1 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite X. Statutory and Executive Order Reviews A. Executive Order 12866: Regulatory Planning and Review Under Executive Order 12866 ( 58 FR 51735, October 4,

1993), the Agency must determine whether a regulatory action is " significant" and therefore subject to Office of Management and Budget ( OMB) review and the requirements of the Executive Order. The Order defines " significant regulatory action" as one that is likely to result in a rule that may:

1. Have an annual effect on the economy of $ 100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or Tribal governments or communities;

2. Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;

3. Materially alter the budgetary impact of entitlements,

grants, user fees, or loan programs or the rights and obligations of recipients thereof; or 4. Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

In view of its important policy implications and 2 1White House, National Energy Policy  Report of the National Energy Policy Development Group, May 2001.

Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite potential effect on the economy of over $ 100 million, this action has been judged to be an economically " significant regulatory action" within the meaning of the Executive Order. As a result, today's action was submitted to OMB for review, and EPA has prepared an economic analysis of the rule entitled " Regulatory Impact Analysis of the Final Clean Air Interstate Rule" ( March 2005).

The Clean Air Interstate Rule builds upon the findings of the National Energy Policy Development Group; to provide reliable, affordable, and environmentally sound energy for America's future1 ( http:// www. whitehouse. gov/ energy).

Recognizing the need for an integrated approach to environmental, energy, and economic policy, CAIR is an example of aggressive environmental regulation that recognizes and balances the need for energy diversity,

reliability, and affordability.

1. What Economic Analyses Were Conducted for the Rulemaking?

The analyses conducted for this final rule provide several important analyses of impacts on public welfare.

These include an analysis of the social benefits, social costs, and net benefits of the regulatory scenario. The 3 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite economic analyses also address issues involving small business impacts, unfunded mandates ( including impacts for Tribal governments), environmental justice, children's health, energy impacts, and requirements of the Paperwork Reduction Act ( PRA).

2. What Are the Benefits and Costs of this Rule?

The benefit cost analysis shows that substantial net economic benefits to society are likely to be achieved due to reduction in emissions resulting from this rule. The results detailed below show that this rule would be highly beneficial to society, with annual net benefits ( benefits less costs) of approximately $ 71.4 or $ 60.4 billion in 2010 and $ 98.5 or $ 83.2 billion in 2015. These alternative net benefits estimates occur due to differing assumptions concerning the social discount rate used to estimate the annual value of the benefits of the rule with the lower estimates relating to a discount rate of 7 percent and the higher estimates a discount rate of 3 percent. All amounts are reflected in 1999 dollars.

The benefits and costs reported for CAIR represent estimates for the final CAIR program that includes the CAIR promulgated rule and the concurrent proposal to include annual SO2 and NOx controls for New Jersey and Delaware. 4 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite The modeling used to provide these estimates also assumes annual SO2 and NOx controls for Arkansas that are not a part of the final CAIR program resulting in a slight overstatement of the reported benefits and costs.

a. Control Scenario Today's rule sets forth requirements for States to eliminate their significant contribution to down wind nonattainment of the ozone and PM2.5 NAAQS. In order to reduce this significant contribution, EPA requires that certain States reduce their emissions of SO2 and NOx. EPA derived the quantities by calculating the amount of SO2 and NOx emissions that EPA believes can be controlled from the electric power industry in a highly cost effective manner.

EPA considered all promulgated CAA requirements and known State actions in the baseline used to develop the estimates of benefits and costs for this rule. For a more complete description of the reduction requirements and how they were calculated, see section IV of today's rulemaking.

Although States may choose to obtain the emissions reductions from other source categories, for purposes of analyzing the impacts of the rule, EPA is assuming the application of the controls that it has identified to be highly cost effective on all EGUs in the transport region. 5 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite b. Cost Analysis and Economic Impacts The Clean Air Interstate Rule fulfills the commitment made in the President's National Energy Policy, that calls for environmental improvement and emission reductions from the power sector while recognizing the need to maintain energy diversity and reliability.

For the affected region, the projected annual private incremental costs of CAIR to the power industry are $ 2.36 billion in 2010 and $ 3.57 billion in 2015. These costs represent the total cost to the electricity generating industry of reducing NOx and SO2 emissions to meet the caps set forth in the rule. Estimates are in 1999 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 $ 1.91 billion in 2010 and $ 2.56 billion in 2010 assuming a 3 percent discount rate.

These costs become $ 2.14 billion in 2010 and $ 3.07 billion in 2015 assuming a 7 percent discount rate.

Overall, the impacts of CAIR are modest, particularly in light of the large benefits we expect. Ultimately, we 6 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite believe the industry will pass along the costs of the rule to consumers, so that the costs of the rule will largely falling upon the consumers of electricity. Retail electricity prices are projected to increase roughly 2.0 2.7 percent with CAIR in the 2010 and 2015 timeframe, and then drop to the 2.0 percent increase level thereafter. The effects of CAIR on natural gas prices and the power sector generation mix are relatively small, with a 1.6% or less increase in natural gas prices projected from 2010 to 2020.

There will be continued reliance on coal fired generation,

that is projected to remain at roughly 50% of total electricity generated. A relatively small amount of coalfired capacity, about 5.3 GW ( 1.7% of all coal fired capacity and 0.5 percent of all generating capacity), is projected to be uneconomic to maintain. For the most part,

these units are small and infrequently used generating units that are dispersed throughout the CAIR region. Units projected to be uneconomic to maintain may be " mothballed,"

retired, or kept in service to ensure transmission reliability in certain parts of the grid. EPA's analysis does not address these choices.

As demand grows in the future, additional coal fired generation is projected to be built under CAIR. As a 7 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite result, coal production for electricity generation is projected to increase from 2003 levels by about 15 percent in 2010 and 25 percent by 2020, and we expect a small shift towards greater coal production in Appalachia and the Interior coal regions of the country with CAIR.

For today's rule, EPA analyzed the costs using the Integrated Planning Model ( IPM). 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 U. S. for the entire power system.

