimlerChrysler (Newark, DE); (7) Merck
(Elkton, VA); (8) Merck (Barceloneta, PR); (9) Saturn (Spring Hill,
TN); (10) BMW (Spartanburg, SC); (11) Eli Lilly (West Lafayette,
IN); (12) 3M (Nevada, MO); and (13) Imation (Camarillo, CA).
---------------------------------------------------------------------------

    The pilot permits facilitated operational flexibility by first
obtaining advance approval under NSR. Frequently the authorizations
involved changes that were to occur under a PAL or other facility-wide
cap on emissions which, once approved by the relevant permitting
authority, served both to assure that major NSR would not be

applicable to changes occurring under the cap and to assure that
ambient standards would be protected consistent with the requirements
of minor NSR.\13\ These caps were then incorporated into the title V
permit with appropriate permit terms and conditions. In most cases,
once these caps were incorporated into a title V permit, sources did
not need to seek additional approvals from the title V permitting
authority prior to implementing the changes authorized under the caps.
As necessary, the title V permit would also contain additional terms
and conditions needed to assure compliance with any other applicable
requirements applying to such changes.
---------------------------------------------------------------------------

    \13\ The VOC emissions caps used in the pilots were determined
to be adequate for purposes of safeguarding the ozone NAAQS, but for
other pollutants (e.g., air toxics) States sometimes required a
replicable modeling procedure to screen the impacts of individual
emissions increases relative to acceptable ambient toxics levels.
Here an ambient dispersion model, complete with implementation
assumptions, is approved into the minor NSR permit to evaluate any
new pollutant of concern or increased existing pollutant emissions.
Failure of a particular change to meet the screening levels
triggered the need for case-by-case review of that change from the
permitting authority.
---------------------------------------------------------------------------

    As noted above, following issuance of the pilot permits, we
conducted an in-depth review of six of the permits.\14\ In selecting
the permits to review, we focused our evaluation on those pilots with
sufficient implementation experience to provide a reasonable historical
record of performance, and we continue to believe that these pilots
represent a sufficiently diverse reference point from which to judge
the effectiveness of flexible air permits over a broad range of
sources. Those reviews involved: (1) Detailed analyses of the sources'
and permitting authorities' experiences developing and implementing the
pilot permits; (2) a thorough review of information available in the
public record at the permitting authority; (3) discussions with source
personnel; (4) site visits to the source and meetings with permitting
authorities; and (5) independent verification of compliance status and
data collection and management techniques, including recordkeeping and
related requirements.
---------------------------------------------------------------------------

    \14\ The six permits that we analyzed were: (1) Intel (Aloha,
OR); (2) 3M (St. Paul, MN); (3) Lasco Bathware (Yelm, WA); (4)
DaimlerChrysler (Newark, DE); (5) Saturn (Spring Hill, TN); and (6)
Imation (Weatherford, OK).
---------------------------------------------------------------------------

    Our analyses revealed several benefits of the flexible permitting
approaches used in the pilots, and those benefits are summarized
briefly below. We invite comment on any similar or different
experiences others have had in piloting flexible air permits,
particularly where these experiences are relevant to this rulemaking.

A. What were the benefits of the pilot permits?

    This section provides an overview of the environmental,
informational, economic, and administrative benefits of the flexible
pilot permits. For additional information on these and other benefits
of the pilot program, please refer to the ``Evaluation of the
Implementation Experience with Innovative Air Permits,'' which
documents all of our findings concerning the six pilot permits that we
evaluated.\15\
---------------------------------------------------------------------------

    \15\ Among other things, the report confirmed that the flexible
permits are enforceable in a practical manner by EPA and permitting
authorities. See Report at pages 5, 20. See footnote 9 of this
preamble for information on how you can obtain the report.
---------------------------------------------------------------------------

1. Environmental Improvements Achieved Using Flexible Permits
    In our evaluation, we documented several environmental performance
benefits of the flexible pilot permits, including that the permits
facilitated emissions reductions and increased P2 efforts. In
particular, as discussed further below, the emissions cap framework in
the flexible permits enabled significant reductions in actual plantwide
emissions and/or emissions per unit of production. For example, of the
five sources that had operated under their flexible permits for 3 or
more years, all five achieved 30-to 80-percent reductions in actual
plantwide emissions and/or emissions per unit of production. Actual
emissions from the sixth source were reduced by 27 percent in the first
year of operation under its flexible permit, but it is difficult to
draw conclusions based on a single year of data. One company, using P2,
lowered its actual volatile organic compound (VOC) emissions by 70%
(from 190 tons per year (tpy) to 56 tpy), while increasing production.
This allowed the facility to commit to keeping its VOC emissions below
the major source threshold (i.e., become a ``synthetic minor'' source)
so that it was no longer subject to major NSR. Another company lowered
its actual VOC emissions from 1,400 tpy to less than 800 tpy, primarily
through P2 associated with vehicle coatings and plant solvent usage.
    We attribute the environmental performance improvement benefits of
the flexible permits to several factors. First, several companies
reported that the emissions caps had a ``focusing effect,'' drawing
company personnel(s attention on how to manage most effectively all of
the activities within the plant, even those not subject to regulation,
in an effort to minimize total plantwide emissions.\16\ An emissions
cap also creates incentives for companies to pursue additional
emissions reduction opportunities to increase the margin of compliance,
which is the difference between the level of the emissions cap and the
source's actual total plantwide emissions. Larger compliance margins
typically reduce the risk of noncompliance with an emissions cap and
create room under the cap to accommodate future emissions increases
related to production or other operational changes. The cap on
emissions from the plant, which is set during permitting at a level
judged to be environmentally protective, ensures that such future
emissions increases together with existing emissions will not exceed
this protective level. To obtain a sufficient margin of compliance with
these caps, sources frequently voluntarily controlled emissions on
grandfathered units, which are units that would otherwise not be
subject to control, and increased the stringency of control on
regulated units.
---------------------------------------------------------------------------

    \16\ See the pilot permit report, ``Evaluation of the
Implementation Experience with Innovative Air Permits,'' page 22.
---------------------------------------------------------------------------

    Additionally, we found that the use of advance approvals and AOSs
improved operational efficiency at the plants because companies knew in
advance what changes were authorized, making resource allocation more
efficient and accommodating the typically incremental, iterative nature
of industrial process improvements. We also found that P2-related
projects became more attractive to the companies when advance approved
because such projects could be undertaken without the delay and
uncertainty of future case-by-case approvals. In addition, P2-related
projects reduced emissions and enabled sources to comply more easily
with emissions limits such as plantwide emissions caps.
2. Informational Benefits Achieved Using Flexible Permits
    We have consistently maintained that including advance approvals
and AOSs in a title V permit ensures that the permit presents a
complete representation of the operations of the permitted facility.
See 57 FR 32276; July 21, 1992. By requiring information concerning
flexible permits as part of the permit application, EPA and the
permitting authorities are better able to assess, in aggregate, all
proposed operations and, more significantly, to

