($21 -- $700)
Chronic Bronchitis
                                     PM2.5
                                     $4.2
                                 ($0.2 -- $19)
                                     $0.01
                               ($-0.003 -- $0.06)
                                     $4.2
                                 ($0.2 -- $19)
Non-fatal heart attacks

	3% discount rate
                                     PM2.5
                                     $1.7
                                 ($0.3 -- $4.2)
                                    $0.004
                               ($0.003 -- $0.01)
                                     $1.7
                                 ($0.3 -- $4.2)

7% discount rate
                                     PM2.5
                                     $1.3
                                 ($0.3 -- $3.1)
                                    $0.004
                               ($0.002 -- $0.001)
                                     $1.3
                                 ($0.3 -- $3.1)
Hospital admissions -- respiratory
                                PM2.5 & O3
                                     $0.04
                                ($0.02 -- $0.06)
                                      ---
                                     $0.04
                                ($0.02 -- $0.06)
Hospital admissions -- cardiovascular
                                     PM2.5
                                     $0.09
                                ($0.01 -- $0.2)
                                      ---
                                     $0.09
                                ($0.01 -- $0.2)
Emergency room visits for asthma
                                PM2.5 & O3
                                    $0.003
                               ($0.002 -- $0.006)
                                      ---
                                    $0.003
                               ($0.002 -- $0.006)
Acute bronchitis
                                     PM2.5
                                    $0.008
                            (<$-0.01 -- $0.02)[c]
                                      ---
                                    $0.008
                            (<$-0.01 -- $0.02)[c]
Lower respiratory symptoms
                                     PM2.5
                                    $0.004
                               ($0.002 -- $0.009)
                                      ---
                                    $0.004
                               ($0.002 -- $0.009)
Upper respiratory symptoms
                                     PM2.5
                                    $0.005
                             (<$0.01 -- $0.014)
                                      ---
                                    $0.005
                             (<$0.01 -- $0.014)
Asthma exacerbation
                                     PM2.5
                                     $0.02
                               ($0.002 -- $0.08)
                                      ---
                                     $0.02
                               ($0.002 -- $0.08)
Lost work days
                                     PM2.5
                                     $0.2
                                ($0.17 -- $0.24)
                                      ---
                                     $0.2
                                ($0.17 -- $0.24)
School loss days
                                      O3
                                     $0.01
                               ($0.004 -- $0.013)
                                      ---
                                     $0.01
                               ($0.004 -- $0.013)
Minor restricted-activity days
                                PM2.5 & O3
                                     $0.7
                                  ($0.3 -- $1)
                                      ---
                                     $0.7
                                  ($0.3 -- $1)
Recreational visibility,  Class I areas
                                     PM2.5

                                     $4.1
Social cost of carbon (3% discount rate, 2014 value)
                                      CO2

                                     $0.6

Monetized total Benefits
(Pope et al. 2002 PM2.5 mortality  and Bell et al. 2004 ozone mortality estimates)

3% discount rate
                                   PM2.5, O3
                                     $110
                                 ($8.8 -- $340)
                                     $0.28
                                ($0.01 -- $0.9)
                                     $120
                                 ($14 -- $350)

7% discount rate
                                  PM2.5, O3
                                     $100
                                  ($8 -- $310)
                                     $0.25
                                ($0.01 -- $0.85)
                                     $110
                                 ($13 -- $320)
Monetized total Benefits
(Laden et al. 2006 PM2.5 mortality  and Levy et al. 2005 ozone mortality estimates)

3% discount rate
                                   PM2.5, O3
                                     $270
                                 ($24 -- $800)
                                     $0.7
                                ($0.05 -- $2.1)
                                     $280
                                 ($29 -- $810)

7% discount rate
                                  PM2.5, O3
                                     $250
                                 ($22 -- $720)
                                     $0.6
                                ($0.04 -- $1.9)
                                     $250
                                 ($26 -- $730)
[A] Values rounded to two significant figures. Benefits from reducing other criteria pollutants and hazardous air pollutants and ecosystem effects are not included here.
[B] Monetary value of endpoints marked with dashes are < $100,000.
[C] The negative estimates for certain endpoints are the result of the weak statistical power of the study used to calculate these health impacts and do not suggest that increases in air pollution exposure result in decreased health impacts.
Source:  EPA, 2011
5. How Do the Benefits in 2012 Compare to 2014?
      The magnitude of SO2 emission reductions achieved under the rule is actually larger in 2012 than in 2014, due to substantial emission reductions expected to occur in the baseline (i.e., unrelated to the Transport Rule) between those years.  As a consequence, EPA expects correspondingly greater reductions in harmful effects to accrue in 2012 compared to 2014.
      As presented in Table VIII.C-1, the Transport Rule is expected to prevent between 13,000 and 34,000 premature deaths annually from 2014 onward due to reductions in ambient PM2.5 concentrations, which are most significantly impacted by SO2 emission reductions.  Based on EPA's analysis of power sector emission reductions under the Transport Rule, the decline in SO2 in 2012 is 4 percent greater than the decline in SO2 in 2014 in the states modeled.  EPA therefore anticipates that the Transport Rule will deliver greater reductions in ambient PM2.5 concentrations in 2012 and increased annual benefits to human health and welfare beyond those presented in this section.
6. How Do the Benefits Compare to the Costs of this Final Rule?
      The estimated annual private costs to implement the emission reduction requirements of the final rule for the Transport Rule states are $1.85 billion in 2012 and $0.83 billion in 2014 (2007$).  These costs are the annual incremental electric generation production costs that are expected to occur with the Transport Rule. The EPA uses these costs as compliance cost estimates in developing cost-effectiveness estimates.
In estimating the net benefits of regulation, the appropriate cost measure is ``social costs.'' Social costs represent the welfare costs of the rule to society. These costs do not consider transfer payments (such as taxes) that are simply redistributions of wealth.  The social costs of this rule are estimated to be approximately $0.81 billion in 2014 assuming either a 3 percent discount rate or a 7 percent discount rate.  Thus, the annual net benefit (social benefits minus social costs) as shown in Table VIII.C-3 for the Transport Rule is approximately $120 to $280 billion or $110 to $250 billion (3 percent and 7 percent discount rates) in 2014. Implementation of the rule is expected to provide society with a substantial net gain in social welfare based on economic efficiency criteria.
        A listing of the benefit categories that could not be quantified or monetized in our benefit estimates are provided in Table VIII.C-4.
Table VIII.C - 3 Summary of Annual Benefits, Costs, and Net Benefits of the Final Transport Rule in 2014
                            (Billions of 2007$)[a]
                                  Description
                             Transport Rule Remedy
Social costs

   3% discount rate
$0.81
   7% discount rate
$0.81
Total monetized benefits[b]

   3% discount rate
   7% discount rate
$120 to $280
$110 to $250
Net benefits (benefits-costs)

   3% discount rate
   7% discount rate
$120 to $280
$110 to $250
[a] All estimates are for 2014, and are rounded to two significant figures.
[b]The total monetized benefits reflect the human health benefits associated with reducing exposure to PM2.5 and ozone and the welfare benefits associated with improved visibility in Class I areas. The reduction in premature mortalities account for over 90 percent of total monetized PM2.5 and ozone benefits.

      The annualized regional cost of the rule, as quantified here, is EPA's best assessment of the cost of implementing the Transport Rule. These costs are generated from rigorous economic modeling of changes in the power sector expected from the rule. This type of analysis using IPM has undergone peer review and been upheld in federal courts. The direct cost includes, but is not limited to, capital investments in pollution controls, operating expenses of the pollution controls, investments in new generating sources, and additional fuel expenditures. The EPA believes that these costs reflect, as closely as possible, the additional costs of the Transport Rule to industry. The relatively small cost associated with monitoring emissions, reporting, and recordkeeping for affected sources is not included in these annualized cost estimates, but EPA has done a separate analysis and estimated the cost to be about $26 million (see section XII.B., Paperwork Reduction Act). However, there may exist certain costs that EPA has not quantified in these estimates. These costs may include costs of transitioning to this rule, such as the costs associated with the retirement of smaller or less efficient EGUs, employment shifts as workers are retrained at the same company or re-employed elsewhere in the economy, and certain relatively small permitting costs associated with Title V that new program entrants face.
      An optimization model was employed that assumes cost minimization. Costs may be understated if the regulated community chooses not to minimize its compliance costs in the same manner to comply with the rules. Although EPA has not quantified these costs, the Agency believes that they are small compared to the quantified costs of the program on the power sector. However, EPA's experience and results of independent evaluation suggests that costs are likely to be lower by some degree (see RIA for details). The annualized cost estimates presented are the best and most accurate based upon available information. In a separate analysis, EPA estimates the indirect costs and impacts of higher electricity prices on the entire economy. These impacts are summarized in the RIA for this final rule.
      Every benefit-cost analysis examining the potential effects of a change in environmental protection requirements is limited to some extent by data gaps, limitations in model capabilities (such as geographic coverage), and uncertainties in the underlying scientific and economic studies used to configure the benefit and cost models. Gaps in the scientific literature often result in the inability to estimate quantitative changes in health and environmental effects. Gaps in the economics literature often result in the inability to assign economic values even to those health and environmental outcomes that can be quantified. While uncertainties in the underlying scientific and economics literatures (that may result in overestimation or underestimation of benefits) are discussed in detail in the economic analyses and its supporting documents and references, the key uncertainties which have a bearing on the results of the benefit-cost analysis of this rule include the following:
:: EPA's inability to quantify potentially significant benefit categories;
:: Uncertainties in population growth and baseline incidence rates;
:: Uncertainties in projection of emission inventories and air quality into the future;
:: Uncertainty in the estimated relationships of health and welfare effects to changes in pollutant concentrations including the shape of the C - R function, the size of the effect estimates, and the relative toxicity of the many components of the PM mixture;
:: Uncertainties in exposure estimation; and
:: Uncertainties associated with the effect of potential future actions to limit emissions.
      Despite these uncertainties, we believe the benefit-cost analysis provides a reasonable indication of the expected economic benefits of the rulemaking in future years under a set of reasonable assumptions. This approach calculates a mean value across VSL estimates derived from 26 labor market and contingent valuation studies published between 1974 and 1991. The mean VSL across these studies is $6.3 million (2000$).  The benefits estimates generated for this rule are subject to a number of assumptions and uncertainties, which are discussed throughout the RIA document.
      As Table VIII.C-2 indicates, total annual monetary benefits are driven primarily by the reduction in premature mortalities each year. Some key assumptions underlying the primary estimate for the premature mortality category include the following:
      (1) EPA assumes inhalation of fine particles is causally associated with premature death at concentrations near those experienced by most Americans on a 24-hour basis. Plausible biological mechanisms for this effect have been hypothesized for the endpoints included in the primary analysis and the weight of the available epidemiological evidence supports an assumption of causality.
      (2) EPA assumes all fine particles, regardless of their chemical composition, are equally potent in causing premature mortality. This is an important assumption, because the proportion of certain components in the PM mixture produced via precursors emitted from EGUs may differ significantly from direct PM released from automotive engines and other industrial sources, but no clear scientific grounds exist for supporting differential effects estimates by particle type.
      (3) We assume that the health impact function for fine particles is linear down to the lowest air quality levels modeled in this analysis. Thus, the estimates include health benefits from reducing fine particles in areas with varied concentrations of PM2.5, including both regions that are in attainment with the fine particle standard and those that do not meet the standard down to the lowest modeled concentrations.
      The EPA recognizes the difficulties, assumptions, and inherent uncertainties in the overall enterprise. The analyses upon which the Transport Rule is based were selected from the peer-reviewed scientific literature. We used up-to-date assessment tools, and we believe the results are highly useful in assessing this rule.
      There are a number of health and environmental effects that we were unable to quantify or monetize. A complete benefit-cost analysis of the Transport Rule requires consideration of all benefits and costs expected to result from the rule, not just those benefits and costs which could be expressed here in dollar terms. A listing of the benefit categories that were not quantified or monetized in our estimate are provided in Table VIII.C-4.