Documentation for IPM can be found in the docket for this rulemaking or at www. epa. gov/ airmarkets/ epa ipm.

c. Human Health Benefit Analysis Our analysis of the health and welfare benefits anticipated from this rule are presented in this section.

Briefly, the analysis projects major benefits from implementation of the rule in 2010 and 2015. As described below, thousands of deaths and other serious health effects would be prevented. We are able to monetize annual benefits of approximately $ 73.3 or $ 62.6 billion in 2010( based upon a 3% or 7% discount rate, respectively) and $ 101 billion or $ 86.3 billion in 2015 ( based upon a discount rate of 3% or 7%, respectively, 1999 dollars). 8 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite Table X 1 presents the primary estimates of reduced incidence of PM and ozone related health effects for the years 2010 and 2015 for the regulatory control strategy. In 2015, we estimate that PM related annual benefits include approximately 17,000 fewer premature fatalities, 8,700 fewer cases of chronic bronchitis, 22,000 fewer non fatal heart attacks, 10,500 fewer hospitalizations ( for respiratory and cardiovascular disease combined) and result in significant reductions in days of restricted activity due to respiratory illness ( with an estimate of 9,900,000 million fewer cases)

and approximately 1,700,000 fewer work loss days. We also estimate substantial health improvements for children from reduced upper and lower respiratory illness, acute bronchitis, and asthma attacks.

Ozone health related benefits are expected to occur during the summer ozone season ( usually ranging from May to September in the Eastern U. S.). Based upon modeling for 2015, annual ozone related health benefits are expected to include 2,800 fewer hospital admissions for respiratory illnesses, 280 fewer emergency room admissions for asthma,

690,000 fewer days with restricted activity levels, and 510,000 fewer days where children are absent from school due to illnesses. 9 2 Thurston, G. D. and K. Ito. 2001. " Epidemiological Studies of Acute Ozone Exposures and Mortality." J Expo Anal Environ Epidemiology 11 ( 4): 286 294.

3 Bell, M. L., A. McDermott, S. Zeger, J. Samet, F. Dominichi. 2005. " Ozone and Mortality in 95 U. S. Urban Communities from 1987 to 2000". Journal of the American Medical Association. Forthcoming.

Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite While we did not include in our primary benefits analysis separate estimates of the number of premature deaths that would be avoided due to reductions in ozone levels, recent studies suggest a link between short term ozone exposures with premature mortality independent of PM exposures. Based upon a recent report by Thurston and Ito,

( 2001) 2, the EPA Science Advisory Board has recommended that EPA reevaluate the ozone mortality literature for possible inclusion of ozone mortality in the estimate of total benefits. More recently, a comprehensive analysis using data from the National Morbidity, Mortality and Air Pollution Study ( NMMAPS) found a significant association between daily ozone levels and daily mortality rates ( Bell et al. 2004) 3. The analysis estimated a 0.5% increase in daily mortality associated with a 10 ppb increase in ozone,

based on data from 95 major urban areas. Using a similar magnitude effect estimate, sensitivity analysis estimates suggest that in 2015, CAIR would result in an additional 500 fewer premature deaths annually due to reductions in daily 10 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite ambient ozone concentrations. EPA has sponsored three independent meta analyses of the ozone mortality epidemiology literature to inform a determination on inclusion of this important health impact in the primary benefits analysis for future regulations.

Table X 2 presents the estimated monetary value of reductions in the incidence of health and welfare effects.

Annual PM related and ozone related health benefits are estimated to be approximately $ 72.1 or $ 61.4 billion in 2010 ( 3% and 7% discount rate, respectively) and $ 99.3 or $ 84.5 billion in 2015 ( 3% or 7% discount rate, respectively).

Estimated annual visibility benefits in southeastern Class I areas are approximately $ 1.14 billion in 2010 and $ 1.78 billion in 2015. All monetized estimates are stated in 1999$. These estimates account for growth in real gross domestic product ( GDP) per capita between the present and the years 2010 and 2015. As the table indicates, total benefits are driven primarily by the reduction in premature fatalities each year, that accounts for over 90 percent of total benefits.

Table X 3 presents the total monetized net benefits for the years 2010 and 2015. This table also indicates with a " B" those additional health and environmental benefits of 11 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite the rule that we were unable to quantify or monetize. These effects are additive to the estimate of total benefits. A listing of the benefit categories that could not be quantified or monetized in our benefit estimates are provided in Table X 4. We are not able to estimate the magnitude of these unquantified and unmonetized benefits.

While the EPA believes there is considerable value to the public for the PM related benefit categories that could not be monetized, we believe these benefits may be small relative to those categories we were able to quantify and monetize. With regard to unmonetized PM related health benefit categories listed in Table X 4, we feel these benefits may be small relative to those categories we were able to quantify and monetize. In contrast, the EPA believes the monetary value of the ozone related premature mortality benefits could be substantial. As previously discussed, we estimate ozone mortality benefits may equate to 500 reduced premature mortalities per year. The monetized value of these reduced incidences of premature mortality could equate to as much as $ 3 billion annually.

d) Quantified and Monetized Welfare Benefits Only a subset of the expected visibility benefits

those for Class I areas in the southeastern United States 12 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite are included in the monetary benefits estimates we project for this rule. We believe the benefits associated with these non health benefit categories are likely significant.

For example, we are able to quantify significant visibility improvements in Class I areas in the Northeast and Midwest,

but are unable at present to place a monetary value on these improvement. Similarly, we anticipate improvement in visibility in residential areas within the CAIR region for which we are currently unable to monetize benefits. For the Class I areas in the southeastern U. S., we estimate annual benefits of $ 1.78 billion beginning in 2015 for visibility improvements. The value of visibility benefits in areas where we were unable to monetize benefits could also be substantial.