determine all relevant applicable requirements and to include in the
draft permit terms and conditions for each approved scenario to assure
compliance with those applicable requirements and the requirements of
part 70. By comparison, conventional permitting approaches provide for
a more narrow, case-by-case view of facility modifications, soliciting
comment only on the specific change proposed and requiring individual
permitting actions in response to each request by the permittee for a
change in the permit.
    Our pilot experience confirmed the significant value of presenting
a comprehensive picture of a source(s operations over the term of the
title V permit. Specifically, we found that with proposed flexible
permits involving changes under a PAL or other emissions cap,
permitting authorities were better able to understand the scope of
planned changes at the source and the maximum, cumulative environmental
effects of those changes. In addition, the flexible permit applications
provided increased information to permitting authorities and the public
in areas such as plantwide emissions performance and P2 activities, as
compared to information typically available under conventional permit
approaches. Likewise, permitting authorities indicated that on balance,
flexible air permits enhanced the availability of information to the
public during permit implementation.
    Moreover, through the pilots, we found that early public outreach
and involvement can be very useful in situations where new permitting
techniques have not previously been used in a particular jurisdiction.
We encourage permitting authorities to consider early outreach and
public involvement when implementing such permitting techniques until
the techniques become more widely used and public familiarity with them
increases, recognizing that other factors (e.g., permit complexity)
should factor into the permitting authority(s consideration of
supplemental public outreach efforts.
    Our evaluation of the six pilot permits also revealed the
importance of reporting related to plantwide applicability limits. The
type of reporting required in several of the flexible permits is now
codified in the PAL provisions of the December 2002 NSR Improvement
rule.
3. Economic Benefits Achieved Using Flexible Permits
    Participating companies in the pilot program reported that a
flexible air permit significantly reduces the uncertainty and
transaction costs associated with the title V permitting process
because the source obtains approval of the changes it reasonably
anticipates implementing during the 5-year term of the permit at one
time. Based on our evaluation of the six pilot permits, we found that
the increased certainty and reduced transaction costs improved
participating companies' ability to compete effectively in the market
and enabled them to retain, and in some cases, create jobs. For
example, one company reported that its pilot permit allowed it to
remain highly responsive to the marketplace and thereby avoid either
lost sales and/or permanent loss of market share. An automotive company
indicated that its flexible permit was a principal factor in the
plant's selection to manufacture an engine model to be used in the
company's global vehicle assembly operations, leading to the creation
of 700 jobs. The permit helped the plant secure the engine contract
because it enabled the plant to reduce the project time line for
production of the new engine to 24 months and to accommodate future
changes with minimal delay.\17\
---------------------------------------------------------------------------

    \17\ See ``EPA Flexible Permit Implementation Review: Saturn
Permit Review Report,'' pages 9 and 34, which is available at http://www.epa.gov/ttn/oarpg/t5/memoranda/iap_sprr.pdf
.

---------------------------------------------------------------------------

    Several companies also indicated that obtaining authorization of
reasonably anticipated changes improved the predictability of change
implementation time frames for project planning and avoided what can be
substantial opportunity costs. For example, one company reported that
its flexible permit likely saved hundreds of business days associated
with making operation and process changes to ramp up production for new
products, respond to market demands, and optimize production processes.
Industry estimates of the opportunity costs of production downtime and
time delays run as high as millions of dollars in just a few days due
to lost sales and other factors.\18\
---------------------------------------------------------------------------

    \18\ Findings are discussed in more detail in the ``Evaluation
of Implementation Experiences with Innovative Air Permits'' report,
under Finding 8.
---------------------------------------------------------------------------

    Notwithstanding that the implementation of flexible air permits
often was associated with more production-related jobs, pilot companies
also reported that flexible air permits significantly reduced permit-
related staff time and related resource costs because there was no
longer a need to seek and process multiple case-by-case permit actions
because the changes reasonably anticipated at the facility were already
included and approved in the permit. For example, an automotive company
estimated that it saved approximately 505 hours of staff time during
its initial flexible permit term. Another pilot company reported
permit-related staff time savings of 1,200 to 1,600 hours per year
during its initial title V permit term. In both cases, companies
reported that the time savings enabled environmental personnel to focus
more time and attention to other environmental management activities,
including P2. Companies further indicated that the time necessary to
record changes in operating scenarios in the on-site log, as required
by 40 CFR 70.6(a)(9), was significantly less than the permit-related
staff time necessary to prepare permit applications under a general
change-by-change permitting approach.
4. Administrative Benefits Achieved Using Flexible Permits
    Our pilots evaluation found that the flexible permits resulted in a
net cost savings both for the source, as noted above, and for the
permitting authority. We specifically found that the resources
permitting authorities expended on processing permitting applications
under title V and the NSR programs were reduced under the pilot
program, since the operational flexibility provisions, like 40 CFR
70.6(a)(9), eliminated the need to submit a permit application for each
operational change. For example, one permitting authority estimated
that each facility change made pursuant to a flexible permit saved the
permitting authority approximately 20 to 40 hours in staff time that
otherwise would have been incurred had the facility, instead of
obtaining the advance approvals and AOS, sought title V permit
modification on a change-by-change basis. In fact, permitting
authorities reported that the administrative cost savings during
implementation of the pilot flexible permits indicate that increased
use of flexible permitting will enable them to reduce permitting
backlogs and to focus resources on other higher priority environmental
needs.
    These cost savings must be put in context of a higher front-end
cost to design an acceptable permit approach to pilot (a cost that
should decrease as more experience with flexible permits occurs in
tandem with a better defined policy). The two participating permitting
authorities that attempted to quantify this effect believed that, even
with the higher front-end design costs associated with their pilot, the
initial experience suggested there would be a net reduction in the
overall administrative costs associated with

these permits after 2-3 years of implementation. We believe that the
administrative benefits achieved for the evaluated pilot permits are
broadly indicative of the benefits generally available from flexible
air permits. In fact, as flexible air permitting becomes more
mainstream, we expect the front-end costs to design such permits to be
reduced, resulting in faster recouping of these expenses and greater
benefits over time.

B. What were the conclusions of the sources, permitting authorities,
and EPA about flexible permits?

    The sources that obtained a flexible air permit maintain that such
a permit is a valuable business asset. These sources regularly relied
upon the operational flexibility provided in the permit to take
advantage of opportunities in the market place. These sources also
indicated that the following circumstances heightened the need for and
benefits achieved using a flexible air permit:
     Short time frames for bringing new products to market
(time-to-market needs).
     Need to accommodate rapid shifts of product lines,
processes, and production levels to enable optimal asset utilization in
a company's network of facilities.
     Active advanced manufacturing programs (e.g., lean
manufacturing, Six Sigma, agile manufacturing) that require rapid and
iterative changes to operations and equipment.\19\
---------------------------------------------------------------------------

    \19\ These manufacturing concepts have been defined in various
ways. Generally, however, lean manufacturing is defined as an
initiative focused on eliminating all waste in manufacturing
processes. Principles of lean manufacturing include zero waiting
time, zero inventory, scheduling (internal customer pull instead of
push system), batch to flow (cut batch sizes), line balancing, and
cutting actual process times. Six Sigma is defined as a rigorous and
disciplined methodology that utilizes data and statistical analysis
to measure and improve a company's operational performance,
practices, and systems. Six Sigma identifies and prevents defects in
manufacturing and service-related processes. In many organizations,
it simply means a measure of quality that strives for near
perfection. Agile manufacturing emphasizes the ability to thrive and
prosper in an environment of constant and unpredictable change and
includes the use of tools such as rapid prototyping, rapid tooling,
and reverse engineering to address customers who require small
quantities of highly custom, design-to-order products, and where
additional services and value-added benefits like product upgrades
and future reconfigurations are as important as the product itself.
---------------------------------------------------------------------------