 Table VIII.C - 4 Unquantified and Non-Monetized Effects of the Transport Rule
Pollutant/Effect
Endpoint
PM: Health[a]

Low birth weight
Pulmonary function
Chronic respiratory diseases other than chronic bronchitis
Non-asthma respiratory emergency room visits
UVb exposure[b]
PM: Welfare
Household soiling
Visibility in residential areas
Visibility in non-class I areas and class 1 areas in NW, NE, and Central regions
UVb exposure[b]
Global climate impacts[b]
Ozone: Health
Chronic respiratory damage
Premature aging of the lungs
Non-asthma respiratory emergency room visits
UVb exposure[b]
Ozone: Welfare
Yields for:
 -- Commercial forests
 -- Fruits and vegetables, and
 -- Other commercial and noncommercial crops
Damage to urban ornamental plants
Recreational demand from damaged forest aesthetics
Ecosystem functions
Increased exposure to UVb[b]
Climate impacts
NO2: Health
Respiratory hospital admissions
Respiratory emergency department visits
Asthma exacerbation
Acute respiratory symptoms
Premature mortality
Pulmonary function
NO2: Welfare
Commercial fishing and forestry from acidic deposition effects
Commercial fishing, agriculture and forestry from nutrient deposition effects
Recreation in terrestrial and estuarine ecosystems from nutrient deposition effects
Other ecosystem services and existence values for currently healthy ecosystems Coastal eutrophication from nitrogen deposition effects
SO2: Health
Respiratory hospital admissions
Asthma emergency room visits
Asthma exacerbation
Acute respiratory symptoms
Premature mortality
Pulmonary function
SO2: Welfare
Commercial fishing and forestry from acidic deposition effects
Recreation in terrestrial and aquatic ecosystems from acid deposition effects
Increased mercury methylation
Mercury: Health
Incidence of neurological disorders
Incidence of learning disabilities
Incidences in developmental delays

Mercury: Welfare
Impact on birds and mammals (e.g., reproductive effects)
Impacts to commercial, subsistence and recreational fishing
Source:  EPA
[a] In addition to primary economic endpoints, there are a number of biological responses that have been associated with PM health effects including morphological changes and altered host defense mechanisms. The public health impact of these biological responses may be partly represented by our quantified endpoints.
[b] May result in benefits or disbenefits.

7. What Are the Unquantified and Non-monetized Benefits of the Transport Rule Emission Reductions?
      Important benefits beyond the human health and welfare benefits quantified in this section and the RIA are expected to occur from this rule. These other benefits occur directly from NOX and SO2 emission reductions and from co-benefits due to Transport Rule compliance. These benefits are listed in Table VIII.C-4. Some of the more important examples include: reduced acidification and, in the case of NOX, eutrophication of water bodies; possible reduced nitrate contamination of drinking water; and reduced acid and particulate deposition that causes damages to cultural monuments, as well as, soiling and other materials damage. To illustrate the important nature of benefit categories EPA is currently unable to monetize, we discuss four categories of public welfare and environmental impacts related to reductions in emissions required by the Transport Rule: reduced acid deposition, reduced eutrophication of estuaries, reduced mercury methylation and deposition, and reduced vegetation impairment from ozone.
a. What Are the Benefits of Reduced Deposition of Sulfur and Nitrogen to Aquatic, Forest, and Coastal Ecosystems?
      Atmospheric deposition of sulfur and nitrogen, often referred to as acid rain, occurs when emissions of SO2 and NOX react in the atmosphere (with water, oxygen, and oxidants) to form various acidic compounds. These acidic compounds fall to earth in either a wet form (rain, snow, and fog) or a dry form (gases and particles). Prevailing winds can transport acidic compounds hundreds of miles, across state borders. Together these emissions are deposited onto terrestrial and aquatic ecosystems across the U.S., contributing to the problems of acidification.
(1) Acid Deposition and Acidification of Lakes and Streams
      The extent of adverse effects of acid deposition on freshwater and forest ecosystems depends largely upon the ecosystem's ability to neutralize the acid. The neutralizing ability depends largely on the watershed's physical characteristics, such as geology, soils, and size. A key indicator of neutralizing ability is termed Acid Neutralizing Capacity (ANC). Higher ANC indicates greater ability to neutralize acidity. Acidic conditions occur more frequently during rainfall and snowmelt that cause high flows of water and less commonly during low-flow conditions, except where chronic acidity conditions are severe. Biological effects are primarily attributable to a combination of low pH and high inorganic aluminum concentrations. Biological effects of episodes include reduced fish condition factor, changes in species composition and declines in aquatic species richness across multiple taxa, ecosystems and regions, as well as fish mortality. Waters that are sensitive to acidification tend to be located in small watersheds that have few alkaline minerals and shallow soils. Conversely, watersheds that contain alkaline minerals, such as limestone, tend to have waters with a high ANC. Areas especially sensitive to acidification include portions of the Northeast (particularly, the Adirondack and Catskill Mountains, portions of New England, and streams in the mid-Appalachian highlands) and southeastern streams. This regulatory action will decrease acid deposition within and downwind of the transport region and is likely to have positive effects on the health and productivity of aquatic ecosystems in the region.
(2) Acid Deposition and Forest Ecosystem Impacts
      Acidifying deposition has altered major biogeochemical processes in the U.S. by increasing the nitrogen and sulfur content of soils, accelerating nitrate and sulfate leaching from soil to drainage waters, depleting base cations (especially calcium and magnesium) from soils, and increasing the mobility of aluminum. Inorganic aluminum is toxic to some tree roots. Plants affected by high levels of aluminum from the soil often have reduced root growth, which restricts the ability of the plant to take up water and nutrients, especially calcium. These direct effects can, in turn, influence the response of these plants to climatic stresses such as droughts and cold temperatures. They can also influence the sensitivity of plants to other stresses, including insect pests and disease, leading to increased mortality of canopy trees.
      Both coniferous and deciduous forests throughout the eastern U.S. are experiencing gradual losses of base cation nutrients from the soil due to accelerated leaching from acidifying deposition. This change in nutrient availability may reduce the quality of forest nutrition over the long term. Evidence suggests that red spruce and sugar maple in some areas in the eastern U.S. have experienced declining health because of this deposition. For red spruce (Picea rubens), dieback or decline has been observed across high elevation landscapes of the northeastern U.S. and, to a lesser extent, the southeastern U.S. Acidifying deposition has been implicated as a causal factor.
      This regulatory action will decrease acid deposition within and downwind of the transport region and is likely to have positive effects on the health and productivity of forest systems in the region.
b. Coastal Ecosystems
      Since 1990, a large amount of research has been conducted on the impact of nitrogen deposition to coastal waters. Nitrogen is often the limiting nutrient in coastal ecosystems. Increasing the levels of nitrogen in coastal waters can cause significant changes to those ecosystems. In recent decades, human activities have accelerated nitrogen nutrient inputs, causing excessive growth of algae and leading to degraded water quality and associated impairments of estuarine and coastal resources.
      Atmospheric deposition of nitrogen is a significant source of nitrogen to many estuaries. The amount of nitrogen entering estuaries due to atmospheric deposition varies widely, depending on the size and location of the estuarine watershed and other sources of nitrogen in the watershed. A recent assessment of 141 estuaries nationwide by the National Oceanic and Atmospheric Administration (NOAA) concluded that 19 estuaries (13 percent) suffered from moderately high or high levels of eutrophication due to excessive inputs of both N and phosphorus, and a majority of these estuaries are located in the coastal area from North Carolina to Massachusetts. For estuaries in the Mid-Atlantic region, the contribution of atmospheric distribution to total N loads is estimated to range between 10 percent and 58 percent.
      Eutrophication in estuaries is associated with a range of adverse ecological effects. The conceptual framework developed by NOAA emphasizes four main types of eutrophication effects: low dissolved oxygen (DO), harmful algal blooms (HABs), loss of submerged aquatic vegetation (SAV), and low water clarity. Low DO disrupts aquatic habitats, causing stress to fish and shellfish, which, in the short-term, can lead to episodic fish kills and, in the long-term, can damage overall growth in fish and shellfish populations. Low DO also degrades the aesthetic qualities of surface water. In addition to often being toxic to fish and shellfish, and leading to fish kills and aesthetic impairments of estuaries, HABs can, in some instances, also be harmful to human health. SAV provides critical habitat for many aquatic species in estuaries and, in some instances, can also protect shorelines by reducing wave strength. Therefore, declines in SAV due to nutrient enrichment are an important source of concern.  Low water clarity is the result of accumulations of both algae and sediments in estuarine waters. In addition to contributing to declines in SAV, high levels of turbidity also degrade the aesthetic qualities of the estuarine environment.
      Estuaries in the eastern United States are an important source of food production, in particular fish and shellfish production. The estuaries are capable of supporting large stocks of resident commercial species, and they serve as the breeding grounds and interim habitat for several migratory species.
      This rule is anticipated to reduce nitrogen deposition within and downwind of the Transport Rule states. Thus, reductions in the levels of nitrogen deposition will have a positive impact upon current eutrophic conditions in estuaries and coastal areas in the region.
c. Mercury Methylation and Deposition
      Mercury is a highly neurotoxic contaminant that enters the food web as a methylated compound, methylmercury. The contaminant is concentrated in higher trophic levels, including fish eaten by humans. Experimental evidence has established that only inconsequential amounts of methylmercury can be produced in the absence of sulfate. Current evidence indicates that in watersheds where mercury is present, increased SOX deposition very likely results in methylmercury accumulation in fish.[,] The SO2 ISA concluded that evidence is sufficient to infer a casual relationship between sulfur deposition and increased mercury methylation in wetlands and aquatic environments.
d. Ozone Vegetation Effects
      Ozone causes discernible injury to a wide array of vegetation. In terms of forest productivity and ecosystem diversity, ozone may be the pollutant with the greatest potential for regional-scale forest impacts. Studies have demonstrated repeatedly that ozone concentrations commonly observed in polluted areas can have substantial impacts on plant function.[,]
      Assessing the impact of ground-level ozone on forests in the eastern United States involves understanding the risks to sensitive tree species from ambient ozone concentrations and accounting for the prevalence of those species within the forest. As a way to quantify the risks to particular plants from ground-level ozone, scientists have developed ozone-exposure/tree-response functions by exposing tree seedlings to different ozone levels and measuring reductions in growth as ``biomass loss.'' Typically, seedlings are used because they are easy to manipulate and measure their growth loss from ozone pollution. The mechanisms of susceptibility to ozone within the leaves of seedlings and mature trees are identical, and the decreases predicted using the seedlings should be related to the decrease in overall plant fitness for mature trees, but the magnitude of the effect may be higher or lower depending on the tree species. In areas where certain ozone-sensitive species dominate the forest community, the biomass loss from ozone can be significant. Significant biomass loss can be defined as a more than 2 percent annual biomass loss, which would cause long-term ecological harm as the short-term negative effects on seedlings compound to affect long-term forest health.
      Urban ornamentals are an additional vegetation category likely to experience some degree of negative effects associated with exposure to ambient ozone levels. Because ozone causes visible foliar injury, the aesthetic value of ornamentals (such as petunia, geranium, and poinsettia) in urban landscapes would be reduced. Sensitive ornamental species would require more frequent replacement and/or increased maintenance (fertilizer or pesticide application) to maintain the desired appearance because of exposure to ambient ozone. In addition, many businesses rely on healthy-looking vegetation for their livelihoods (e.g., horticulturalists, landscapers, Christmas tree growers, farmers of leafy crops, etc.) and a variety of ornamental species have been listed as sensitive to ozone.
D. Costs and Employment Impacts
[PLACEHOLDER FOR CAVEAT REGARDING REMEDY ANALYSIS AND REVISED VARIABILITY LIMITS]