We also quantify nitrogen and sulfur deposition reductions expected to occur as a result of the CAIR and discuss potential benefits from these reductions in Section X. A. 4 of this notice. While we are unable to estimate a dollar value associated with these benefits, we are able to quantify acidification improvements in lakes in the Northeast including the Adirondacks and potential benefits of reductions in nitrogen deposition to estuaries such as the Chesapeake Bay. 13 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite TABLE X 1. Estimated Annual Reductions in Incidence of Health Effectsa Health Effect 2010 Annual Incidence Reduction 2015 Annual Incidence Reduction PM Related Endpoints:

Premature Mortalityb, c Adult, age 30 and over Infant, age< 1 year 13,000 29 17,000 36 Chronic bronchitis ( adult, age 26 and over) 6,900 8,700 Non fatal myocardial infarction ( adult, age 18 and over) 17,000 22,000 Hospital admissions  respiratory ( all ages) d 4,300 5,500 Hospital admissions  cardiovascular ( adults, age > 18) e 3,800 5,000 Emergency room visits for asthma ( age 18 years and younger) 10,000 13,000 Acute bronchitis, ( children, age 8 12) 16,000 19,000 Lower respiratory symptoms ( children, age 7 14) 190,000 230,000 Upper respiratory symptoms ( asthmatic children, age 9 18) 150,000 180,000 Asthma exacerbation ( asthmatic children, age 6 18) 240,000 290,000 Work Loss Days 1,400,000 1,700,000 Minor restricted activity days ( adults age 18 65) 8,100,000 9,900,000 Ozone Related Endpoints:

Hospital admissions respiratory causes ( adult, 65 and older) d 610 1,700 Hospital admissions  respiratory causes ( children, under 2) 380 1,100 Emergency room visit for asthma ( all ages) 100 280 Minor restricted activity days ( adults, age 18 65) 280,000 690,000 School absence days 180,000 510,000 aIncidences are rounded to two significant digits. These estimates represent benefits from CAIR nationwide. The modeling used to derive these incidence estimates are reflective of those expected for the final CAIR program 14 4Pope, C. A., III, R. T. Burnett, M. J. Thun, E. E. Calle, D. Krewski, K. Ito, and G. D. Thurston. 2002. " Lung Cancer, Cardiopulmonary Mortality ,, and Long term Exposure to Fine Particulate Air Pollution." Journal of American Medical Association 287: 1132 1141.

5Woodruff, T. J., J. Grillo, and K. C. Schoendorf. 1997. " The Relationship Between Selected Causes of Postneonatal Infant Mortality and Particulate Infant Mortality and Particulate Air Pollution in the United States." Environmental Health Perspectives 105( 6): 608 612.

Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite including the CAIR promulgated rule and the proposal to include annual SO2 and NOx controls for New Jersey and Delaware. Modeling used to develop these estimates assumes annual SO2 and NOx controls for Arkansas resulting in a minimal overstatement of the reported benefits and costs for the complete CAIR program. bPremature mortality benefits associated with ozone are not analyzed in the primary analysis. cAdult mortality based upon studies by Pope, et al 2002.4 Infant mortality based upon studies by Woodruff, Grillo, and Schoendorf, 19975. d Respiratory hospital admissions for COPD, pneumonia, and asthma. e Cardiovascular hospital admissions for PM include total cardiovascular and subcategories for ischemic heart disease, dysrhythmias, and heart failure.

TABLE X 2. Estimated Annual Monetary Value of Reductions in Incidence of Health and Welfare Effects ( Millions of 1999$) a, b Health Effect Pollutant 2010 Estimated Value of Reductions 2015 Estimated Value of Reductions Premature mortalityc, d Adult > 30 years 3% discount rate 7% discount rate Child < 1 year PM2.5 $ 67,300 $ 56,600 $ 168 $ 92,800 $ 78,100 $ 222 Chronic bronchitis ( adults, 26 and over) PM2.5 $ 2,520 $ 3,340 Non fatal acute myocardial infarctions 3% discount rate 7% discount rate PM2.5 $ 1,420 $ 1,370 $ 1,850 $ 1,790 Hospital admissions for respiratory causes PM2.5, O3 $ 45.2 $ 78.9 Hospital admissions for cardiovascular causes PM2.5 $ 80.7 $ 105 Emergency room visits for asthma PM2.5, O3 $ 2.84 $ 3.56 15 6United States Environmental Protection Agency, 2000. Guidelines for Preparing Economic Analyses. www. yosemite1. epa. gov/ ee/ epa/ eed/ hsf/ pages/ Guideline. html.

Office of Management and Budget, The Executive Office of the President, 2003. Circular A 4. www. http:// www. whitehouse. gov/ omb/ circulars Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite Acute bronchitis ( children, age 8 12) PM2.5 $ 5.63 $ 7.06 Lower respiratory symptoms ( children, 7 14) PM2.5 $ 2.98 $ 3.74 Upper respiratory symptoms ( asthma, 9 11) PM2.5 $ 3.80 $ 4.77 Asthma exacerbations PM2.5 $ 10.3 $ 12.7 Work loss days PM2.5, $ 180 $ 219 Minor restricted activity days ( MRADs) PM2.5, O3 $ 422 $ 543 School absence days O3 $ 12.9 $ 36.4 Worker productivity ( outdoor workers, 18 65) O3 $ 7.66 $ 19.9 Recreational visibility, 81 Class I areas PM2.5 $ 1,140 $ 1,780 Monetized Total e Base estimate: 3% discount rate 7% discount rate PM2.5, O3 $ 73,300 + B $ 62,600 + B $ 101,000 + B $ 86,300 + B a Monetary benefits are rounded to three significant digits. These estimates represent benefits from CAIR nationwide for NOx and SO2 emission reductions from electricity generating units sources ( with the exception of ozone and visibility benefits). Ozone benefits relate to the eastern United States. Visibility benefits relate to Class I areas in the southeastern United States. The benefit estimates reflected relate to the final CAIR program that includes the CAIR promulgated rule and the proposal to include annual SO2 and NOx controls for New Jersey and Delaware. Modeling used to develop these estimates assumes annual SO2 and NOx controls for Arkansas resulting in a slight overstatement of the reported benefits and costs for the complete CAIR program. b Monetary benefits adjusted to account for growth in real GDP per capita between 1990 and the analysis year ( 2010 or 2015). c Valuation assumes discounting over the SAB recommended 20 year segmented lag structure described in the Regulatory Impact Analysis for the Final Clean Air Interstate Rule ( March 2005). Results show 3 percent and 7 percent discount rates consistent with EPA and OMB guidelines for preparing economic analyses ( US EPA, 2000 and OMB, 2003) 6. d Adult mortality based upon studies by Pope et al 2002. Infant mortality based upon studies by Woodruff, Grillo, and Schoendorf, 1997.