     Anticipated renovation or expansion projects.
     Active P2 programs with continual process improvements.
    The permitting authorities in the pilot program concluded that the
permits provided significant environmental performance and
administrative benefits. They also expressed support of flexible
permitting techniques as a permitting option. The permitting
authorities believed that flexible permits are particularly effective
when applied to sources with demonstrated operational change needs and
the operational and technical capacity to meet all relevant
requirements associated with advance approvals, AOSs, PALs, and other
operational flexibility provisions.
    In general, based on our pilot experience, we believe that sources
with certain characteristics are the ones that can both meet the
requirements of operational flexibility provisions and benefit from
them. These characteristics include: A strong compliance history,
maintenance of a well-documented and effective environmental management
system, commitment to continuous environmental improvement,
attentiveness to P2, ability to track and manage operational changes
and emissions, and the existence of good community relations. The types
of sources that exhibit these characteristics typically include, for
example, the members of EPA's National Environmental Performance Track
Program (see http://www.epa.gov/performancetrack/) and similar State

environmental leadership programs. Our Performance Track program
illustrates our ongoing commitment to reward and recognize exemplary
environmental performance.
    We currently intend to allocate our implementation resources for
the final rule on a priority basis to assist Performance Track
facilities that wish to obtain flexible air permits. More specifically,
we intend to deploy resources and tools designed to assist Performance
Track facilities in their efforts to capture the opportunities provided
through flexible air permits. Our efforts to facilitate the
implementation of flexible permits could include, for example,
education and outreach components that would allow Performance Track
members to assess the costs and benefits of a flexible permit. We also
intend to provide EPA technical resources and expertise through
identified points of contact to facilitate the resolution of technical
and other issues (should any arise) associated with implementing a
flexible air permit at a Performance Track facility. We encourage State
permitting authorities to consider a similar prioritization of
resources when issuing flexible air permits to sources that are
similarly situated to Performance Track companies.

C. What are EPA's recommendations for public participation in flexible
permitting?

    Based on our experience with pilot permits, we believe that
flexible permits provide at least as much environmental protection as
conventional permits and promote superior environmental performance.
Nevertheless, we also recognize that flexible permits will contain
features, such as AOSs, ARMs, advance approval of minor NSR, or Green
Groups, that may not be familiar to the reviewing public. For this
reason, we recommend that permitting authorities consider using their
discretion to enhance the public participation process when warranted
for a particular flexible permit. Some ideas for doing so are described
below.
    During the permitting process, permitting authorities could
consider making the permit application available to the public soon
after receipt. We found for these pilot permits that early outreach to
the community, rather than waiting until the draft permit was prepared,
was an effective public participation strategy.
    The minimum public comment period required for a title V permit
renewal or significant permit modification is 30 days. Where a
significant amount of a permit's content consists of terms to
incorporate operational flexibility, we suggest that you consider
expanding the comment period to 45 days or more. Note, however, that
for some of our pilot permits, early outreach to the public was
sufficient to resolve community questions and comments early in the
process, so that by the time of the public hearing and comment period
no adverse comments were received.
    Finally, in order to ensure adequate technical support and
accessibility for the public in their efforts to understand and comment
upon flexible air permits, we suggest that States provide a principal
point of contact for responding to technical questions and ensure the
availability of draft permits, applications, and technical support
documents on an Internet Web site. We believe that any additional costs
here will be offset by the subsequent administrative cost savings to
the permitting authority resulting from the reduced need to process
permit revisions for sources with flexible permits.

V. What are the key elements of this proposal?

    This section summarizes the key elements of this proposal. A more
detailed discussion of these elements as well as other proposed
regulatory

changes are provided below in sections VI and VII.

A. What are the key elements of proposed revisions to parts 70 and 71?

    There are several key regulatory revisions that we are proposing to
parts 70 and 71. First, we are proposing to modify 40 CFR 70.6(a)(9)
generally to refer to ``alternative operating scenarios,'' as opposed
to ``operating scenarios.'' In addition, we are proposing to define the
term ``alternative operating scenario (AOS)'' and codify certain
requirements described in this proposal for AOSs. Specifically, we
propose to define ``alternative operating scenario (AOS)'' as a
scenario authorized in a part 70 permit that involves a physical or
operational change at the part 70 source for a particular emissions
unit, and that subjects the unit to one or more applicable requirements
that differ from those applicable to the emissions unit prior to
implementation of the change or renders inapplicable one or more
requirements previously applicable to the emissions unit prior to
implementation of the change.
    This document also discusses our proposal for ``approved replicable
methodologies'' (ARMs) and the way in which they may be approved into
the title V permit by the permitting authority. We are proposing to
define an ARM as part 70 permit terms that: (1) Specify a protocol
which is consistent with and implements an applicable requirement, or
requirement of part 70, such that the protocol is based on sound
scientific/mathematical principles and provides reproducible results
using the same inputs; and (2) require the results of that protocol to
be used for assuring compliance with such applicable requirement or
requirement of part 70, including where an ARM is used for determining
applicability of a specific requirement to a particular change. An ARM,
however, cannot modify an applicable requirement in any way. As
explained further below, an ARM can be particularly useful in
facilitating the implementation of advance approvals and AOSs, but can
also be used independent of them.
    Also in this document, we are proposing that a source include in
its semi-annual monitoring reports under 40 CFR 70.6(a)(3)(iii)
information relating to any AOS and/or ARM implemented during the
reporting period. This information should help permitting authorities
remain informed as to which AOSs and ARMs in the title V permit are
being implemented at the site and at which time.
    We are not proposing revisions to any applicable requirement (other
than revisions to parts 51 and 52 providing for Green Groups--see
section VII below) in order to facilitate advance approvals. As
mentioned above, our pilot experience confirms that obtaining advance
approval under minor NSR is often a critical element in the design of a
flexible air permit. This experience also suggests that many State
minor NSR programs may already provide the legal authority necessary to
issue minor NSR permits that accommodate various types of operational
flexibility which can be readily incorporated into title V permits. We
are therefore not proposing any revisions to the minor NSR regulations.
Nonetheless, we encourage States to implement advance approvals in
response to requests by sources under their existing minor NSR programs
as appropriate and to seek additional authority where they do not
currently have such discretion. Based on our pilot experience, we also
believe that the ability to advance approve a particular change with
respect to other applicable requirements requiring a specific
authorization can often be determined without further regulatory
changes.
    Similarly, we are not proposing to revise part 70 to address how
advance approvals might be accomplished. We believe that part 70
already requires incorporation of the terms in a permit issued to
advance approve changes under certain applicable requirements. For
example, permit terms contained in a State's minor NSR permit are
themselves deemed to be applicable requirements as defined in section
70.2 and, as such, are to be included in the title V permit for the
relevant source. Frequently, however, the permitting authority may need
to augment the terms of NSR permits authorizing the advance approval of
certain changes in order that these changes can be made without further
review or approval. These terms would be added as necessary to assure
compliance with other applicable requirements also implicated by the
advance approved changes which were unaddressed in the specific
authorizations obtained for them. As would be the case for any other
applicable requirement, the part 70 permit must meet the requirements
of part 70 (e.g., monitoring, reporting, and compliance certification)
with respect to advance approvals. When the title V permit terms
relating to advance approvals are effective, then the changes which
were advance approved would occur under protection of the permit shield
(where available and granted by the permitting authority).