1. Transport Rule Costs and Employment Impacts
      For the affected region, the projected annual private incremental costs of the rule to the power industry are $1.4 billion in 2012 and $0.8 billion in 2014.  These costs represent the private compliance cost to the electric generating industry of reducing NOX and SO2 emissions to meet the requirements set forth in the rule.  Estimates are in 2007 dollars.
      In estimating the net benefits of regulation, the appropriate cost measure is ``social costs.''  Social costs represent the welfare costs of the rule to society.  These costs do not consider transfer payments (such as taxes) that are simply redistributions of wealth.  The social costs of this rule are estimated to be approximately $0.8 billion annually in 2014. Overall, the economic impacts of the Transport Rule are modest in 2014, particularly in light of the large benefits ($120 to $280 billion annually at a 3 percent discount rate and $110 to $250 billion annually at a 7 percent discount rate) we expect as shown in section XII.A. of this preamble.  Ultimately, we believe the electric power industry will pass along most of the costs of the rule to consumers, so that the costs of the rule will largely fall upon the consumers of electricity.  For more information on electricity price changes that result from this final rule, please refer to section XII.H (Statement of Energy Effects) later in this preamble.
      For this rule, EPA analyzed the costs using the Integrated Planning Model (IPM).  The IPM is a dynamic linear programming model that can be used to examine the economic impacts of air pollution control policies for SO2 and NOX throughout the contiguous United States for the entire power system.  Documentation for IPM can be found in the docket for this rulemaking or at http://www.epa.gov/airmarkets/progsregs/epa-ipm/index.html.
      EPA also included an analysis of impacts of the final rule to industries outside of the electric power sector by using the Multi-Market Model.  This model is a partial equilibrium economic impact model that includes 100 sectors that cover energy, manufacturing, and service applications and is designed to capture the short-run effects associated with an environmental regulation. This model was used to estimate economic impacts for the proposed MATS, and the promulgated industrial boilers major and area source standards and CISWI standard.
      We use the Multi-Market Model to estimate the social costs of the final rule. Using this model, we estimate the social costs of the final rule to be approximately $0.8 billion (2007 dollars), which is close to the compliance costs [will insert final results when available and change associated text if necessary].    Documentation for the Multi-Market Model can be found in the RIA for this final rule.
      Also note that as explained in section V.B (Baseline for Pollution Transport Analysis), the baseline used in this analysis assumes no CAIR.  If EPA's base case analysis were to assume that reductions from CAIR would continue indefinitely, areas that are in attainment solely due to controls required by CAIR would again face nonattainment problems because the existing protection from upwind pollution would not be replaced.  As explained in that section, EPA believes that this is the most appropriate baseline to use for purposes of determining whether an upwind state has an impact on a downwind monitoring site in violation of section 110(a)(2)(D).
      Although a stand-alone analysis of employment impacts is not included in a standard cost-benefit analysis, the current economic climate has led to heightened concerns about potential job impacts.  Such an analysis is of particular concern in the current economic climate as sustained periods of excess unemployment may introduce a wedge between observed (market) wages and the social cost of labor.  In such conditions, the opportunity cost of labor required by regulated sectors to bring their facilities into compliance with an environmental regulation may be lower than it would be during a period of full employment (particularly if regulated industries employ otherwise idled labor to design, fabricate, or install the pollution control equipment required under this rule).   For that reason, EPA also includes estimates of job impacts associated with the final rule.  EPA presents an estimate of short-term employment opportunities as a result of increased demand for pollution control equipment.  Overall, the results suggest that the final rule could support a net of roughly 2,250 job-years in direct employment impacts in 2014.
      The basic approach to estimate these employment impacts involved using projections from IPM from the final rule analysis such as the amount of capacity that will be retrofit with control technologies, for various energy market implications, along with data on labor and resource needs of new pollution controls and labor productivity from secondary sources, to estimate employment impacts for 2014.  This analysis was also applied for the proposed MATS.  For more information, please refer to Appendix D of the RIA for the final Transport Rule."
      EPA relied on Morgenstern, et al. (2002), a study that is a basis for employment impacts estimated for the final industrial boiler major and area source rules and CISWI standard, and the proposed MATS.  The Morgenstern study  identifies three economic mechanisms by which pollution abatement activities can indirectly influence jobs:  (1) higher production costs raise market prices, higher prices reduce consumption, and employment within an industry falls ("demand effect"); (2) pollution abatement activities require additional labor services to produce the same level of output ("cost effect"); and (3) post regulation production technologies may be more or less labor intensive (i.e., more/less labor is required per dollar of output) ("factor-shift effect").
      Using plant-level Census information between the years 1979 and 1991, Morgenstern, et al., estimate the size of each effect for four polluting and regulated industries (petroleum, plastic material, pulp and paper, and steel).  On average across the four industries, each additional $1 million spending on pollution abatement results in an small net increase of 1.6 jobs; the estimated effect is not statistically significant different from zero.  As a result, the authors conclude that increases in pollution abatement expenditures do not necessarily cause economically significant employment changes.  The conclusion is similar to Berman and Bui (2001) who found that increased air quality regulation in Los Angeles did not cause large employment changes.  For more information, please refer to the RIA for this final rule.
        The ranges of job effects calculated using the Morgenstern, et al., approach are listed in Table VIII.D-1.

       Table VIII.D-1.  Range of Job Effects for the Electricity Sector

                   Estimates using Morgenstern, et al. (2002)

                                 Demand Effect
                                  Cost Effect
                              Factor Shift Effect
                                   Net Effect
  Change in Full-Time Jobs per Million Dollars of Environmental Expenditure[a]
                                    −3.56
                                     2.42
                                      2.68
                                      1.55
                                 Standard Error
                                      2.03
                                      0.83
                                      1.35
                                      2.24
                         EPA Estimate for Final Rule[b]
                                +200 to  -3,000
                                 +400 to 2,000
                                  0 to 2,000
                                -1,000 to +3,000
 [a] Expressed in 1987 dollars.  See footnote a of Table 8-3 in the RIA for inflation adjustment factor used in the analysis.
 [b] According to the 2007 Economic Census, the electric power generation, transmission and distribution sector (NAICS 2211) had approximately 510,000 paid employees.

EPA recognizes there may be other job effects which are not considered in the Morgenstern, et al., study.  Although EPA has considered some economy-wide changes in industry output as shown earlier with the Multi-Market model, we do not have sufficient information to quantify other associated job effects associated with this rule.
2. End-Use Energy Efficiency
      EPA believes that achievement of energy efficiency improvements in homes, buildings, and industry (EE) is an important component of achieving emission reductions from the power sector while minimizing associated compliance costs. By reducing electricity demand, energy efficiency avoids emissions of all pollutants associated with electricity generation, including emissions of NOX and SO2 targeted by this final rule and reduces the need for investments in EGU emissions control technologies in order to meet emission reduction requirements. Moreover, energy efficiency can often be implemented at a lower cost than traditional control technologies.
      EPA recognizes that significant opportunities remain for energy efficiency improvements in businesses, homes, and industry.  However, there are several informational and market barriers that limit investment in cost-effective energy efficient practices.  Several federal programs authorized under the CAA, including ENERGY STAR, are designed to address these barriers.
      Congress, EPA, and states have all recognized the value of incorporating energy efficiency into air regulatory programs.  Several allowance-based programs -- including the Acid Rain Program, EPA's NOX Budget Trading program, and the Regional Greenhouse Gas Initiative (an effort of 10 states from the Northeast and Mid-Atlantic regions) - -  have provided mechanisms for rewarding energy efficiency through either the award of allowances, typically through the use of a fixed set-aside pool, or the use of revenues obtained through the auction of allowances.  The emissions caps established by these programs are unaffected by this approach.  However, to the extent electricity demand reductions are realized, compliance costs are reduced.  In addition to these allowance-based programs, EPA has also provided guidance concerning the recognition, in SIPs, of emission reduction benefits of energy efficiency and has approved the inclusion of EE measures in individual SIPs.
      While all remedy options considered in the proposed rule would have lead to an increase in the relative cost-effectiveness of EE investments by internalizing environmental costs associated with emission of these pollutants, EPA took comment on whether EPA has authority, and whether it would be appropriate for EPA, to consider EE in developing the allowance allocation methodology and to consider other approaches for encouraging EE in the Transport Rule.
      Some commenters suggested that EPA has authority to consider EE in developing the allocation methodology.  Other commenters do not believe EPA has the authority to consider EE.  	Some commenters suggested that EPA should establish an EE set-aside provision.  Other commenters suggested that EPA should allow, and help, states to establish EE set-asides as states transition from Transport Rule FIPs to SIPs.  EPA believes that, while EE set-asides can be effective at encouraging incremental investments in EE, EE set-asides are more likely to be more practically and effectively implemented at the state level.  Establishing EE set-asides in the allowance allocation provisions in the final rule would not allow for the tailoring of the set-asides to the unique characteristics of individual states and would not build on the existing EE program delivery infrastructure that many states already possess.  Instead of establishing EPA-administered EE set-asides in the final rule,  EPA is clarifying that it allows and supports EE set-asides (including auction-based approaches) in abbreviated or full SIPs that states may submit, as provided in the final rule.  Under this approach states have the ability to implement EE set-asides tailored to their state circumstances if they choose.  EPA anticipates providing additional information in the future for states on EE set-asides, as needed.
      As discussed elsewhere in this preamble, the final rule provides for submission and approval of abbreviated and full SIPs providing for continued state participation in the Transport Rule trading programs and adopting alternative allowance allocation methodologies (which may include EE set-asides) to the allocation methodologies adopted in the FIPs.  While the final rule establishes certain requirements for approval of any such alternative allocation methodology, the final rule provides states flexibility to create state-implemented EE set-asides.
IX. Related Programs and the Transport Rule
A. Transition from the Clean Air Interstate Rule
1. Key Differences between the Transport Rule and CAIR
      The Transport Rule replaces CAIR and its associated trading programs.  There are a number of differences between implementation of the Transport Rule and implementation of CAIR.  This section describes key implementation differences including differences in states covered, compliance deadlines, applicability, structure of the remedy, provisions for early reductions, and provisions for SIPs.  The next section discusses the transition from CAIR to the Transport Rule.
      States covered.  The states covered by the Transport Rule differ somewhat from states covered by CAIR.  This section summarizes differences in state coverage.  EPA's approach to determine states covered by the Transport Rule is discussed in sections V and VI of this preamble.
      The Transport Rule's SO2 and annual NOX requirements apply to covered sources in the 23 states listed in Table III-1 in section III of this preamble.  CAIR's SO2 and annual NOX requirements applied to covered sources in 25 states.  There are many states in common between the Transport Rule and CAIR SO2 and annual NOX programs.  The differences are summarized in Table IX.A-1.
Table IX.A-1 - Differences in SO2 and Annual NOX State Coverage between the Transport Rule and CAIR
                                     State
                  Transport Rule SO2 and Annual NOX Programs
                       CAIR SO2 and Annual NOX  Programs
                                    Kansas
                                      Yes
                                      No
                                   Minnesota
                                      Yes
                                      No
                                   Nebraska
                                      Yes
                                      No
                                   Delaware
                                      No
                                      Yes
                             District of Columbia
                                      No
                                      Yes
                                    Florida
                                      No
                                      Yes
                                   Louisiana
                                      No
                                      Yes
                                  Mississippi
                                      No
                                      Yes

      The Transport Rule's ozone-season NOX requirements apply to covered sources in the 20 states listed in Table III-1 in section III of this preamble, while CAIR's ozone-season NOX requirements applied to 26 states.  There are many states in common between the Transport Rule and CAIR ozone-season NOX programs.  The differences are summarized in Table IX.A-2.
Table IX.A-2 - Differences in Ozone-Season NOX State Coverage between the Transport Rule and CAIR
                                     State
                   Transport Rule Ozone-Season NOX Program
                         CAIR Ozone-Season NOX Program
                                    Georgia
                                      Yes
                                      No
                                     Texas
                                      Yes
                                      No
                                  Connecticut
                                      No
                                      Yes
                                   Delaware
                                      No
                                      Yes
                             District of Columbia
                                      No
                                      Yes
                                     Iowa
                                      No
                                      Yes
                                 Massachusetts
                                      No
                                      Yes
                                   Michigan
                                      No
                                      Yes
                                   Missouri
                                      No
                                      Yes
                                   Wisconsin
                                      No
                                      Yes