e B represents the monetary value of health and welfare benefits not monetized. A detailed listing is provided in Table X 4. 16 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite 3. 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 CAIR region are $ 2.36 in 2010 and $ 3.57 billion in 2015 ( 1999$). These costs are the annual incremental electric generation production costs that are expected to occur with CAIR. 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 $ 1.91 billion in 2010 and $ 2.56 billion in 2015 assuming a 3% discount rate. These costs become $ 2.14 billion in 2010 and $ 3.07 billion in 2015, if one assumes a 7% discount rate. Thus, the net benefit ( social benefits minus social costs) of the program is approximately $ 71.4 + B billion or $ 60.4 + B billion ( 3%

and 7% discount rate, respectively) annually in 2010 and $ 98.5 + B billion or $ 83.2 + B billion annually ( 3% and 7%

discount rate, respectively) in 2015. Implementation of the 17 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite rule is expected to provide society with a substantial net gain in social welfare based on economic efficiency criteria.

The annualized regional cost of CAIR, as quantified here, is EPA's best assessment of the cost of implementing CAIR, assuming that States adopt the model cap and trade program. These costs are generated from rigorous economic modeling of changes in the power sector due to CAIR. 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. EPA believes that these costs reflect, as closely as possible, the additional costs of CAIR 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 less than $ 42 million ( see Section X.

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 18 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite to CAIR, such as the costs associated with the retirement of smaller or less efficient electricity generating units,

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 IV that new program entrants face. 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. The annualized cost estimates presented are the best and most accurate based upon available information.

In a separate analysis, the EPA estimates the indirect costs and impacts of higher electricity prices on the entire economy ( see Regulatory Impact Analysis for the Final Clean Air Interstate Rule, Appendix E ( March 2005)).

The costs presented here are EPA's best estimate of the direct private costs of CAIR. For purposes of benefit cost analysis of this rule, EPA has also estimated the additional costs of CAIR using alternate discount rates for calculating the social costs, parallel to the range of discount rates used in the estimates of the benefits of CAIR ( 3% and 7%).

Using these alternate discount rates, the social costs of CAIR are $ 1.91 billion in 2010 and $ 2.56 billion in 2015 using a discount rate of 3%, and $ 2.14 billion in 2010 and 19 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite $ 3.07 billion in 2015 using a discount rate of 7%. The costs of CAIR using the adjusted discount rates are lower than the private costs of CAIR generated using IPM because the social costs do not include certain transfer payments,

primarily taxes, that are considered a redistribution of wealth rather than a social cost.

Table X 3. Summary of Annual Benefits, Costs, and Net Benefits of the Clean Air Interstate Rulea ( Billions of 1999 dollars)

Description 2010 ( Billions of 1999 dollars) 2015 ( Billions of 1999 dollars)

Social Costsb 3% discount rate 7% discount rate $ 1.91 $ 2.14 $ 2.56 $ 3.07 Social Benefits c, d, e 3% discount rate 7% discount rate $ 73.3 + B $ 62.6 + B $ 101 + B $ 86.3 + B Health related benefits 3% discount rate 7% discount rate $ 72.1 + B $ 61.4 + B $ 99.3 + B $ 84.5 + B Visibility benefits $ 1.14 + B $ 1.78 + B Annual Net Benefits ( Benefits Costs) e, f 3% discount rate 7% discount rate $ 71.4 + B $ 60.4 + B $ 98.5 + B $ 83.2 + B a All estimates are rounded to three significant digits and represent annualized benefits and costs anticipated for the year 2010 and 2015. Estimates relate to the complete CAIR program including the CAIR promulgated rule and the proposal to include annual SO2 and NOx controls for New Jersey and Delaware. Modeling used to develop these estimates assumes annual SO2 and NOx controls for Arkansas resulting in a slight overstatement of the reported benefits and costs for the complete CAIR program. b Note that costs are the annual total costs of reducing pollutants including NOx and SO2 in the CAIR region. c As this table indicates, total benefits are driven primarily by PM 20 7United States Environmental Protection Agency, 2000. Guidelines for Preparing Economic Analyses. www. yosemite1. epa. gov/ ee/ epa/ eed/ hsf/ pages/ Guideline. html.

Office of Management and Budget, The Executive Office of the President, 2003. Circular A 4. www. http:// www. whitehouse. gov/ omb/ circulars Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite related health benefits. The reduction in premature fatalities each year accounts for over 90 percent of total monetized benefits in 2015. Benefits in this table are nationwide ( with the exception of ozone and visibility) and are associated with NOx and SO2 reductions for the EGU source category. Ozone benefits represent benefits in the eastern US. Visibility benefits represent benefits in Class I areas in the southeastern US. d Not all possible benefits or disbenefits are quantified and monetized in this analysis. B is the sum of all unquantified benefits and disbenefits. Potential benefit categories that have not been quantified and monetized are listed in Table X 4. e Valuation assumes discounting over the SAB recommended 20 year segmented lag structure described in chapter 4. Results reflect 3 percent and 7 percent discount rates consistent with EPA and OMB guidelines for preparing economic analyses ( US EPA, 2000 and OMB, 2003) 7. f Net benefits are rounded to the nearest $ 100 million. Columnar totals may not sum due to rounding.