B. What are the key elements of proposed revisions to parts 51 and 52?
\20\
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    \20\ Although we are proposing certain revisions to the major
NSR program, we are proposing no changes to any other applicable
requirement, as that term is defined in 40 CFR 70.2.
---------------------------------------------------------------------------

    With this document, we propose adding a definition of ``Green
Group.'' We also propose to add monitoring, recordkeeping, reporting,
and testing safeguards applicable to Green Groups to enhance the
availability of information and ensure that these groups function as
intended.
    A Green Group consists of designated emissions activities that are
ducted to one common air pollution control device that is determined to
meet BACT or LAER, as applicable, for the entire group of emissions
activities taken as a whole. A Green Group is, by definition, a single
emissions unit for purposes of major NSR. In addition to designated
existing emissions activities, a Green Group may include changes (e.g.,
reconfiguration and/or expansion) to these existing activities and/or
the addition of new emissions activities ducted to the control device,
either of which could result in an increase in capacity and a
significant increase in actual emissions. To establish a Green Group,
the source must go through the major NSR permitting process and obtain
a permit. To protect the NAAQS, PSD increments, and Class I areas, the
proposed rules require an annual emissions limit and any necessary
short-term limits for the Green Group, as well as comprehensive
monitoring, reporting, recordkeeping, and testing under NSR for Green
Groups to assure compliance with the limit(s).\21\
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    \21\ The NAAQS and increments for some pollutants are
established over short-term periods as well as annually. For
example, annual, daily, and 3-hour NAAQS and increments are defined
for sulfur dioxide. Accordingly, some NSR permits include emissions
limits for these shorter periods.
---------------------------------------------------------------------------

VI. What changes are we proposing to parts 70 and 71?

    We are proposing revisions to parts 70 and 71 to build upon the
existing framework in 40 CFR 70.6(a)(9), which authorizes AOSs. As
discussed below in section VI.A, we are proposing to add a definition
for AOS and to provide for the use of consistent terminology for AOSs.
In section VI.B, we describe the information that the source must
provide in a title V permit application under 40 CFR 70.5(c) when
seeking approval of an AOS, and in section VI.C we discuss the terms
that must be included in a title V permit for an AOS and for an ARM.
Section VI.D presents two examples of flexible permits using

AOSs. In section VI.E, we address additional issues related to AOSs,
and in section VI.F we detail the minor differences between the
proposed revisions for part 70 and part 71. In the case of both AOSs
and ARMs, the State must have sufficient authority to grant them if
proposed by a source, but the permitting authority retains the
discretion as to the appropriateness of doing so on a case-by-case
basis, depending on the specific facts of the situation.

A. What is our proposed definition of an AOS, and how does it provide a
source operational flexibility?

    As mentioned previously, the concept of an AOS is not a new one.
Under existing 40 CFR 70.6(a)(9), a source may request in its permit
application that the permitting authority approve reasonably
anticipated operating scenarios. If the permitting authority determines
that the proposed operating scenarios are consistent with the
requirements of part 70 and approves them, it would include those
scenarios in the source's part 70 permit, and the source may implement
them without further review or approval. Fundamentally, the permitting
authority must ensure that the proposed operating scenarios are
adequately described such that all applicable requirements associated
with each scenario are identified and appropriate terms and conditions
to assure compliance with these requirements are included in the
permit. In addition, the permitting authority must ensure that the
source obtained all specific authorizations required under any
applicable requirements (primarily those under minor NSR). The
provisions of 40 CFR 70.6(a)(9) were promulgated consistent with
section 502(b)(6) of the Act, which mandates the streamlining of the
application and permitting processes.
    There may be situations where a permitting authority does not
approve an AOS which has been proposed by a source for a particular
emissions unit. For example, a permitting authority may reject an AOS
proposed by a source if it determines that the source's description of
the scenario is insufficient to identify all applicable requirements or
craft appropriate terms and conditions to ensure compliance with
applicable requirements, or if required authorizations under applicable
requirements triggered by the AOS have not been obtained.
    To clarify our intent regarding AOSs, we propose the following
definition at 40 CFR 70.2:

    Alternative operating scenario (AOS) means a scenario authorized
in a part 70 permit that involves a physical or operational change
at the part 70 source for a particular emissions unit, and that
subjects the unit to one or more applicable requirements that differ
from those applicable to the emissions unit prior to implementation
of the change or renders inapplicable one or more requirements
previously applicable to the emissions unit prior to implementation
of the change.

    Thus, the change at the part 70 source must be physical or
operational in nature and must either subject a particular emissions
unit to at least one new applicable requirement or eliminate at least
one requirement that applied to the unit prior to the change. In
addition, the change, in order to be eligible for an AOS, must be
allowable under all applicable requirements.\22\ For example, a change
allowed under an applicable MACT standard but also subject to minor NSR
would not be eligible for inclusion in an AOS until the source obtains
the necessary preconstruction approval. That is, the source requests
and obtains from the permitting authority a minor or major NSR permit,
as applicable, authorizing the change to occur, and the terms of the
NSR permit are then incorporated into the source's title V permit as
part of an AOS. We are proposing this definition not to change the
current requirements for AOSs but rather to foster a common and
consistent understanding of the types of situations that AOSs can
address.
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    \22\ Failure to anticipate and include a particular change under
an AOS does not in and of itself bar the source from implementing
the change if it can satisfy the requirements of the off-permit
provisions in part 70, such as those set forth at 40 CFR 70.4(b)(12)
and (b)(14). The permit shield does not extend to changes made
pursuant to these provisions. See, e.g., 40 CFR 70.4(b)(12)(i)(B),
(b)(12)(ii)(B), (b)(14)(iii). For example, during the term of its
part 70 permit, a source might obtain approval under minor NSR to
construct and operate a new emissions unit. Where available and
granted by the permitting authority, the source can implement the
change under the off-permit provisions, assuming that the change is
not addressed or prohibited by the terms of the source's part 70
permit.
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    The types of physical or operational changes which could trigger an
AOS can vary widely. Such changes potentially encompass a wide spectrum
of activities undertaken by a source which cause one or more applicable
requirements to apply (or to no longer apply) to the emissions unit
undergoing the change. Nonetheless, these changes must be consistent
with any limitations contained in applicable requirements that are
triggered. Thus, anticipated physical and operational changes must be
described adequately to identify the applicable requirements.
    In some cases, physical or operational changes may be exempt from
certain applicable requirements but not from others. For example, the
New Source Performance Standards (NSPS) and major NSR regulations
specifically exempt from their purview certain types of changes, such
as those that do not reach the threshold for a ``modification.'' These
same changes, however, could still implicate other applicable
requirements. For example, a switch to another fuel which a unit is
already capable of accommodating could trigger a SIP requirement or a
Maximum Achievable Control Technology (MACT) standard, while being
exempt from NSPS and major NSR. Such SIP and MACT requirements must,
therefore, be identified as applicable requirements in an application
for an AOS governing the fuel switch.
    Under this proposal, activities that do not involve a physical or
operational change to the regulated equipment do not constitute an AOS,
even when such change is made to switch between compliance options
provided for in an applicable requirement. For example, suppose a
source chooses to switch between the compliance options allowed under
an applicable requirement (e.g., a MACT standard or NSPS). Under the
Printing and Publishing Industry MACT standard (40 CFR part 63, subpart
KK), a product and packaging rotogravure affected source that uses
compliant inks and coatings (i.e., inks and coatings with low HAP
content) may demonstrate compliance for each month by any one of six
compliance options set out in the standard. Each of the compliance
options involves slightly different applicable requirements in that
different characteristics of the inks and coatings must be tracked and
different calculations must be carried out monthly to demonstrate
compliance.
    We propose that a source may switch between such compliance options
without including AOSs for each compliance option in its permit.
Rather, the compliance options may simply be included in the permit as
alternative requirements of the applicable standard. We acknowledge,
however, that this approach may raise issues regarding whether an
operational change at the source has triggered the change in the
compliance option. For example, subpart KK also provides for compliance
options that use an add-on control device rather than compliant inks
and coatings. If a source alternates between compliant materials (using
one of the six associated compliance options) and noncompliant
materials (complying through use of a thermal oxidizer), should this be
characterized