      In addition, EPA is proposing a supplemental notice to apply Transport Rule ozone-season requirements to the states of Iowa, Kansas, Michigan, Missouri, Oklahoma, and Wisconsin, as discussed in section III of this preamble.
      The transition from CAIR to the Transport Rule is discussed in the next section and State Implementation Plans (SIPs) are discussed in section X of this preamble.
      Compliance deadlines.  The first phase of Transport Rule reductions commences January 1, 2012 for annual NOX and SO2 requirements and May 1, 2012 for ozone-season NOX requirements.  The second phase commences January 1, 2014 for annual NOX and SO2 requirements and May 1, 2014 for ozone-season NOX requirements.
      In contrast, the first phase of CAIR NOX reductions commenced January 1, 2009 for annual NOX requirements and May 1, 2009 for ozone-season NOX requirements.  On January 1, 2010, the first phase of CAIR SO2 requirements commenced.  However, in anticipation of CAIR, SO2 reductions actually started as early as 2006 because of the incentive to reduce emissions and bank Title IV Acid Rain Program SO2 allowances for use when their value would increase under CAIR in 2010 and later.  The second phase of CAIR reductions would have (if not replaced by the Transport Rule) commenced January 1, 2015 for annual NOX and SO2 requirements, and May 1, 2015 for ozone-season NOX requirements.
      Applicability.  Except for the changes to the states covered, the general applicability provisions of the final Transport Rule trading programs are essentially the same as the CAIR general applicability provisions, with a few exceptions.
      First, the final Transport Rule does not allow any non-covered units to opt into the trading programs, for the reasons discussed in section VII.B of this preamble.  In contrast, under CAIR, through SIPs the states could elect to allow boilers, combustion turbines, and other combustion devices to opt into the CAIR trading programs under opt-in provisions specified by EPA.
      Second, the Transport Rule FIPs' ozone-season NOX trading program applicability provisions do not cover NOX SIP Call small EGUs and non-EGUs that a number of CAIR states brought into the CAIR ozone-season NOX trading program.  The Transport Rule does allow any state in the ozone-season NOX program, through SIPs, to expand the applicability of the Transport Rule ozone-season NOX trading program to cover small EGUs.  However, the Transport Rule does not allow states to expand the applicability to cover NOX SIP Call non-EGUs, for the reasons discussed elsewhere in this preamble.
      In contrast, in the CAIR trading programs, a NOX SIP Call state could expand the applicability of the CAIR ozone-season NOX trading program in the state in order to include all units subject to the NOX Budget Trading Program under the NOX SIP Call.  A number of states chose to expand the CAIR ozone-season NOX trading program applicability in this way.  The transition from CAIR to the Transport Rule is discussed in the following section and SIPs are discussed in section X of this preamble.
      Structure of the remedy.  The CAIR FIPs (and CAIR model trading rules adopted by a number of states in their CAIR SIPs) implemented reductions through SO2, annual NOX, and ozone-season NOX interstate emissions trading programs covering primarily large EGUs.  The owners and operators of a covered source could buy allowances from or sell allowances to other covered sources (or other market participants) and were required to surrender allowances equal to the source's emissions for each compliance period.  CAIR's trading programs did not impose limitations on the aggregate emissions from covered units within any covered state.
      The Transport Rule FIPs will also achieve the required reductions through SO2, annual NOX, and ozone-season NOX interstate trading programs.  However, in contrast to CAIR and for the reasons discussed in section VII of this preamble, the Transport Rule FIPs include assurance provisions specifically designed to ensure that no state's emissions will exceed that state's emission budget plus the variability limit, i.e., the state's assurance level.
      Another difference in the remedy structure is in the design of the SO2 trading programs.  In CAIR all of the states required to reduce SO2 emissions were grouped together in one SO2 trading program with no restriction on the use of SO2 allowances from any state in the program by any source in the program.  In contrast, and for the reasons discussed in section VI of this preamble, the Transport Rule divides states required to reduce SO2 emissions into two groups with emission reduction requirements of different stringency starting in 2014 (SO2 Group 1, whose reduction requirements become more stringent starting in 2014, and SO2 Group 2, whose reduction requirements in 2014 do not change).  A covered source may only use for compliance -- with the requirements to hold allowances covering emissions and, if applicable, to surrender allowances under the assurance provisions -- an SO2 allowance issued for the SO2 Group in which the source's state is included.  In other words, an SO2 Group 1 source may only use a SO2 Group 1 allowance for compliance, and likewise an SO2 Group 2 source may only use a SO2 Group 2 allowance for compliance.
      Provisions for early reductions.  CAIR included provisions for covered sources to make early reductions prior to the start of CAIR's SO2 and NOX trading programs, bank emission allowances, and carry banked allowances into its trading programs.  In contrast, the Transport Rule does not include provisions for covered sources to carry over any allowances (i.e., Title IV SO2 allowances or CAIR annual or ozone-season NOX allowances) into the Transport Rule trading programs.  EPA's reasons for not allowing the use of banked Title IV SO2 allowances or CAIR annual or ozone-season NOX allowances in the Transport Rule trading programs are discussed in the next section.
      Provisions for SIPs.  The following is a summary of the  key differences between the Transport Rule and CAIR provisions for SIPs.  A more detailed discussion of Transport Rule SIPs is in section X of this preamble.
      The SIP provisions in the Transport Rule and CAIR are very similar.  Both include provisions that allow states to submit SIP revisions (referred to as full SIPs) that replace an applicable FIP trading program with a comparable SIP trading program that has certain limited differences from the FIP trading program.  Similarly, both rules include provisions that allow states to submit SIP revisions (referred to as abbreviated SIPs) that may modify certain limited provisions in the FIP trading program, which remain in place.  Inclusion of this provision in the Transport Rule allows a state to modify certain elements of a Transport Rule FIP trading program in order to better meet the needs of the state.  Both the Transport Rule and CAIR allow full or abbreviated SIPs that involve one or more applicable FIP trading programs.  However, there are a few differences.
      In particular, under the Transport Rule, states may submit SIP revisions under which the state determines allocations for the applicable trading program using either full or abbreviated SIP revisions.  States could submit similar revisions under CAIR.  Under the Transport Rule, the state may use the same allocation methodology as that currently used in the Transport Rule FIP trading program or some other allocation methodology.  However, the Transport Rule specifies certain requirements that must be met concerning, for example, the timing of such allocation determinations, and expressly allows allowance auctions to be used.  CAIR did not include similar provisions.  Further, the SIP submission deadlines, allocation submission, and allocation recordation dates are different between the Transport Rule and CAIR.  The Transport Rule SIP submission deadlines and allocation recordation dates are discussed in section X of this preamble.
      In addition, both the Transport Rule and CAIR include provisions that allow states to submit SIP revisions under which the state expands the general applicability provisions of the ozone-season NOX trading programs to cover certain units subject to the NOX SIP Call.  However, for the reasons discussed elsewhere in this preamble, this flexibility is more limited in the Transport Rule than it was in CAIR.
      While CAIR allowed states to adopt, through full or abbreviated SIPs, opt-in provisions, the Transport Rule does not allow for opt-in provisions.  The reasons for this are discussed in section VII.B of this preamble.
      Finally, neither full nor abbreviated SIPs can replace FIP provisions that apply to units in Indian country within the borders of a state.  For example, the FIPs include, for states within whose borders Indian country is located, an Indian country new unit set-aside.  For states not having Indian country within their borders, abbreviated SIPs are limited to replacing the allowance allocation provisions of the FIPs for the state involved and may replace some or all of those provisions.  However, for states having Indian country within their borders, abbreviated SIPs cannot replace the FIP provisions for the Indian country new unit set-aside.  Similarly, for states not having Indian country, full SIPs can replace an entire FIP, but, in doing so, can only change the allowance allocation provisions.  For states having Indian country, full SIP can replace the FIP except for the Indian country new unit set-aside provisions, which will remain under the applicable FIPs, and, like the abbreviated SIPs, can only change the allowance allocation provisions that are replaced.
      Details of the Transport Rule provisions for abbreviated and full SIP revisions, including deadlines for submission to EPA, are discussed in section X of this preamble.
2. Transition from the Clean Air Interstate Rule to the Transport Rule
      The Transport Rule replaces CAIR and its associated trading programs. This section elaborates on areas of transition from CAIR to the Transport Rule.
a. Sunsetting of CAIR, CAIR SIPs, and CAIR FIPs
      The proposal explained that, for control period in 2012 and thereafter, CAIR, CAIR SIPs, and CAIR FIPs would be replaced entirely by the Transport Rule provisions.  The proposal outlined implementation of the sunsetting of CAIR and CAIR FIPs, through revisions to CAIR, §§ 51.123 and 51.124, and the CAIR FIPs, §§ 52.35 and 52.36.  For the control period in these years, the CAIR trading programs would not continue, and the Administrator would not carry out any of the functions established for the Administrator in the CAIR model trading rule, the CAIR FIPs, or any state trading programs approved under CAIR.  Offset and automatic penalty provisions under CAIR would not apply to excess emissions for 2011 control periods.
      Also discussed were the processes for modifying provisions in Part 52 reflecting state-specific CAIR SIP and CAIR FIP requirements, which would vary depending on whether a state has an approved CAIR SIP or a CAIR FIP.  The proposal further explained that sources in some states covered by CAIR or the CAIR FIPs would not be subject to the Transport Rule and that to the extent that CAIR reductions were needed or relied upon to satisfy other SIP requirements, states might need to find alternative ways to satisfy requirements for their SIPs.
      EPA is finalizing regulatory changes to sunset CAIR and the CAIR FIPs.  The final rule revises the general CAIR and CAIR FIP provisions in Parts 51 and 52 applicable to all CAIR states.  For control periods in 2012 and thereafter, the Administrator rescinds the determination that states must meet SIP requirements under CAIR, and the requirements of the CAIR FIPs are not applicable.  Further, with regard to these control periods, the Administrator will no longer carry out any of the functions established for the Administrator in the CAIR model trading rule, the CAIR FIPs, or any state trading programs approved under CAIR with the exception of enforcing the provisions for the previous control periods, if necessary.
      For the reasons discussed in the proposed rule preamble (75 FR 45337), CAIR allowances allocated for these control periods cannot be used in any CAIR trading program and, as discussed below, in any Transport Rule trading program.  Specifically, for the reasons discussed in the proposed rule, offset and automatic allowance penalty provisions in the CAIR trading programs will not be applied to 2011 control period excess emissions, which will remain subject to discretionary civil penalties under CAA section 113.  EPA still retains all enforcement options for excess emissions during the 2011 control period.  CAIR allowances allocated for 2012 and thereafter are not usable in any CAIR or Transport Rule trading program.  In light of that fact, in order to prevent any confusion by owners and operators and other members of the public concerning the status of such allowances, the final rule provides that, within 90 days after publication of the final Transport Rule, the Administrator will remove post-2011 CAIR annual NOX and ozone-season allowances from the Allowance Tracking System.
        The CAIR SO2 trading program, of course, uses Acid Rain allowances, which will remain in the Allowance Tracking System because they were created by CAA Title IV and continue to be usable in the Acid Rain Program.
      The final rule also adopts the discussion in the proposed rule concerning state-specific Part 52 provisions concerning CAIR (75 FR 45337-38).  With regard to Part 52 provisions reflecting EPA's adoption of an ongoing CAIR FIPs for some individual states, the final rule revises the CAIR FIP provisions to make them inapplicable to control periods in 2012 and thereafter and to require the Administrator to remove from the Allowance Tracking System, CAIR allowances for these control periods.  The final, state-specific CAIR FIP provisions in Part 52 essentially echo the language in the final, general CAIR provisions in Part 52 discussed above.  In making the CAIR FIP provisions inapplicable to control period in 2012 and thereafter, the final, state-specific provisions sunset the applicable CAIR FIP trading programs whether or not the CAIR FIPs were revised by approved, abbreviated CAIR SIPs.  (Under CAIR, abbreviated CAIR SIPs were adopted by certain states so that states, rather than EPA, made NOX allowance allocations.) Consequently, states with approved, abbreviated CAIR SIPs will not need to revise their abbreviated CAIR SIPs in order to sunset the CAIR trading programs to which these abbreviated SIPs applied.  Thus, although such abbreviated SIPs may remain in the state SIPs, they will have no force and effect once the CAIR FIPs sunset.
      With regard to Part 52 provisions reflecting EPA's approval of full CAIR SIPs submitted to EPA by many individual states, the Court's North Carolina decision essentially overrides these Agency approvals of individual CAIR SIPs.  (Under CAIR, full CAIR SIPs were adopted by certain states to replace CAIR FIPs but continue to participate in the CAIR trading programs.)  The Court found CAIR to be illegal and only allowed it to remain in effect temporarily.  For this reason, the CAIR SIPs though approved, can have no force and effect once CAIR is replaced by this rule.  For this reason, although the proposed rule indicated that states would need to submit SIP revisions to, among other things, make the CAIR SIPs inapplicable to control periods after 2011, the final rule does not require states to take any actions to revise their full or abbreviated CAIR SIPs.  For states covered by CAIR or CAIR FIPs that are not subject to the Transport Rule and have relied on CAIR reductions to satisfy other SIP requirements, EPA will discuss with states alternative ways to satisfy requirements for those SIP requirements, e.g., through intrastate cap and trade programs that require the level of reductions on which the state has recently relied.
b. NOX SIP Call Units
      The NOX Budget Trading program was used by states to reduce ozone-season NOX emissions from EGUs and large non-EGUs under NOX SIP Call requirements.  The program started in 2003 and ended in 2008.  Under CAIR, a state subject to the NOX SIP Call was allowed to expand the applicability of the CAIR ozone-season NOX trading program in the state in order to include all units subject to the NOX Budget Trading Program under the NOX SIP Call and thereby to continue to meet the state's NOX SIP Call requirements.  Fourteen states chose to expand the CAIR ozone-season NOX applicability in this way, while six states chose not to expand the applicability and instead to meet their NOX SIP Call obligations in other ways.  EPA proposed to not allow this expansion in applicability for the Transport Rule, primarily because these sources as a group did not actually reduce emissions for the NOX Budget Trading Program or CAIR.  EPA took comment on the proposed approach.
      Several commenters generally advocated allowing, at state discretion, all NOX Budget Trading Program units to be regulated under the Transport Rule ozone-season NOX trading program.  Some also questioned how states would otherwise satisfy NOX SIP Call requirements for these units.  Some commenters argued that some units did in fact make emission reductions in the NOX Budget Trading Program, but did not provide information on specific units.
      The final rule provides states an option to expand the general applicability provisions of the Transport Rule ozone-season NOX trading program to cover small EGUs, but not other units in the NOX SIP Call.  Specifically, consistent with the comments, EPA determined that it is appropriate to allow states to expand the applicability of the Transport Rule ozone-season NOX trading program to include units serving a generator with a nameplate capacity equal to or greater than 15 MWe producing electricity for sale.  This will allow states with NOX SIP Call obligations to meet those requirements with respect to these small EGUs.  These units can be brought into the program through abbreviated or full Transport Rule SIPs.  However, if a state chooses to expand the general applicability provisions, the state Transport Rule ozone-season NOX budget cannot be increased.  EPA believes that the level of emissions from small EGUs is sufficiently small that the existing Transport Rule state budget can accommodate these units.  This is consistent with the approach taken in the NOX Budget Trading Program, where the states that added these small EGUs did not increase their NOX SIP Call EGU budgets.  This also removes concern (expressed in the proposed rule) that increasing state budgets in the Transport Rule ozone-season NOX trading program, as part of the expansion of the applicability provisions to include small EGUs, would jeopardize elimination of a state's significant contribution to nonattainment and interference with maintenance.
      With regard to large non-EGUs that were included in the NOX Budget Trading Program (the remainder of the sources in the NOX Budget Trading Program), the final Transport Rule, like the proposed rule, does not allow expansion of the general applicability provisions for the ozone-season NOX trading program to include such units.  As explained in the proposed rule (75 FR 43340), while some of these units may have installed controls around the start of the NOX Budget Trading Program, EPA analysis shows that, as a group, these units did not collectively reduce emissions, their current emission rates are nearly identical to their emission rates before the start of the NOX Budget Trading Program, and their allocations are about twice their emissions, with the result that the excess allocations were sold to covered EGUs.  Moreover, EPA believes that there are little or no emission reductions available by non-EGUs at the cost thresholds used in the final rule and so no basis for developing for non-EGUs state budgets reflecting the elimination of significant contribution to nonattainment and interference with maintenance.  For these reasons, the final rule allows states to expand the ozone-season NOX trading program to cover small EGUs that were in the NOX Budget Trading Program, but not to cover large non-EGUs that were in that program.  As explained in the proposed rule, if a state were to do so, emissions from these units could jeopardize elimination of the state's significant contribution to nonattainment or interference with maintenance.  (See 75 FR 45340.)  For states that relied on large non-EGUs for emission reductions required by the NOX SIP Call, EPA will assist in identifying ways to ensure continued, future compliance with the NOX SIP Call requirements.
c. Early Reduction Provisions
      Substantial emission reductions have occurred as a result of the CAIR programs. This has lead to substantial "banks" of allowances (i.e., holdings of unused allowances allocated for years before the programs sunset) in each of the CAIR programs.  In the proposal, EPA requested comment on whether to allow banked CAIR allowances to be used in the Transport Rule trading programs.  For the reasons explained below, EPA has decided not to allow banked CAIR allowances to be used in any of the Transport Rule trading programs.