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 21 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite 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 emissions 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 22 8 Mrozek, J. R. and L. O. Taylor, What determines the value of a life? A Meta Analysis, Journal of Policy Analysis and Management 21 ( 2), pp. 253 270.

Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite years under a set of reasonable assumptions.

In valuing reductions in premature fatalities associated with PM, we used a value of $ 5.5 million per statistical life. This represents a central value consistent with a range of values from $ 1 to $ 10 million suggested by recent meta analyses of the wage risk value of statistical life ( VSL) literature. 8 The benefits estimates generated for this rule are subject to a number of assumptions and uncertainties, that are discussed throughout the Regulatory Impact Analysis document ( Regulatory Impact Analysis for the Final Clean Air Interstate Rule ( March 2005)). As Table X 2 indicates, total benefits are driven primarily by the reduction in premature fatalities each year. Elaborating on the previous uncertainty discussion, 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 daily basis. Plausible biological 23 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite 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) EPA assumes the C R function for fine particles is approximately linear within the range of ambient concentrations under consideration. In the PM Criteria Document, EPA recognizes that for individuals and specific health responses there are likely threshold levels, but there remains little evidence of thresholds for PM related 24 9U. S. EPA. ( 2004). Air Quality Criteria for Particulate Matter. Research Triangle Park, NC: National Center for Environmental Assessment RTP Office; Report No. EPA/ 600/ P 99/ 002aD.

Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite effects in populations. 9 Where potential threshold levels have been suggested, they are at fairly low levels with increasing uncertainty about effects at lower ends of the PM 2.5 concentration ranges. Thus, the EPA estimates include health benefits from reducing fine particles in areas with varied concentrations of PM, including both regions that are in attainment with fine particle standard and those that do not meet the standard.

EPA recognizes the difficulties, assumptions, and inherent uncertainties in the overall enterprise. The analyses upon which CAIR 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 CAIR requires consideration of all benefits and costs expected to result from the rule, not just those benefits and costs which could be expressed here 25 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite in dollar terms. A listing of the benefit categories that were not quantified or monetized in our estimate are provided in Table X 4. These effects are denoted by " B" in Table X 3 above, and are additive to the estimates of benefits.

4. What are the Unquantified and Unmonetized Benefits of CAIR Emissions Reductions?

Important benefits beyond the human health and welfare benefits resulting from reductions in ambient levels of PM2.5 and ozone are expected to occur from this rule. These other benefits occur both directly from NOx and SO2 emission reductions, and indirectly through reductions in copollutants such as mercury. These benefits are listed in Table X 4. Some of the more important examples include:

Reductions in NOx and SO2 emissions required by CAIR will reduce acidification and, in the case of NOx,

eutrophication of water bodies. Reduced nitrate contamination of drinking water is another possible benefit of the rule. This final rule will also reduce acid and particulate deposition that cause damages to cultural monuments, as well as, soiling and other materials damage.

In addition, the reductions in NOx and SO2 emissions required by this rule will contribute to substantial 26 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite visibility improvements in many parts of the eastern U. S.

where people live, work, and recreate, including mandatory Federal Class I areas such as the Acadia National Park. We previously discussed the results of our limited assessment of the economic value of expected improvements in visibility at some Federal Class I areas. However, improvements in visibility and economic benefits associated with these improvements are expected to occur throughout the region.

To illustrate the important nature of benefit categories we are currently unable to monetize, we discuss two categories of public welfare and environmental impacts related to reductions in emissions required by CAIR: reduced acid deposition and reduced eutrophication of water bodies.

a. What are the Benefits of Reduced Deposition of Sulfur and Nitrogen to Aquatic, Forest, and Coastal Ecosystems?

Atmospheric deposition of sulfur and nitrogen, more commonly known 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, 27 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite across State borders. Acidic compounds ( including small particles such as sulfates and nitrates) cause many negative environmental effects, including acidification of lakes and streams, harm to sensitive forests, and harm to sensitive coastal ecosystems.

i. 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 ( key indicator is termed Acid Neutralizing Capacity ( ANC)) depends largely on the watershed's physical characteristics: geology, soils, and size. 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.

Some of the impacts of today's rulemaking on 28 10Banzhaf, Spencer, Dallas Burtraw, David Evans, and Alan Krupnick " Valuation of Natural Resource Improvements in the Adirondacks", Resources for the Future ( RFF), September 2004.

Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite acidification of water bodies have been quantified. In particular, this rule will result in improvements in the acid buffering capacity for lakes in the Northeast and Adirondack Mountains. Specifically, twelve percent of Adirondack lakes are projected to be chronically acidic in the base case. However, we project that the CAIR rule will eliminate chronic acidification in lakes in the Adirondack Mountains by 2030. In addition, today's rule is expected to decrease the percentage of chronically acidic lakes throughout Northeast from six to one percent. However, some lakes in the Adirondacks and New England will continue to experience episodic acidification even after implementation of this rule.

In a recent study10, Resources for the Future ( RFF)

estimates total benefits ( i. e., the sum of use and nonuse values) of natural resource improvements for the Adirondacks resulting from a program that would reduce acidification in 40 percent of the lakes in the Adirondacks that were of concern for acidification. While this study requires further evaluation, the RFF study suggests that the benefits of acid deposition reductions for CAIR are likely to be 29 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite substantial in terms of the total monetized value for ecological endpoints.

ii. Acid Deposition and Forest Ecosystem Impacts Current understanding of the effects of acid deposition on forest ecosystems focuses on the effects of ecological processes affecting plant uptake, retention, and cycling of nutrients within forest ecosystems. Recent studies indicate that acid deposition is at least partially responsible for decreases in base cations ( calcium, magnesium, potassium,

and others) from soils in the northeastern and southeastern United States. Losses of calcium from forest soils and forested watersheds have now been documented as a sensitive early indicator of soil response to acid deposition for a wide range of forest soils in the United States.