primarily as a shift for compliance purposes that does not require an
AOS in the permit, or as an operational change requiring an AOS? What
if the source alternates among the compliance options for compliant
inks and coatings based on the characteristics of the materials that it
uses in each month? We request comment on the issue of whether a switch
from one compliance option to another is better characterized as
allowable under an applicable requirement or as a physical or
operational change that triggers a different applicable requirement and
therefore requires an AOS. Regardless of the approach ultimately
adopted, we strongly recommend that permitting authorities and sources
work together to include in the permit those compliance options allowed
under the applicable requirement that a source may reasonably
anticipate using during the term of the permit. Whether incorporated as
AOSs or simply as compliance alternatives, we believe that a title V
permit can be fashioned to allow a source to switch between compliance
options without needing a permit revision to do so.
    The second criterion for a shift in operating scenario under this
proposed definition is that the triggering change must cause: (1) At
least one applicable requirement to apply which was not in effect
before the change; and/or (2) at least one applicable requirement to no
longer apply as a result of the change. ``Applicable requirement'' as
defined in 40 CFR 70.2 includes all the separate emissions reduction,
monitoring, recordkeeping, and reporting requirements of a particular
standard or SIP regulation and all the terms and conditions of
preconstruction permits issued pursuant to regulations approved or
promulgated through rulemaking under title I of the Act.
    As such, AOSs can be quite effective where existing units at
sources simply make physical or operational changes that do not require
any advance approval, but they nonetheless implicate one or more
different applicable requirements. This may occur, for example, where
an existing boiler is permitted to combust different fuels, which
implicate different sets of applicable requirements. We elaborate on
this situation below in section VI.D, Example 1. Example 2 in that
section presents a situation where AOSs are used in conjunction with
advance approvals.
    Under the second criterion above, AOSs are often separate and
distinct from advance approvals. For example, we propose that the
addition of a new emissions unit pursuant to an advance approval does
not require an AOS, unless the particular unit, once operational,
requires the flexibility to make subsequent physical or operational
changes that will cause applicable requirements to apply that are
different from those applicable to the authorized baseline scenario for
the new unit upon operation. We believe that construction and operation
of a new unit authorized in an advance approval does not represent a
shift in operating scenario for the unit, but rather represents
beginning its initial or baseline operation.\23\ However, we solicit
comment on whether such new unit additions should instead be
characterized as AOSs.
---------------------------------------------------------------------------

    \23\ An advance approval that is incorporated into a part 70
permit remains subject to all the conditions of the underlying
authorization. For example, if an underlying minor NSR permit is
contingent upon the source commencing construction of the authorized
change(s) within a certain period, the authorization in the part 70
permit also will lapse if the source fails to meet the required
deadline. The source is responsible for obtaining any extensions or
additional authorizations as necessary to keep the advance approval
in the part 70 permit in effect.
---------------------------------------------------------------------------

    Similarly, incorporation in a part 70 permit of an advance approval
contained in an authorizing NSR permit for a physical or operational
change to an existing emissions unit frequently would not require an
accompanying AOS, where the terms of the NSR permit containing the
advance approval are effective for the unit upon issuance of the part
70 permit. For example, suppose a source, in the process of renewing
its part 70 permit, obtains a minor NSR permit that advance approves a
change to an existing emissions unit, and the NSR permit includes new
requirements (such as an increased level of control and associated
MRRT) that do not currently apply to the unit in its baseline
operations. If the source agrees to include the new NSR requirements in
its part 70 permit effective upon issuance and, notably, prior to
making the authorized change, no AOS is needed to supplement the
advance approval.\24\ This is because no applicable requirements will
begin to apply, or cease to apply, when the authorized change is
subsequently implemented. One or more AOSs, however, would be needed in
the permit if the source wishes to build in the flexibility to make
subsequent physical or operational changes at the emissions unit that
would trigger new applicable requirements or cause existing
requirements to no longer apply.
---------------------------------------------------------------------------

    \24\ If any other applicable requirements would be triggered by
the change that are not addressed by the minor NSR advance approval,
they also must be included in the part 70 permit and become
applicable upon its issuance. Alternatively, such requirements may
be prevented from applying through limits contained in the permit
(e.g., a PAL or PTE cap(s)).
---------------------------------------------------------------------------

    In contrast, the proposed definition of AOS does include scenarios
where the new applicable requirements implicated by advance approved
changes at existing units are not effective until the source actually
makes the change. For example, an advance approval might authorize
modifications to an existing process line under minor NSR, provided
that the source meets an NSPS applicable to the line upon its
modification. Alternatively, we also propose that this situation could
be characterized as an authorized advance approval that does not
require incorporation of an AOS into the part 70 permit. That is, no
AOS would be required where implementation of an authorized change
irreversibly triggers the new applicable requirement(s), such that the
emissions unit cannot return to its baseline status in the future. As
such, this scenario is the creation of a new baseline scenario,
analogous to the addition of a new emissions unit. We solicit comment
on this issue and the two approaches we have proposed. We also solicit
comment in general on our proposal to distinguish from AOSs all advance
approvals, including those involving the addition of new units.
    In addition to proposing a definition of AOS, we are also
clarifying the regulations, because the regulations use inconsistent
terminology when referring to AOSs. See e.g., 40 CFR 70.4(d)(3)(xi)
(referring to ``(alternate scenarios''). For consistency purposes, we
propose to use the term ``alternative operating scenarios'' (or AOSs)
throughout the regulations when referring to an alternative operating
scenario under 40 CFR 70.6(a)(9). See proposed 40 CFR 70.4(d)(3)(xi)
and 40 CFR 70.5(c)(2) and (7). Note also that any specific ``AOS''
listed in a permit refers to a specific operating scenario which
differs importantly from the previous scenario (also contained in the
permit) in that one or more different applicable requirements are
implicated by the shift in operating scenarios. The scenario that
reflects the current operations and applicable requirements of the
source at the time of permit issuance is called the ``baseline
scenario.''
    A key objective for a source requesting an AOS is to identify and
describe in the title V permit application those changes that are
reasonably anticipated to occur for each emissions unit during the term
of the title V permit. This proposal clarifies that AOSs can be used to
provide operational flexibility for a variety of situations, ranging
from a single specific