      (1) SO2 Allowance Bank
      The bank of Title IV allowances was more than 12 million tons at the end of 2009.  This bank is the result of emission reductions under the Title IV Acid Rain Program.  Under the CAIR SO2 trading program, EPA allowed banked (as well as future year) Title IV allowances to be used in the CAIR SO2 trading program -- in lieu of being used in the Acid Rain Program -- for compliance with the requirement to hold allowances covering emissions.  This approach encouraged early reductions for the CAIR SO2 trading program, but was held to be unlawful in North Carolina.
      In the proposed rule, EPA took comment on whether sources should be allowed to use banked Title IV allowances in the Transport Rule SO2 program.  EPA proposed to not allow the use of Title IV allowances either as the basis for allocating Transport Rule SO2 allowances or directly for compliance with allowance-holding requirements, in part, because EPA was concerned that those approaches would be perceived as inconsistent with the requirements of CAA section 110(a)(2)(D)(i)(I) as interpreted by the Court in North Carolina.  See 75 FR 45338-39.
      A number of commenters advocated that EPA recognize Title IV allowance holdings in the Transport Rule, either by allowing full or limited carryover of the allowances or by allocating all or a portion of the Transport Rule SO2 allowances based on Title IV allowance holdings.  Other commenters agreed with EPA's assessment that allowing Title IV allowance carryover in the Transport Rule is inconsistent with North Carolina and that any linkage of Transport Rule allocations with Title IV allowance holdings would carry unnecessary, significant legal risk.  Therefore, for the reasons explained above and in the proposal, EPA has decided not to permit sources to use Title IV allowances for compliance with the Transport Rule SO2 trading programs.
      In addition, unlike CAIR, in the Transport Rule, EPA decided not to base allocation of Transport Rule SO2 allowances on the specific distribution of existing title IV allowances.  Title IV allowances continue, of course, to be usable for compliance in the Acid Rain Program.
      (2) NOX Allowance Banks
      In the proposed rule, EPA estimated that the CAIR ozone-season NOX bank would contain over 600,000 allowances and the CAIR annual NOX bank would contain about 720,000 allowances after completion of true-up of allowance holdings and emissions for 2011.  EPA considered the alternatives of allowing or not allowing pre-2012 CAIR NOX allowances and CAIR ozone-season NOX allowances to be used in the Transport Rule NOX trading programs.
      EPA also described and requested comment on several possible approaches for handling banked pre-2012 CAIR NOX allowances in the Transport Rule NOX trading programs and the pros and cons of each (75 FR 45339):
   * Allow all such banked CAIR allowances to be brought into the Transport Rule NOX programs, make the assurance provisions effective starting in 2012, and rely on the assurance provisions to ensure that each state continues to eliminate all of its significant contribution to nonattainment and interference with maintenance;
   * Allow only a limited amount of banked pre-2012 CAIR allowances to be brought into the Transport Rule NOX programs;
   * Factor the bank into the calculation of state NOX budgets by reducing the state NOX budgets to take account of the banked pre-2012 CAIR allowances; and
   * Do not allow the use of any banked pre-2012 CAIR allowances in the Transport Rule NOX programs.
EPA proposed the last of these approaches and requested comment on all of the described approaches or suggestions on other ways to handle banked pre-2012 CAIR allowances in the Transport Rule NOX programs.
   * Many commenters advocated allowing the carryover of CAIR NOX allowances to the Transport Rule.  Reasons given included: preservation of early reduction investments; need for market continuity; increased flexibility during program start up and early years of the programs; preservation of the credibility of, and certainty under, trading approaches; and the lack of a prohibition in North Carolina of carryover of CAIR NOX allowances.  Commenters also suggested that surrender ratios be used to limit the amount, and negative effects, of a carryover.
   * Many other commenters were against allowing CAIR NOX allowance carryover into the Transport Rule.  Reasons given included: unnecessary, significant legal risk; concerns about the efficacy of the Transport Rule if state budgets are supplemented by a carryover; and differences in the nature of  the programs (the NOX Budget Trading Program, which addressed the 1-hour ozone NAAQS, and the CAIR ozone-season NOX trading program, which addressed the 1997 8-hour ozone NAAQS and was reversed in North Carolina) under which the allowances were banked and the Transport Rule ozone-season NOX trading program, which addresses the 1997 8-hour ozone NAAQS.
      For the reasons explained below, after evaluating all comments on this issue, EPA decided not to allow the use of CAIR NOX allowances in the Transport Rule NOX trading programs.  EPA reevaluated the estimated size of the potential carryover (allowances that will remain unused in the CAIR programs at the end of 2011 compliance periods), taking into account 2010 emissions.  EPA estimates that more than 440,000 CAIR ozone-season NOX allowances will remain and that more than 460,000 CAIR annual NOX allowances will remain at the end of the 2011 compliance periods.  EPA considered whether to allow these CAIR ozone season NOX and CAIR annual NOX allowances to be used in the Transport Rule NOX trading programs.  The CAIR ozone season NOX allowances expected to remain unused represent nearly three-quarters of aggregate state ozone season NOX budgets in a single year under the final Transport Rule.  The allowances expected to remain unused in the annual NOX program represent more than one-third of aggregate state annual NOX budgets in a single year under the Transport Rule.  As discussed in the proposal, if these allowances were carried over in addition to the Transport Rule state budgets, EPA could not be assured that significant contribution to nonattainment or interference with maintenance would be eliminated.  EPA therefore rejects any approach under which all banked CAIR NOX allowances would be added to the Transport Rule trading programs on top of each state's annual NOX and/or ozone-season budgets.
      In response to public comments, EPA considered whether the Transport Rule trading programs should allow some form of exchange of banked CAIR annual NOX and ozone-season allowances for new Transport Rule NOX allowances within each state's annual NOX and/or ozone-season budgets, respectively.  However, EPA believes that this type of approach carries substantial legal and technical problems.  First, the state-by-state distribution of CAIR NOX allowances resulted from the methodology applied by EPA in CAIR of using fuel factors to set the total amounts of allowance allocations in each state (i.e., the state NOX budgets).  The CAIR NOX allowance banks therefore are -- at least in part -- the results of this methodology, which was reversed in North Carolina.  See North Carolina, 531 F.3d at 918-22.  Thus, EPA did not use fuel factors in developing the Transport Rule state budgets.  However, EPA is concerned that the distribution of some or all Transport Rule NOX allowances through exchanges of banked CAIR NOX allowances for Transport Rule NOX allowances would blur the bright line between the methodology used for setting budgets in the Transport Rule and the methodology used for setting budgets in CAIR that was rejected by the Court.  At least to some extent, the parties that were advantaged under EPA's budget-setting methodology in CAIR would continue to have an advantage under the Transport Rule by receiving more Transport Rule NOX allowances.  EPA therefore believes that allowing exchange of banked CAIR NOX allowances for Transport Rule NOX allowances carries significant legal risk.
      Second, establishing a procedure for exchanging banked CAIR NOX allowances for Transport Rule NOX allowances within each state's budget would mean that Transport Rule NOX allowances could not be allocated until after completion of the process for determining compliance with allowance-holding requirements for the 2011 in the CAIR NOX trading programs.  This process cannot begin until after the allowance transfer deadline for the 2011 control periods (i.e., March 1, 2012 for the CAIR annual NOX program and November 1, 2011 for the CAIR ozone-season NOX program) and will not likely be completed until mid-2012. At that time, EPA could begin the procedure of implementing, state-by-state, the exchanges of the remaining CAIR NOX allowance banks held by parties (owners and operators, brokers, and other entities) for some or all of the allowances in the state NOX budgets for 2012.  The portion of each state budget that would be used up by such exchanges would likely vary from state to state.  The resulting delay, and uncertainty about the unit-by-unit amounts, of Transport Rule NOX allowance allocations for 2012 would undermine Transport Rule allowance market liquidity, significantly disrupt planning by owners and operators for compliance with allowance-holding requirements for the 2012 control periods, and likely impose increased compliance costs under the Transport Rule NOX trading programs or impact the ability to comply with the 2012 limits.
      In light of the specific circumstances in this case and the above-described legal and technical problems that would result from a carryover of CAIR NOX allowances into the Transport Rule trading programs, the final rule does not allow any such carryover.  EPA acknowledges that, as a general principle, it is desirable to provide continuity between sequential regulatory programs involving emission trading and thereby to ensure that allowances in the past program continue to have some value in the new program.  However, after CAIR was remanded by the Court in North Carolina, 550 F.3d 1176, in December 2008, EPA was concerned about the future status of CAIR NOX allowances and consequently advised the public -- through a statement posted on the EPA website on April 14, 2009 -- that "EPA's continued recording of CAIR NOX allowances does not guarantee or imply that any allowances will continue to be usable for compliance after a replacement rule is finalized or that they will continue to have value in the future."  Balancing the general desirability of providing program continuity against the potential negative consequences of a carryover in, and the specific circumstances of, this case, EPA concludes that the carryover of banked CAIR NOX allowances into the Transport Rule trading programs should not be allowed.  EPA believes its decision to disallow carryover of banked allowances here reflects the specific factors in this case and should not be treated as setting any precedent for the treatment, in any future trading programs, of any past trading program's banked allowances.
B. Interactions with NOX SIP Call
      The proposed rule explained that states covered by both the NOX SIP Call and the Transport Rule would be required to comply with the requirements of both rules and that the Transport Rule would not preempt or replace the requirements of the NOX SIP Call.  Most, but not all, NOX SIP Call states would be included in the Transport Rule.  The proposed rule further explained that the Transport Rule ozone-season NOX trading program would achieve the emission reductions required by the NOX SIP Call from EGUs serving generators with a nameplate greater than 25 MW and producing electricity for sale in most NOX SIP Call states.  (This would not be the case, of course, for those NOX SIP Call states not covered by the Transport Rule.)
      The NOX SIP Call states used the NOX Budget Trading Program to comply with the NOX SIP Call requirements for EGUs serving a generator with a nameplate capacity greater than 25 MW and large non-EGUs with a maximum rated heat input capacity greater than 250 MMBtu/hour.  (In some states, EGUs serving a generator with a nameplate capacity of 25 MW or less were also included in the NOX Budget Trading Program as a carryover from the Ozone Transport Commission NOX Budget Trading Program.)  EPA stopped administering the NOX Budget Trading Program under the NOX SIP Call after the completion of compliance activities related to the 2008 ozone-season control period, and states used other mechanisms to comply with the NOX SIP Call requirements.
      The proposal further explained that, if EPA promulgated a final rule that did not allow the expansion of the Transport Rule to NOX Budget Trading Program units, any state that allowed these units to participate in the CAIR ozone-season NOX trading program would need to submit a SIP revision to address the state's NOX SIP Call requirement for the reductions.  The proposal also explained that states in the CAIR ozone-season NOX trading program or the NOX Budget Trading Program that would not be in the Transport Rule ozone-season NOX trading program would need to submit SIP revisions addressing the NOX SIP Call requirements for any emission reductions (by EGUs and non-EGUs) addressed in the NOX Budget Trading Program and not addressed in some other way.  (See 75 FR 45340-41.)
	As discussed elsewhere in this preamble, the final Transport Rule allows states to expand the general applicability provisions of the Transport Rule ozone-season NOX trading program to include small EGUs, which were included by some states in the NOX Budget Trading Program, but not for large non-EGUs, which were included in the NOX Budget Trading Program.  This will allow states with NOX SIP Call obligations to meet those requirements with respect to small EGUs brought into the Transport Rule trading program, but not with regard to large non-EGUs.
      With the issuance of the final Transport Rule, NOX SIP Call requirements remain in place.  See 40 CFR 51.121.  EPA is not changing any of the NOX SIP Call requirements.  The NOX SIP Call generally requires that states choosing to rely on large EGUs and large non-EGUs for meeting NOX SIP Call emission reduction requirements must establish a NOX mass emissions cap on each source and require Part 75, subpart H monitoring.  As an alternative to source-by-source NOX mass emissions caps, a state may impose NOX emission rate limits on each source and use maximum operating capacity for estimating NOX mass emissions or may rely on other requirements that the state demonstrates to be equivalent to either the NOX mass emissions caps or the NOX emission rate limits that assume maximum capacity.  Collectively, the caps or their alternatives cannot exceed the portion of the state budget for those sources. (See 40 CFR 51.121(f)(2) and (i)(4).)  EPA will work with states to ensure that NOX SIP Call obligations continue to be met (e.g., through intrastate cap and trade programs that require the level of reductions on which the state has recently relied).
C. Interactions with Title IV Acid Rain Program
      The final rule does not affect any Acid Rain Program requirements.  Acid Rain requirements are established independently in Title IV of the CAA and are not replaced by the Transport Rule.  Title IV sources that are subject to final Transport Rule provisions still need to continue to comply with all Acid Rain provisions.  Title IV SO2 and NOX requirements continue to apply independently of the Transport Rule provisions.  For the reasons explained above, Title IV SO2 allowances are not allowed to be used in the Transport Rule trading programs.  Similarly, Transport Rule SO2 allowances are not usable in the Acid Rain Program.
      The final Transport Rule does not include any opt-in unit provisions in the FIPs and does not allow SIP revisions to include opt-in unit provisions in the Transport Rule trading programs.  Consequently, no sources, including those that have opted in to the Acid Rain Program, can opt-in to the Transport Rule trading programs.
      There will likely be changes to emissions at some Acid Rain units outside of the Transport Rule area as a result of the transition from CAIR to the Transport Rule.  Namely, emissions at some non-Transport Rule Acid Rain units in the states that border the Transport Rule states may increase because of potential load-shifting from units in Transport Rule states and because of a potential decrease in the Title IV allowance price.  There is a discussion of possible emissions increases in non-covered states in section VI.C of this preamble.
D.  Other State Implementation Plan Requirements
      In this final action, EPA has not conducted any technical analysis to determine whether compliance with the Transport Rule would satisfy RACT requirements for EGUs in any nonattainment areas, or Regional Haze BART-related requirements.  For that reason, EPA is neither making determinations nor establishing any presumptions that compliance with the Transport Rule satisfies any RACT or BART-related requirements for EGUs.  Based on analyses that states conduct on a case-by-case basis, states may be able to conclude that compliance with the Transport Rule for certain EGUs fulfills nonattainment area RACT requirements.  EPA intends to undertake a separate analysis to determine if compliance with the Transport Rule would provide sufficient reductions to satisfy BART requirements for EGUs in accordance with Regional Haze Rule requirements for alternative BART compliance options as soon as practicable following promulgation of the Transport Rule.
X. Transport Rule State Implementation Plans
      EPA proposed in proposed Transport Rule (75 FR 45342)FIPs setting state-specific emission reduction requirements for each upwind state covered by the proposed rule and with respect to one or more of three air quality standards  - - the 1997 annual PM2.5 NAAQS, the 2006 24-hour PM2.5 NAAQS, and the 1997 ozone NAAQS.  In CAIR, EPA allowed the states to replace the CAIR FIP with SIPs and provided substantial flexibility.  In the proposed Transport Rule, EPA proposed to allow similar flexibility to states for addressing the CAA section 110(a)(2)(D)(i)(I) transport issues through a SIP.  EPA proposed to allow a state to submit a SIP for the ozone requirements only, for the PM2.5 requirements only, or for both the ozone and the PM2.5 requirements with the specific quantity of emission reductions necessary for a state's SIP determined based on the state emission budgets provided in the final Transport Rule.
      EPA received comments suggesting that if the proposal's remedy were finalized, EPA should allow states to replace the FIP allowance allocation provisions in the proposed Transport Rule trading programs by state-developed allocation provisions. Commenters referenced the two alternatives provided to states in the CAIR trading programs where: (1) EPA adopted a rule and model trading regulations under which states that adopted, as state SIP trading programs, the model regulations (with only certain limited changes allowed, e.g., in the allocation provisions) could participate in the EPA-administered CAIR trading programs; and (2) EPA adopted a rule allowing states to adopt in SIPs provisions replacing only certain provisions in the CAIR FIPs (e.g., the allocation provisions) and to remain in the CAIR trading programs under the CAIR FIPs.  Under both approaches, the covered units in the state participated in the CAIR trading programs, albeit with state-, rather than EPA-, determined allocations.  Comments on the Transport Rule proposal supported these two types of approaches for allowing states to replace EPA allocations under the proposed Transport Rule trading programs by state allocations.  EPA requested additional comment on this topic in the NODA published January 7, 2011 (76 FR 1109).
      Two approaches with associated deadlines were explained in the NODA.  Under the first approach, EPA would adopt new provisions, as part of the proposed Transport Rule FIP that would allow a state to submit a SIP (referred as an abbreviated SIP) that would modify specified provisions of the proposed Transport Rule FIP trading programs. Specifically, the abbreviated SIP would substitute state allocation provisions for control periods in years after 2012, applicable to one or more of the proposed Transport Rule FIP trading programs that apply to the state.  The NODA explained which specific provisions in the FIP could be replaced.  If the state allocation provisions met certain requirements and the abbreviated SIP did not change any other provisions in the respective proposed Transport Rule FIP trading program, then EPA would approve the abbreviated SIP.  In the substitute state allocation provisions, the state could allocate allowances to Transport Rule units (whether existing or new units) or other entities (such as renewable energy facilities) or could auction some or all of the allowances. The NODA went on to describe the requirements for EPA approval of an abbreviated SIP (76 FR 1119) including that the total amount of allowances allocated each year could not exceed the applicable budget, allocations would need to be reported to EPA by the permitting authority (usually the state) by particular dates prior to the applicable control period depending on whether allowances were going to existing or new sources, and that no other provisions of the FIP would be changed.