In red spruce stands, a clear link exists between acid deposition, calcium supply, and sensitivity to abiotic stress. Red spruce uptake and retention of calcium is impacted by acid deposition in two main ways: leaching of important stores of calcium from needles and decreased root uptake of calcium due to calcium depletion from the soil and aluminum mobilization. These changes increase the sensitivity of red spruce to winter injuries under normal winter conditions in the Northeast, result in the loss of 30 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite needles, slow tree growth, and impair the overall health and productivity of forest ecosystems in many areas of the eastern United States. In addition, recent studies of sugar maple decline in the Northeast demonstrate a link between low base cation availability, high levels of aluminum and manganese in the soil, and increased levels of tree mortality due to native defoliating insects.

Although sulfate is the primary cause of base cation leaching, nitrate is a significant contributor in watersheds that are nearly nitrogen saturated. Base cation depletion is a cause for concern because of the role these ions play in surface water acid neutralization and their importance as essential nutrients for tree growth ( calcium, magnesium and potassium).

This regulatory action will decrease acid deposition in the transport region and is likely to have positive effects on the health and productivity of forest systems in the region.

iii. 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 31 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite 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. There are a few estuaries where atmospheric deposition of nitrogen contributes well over 40 percent of the total nitrogen load; however, in most estuaries for which estimates exist, the contribution from atmospheric deposition ranges from 15 30 percent. The area of the country with the highest air deposition rates ( 30 percent deposition rates) includes many estuaries along the northeast seaboard from Massachusetts to the Chesapeake Bay and along the central Gulf of Mexico coast.

In 1999, National Oceanic and Atmospheric Administration ( NOAA) published the results of a 5 year national assessment of the severity and extent of estuarine eutrophication. An estuary is defined as the inland arm of 32 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite the sea that meets the mouth of a river. The 138 estuaries characterized in the study represent more than 90 percent of total estuarine water surface area and the total number of U. S. estuaries. The study found that estuaries with moderate to high eutrophication represented 65 percent of the estuarine surface area.

Eutrophication is of particular concern in coastal areas with poor or stratified circulation patterns, such as the Chesapeake Bay, Long Island Sound, and the Gulf of Mexico. In such areas, the " overproduced" algae tends to sink to the bottom and decay, using all or most of the available oxygen and thereby reducing or eliminating populations of bottom feeder fish and shellfish, distorting the normal population balance between different aquatic organisms, and in extreme cases causing dramatic fish kills.

Severe and persistent eutrophication often directly impacts human activities. For example, fishery resource losses can be caused directly by fish kills associated with low dissolved oxygen and toxic blooms. Declines in tourism occur when low dissolved oxygen causes noxious smells and floating mats of algal blooms create unfavorable aesthetic conditions. Risks to human health increase when the toxins from algal blooms accumulate in edible fish and shellfish, 33 11 Sweeney, Jeff. " EPA's Chesapeake Bay Program Air Strategy." October 26, 2004.

Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite and when toxins become airborne, causing respiratory problems due to inhalation. According to the NOAA report,

more than half of the nation's estuaries have moderate to high expressions of at least one of these symptoms   an indication that eutrophication is well developed in more than half of U. S. estuaries.

This rule is anticipated to reduce nitrogen deposition in the CAIR region. 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. While we are unable to monetize the benefits of such reductions, the Chesapeake Bay Program estimated the reduced mass of delivered nitrogen loads likely to result from CAIR, based upon the CAIR proposal deposition estimates published in January 2004. Atmospheric deposition of nitrogen accounts for a significant portion of the nitrogen loads to the Chesapeake with 28 percent of the nitrogen loads from the watershed coming from air deposition. Based upon the CAIR proposal nitrogen deposition rates published in the January 2004 proposal, the Chesapeake Bay Program finds that CAIR will likely reduce the nitrogen loads to the Bay by 10 million pounds per year by 2010.11 These 34 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite substantial nitrogen load reductions more than fulfill the EPA's commitment to reduce atmospheric deposition delivered to the Chesapeake Bay by 8 million pounds.

b. Are There Health or Welfare Disbenefits of CAIR That Have Not Been Quantified?

In contrast to the additional benefits of the rule discussed above, it is also possible that this rule will result in disbenefits in some areas of the region. Current levels of nitrogen deposition in these areas may provide passive fertilization for forest and terrestrial ecosystems where nutrients are a limiting factor and for some croplands.

The effects of ozone and particulate matter on radiative transfer in the atmosphere can also lead to effects of uncertain magnitude and direction on the penetration of ultraviolet light and climate. Ground level ozone makes up a small percentage of total atmospheric ozone ( including the stratospheric layer) that attenuates penetration of UVb radiation to the ground. EPA's past evaluation of the information indicates that potential disbenefits would be small, variable, and with too many uncertainties to attempt quantification of relatively small changes in average ozone levels over the course of a year 35 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite ( EPA, 2005a). EPA's most recent provisional assessment of the currently available information indicates that potential but unquantifiable benefits may also arise from ozonerelated attenuation of UVb radiation ( EPA, 2005b). Sulfate and nitrate particles also scatter UVb, which can decrease exposure of horizontal surfaces to UVb, but increase exposure of vertical surfaces. In this case as well, both the magnitude and direction of the effect of reductions in sulfate and nitrate particles are too uncertain to quantify ( EPA, 2004). Ozone is a greenhouse gas, and sulfates and nitrates can reduce the amount of solar radiation reaching the earth, but EPA believes that we are unable to quantify any net climate related disbenefit or benefit associated with the combined ozone and PM reductions in this rule.