anticipated alternative scenario to multiple scenarios, including
somewhat less specific (but still nonetheless bounded) scenarios. In
all situations, however, the contemplated changes must be described in
the permit application in sufficient detail for the relevant emissions
units such that the permitting authority can determine whether all
applicable requirements have been identified and can craft appropriate
terms and conditions to assure compliance with such requirements. Where
differing applicable requirements would apply to a particular emissions
unit, depending upon the nature and extent of the change made, the
permit should contain alternative terms and conditions as needed to
assure compliance with all applicable requirements under each AOS which
is reasonably anticipated to occur.
    If the permitting authority approves the proposed AOSs for a
particular emissions unit, it will include in the title V permit a
description of the anticipated changes associated with each approved
AOS, and for each AOS will include associated applicable requirements
and terms and conditions that assure compliance with each identified
applicable requirement, as well as terms and conditions that assure
compliance with the related part 70 requirements relevant to the AOSs.
    Alternative operating scenarios may vary in their complexity. At
one extreme is a simple situation where a source seeks approval for
operating scenarios that involve a very specific type and number of
changes to the defined baseline operations of the relevant emissions
unit(s) (i.e., the changes can be described exactly). An example of
this situation is the combustion of various fuels in a boiler capable
of burning different fuels (where combustion of each type of fuel is
subject to different SIP requirements). See Example 1 discussed below.
    A more complex situation involves sources seeking approval for AOSs
encompassing a wider spectrum of reasonably anticipated changes.
Sources here may not be able to determine precisely in advance (i.e.,
at the time of permitting) which of the changes and implicated AOSs
will be implemented for the relevant emissions unit(s). Depending on
future market behavior, the source eventually may implement all or only
some of these changes.
    The type of detail needed to describe an AOS and the changes
anticipated to occur under it can vary. Certainly the need for greater
detail is dependent upon what is required to determine the applicable
requirements implicated by the anticipated changes. In many cases, the
number of applicable requirements for anticipated changes can be
reduced, without loss of flexibility, through strategic use of boundary
conditions on the AOS. Boundary conditions help to define the relevant
applicable requirements implicated by authorized physical or
operational changes, which, in turn, enables the permitting authority
to assure that all applicable requirements and requirements of part 70
are contained in the permit when designing AOSs.\25\ For example,
operational restrictions (such as those on the type or amount of
materials combusted, processed, or stored) can be used to delineate the
scope of the AOS by limiting which applicable requirements apply under
them.
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    \25\ Boundary conditions can also be used to restrict the scope
of advance approvals. The pilots primarily used boundary conditions
for this purpose. Such conditions typically involved restrictions
that prevented certain different applicable requirements from
applying to the changes otherwise authorized under minor NSR. For
example, a source owner opted to avoid the applicability of major
NSR by accepting an emissions limit that restricts the PTE of the
source to below the threshold at which that requirement would apply,
or, in the case of an existing major stationary source, a PAL that
designates an emissions limit below which major NSR would not apply
to changes made at the source.
---------------------------------------------------------------------------

    The approaches approved to assure compliance with applicable
requirements can also affect the implementation of anticipated AOSs
and, therefore, indirectly affect the changes approved under them. That
is, authorized changes must not adversely impact the effectiveness of
the control devices or monitoring approaches required by an AOS
approved in the permit. For example, changes involving substances which
are not effectively controlled by the control device required in the
permit could not be approved. This would also be true for physical or
operational changes which would render inaccurate the monitoring
procedures approved in the permit for assuring compliance with an
applicable requirement (e.g., PTE limit).
    Compliance assurance terms for AOSs and advance approvals can be
greatly simplified where the applicable requirements can be streamlined
(i.e., the compliance terms are based on the most stringent requirement
applicable to the proposed changes and are effective upon permit
issuance). In guidance generally referred to as ``White Paper Number
2,'' we interpreted our part 70 rules to allow sources to streamline
multiple applicable requirements that apply to the same emissions
unit(s) into a single set of requirements that assure compliance with
all the subsumed applicable requirements.\26\ If all the applicable
requirements that apply to a set of changes are streamlined in the
permit and the permitting authority approves the proposed streamlining,
the source need only comply with the streamlined requirement. This
benefits all parties by simplifying and focusing the compliance
requirements contained in the permit.
---------------------------------------------------------------------------

    \26\ As explained in White Paper Number 2, sources that seek to
streamline applicable requirements should submit their request as
part of their title V permit application, identifying the proposed
streamlined requirements and providing a demonstration that the
streamlined requirements assure compliance with all the underlying,
subsumed applicable requirements. Upon approval of the streamlined
requirements, the permitting authority would place the requirements
in the title V permit. See ``White Paper Number 2 for Improved
Implementation of the Part 70 Operating Permits Program,'' March, 5,
1996, for the complete guidance on the streamlining of applicable
requirements (http://www.epa.gov/ttn/oarpg/t5/memoranda/wtppr-2.pdf
). Where the source wishes to streamline the advance approval

under NSR with all other relevant applicable requirements, the same
title V permit application can address both actions.
---------------------------------------------------------------------------

    It should be noted that changing to an AOS cannot be used to
circumvent applicable requirements or to avoid an enforcement action. A
switch to an AOS does not affect the compliance obligations applicable
to a source under its previous operations.

B. What information is necessary in a title V permit application to
seek approval of an AOS?

    Because the application forms the basis for the content of the
title V permit, the discussion below is relevant to the content of a
permit that authorizes AOSs. This section clarifies the requirements
for a complete application and discusses minor proposed revisions to
these requirements.
    The provisions of 40 CFR 70.5(c) contain the information that must
be submitted in a complete title V permit application, including
information concerning proposed AOSs.\27\ We are proposing minor
revisions to 40 CFR 70.5(c) to clarify how certain aspects of the
requirements in that section should be addressed when a source applies
for approval of AOSs.
---------------------------------------------------------------------------

    \27\ For the complete text of the elements that must be included
in a title V application, see 40 CFR 70.5(c).
---------------------------------------------------------------------------

    Under the provisions of 40 CFR 70.5(c), the source generally must
describe the emissions of all regulated air pollutants (as defined at
40 CFR 70.2) from any emissions unit, identify all applicable
requirements that apply to each emissions unit, and describe how it
will meet these applicable requirements. The source must provide this
information for existing operations