      Under the second approach, EPA would adopt a new rule that would provide that, if a state submitted a SIP (referred to as a full SIP) that adopted trading program regulations meeting certain requirements for control period in years after 2012, then EPA would approve the full SIP as correcting the deficiency under CAA section 110(a)(2)(D)(i)(I) in the state's SIP that was the basis for issuance of the comparable proposed Transport Rule FIP.  In the state allocation provisions, the state could allocate allowances to Transport Rule units (whether existing or new units, except for opt-in units) or other entities (such as renewable energy facilities) or could auction allowances.  Upon EPA approval of a state's full SIP, the state's SIP-based trading program would be integrated with the comparable FIP-based Transport Rule trading program (whether or not modified by an abbreviated SIP) covering other states.  Moreover, covered sources in the state could participate in the integrated trading program, and the allowances issued under the SIP-based state trading program would be interchangeable with the allowances issued in the comparable FIP-based Transport Rule trading program.
      The NODA went on to describe the limited changes that states could make under the full SIP option.  Only allocation provisions could be modified with the same requirements as for abbreviated SIPs, including that the total amount of allowances allocated each year could not exceed the applicable budget and that allocations would need to be reported to EPA by the permitting authority (usually the state) by particular dates prior to the applicable control period depending on whether allowances were going to existing or new sources.
      The NODA also discussed the option for states to submit SIPs using emission reduction approaches other than the proposed Transport Rule trading programs to correct the deficiency under CAA section 110(a)(2)(D)(i)(I) in the state's SIP.  EPA would review on a case-by-case basis SIPs using such alternative approaches (76 FR 1120).
      Suggested deadlines for abbreviated and full SIPs were given in tables in the NODA (76 FR 1120).  These deadlines generally required states to submit SIPs about 2 years ahead of a particular control period for which state allocations would apply in order to give EPA time to review and approve the SIP and record allowances.
      Most commenters on the NODA supported state allocation options, within the preferred FIP remedy,that would replace FIP allocations with SIP-based state allocations.
      In the final rule, EPA adopts, with some revisions, both of the approaches described in the January 7, 2011 NODA.  Under the first approach, a state may submit an abbreviated SIP that modifies a final Transport Rule FIP trading program in only a limited way: i.e., by replacing the allowance allocation provisions (in §§97.411(a) and (b)(1) and 97.412(a) (for the annual NOX trading program), §§97.511(a) and (b)(1) and 97.512(a) (for the ozone-season NOX trading program), §§97.511(a) and (b)(1) and 97.612(a) (for the SO2 Group 1 trading program), and §§97.511(a) and (b)(1) and 97.612(a) (for the SO2 Group 2 trading program).  In the state's replacement provisions, the state may allocate allowances to Transport Rule units (whether existing or new units) or other entities (such as renewable energy facilities) or may auction allowances.  Additionally, state SIPs can address one or all of the pollutants addressed by the FIPs.  For PM2.5, EPA is finalizing the flexibility for a state SIP to address either SO2 or NOX, or both.  Further, if a state is required to make ozone-season and annual NOX reductions, the SIP could address either ozone-season or annual NOX emissions, or both.  In other words, states can replace all FIPs that apply or some subset of the FIPs that apply to a particular state leaving in place the FIPs for the requirements not addressed by a SIP.
      Further, only if the state replacement for the Transport Rule FIP allocation provisions meet certain requirements and the abbreviated SIP does not change any other provisions in the Transport Rule FIP trading program, EPA will approve the abbreviated SIP.  For EPA approval, the state allocation provisions must meet the following requirements. First, the provisions must provide that, for each year for which the state allocation provisions will apply, the total amount of control period (annual or ozone-season) allowances allocated and, where applicable, auctioned in accordance with these provisions cannot exceed the applicable state budget (less any applicable Indian country new unit set-aside, which will continue to be administered by EPA) for that year under the relevant Transport Rule FIP trading program.
      Second, to the extent the state provisions provide for allocations for, or auctions open to, existing units, the provisions must require that the permitting authority under title V of the CAA for the state submit to the Administrator final allocations and, if any auction is to be held, final auction results in accordance with a schedule of deadlines discussed below.  To the extent the provisions provide for allocations for or auctions open to new units or any other entities, the provisions must require that the permitting authority submit to the Administrator final allocations and, if applicable, auction results by July 1 of the year of the control period for which the allowances will be distributed.  The allocation and auction results must be final and cannot be subject to modification (e.g., through an allowance surrender adjusting the allocation or auction results).
      As noted above, the state's submission to the Administrator of allocations or auction results with regard to existing units must meet a specified schedule of deadlines.  These submission deadlines reflect, and are necessarily coordinated with, the deadlines for recordation by the Administrator of allowance allocations and any auction results under the Transport Rule trading programs.  The recordation deadlines, which are discussed in detail in section XI of this preamble, provide that the Administrator must record existing-unit allowance allocations and auction results by: July 1, 2013 for the applicable control periods in 2014 and 2015; July 1, 2014 for the applicable control periods in 2016 and 2017; July 1, 2015 for the applicable control periods in 2018 and 2019; and July 1, 2016 and July 1 of each year thereafter for the control period in the fourth year after the year of the applicable recordation deadline.  In order to provide the Administrator 1 month to review the submissions of allocations and auction results to ensure that the submissions include sufficient information (e.g., the correct identification for each unit involved) to record correctly the submitted allocations and auction results, the permitting authority must make these submissions to the Administrator by: June 1, 2013 for the applicable control periods in 2014 and 2015; June 1, 2014 for the applicable control periods in 2016 and 2017; June 1, 2015 for the applicable control periods in 2018 and 2019; and June 1, 2016 and June 1 of each year thereafter for the applicable control period in the fourth year after the year of the applicable submission deadline.
      Third, to the extent the state provisions establish an allowance auction, the provisions must require the following treatment of each allowance purchased by a covered unit in the state in such an auction.  Solely for purposes of defining and determining "common designated representative's share" for implementation of the assurance provisions, each such allowance must be treated as an allowance allocated to that unit.
      Under the second approach, a state may submit a full SIP adopting a Transport Rule trading program that differs from the comparable Transport Rule FIP trading program in only a limited way: i.e., by including new allocation or auction provisions instead of the Transport Rule FIP allowance allocation provisions other than those concerning the Indian country new unit set-aside.  (The state's full SIP trading program must include provisions that are the same as those in the Transport Rule FIP trading program for the Indian country new unit set-aside.)  In the state allocation or auction provisions, the state may allocate allowances to Transport Rule units (whether existing or new units) or other entities (such as renewable energy facilities) or may auction allowances.  EPA will approve the full SIP only if the state allocation or auction provisions meet certain requirements and all other provisions in the Transport Rule trading program in the full SIP are the same as those in the Transport Rule FIP trading program.  For EPA approval, the state allocation provisions must meet the same requirements, as discussed above, that state allocation or auction provisions in an abbreviated SIP must meet.
      A Transport Rule trading program adopted by a state in a full SIP, and approved by EPA, under the second approach will be fully integrated with the comparable Transport Rule FIP trading program (i.e., the proposed TR Annual NOX, TR NOX Ozone-Season, TR SO2 Group 1, or TR SO2 Group 2 Trading Program respectively) for other states. This will apply whether the comparable Transport Rule FIP program for other states was modified by an abbreviated SIP approved by EPA under the first approach or was not modified by such an abbreviated SIP. The integration of these three types of trading programs will be accomplished primarily through the definitions of the terms, ``TR Annual NOX allowance'', ``TR Ozone-Season NOX allowance";, ``TR SO2 Group 1 allowance'', and ``TR SO2 Group 2 allowance'' in the full SIPs approved by EPA and the TR FIP trading programs (whether or not the programs were modified by abbreviated SIPs). ``TR Annual NOX allowance'' will be defined in the state and Transport Rule FIP trading programs as including allowances issued under any of the following trading programs: the comparable EPA-approved state Transport Rule trading programs; the comparable Transport Rule FIP trading program with EPA-approved state allocation and auction provisions; and the Transport Rule FIP trading program with EPA allocation provisions.  Similarly, the definitions in the state and Transport Rule FIP trading programs of ``TR Ozone-Season NOX allowance'', ``TR SO2 Group 1 allowance'', and ``TR SO2 Group 2 allowance'' respectively will include allowances issued under all three types of trading programs.  As a result, allowances issued in one approved state Transport Rule trading program will be interchangeable with allowances issued in the comparable Transport Rule FIP trading program (whether or not modified by an abbreviated SIP), and all these allowances will be available for use for compliance with the allowance-holding requirements (to cover emissions and to meet assurance provision requirements) in all three types of trading programs.
      The integration of state and the proposed Transport Rule FIP trading programs will also be reflected in the definitions of ``TR Annual NOX Trading Program,'' ``TR Ozone-Season NOX Trading Program'', ``TR SO2 Group 1 Trading Program'', and ``TR SO2 Group 2 Trading Program''.  Each of these definitions in the state Transport Rule and Transport Rule FIP trading programs will expressly encompass the comparable Transport Rule FIP trading programs (whether or not modified by an abbreviated SIP) and the comparable EPA-approved state full SIP trading program.
      The final rule also sets deadlines for the submission of complete abbreviated and full SIPs.  These deadlines are based on the first year for which the state wants to allocate or auction allowances, reflect the above-discussed deadlines for the Administrator's recordation of allocations and auction results, and build in a 6-month period for EPA review, provision of notice and opportunity for public comment, and approval of the SIP revisions.  This 6-month period is built into the final rule's SIP submission deadlines because that is the period EPA found was needed for reviewing, providing notice and comment for, and approving state trading program provisions in abbreviated and full SIPs under CAIR.  As a result, the final rule requires that complete abbreviated and full SIPs must be submitted to the Administrator by: January 1, 2013 in order to govern allowance allocation and auction for control periods in 2014 and 2015; January 1, 2014 in order to govern control periods in 2016 and 2017; January 1, 2015 in order to govern allowance allocation and auction for control periods in 2018 and 2019; and January 1, 2016 and by January 1 of any year thereafter in order to govern allowance allocation and auction for control periods in the fourth year after such submission deadline.
      This final rule not only allows a state to choose to submit an abbreviated or a full SIP; it also allows a state to choose to submit either form of SIP to replace any or all of the FIPs in this rule as they apply to a particular state.  By promulgating these Transport Rule FIPs, EPA in no way affects the right of a state to submit, for review and approval, a SIP that replaces the federal requirements of the FIP with state requirements.  In order to replace the FIP in a state, the state's SIP must provide adequate provisions to prohibit NOX and SO2 emissions that contribute significantly to nonattainment or interfere with maintenance in another state or states.  The Transport Rule FIPs remain in place in each covered state until a state's SIP is submitted and approved by EPA to replace a FIP.
      In response to numerous comments urging EPA to allow states to determine allowance allocations as soon as possible, EPA has developed a SIP revision procedure that applies to 2013 allowance allocations only.  In developing this procedure, EPA is balancing the desire to allow states the flexibility to tailor allowance allocations to the specific needs and situations in a particular state with the need to provide certainty to source owners and operators by having allowances recorded sufficiently ahead of the control period for which the allocations are made in order to facilitate owners' and operators' efforts to optimize their compliance strategies.  This final rule allows states to make 2013 allowance allocations through the use of a SIP revision that is narrower in scope than the other SIP revisions states can use to replace the FIPs and/or to make allocation decisions for 2014 and beyond.  For 2013 allocations, the scope of the SIP revision is limited to allocations made to units that commence commercial operation before January 1, 2010 and provided in the form of a list of those units and their corresponding allocations for 2013.  Additionally, this particular SIP revision may allocate only the portions of the state budgets set forth in Tables X-1 through X-3, i.e., each state budget minus the new unit set-aside and the Indian country new unit set-aside.
      In developing this procedure, EPA set deadlines for submissions of the SIP revisions for 2013 allocations and for recordation of the allocations that balanced the need to record allowances sufficiently ahead of the control period with the desire to allow state flexibility for 2013.  EPA set deadlines that will allow sufficient time for EPA to review and approve these SIP revisions, taking into account that EPA approval must be final and effective before the 2013 allocations can be recorded and the allowances are available for trading.  In order to ensure that EPA review and approval (which must include public notice and opportunity for comment) can be completed in time, the final rule necessarily limits the allowed scope of the SIP revisions for 2013 allocations, as set forth in the requirements discussed below, and thereby limits the issues that must be considered and addressed in the review and approval process.  Further, the final rule prescribes the form in which the state allocations for 2013 must be provided to EPA in order to facilitate rapid recordation of the allocations upon their approval.
      States, along with their sources, will need to weigh the trade offs of a relatively short period of recording before the control period for which the allocation is made (about 6 months) with the desire to have state allocations in 2013, when deciding whether to pursue a SIP revision for 2013 allocations.  States may choose to submit a SIP revision for one or more of the trading programs.  In other words, state allocations for 2013 could apply in one trading program while 2013 FIP allocations apply in another.
   States can make 2013 allowance allocations provided the state meets certain requirements.
   * By [INSERT DATE 70 DAYS AFTER THE DATE OF PUBLICATION IN THE FEDERAL REGISTER], a state must provide notification to EPA if the state intends to submit state allocations for 2013.  The notification must be in a format prescribed by the Administrator and submitted electronically.
   * By April 1, 2012, the state must submit a SIP revision to EPA that:
         o Allocates to existing units only, provides a list of the units and their state allocations to EPA electronically and in a format prescribed by EPA, and does not provide for any change in the units and allocations on the list and  in any allocation previously determined and recorded by the Administrator;
         o Allocates a total amount of allowances for 2013 that does not exceed the applicable amount in Tables X-1 through X-3 for each trading program that applies in that particular state,
         o Provides no set-asides and does not alter the new unit set-asides, the Indian country new unit set-asides, and any aspect of the FIP rules other than the existing-unit allocations for 2013.
      If EPA does not receive notification from a state by [INSERT DATE 70 DAYS AFTER THE DATE OF PUBLICATION IN THE FEDERAL REGISTER], EPA will record FIP allocations for 2012 and 2013 as scheduled (90 days after publication of the rule).  If EPA receives timely notification from a state, EPA will record FIP allocations for 2012 only and wait to record 2013 allocations.  If the state provides a timely (not later than April 1, 2012) SIP revision meeting all the above-described requirements and EPA approves the SIP revision, EPA will record state-determined allocations for 2013 by October 1, 2012.  Otherwise, EPA will record the EPA-determined allocations for 2013.
Table X-1 Portion of the Annual NOX Trading Budget available for State Allocation in 2013
                                     State
Portion of the NOX Annual Trading Budget available for state allocation in 2013
Alabama
                                                                         71,237
Georgia
                                                                         60,770
Illinois
                                                                         44,042
Indiana
                                                                        106,434
Iowa
                                                                         37,569
Kansas
                                                                         30,099
Kentucky
                                                                         81,683
Maryland
                                                                         16,300
Michigan
                                                                         58,989
Minnesota
                                                                         28,980
Missouri
                                                                         50,803
Nebraska
                                                                         24,590
New Jersey
                                                                          7,121
New York
                                                                         17,016
North Carolina
                                                                         47,551
Ohio
                                                                         90,849
Pennsylvania
                                                                        117,586
South Carolina
                                                                         31,849
Tennessee
                                                                         34,989
Texas
                                                                        129,587
Virginia
                                                                         31,580
West Virginia
                                                                         56,498
Wisconsin
                                                                         29,730