Table X 4. Additional, Non monetized Benefits of the Clean Air Interstate Rule Pollutant Unquantified Effects  Reduced Incidence of:

Ozone Health a Premature mortality Chronic respiratory damage Premature aging of the lungs Non asthma respiratory emergency room visits Increased exposure to UVb Ozone Welfare Decreased yields for commercial forests Decreased yields for fruits and vegetables Decreased yields for commercial and non commercial crops Damage to urban ornamental plants Impacts on recreational demand from damaged forest aesthetics Damage to ecosystem functions Increased exposure to UVb 36 Pollutant Unquantified Effects  Reduced Incidence of:

Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite PM Health b Low birth weight Changes in pulmonary function Chronic respiratory diseases other than chronic bronchitis Non asthma respiratory emergency room visits Exposure to UVb (+/)

PM Welfare Visibility in many Class I areas Residential and recreational visibility in non Class I areas Soiling and materials damage Damage to ecosystem functions Exposure to UVb (+/)

Nitrogen and Sulfate Deposition Welfare Impacts of acidic sulfate and nitrate deposition on commercial forests Impacts of acidic deposition to commercial freshwater fishing Impacts of acidic deposition to recreation in terrestrial ecosystems Reduced existence values for currently healthy ecosystems Impacts of nitrogen deposition on commercial fishing, agriculture, and forests Impacts of nitrogen deposition on recreation in estuarine ecosystems Damage to ecosystem functions Passive fertilization Mercury Health Neurological disorders Learning disabilities Developmental delays Potential reproductive effects c Potential cardiovascular effects c, including: Altered blood pressure regulation c Increased heart rate variability c Myocardial infarction c Mercury Deposition Welfare Impact on birds and mammals ( e. g., reproductive effects) Impacts to commercial, subsistence, and recreational fishing Notes: a In addition to primary economic endpoints, there are a number of biological responses that have been associated with ozone health effects including increased airway responsiveness to stimuli, inflamation in the lung, acute inflammation and respiratory cell damage, and increased susceptibility to respiratory infection. The public health impact of these biological responses may be partly represented by our quantified endpoints. b 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 C These are potential effects as the literature is incomplete. 37 Pollutant Unquantified Effects  Reduced Incidence of:

Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite B. Paperwork Reduction Act In compliance with the Paperwork Reduction Act ( 44 U. S. C. 3501 et seq.), EPA submitted a proposed Information Collection Request ( ICR) ( EPA ICR number 2512.01) to the Office of Management and Budget ( OMB) for review and approval on July 19, 2004 ( FR 42720 42722). The ICR describes the nature of the information collection and its estimated burden and cost associated with the final rule. In cases where information is already collected by a related program, the ICR takes into account only the additional burden. This situation arises in States that are also subject to requirements of the Consolidated Emissions Reporting Rule ( EPA ICR number 0916.10; OMB control number 2060 0088) or for sources that are subject to the Acid Rain Program ( EPA ICR number 1633.13; OMB control number 2060

0258) or NOx SIP Call ( EPA ICR number 1857.03; OMB number 2060 0445) requirements.

EPA solicited comments on specific aspects of the information collection. The purpose of the ICR is to estimate the anticipated monitoring, reporting, and recordkeeping burden estimates and associated costs for States, local governments, and sources that are expected to 38 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite result from CAIR.

The recordkeeping and reporting burden to sources resulting from States choosing to participate in a regional cap and trade program expected to be less than $ 42 million annually at the time the monitors are implemented. This estimate includes the annualized cost of installing and operating appropriate SO2 and NOx emissions monitoring equipment to measure and report the total emissions of these pollutants from affected EGUs serving generators greater than 25 megawatt electrical. The burden to State and local air agencies includes any necessary SIP revisions,

performing monitoring certification, and fulfilling audit responsibilities.

In accordance with the Paperwork Reduction Act on July 19, 2004, an ICR was made available to the public for comment. The sixty day comment period expired September 19,

2004 with no public comments received specific to the ICR.

C. Regulatory Flexibility Act The Regulatory Flexibility Act ( 5 U. S. C. § 601 et seq.)( RFA), as amended by the Small Business Regulatory Enforcement Fairness Act ( Public Law No. 104 121)( SBREFA),

provides that whenever an agency is required to publish a general notice of rulemaking, it must prepare and make 39 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite available an initial regulatory flexibility analysis, unless it certifies that the rule, if promulgated, will not have " a significant economic impact on a substantial number of small entities." 5 U. S. C. § 605( b). Small entities include small businesses, small organizations, and small governmental jurisdictions.

For purposes of assessing the impacts of today's rule on small entities, small entity is defined as: ( 1) a small business that is identified by the North American Industry Classification System ( NAICS) Code, as defined by the Small Business Administration ( SBA); ( 2) a small governmental jurisdiction that is a government of a city, county, town,

school district or special district with a population of less that 50,000; and ( 3) a small organization that is any not for profit enterprise which is independently owned and operated and is not dominant in its field. Table X 5 lists entities potentially impacted by this rule with applicable NAICS code.

X 5. Potentially Regulated Categories and Entities 40 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite Category NAICS code1 Examples of potentially regulated entities Industry 221112 Fossil fuel fired electric utility steam generating units.

Federal government 221122 Fossil fuel fired electric utility steam generating units owned by the Federal government.

State/

local/

Tribal government 221122 921150 Fossil fuel fired electric utility steam generating units owned by municipalities.

Fossil fuel fired electric utility steam generating units in Indian Country.

1 North American Industry Classification System.

2 Federal, State, or local government owned and operated establishments are classified according to the activity in which they are engaged.

According to the SBA size standards for NAICS code 221112 Utilities Fossil Fuel Electric Power Generation, a firm is small if, including its affiliates, it is primarily engaged in the generation, transmission, and or distribution 41 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite of electric energy for sale and its total electric output for the preceding fiscal year did not exceed 4 million megawatt hours.

Courts have interpreted the RFA to require a regulatory flexibility analysis only when small entities will be subject to the requirements of the rule. See Michigan v.

EPA, 213 F. 3d 663, 668 69 ( D. C. Cir. 2000), cert. den. 121 S. Ct. 225, 149 L. Ed. 2d 135 ( 2001).

This rule would not establish requirements applicable to small entities. Instead, it would require States to develop, adopt, and submit SIP revisions that would achieve the necessary SO2 and NOx emissions reductions, and would leave to the States the task of determining how to obtain those reductions, including which entities to regulate.