(i.e., baseline operations) and for any reasonably anticipated changes
for which an AOS is proposed. The description of AOSs in title V permit
applications may vary depending on the situation (as previously
discussed). However, in every case the level of detail in the
description must be sufficient for the permitting authority to write
permit terms and conditions that assure compliance with all applicable
requirements and the requirements of part 70 that will apply to the
proposed AOS. See 40 CFR 70.5(c)(3)-(7); 40 CFR 70.6(a)(9)(iii). If the
source adequately describes proposed AOSs in the part 70 permit
application and the permitting authority includes them in the permit
consistent with 40 CFR 70.6, the source may subsequently implement the
physical and operational changes under protection of the permit shield
(where available and granted by the permitting authority) without
triggering the permit modification provisions of 40 CFR 70.7.
    Similarly, the source must meet the provisions of 40 CFR 70.5(c)
concerning advance approvals which are to be incorporated into the
title V permit. Where a change is authorized in an NSR permit and the
permit contains terms which would be effective upon issuance of the
title V permit and would assure compliance with all applicable
requirements, then a straightforward incorporation of the terms of the
NSR permit into the title V permit is all that is necessary. However,
where the NSR advance approval terms would be effective upon title V
permit issuance but would not address some other requirement(s) that
will apply to the NSR-authorized changes (e.g., a MACT standard), then
additional information about the changes relative to these other
requirements must be provided to the permitting authority in the part
70 application. The permitting authority would then develop permit
terms sufficient to assure compliance with all requirements applicable
to the NSR-approved changes as part of the title V permit issuance,
modification, or renewal process. Use of a streamlined limit is one
acceptable approach when requested by the source (see footnote 26 and
example 3 below).
    We are proposing to revise 40 CFR 70.5(c)(2) and (7) to use the
term ``AOS'' in the interest of consistent terminology. Existing 40 CFR
70.5(c)(2) uses the term ``alternate scenario,'' while existing 40 CFR
70.5(c)(7) uses ``alternative operating scenario.'' We believe that
revising these paragraphs to use consistent terminology, along with
proposing a definition for ``AOS'' and conforming changes in other
sections, will improve the clarity of the affected paragraphs and
reduce any confusion.
    We are also proposing to revise 40 CFR 70.5(c)(3)(iii), (c)(7), and
(c)(8) to clarify our intent regarding the information that must be
included in an application that proposes AOSs for approval by the
permitting authority. The proposed revisions to each of these sections
are described below, along with the rationale for proposing them.
    The introductory text in 40 CFR 70.5(c) states generally that the
application must include information for each emissions unit. Existing
40 CFR 70.5(c)(3)(iii) further requires that the application provide
the emissions rate in tpy and in such terms as are necessary to
establish compliance consistent with the applicable reference test
method. We are proposing to clarify this regulatory requirement as it
applies to sources subject to title V permitting requirements that
employ an emissions cap (e.g., PALs, PTE, Green Groups). In particular,
we are proposing that for the operation of any emissions unit
authorized under an annual emissions cap, a source can meet 40 CFR
70.5(c)(3)(iii) by reporting the aggregate emissions associated with
the cap. For example, a source may take a plantwide cap on its PTE so
that it will not become a major source for purposes of PSD, thereby
assuring that PSD will not apply to any changes made at the source. For
purposes of the title V permit application and this emissions cap, the
source need not provide individual tpy figures for any new or modified
emissions units authorized under minor NSR. Rather, emissions from such
units would be reported in the title V permit application as part of
the aggregate emissions under the PTE cap. Additional information may,
however, be required to describe the scope of any changes authorized in
minor NSR to occur under any emissions cap or to provide additional
information relevant to other requirements applicable to these changes.
    Under the proposed approach, an emissions cap can act as a
constraint on annual emissions from each emissions unit under the cap
as well as on the aggregated emissions from the group of units. That
is, in the extreme, a unit could emit up to the full amount of the cap
if all other units under the cap had zero emissions. Thus, for a group
of emissions units under an annual emissions cap, the 40 CFR
70.5(c)(3)(iii) requirement for unit-by-unit tpy figures can be met by
reporting in the permit application that the emissions cap represents
the upper limit on emissions both from each unit in the group and from
the entire group. This proposed revision to 40 CFR 70.5(c)(3)(iii)
simply clarifies that in this particular situation, more specificity is
not needed. Reporting emissions data in the above proposed manner in
the title V permit application is permissible (including in the case of
a plantwide emissions cap), except where the permitting authority
determines that more specific tpy information is needed (e.g., where an
applicable requirement for a specific emissions unit depends on the
emissions type or level).
    We are proposing to revise 40 CFR 70.5(c)(7) in two ways. The
existing language in 40 CFR 70.5(c)(7) specifies that the application
must include ``additional information as determined to be necessary by
the permitting authority to define alternative operating scenarios
identified by the source pursuant to 40 CFR 70.6(a)(9) of this part or
to define permit terms and conditions implementing 40 CFR 70.4(b)(12)
or 40 CFR 70.6(a)(10) of this part.'' First, we propose to modify the
existing language to clarify that the permitting authority can require
additional information from the source not only for adequately defining
the AOS, but also, as necessary, to craft permit terms and conditions
implementing the proposed AOSs under 40 CFR 70.6(a)(9). We believe that
this proposed revision is implicit in the existing language of 40 CFR
70.5 (e.g., 40 CFR 70.5(c)(5)), but that a clarification is
appropriate.
    Second, we propose to revise 40 CFR 70.5(c)(7) to clarify that the
application must include documentation demonstrating that the source
has obtained all specific authorizations required under the applicable
requirements relevant to any proposed advance approvals or AOSs, or a
certification that the source has submitted a complete application for
obtaining such authorizations. Based on our pilot experience, we expect
that proposed advance approvals and certain AOSs will involve one or
more of the following applicable requirements: minor NSR, major NSR,
and section 112(g) of the Act. These applicable requirements all
require permits or other authorizations prior to construction or
modification of a source.\28\ (In some cases, the overall

approach might be to avoid triggering applicable requirements that
require additional authorizations, such as by adopting a PAL or
accepting a PTE limit.)
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    \28\ Some State, local, and Tribal air control programs include
``State-only'' requirements (i.e., requirements not enforceable by
EPA) that require source owners or operators to obtain authorization
prior to construction. In instances where the permitting authority
elects to include such requirements in the part 70 permit, there are
benefits to addressing them as part of a comprehensive permit
flexibility solution. These requirements should, however, be labeled
as ``State-only'' consistent with 40 CFR 70.6(b)(2). Options for
flexible permit conditions to address State-only applicable
requirements potentially range widely, depending on the State's
interpretation of its ability to authorize changes in advance under
these requirements.
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    It is important to stress that an AOS merely incorporates
authorizations given under applicable requirements and does not
independently authorize changes that are subject to review and require
specific approval. For this reason, we are proposing the above revision
in the application requirements, along with a related revision to the
AOS provisions of 40 CFR 70.6(a)(9), stating that the permitting
authority cannot approve an AOS until all of the necessary
authorizations required under the relevant applicable requirements have
been obtained. It is possible to process the title V permit and, where
needed, a corresponding NSR permit concurrently, but the title V permit
approving an AOS cannot be issued before any necessary preconstruction
approval has been obtained.
    Some applications for AOSs and advance approvals may also contain
information needed to establish one or more ``approved replicable
methodologies'' (ARMs). In section VI.C.2.b of this preamble, we
discuss ARMs and their incorporation into part 70 permits. An ARM is an
objective protocol for determining values pertaining to compliance or
applicability requirements, such as temperature or emissions. Approved
replicable methodologies are permit terms that are consistent with and
implement an applicable requirement or requirement of part 70. A source
that wishes to have an ARM included in its permit must provide
sufficient information in its application to define the replicable
methodology, its intended function, the instructions for its use, and
the type of data required for its implementation. See 40 CFR
70.5(c)(5)-(c)(7). See section VI.C.2.b for more information on ARMs.
    Finally, we are proposing to revise 40 CFR 70.5(c)(8), which
requires each part 70 permit application to include a compliance plan.
The existing paragraph addresses applicable requirements with which the
source is in compliance, applicable requirements that will become
effective during the permit term (e.g., a newly promulgated emission
standard), and applicable requirements with which the source is not in
compliance at the time of permit issuance. We are proposing to revise
this section in two places to clarify that such plans must address AOSs
when applications include them. This proposal would add language to
clarify that, for applicable requirements associated with an AOS, the
compliance plan must contain a statement that the source will meet such
requirements upon implementation of the AOS or, if a requirement
becomes applicable after implementation of the AOS, in a timely manner.
We believe that this revision appropriately fills a gap in the existing
language. See proposed 40 CFR 70.5(c)(8)(ii)(D) and (iii)(D).
    We solicit comment on whether the proposed rule revisions noted
above provide sufficient clarity as to how the application requirements
of 40 CFR 70.5(c) are to be applied to sources that seek approval of
AOSs and/or incorporation of advance approvals. We also seek comment on
whether the proposed revisions are necessary or if additional revisions
are needed to ensure that permit applications contain sufficient detail
to identify all applicable requirements associated with an AOS and/or
advance approval. If you believe that additional regulatory revisions
are needed, please identify the proposed change and explain why it is
needed.