Table X-2 Portion of the Ozone-Season NOX Trading Budget available for State Allocation in 2013
                                     State
Portion of the Ozone Season NOX Trading Budget available for state allocation in 2013
Alabama
                                                                         31,111
Arkansas
                                                                         14,736
Florida
                                                                         27,268
Georgia
                                                                         27,385
Illinois
                                                                         19,511
Indiana
                                                                         45,470
Kentucky
                                                                         34,720
Louisiana
                                                                         13,029
Maryland
                                                                          7,035
Mississippi
                                                                          9,957
New Jersey
                                                                          3,314
New York
                                                                          8,081
North Carolina
                                                                         20,838
Ohio
                                                                         39,262
Pennsylvania
                                                                         51,157
South Carolina
                                                                         13,631
Tennessee
                                                                         14,610
Texas
                                                                         61,152
Virginia
                                                                         13,729
West Virginia
                                                                         24,019

Table X-3 Portion of the SO2 Trading Budget available for State Allocation in 2013
                                     State
       Portion of the SO2 Trading Budget available for state allocation in 2013
Alabama
                                                                        211,712
Georgia
                                                                        155,356
Illinois
                                                                        223,145
Indiana
                                                                        276,861
Iowa
                                                                        104,943
Kansas
                                                                         40,697
Kentucky
                                                                        218,702
Maryland
                                                                         29,518
Michigan
                                                                        224,717
Minnesota
                                                                         41,141
Missouri
                                                                        203,317
Nebraska
                                                                         62,450
New Jersey
                                                                          5,463
New York
                                                                         26,778
North Carolina
                                                                        125,930
Ohio
                                                                        304,025
Pennsylvania
                                                                        273,078
South Carolina
                                                                         86,847
Tennessee
                                                                        145,187
Texas
                                                                        231,756
Virginia
                                                                         67,987
West Virginia
                                                                        135,942
Wisconsin
                                                                         75,506

      EPA will work with states that wish to submit SIPs to ensure a smooth integration.  The Agency will provide information and tools to assist states in their rulemaking efforts including electronic versions of the Transport Rule trading rules and other products states feel may be helpful.  States that submit approvable SIPs or abbreviated SIPs to implement one or all of the Transport Rule trading programs are not required to include an additional technical demonstration relating to elimination of emissions that contribute significantly to nonattainment or contribute to maintenance in downwind areas.

XI. Structure and Key Elements of Transport Rule Air Quality-Assured Trading Program Rules
      In order to make the final FIP trading program rules as simple and consistent as possible, EPA designed them so that the final rules (like the proposed rules) for each of the trading programs (i.e., the Transport Rule Annual NOX trading program, Transport Rule Ozone-Season NOX trading program, Transport Rule SO2 Group 1 trading program, and Transport Rule SO2 Group 2 trading program) are parallel in structure and contain the same basic elements.  For example, the rules for the Transport Rule Annual NOX, Ozone-Season NOX, SO2 Group 1, and SO2 Group 2 trading programs are located, respectively, in subparts AAAAA (§§97.401, et seq.), BBBBB (§§97.501, et seq.), CCCCC (§§97.601, et seq.), and DDDDD (§§97.701, et seq.) of Part 97 in Title 40 of the Code of Federal Regulations.  Moreover, the order of the specific provisions for each trading program is the same, and the provisions have parallel numbering.  The key elements of the final Transport Rule trading program rules are as follows.
(1) General Provisions
(i) §§97.402 and 97.403, 97.502 and 97.503, 97.602 and 97.603, and 97.702 and 97.703 -- Definitions and Abbreviations
      Most of the definitions in the final Transport Rule trading program rules are essentially the same as in the proposed rules and for each of the Transport Rule trading programs (except where necessary to reflect the different pollutants (NOX and SO2), control periods (for annual and ozone-season NOX, and for annual SO2), and geographic coverage involved in the trading programs).  Moreover, many of the definitions in the final rules that are essentially the same as in the proposed rule and are also essentially the same as in prior EPA-administered trading programs.  However, as discussed in more detail below, some of the definitions in the final rules clarify, or differ from, the definitions in the proposed rule.
      As noted, several definitions in the final rules are essentially the same as those both in the proposed rules and in prior EPA-administered trading programs.  Examples include the definitions of "source," "allowance transfer deadline," "owner," "operator", "Allowance Management System" (used instead of the term "Allowance Tracking System"), and "continuous emission monitoring system."
      One example of a definition in the final rules that is the same as in the proposed rule, but that clarifies the definition used in prior trading programs is the definition of "fossil fuel."  In the final rule, the term "fossil fuel" is defined in general as including natural gas, petroleum, coal, or any form of fuel derived from such material, regardless of the purpose for which such material is derived.  For example, with regard to consumer products that are made of materials derived from natural gas, petroleum, or coal, are used by consumers and then used as fuel, these materials in the consumer products qualify as fossil fuel.  The definition in the final rules also includes language establishing a narrower meaning of "fossil fuel" that is not generally applicable, but rather is applicable only for purposes of applying the limitation on fossil-fuel use under the solid waste incineration unit exemption (which is discussed elsewhere in this preamble).  This latter portion of the "fossil fuel" definition makes explicit an interpretation that EPA adopted in CAIR that -- solely for purposes of applying the fossil-fuel use limitation in that exemption -- the term "fossil fuel" is limited to natural gas, petroleum, coal, or any form of fuel derived from such material "for the purpose of creating useful heat."  For example, applying this narrower meaning, consumer products made from natural gas, petroleum, or coal are not fossil fuel, for purposes of determining qualification under the fossil-fuel use limitation, because the products (e.g., tires) were derived from natural gas, petroleum, or coal in order to meet certain consumer needs (e.g., to meet transportation needs), not in order to create fuel (i.e., material that would be combusted to produce useful heat).
      As noted above, some of definitions in the final rules clarify definitions in the proposed rules.  The definitions of "allowable NOX emission rate" and "allowable SO2 emission rate" are clarified by explaining that such a rate is the most stringent state or federal emission rate limitation, expressed in lb/MWhr or, if originally expressed in lb/MMBtu, converted to lb/MWhr by multiplying it by the unit's heat rate in MMBtu/MWhr.  This clarification ensures consistency from unit to unit in determining a unit's allowable rate.
      By further example, while the proposed rules used the same definition of "commence commercial operation" as in prior EPA-administered trading programs, the final rules clarify the definition.  Under the definition in the proposed rules, a unit that is physically changed is treated as the same unit.  However, the proposed rules were unclear about the treatment of a unit that is replaced and whether moving a unit to a different location or source constitutes a physical change.  The definition of "commence commercial operation" in the final rules clarifies that a unit that is physically changed (which includes a unit that is replaced) continues to be treated, for purposes of this final rule, as the same unit with the same commence-commercial-operation date.  The definition also clarifies that moving a unit to a different location or source is treated the same as a physical change, and so the unit continues to be treated as the same unit.  The definition also continues to state that a unit (the replacement unit) that replaces a unit at the same source is treated as a separate unit with a new commence-commercial-operation date.  (The definition of "commence operation" is removed in the final rules because they do not use this term.)
      By further example, while the proposed rules used the same definition of "unit" as in prior EPA-administered trading programs, the final rules clarify the definition.  The "unit" definition is clarified by expanding it to incorporate explicitly the concepts  - - set forth in the definition in the final rules of "commence commercial operation" and thus already applicable to all units -- that a unit that is physically changed, moved to a different location or source, or replaced continues to be treated as the same unit and that a replacement unit at the same source is treated as a separate unit.  EPA believes that it is preferable to provide a comprehensive definition of "unit" in one place because the term is used so frequently in the final rules.
      By further example, the definition of "nameplate capacity" is clarified in the final rules by explaining that it is expressed in MWe rounded to the nearest tenth.  This is the same rounding convention that is used in the reporting of nameplate capacity to the Energy Information Administration.
      By further example, the final rules clarify the definition of "State" by explaining that, by covering each state that is subject to the Transport Rule trading program involved, the term includes Indian country located within the borders of the state.  This ensures that units outside of Indian country and within Indian country will be treated the same, except in the case of the final rule provisions (discussed elsewhere in this preamble) concerning the new unit set-aside for Indian country, which is expressly limited to Indian country new units.
      As noted above, some of the definitions in the final rules are similar to those in the proposed rules but have some substantive differences.  For example, in the proposed rules, the definitions of "cogeneration unit" and "fossil-fuel-fired" are similar to those in prior trading programs but with changes to minimize the need for data concerning individual units or combustion devices for periods before 1990.  In order to qualify as fossil-fuel-fired, a unit would have to combust any amount of fossil fuel in 1990 or thereafter.  In order to qualify as a cogeneration unit, a unit would have to meet certain efficiency and operating standards during the later of: the 12-month period starting when the unit begins producing electricity; or 1990.  For a topping-cycle unit, useful power plus one-half of useful thermal energy output of the unit must equal no less than a certain percentage of the total energy input and useful thermal energy must be no less than a certain percentage of total energy output, and, for a bottoming-cycle unit, useful power must be no less than a certain percentage of total energy input.  EPA proposed to limit to 1990 or later the historical period for which information on fuel consumption and on cogeneration unit efficiency and operations would be required to apply the "fossil-fuel-fired" and "cogeneration unit" definitions.  This limitation was proposed because EPA was concerned that some owners and operators could have difficulty obtaining pre-1990 information about older units, particularly for units whose ownership has changed over time.
      While EPA proposed to use 1990 as the earliest year for which information would be required under these definitions, EPA requested comment on whether a more recent year should be used.  As discussed elsewhere in this preamble, the final rule uses 2005 (about 5 years before this rule's promulgation), rather than 1990, as the reference year.  Consequently, the "fossil-fuel-fired" and "cogeneration unit" definitions in the final rule specifically reference 2005, rather than 1990.  As discussed elsewhere in this preamble, consistent with the use of 2005 as the starting point for applying these definitions, the final rule also uses January 1, 2005 (rather than November 15, 1990) as the reference date in the applicability provisions.