C. What terms and conditions must be included in the title V permit for
approved AOSs?

    Existing 40 CFR 70.6 details the required content of a title V
permit, including the requirements for reasonably anticipated operating
scenarios. In this section of the preamble, we discuss how the existing
permit content requirements of 40 CFR 70.6 apply to AOSs and how the
rule revisions we are proposing are consistent with this intent.
    To standardize the terminology in 40 CFR 70.6, we are proposing to
use the term ``alternative operating scenario'' (or its acronym
``AOS'') throughout 40 CFR 70.6(a)(9) as we have done in the other
sections of the rule. The proposed revisions to 40 CFR 70.6(a)(9) also
clarify that the title V permit must contain terms and conditions to
describe the AOSs, to assure compliance with the applicable
requirements implicated by the AOSs, and to assure compliance with the
requirements of part 70. Finally, as explained below, we are proposing
to modify 40 CFR 70.6(a)(1) to clarify that ARMs are one type of
operational requirement or limitation that assures compliance with
applicable requirements. These items are discussed below.
    As previously mentioned, no AOS is needed where the changes would
occur under an advance approval contained in an authorizing permit
whose terms are incorporated in the part 70 permit, as well as any
other applicable requirements which would apply to the advance approved
changes, and those terms are effective upon issuance of the part 70
permit. For example, our pilot experience suggests that no additional
flexibility provisions may be needed in a title V permit beyond the
incorporation of NSR permit terms establishing an advance approval
under minor NSR and a PAL or PTE limit that prevents the applicability
of major NSR.\29\ On the other hand, AOSs can be particularly useful
either where: (1) A new or existing unit with frequently changing
operations would be subject to certain emissions standards in different
ways depending on the type of materials used, rate of production, and
type and/or amount of product produced; or (2) an existing unit would
be subject to an applicable requirement associated with an advance
approved change only upon implementation of the authorized change.
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    \29\ As needed, additional terms would be added to assure
compliance with applicable requirements beyond NSR that are
implicated by the advance approved changes.
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1. Terms and Conditions To Describe Approved AOSs
    If the permitting authority approves an AOS, the permit must
include a description of the baseline operating scenario for each
included emissions unit, the authorized physical or operational changes
included in each AOS, and the applicable requirements that apply under
each scenario (including those requirements newly applying or not
applying as a result of the authorized changes). Expectations for AOS
descriptions in the permit are similar to those previously identified
for AOS descriptions in complete applications. As mentioned previously,
the type of detail in such descriptions and the need for one or more
boundary conditions can vary depending on the nature of the change and
the applicable requirements implicated by the changes. A permit with an
AOS for a particular emissions unit normally would include a
description of the unit operating in its baseline mode of operation.
For each approved AOS, the physical and operational changes which have
been authorized should then be identified relative to this baseline
operation. In all cases, the description of each AOS must be adequate
to link the triggered

applicable requirements to the terms which assure compliance with them.
    We are proposing revisions to 40 CFR 70.6(a)(9) to clarify what
constitutes an acceptable description for an AOS (see proposed revision
to 40 CFR 70.6(a)(9)(iii)). We are also proposing a revision to 40 CFR
70.6(a)(9)(iii) to make clear that the permitting authority cannot
approve an AOS until all of the necessary authorizations relevant to
the applicable requirements have been obtained, that is, until the
source has been approved to proceed by the permitting authority where
such prior authorization is required (e.g., approvals under major and
minor NSR and section 112(g) of the Act).\30\ Finally, as mentioned,
where a source is unable to predict, at the time of permit issuance,
which of several reasonably anticipated changes it actually will make,
it can seek approval for a range of changes and applicable requirement
combinations at a particular emissions unit by including multiple AOSs.
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    \30\ See footnote 22.
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2. Terms and Conditions To Assure Compliance With Applicable
Requirements
    In this section, we discuss our proposal related to permit content
to assure compliance with all applicable requirements.
a. Proposed Clarifications to the AOS Provisions
    The provisions of 40 CFR 70.6(a)(9)(iii) require that, for each AOS
for an emissions unit, the permit must contain terms and conditions to
assure compliance with all the applicable requirements that apply to
the emissions units operating in that AOS. This means that the permit
must include, for each relevant emissions unit, the applicable
emissions limits, compliance approaches, and monitoring, recordkeeping,
reporting, and testing (MRRT) requirements as required by the
applicable requirements as well as those required otherwise under 40
CFR 70.6(a)(3) (e.g., periodic monitoring) for the compliance
approaches. In addition, the permit must incorporate all advance
approvals, such as those authorized under NSR, as well as the
description of changes authorized in each AOS as described above. For a
permit containing more than one AOS for an emissions unit, the permit
must contain a clear description of each one so that there is no
confusion with respect to which AOS is implicated at any given time.
b. Proposed Revisions for ARMs
    As stated, title V permits are required to assure compliance with
all applicable requirements. Sometimes, changes occur at a source that
may cause the need to recalculate/update a value used either in
determining compliance of the source with an applicable requirement or
in determining the applicability of a requirement. An advance approval
or an AOS can incorporate flexibility in a permit, but the scope of
changes that can be authorized in them can be severely limited with
respect to a particular applicable requirement, if the changes require
case-by-case review/approval procedures and possible permit revision in
order to ensure ongoing compliance with all applicable requirements. To
facilitate implementation of advance approvals and AOSs, and to
encourage other permitting techniques that reduce in general the need
for permit modifications (in a manner consistent with part 70), we are
proposing the use of an ARM that has been approved by a permitting
authority and incorporated into a title V permit.
    In particular, we are proposing to define ``approved replicable
methodology'' or ``ARM'' at 40 CFR 70.2 as title V permit terms that:
(1) Specify a protocol which is consistent with and implements an
applicable requirement or requirement of part 70, such that the
protocol is based on sound scientific/mathematical principles and
provides reproducible results using the same inputs; and (2) require
the results of that protocol to be used for assuring compliance with
such applicable requirement or requirement of part 70, including where
an ARM is used for determining applicability of a specific requirement
to a particular change. Within the scope of this definition, an ARM may
be used to assure that a given requirement does not apply in a
particular situation.
    The terms of an ARM must specify when the ARM is to be used, the
applicable methodology (e.g., equation or algorithm) and the purpose
for which the output obtained upon the execution of the prescribed
methodology will be used (e.g., to determine compliance with an
applicable requirement or to modify the level of the parameters used to
determine compliance in the future). All necessary terms and conditions
must be included in the permit at the time the ARM is approved so that
no permit revision will be required in the future to implement the ARM.
    It is important to emphasize that an ARM, like any provision of a
part 70 permit, cannot modify, supersede, or replace an applicable
requirement, including, but not limited to, any monitoring,
recordkeeping, or reporting required under applicable requirements.\31\
Instead, ARMs are a strategic approach for incorporating into a title V
permit relevant applicable requirements and the requirements of part
70. The ARM provides a method for obtaining and updating information
consistent with the intent of applicable requirement(s) or
requirement(s) of part 70 in such a manner so as to avoid the need to
reopen or revise the permit to incorporate the updated information. As
such, an ARM must work within and be consistent with the applicable
part 70 rules that govern permit revisions.
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    \31\ Under the authority of 40 CFR 70.6(a)(3), however, the
permit can also contain additional streamlined monitoring or gap-