Moreover, because affected States would have discretion to choose the sources to regulate and how much emissions reductions each selected source would have to achieve, EPA could not predict the effect of the rule on small entities.

Although not required by the RFA, the Agency has conducted a small business analysis.

Overall, about 445 MW of total small entity capacity,

or 1.0% of total small entity capacity in the CAIR region,

is projected to be uneconomic to maintain under CAIR 42 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite relative to the Base Case. In practice, units projected to be uneconomic to maintain may be " mothballed", retired, or kept in service to ensure transmission reliability in certain parts of the grid. Our IPM modeling is unable to distinguish between these potential outcomes.

EPA modeling identified 264 small entities within the CAIR region based upon the definition of small entity outlined above. EPA excluded from this analysis 189 small entities that were not projected to have at least one unit with a generating capacity of 25 MW or great operating in the base case. Thus we found that 75 small entities may potentially be affected by CAIR. Of these 75 small entites,

28 may experience compliance costs in excess of one percent of revenues in 2010, and 46 may in 2015, based on the Agency's assumptions of how the affected States implement control measures to meet their emissions budgets as set forth in this rulemaking. Potentially affected small entities experiencing compliance costs in excess of 1 percent of revenues have some potential for significant impact resulting from implementation of CAIR. However, it is the Agency's position that because none of the affected entities currently operate in a competitive market environment, they should be able to pass the costs of 43 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite complying with CAIR on to rate payers. Moreover, the decision to include only units greater than 25 MW in size exempts 185 small entities that would otherwise be potentially affected by CAIR.

Two other points should be considered when evaluating the impact of CAIR, specifically, and cap and trade programs more generally, on small entities. First, under CAIR, the cap and trade program is designed such that States determine how NOX allowances are to be allocated across units. A State that wishes to mitigate the impact of the rule on small entities might choose to allocate NOX allowances in a manner that is favorable to small entities. Finally, the use of cap and trade in general will limit impacts on small entities relative to a less flexible command and control program.

D. Unfunded Mandates Reform Act Title II of the Unfunded Mandates Reform Act of 1995( Public Law 104 4)( UMRA), establishes requirements for Federal agencies to assess the effects of their regulatory actions on State, local, and Tribal governments and the private sector. Under section 202 of the UMRA, 2 U. S. C.

1532, EPA generally must prepare a written statement,

including a cost benefit analysis, for any proposed or final 44 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite rule that " includes any Federal mandate that may result in the expenditure by State, local, and Tribal governments, in the aggregate, or by the private sector, of $ 100,000,000 or more ... in any one year." A " Federal mandate" is defined under section 421( 6), 2 U. S. C. 658( 6), to include a " Federal intergovernmental mandate" and a " Federal private sector mandate." A " Federal intergovernmental mandate," in turn,

is defined to include a regulation that " would impose an enforceable duty upon State, Local, or Tribal governments,"

section 421( 5)( A)( i), 2 U. S. C. 658( 5)( A)( i), except for,

among other things, a duty that is " a condition of Federal assistance," section 421( 5)( A)( i)( I). A " Federal private sector mandate" includes a regulation that " would impose an enforceable duty upon the private sector," with certain exceptions, section 421( 7)( A), 2 U. S. C. 658( 7)( A).

Before promulgating an EPA rule for which a written statement is needed under section 202 of the UMRA, section 205, 2 U. S. C. 1535, of the UMRA generally requires EPA to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, most costeffective or least burdensome alternative that achieves the objectives of the rule.

The EPA prepared a written statement for the final rule 45 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite consistent with the requirements of section 202 of the UMRA Furthermore, as EPA stated in the rule, EPA is not directly establishing any regulatory requirements that may significantly or uniquely affect small governments,

including Tribal governments. Thus, EPA is not obligated to develop under section 203 of the UMRA a small government agency plan. Furthermore, in a manner consistent with the intergovernmental consultation provisions of section 204 of the UMRA, EPA carried out consultations with the governmental entities affected by this rule.

For several reasons, however, EPA is not reaching a final conclusion as to the applicability of the requirements of UMRA to this rulemaking action. First, it is questionable whether a requirement to submit a SIP revision would constitute a Federal mandate in any case. The obligation for a State to revise its SIP that arises out of section 110( a) of the CAA is not legally enforceable by a court of law, and at most is a condition for continued receipt of highway funds. Therefore, it is possible to view an action requiring such a submittal as not creating any enforceable duty within the meaning of section 421( 5)( 9a)( I)

of UMRA ( 2 U. S. C. 658 ( a)( I)). Even if it did, the duty could be viewed as falling within the exception for a 46 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite condition of Federal assistance under section 421( 5)( a)( i)( I) of UMRA ( 2 U. S. C. 658( 5)( a)( i)( I)).

As noted earlier, however, notwithstanding these issues, EPA prepared for the final rule the statement that would be required by UMRA if its statutory provisions applied, and the EPA has consulted with governmental entities as would be required by UMRA. Consequently, it is not necessary for EPA to reach a conclusion as to the applicability of the UMRA requirements.

EPA conducted an analysis of the economic impacts anticipated from CAIR for government owned entities. The modeling conducted using the Integrated Planning Model projects that about 340 MW of municipality owned capacity ( about 0.4% of all subdivision, state and municipality capacity in the CAIR region) would be uneconomic to maintain under CAIR, beyond what is projected in the Base Case.

In practice, however, the units projected to be uneconomic to maintain may be ' mothballed,' retired, or kept in service to ensure transmission reliability in certain parts of the grid. For the most part, these units are small and infrequently used generating units that are dispersed throughout the CAIR region.

EPA modeling identified 265 State or municipally owned 47 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite entities, as well as subdivisions, within the CAIR region.

EPA excluded from the analysis government owned entities that were not projected to have at least one unit with generating capacity of 25 MW or greater in the base case.

Thus we excluded 184 entities from the analysis. We found that 81 government entities will be potentially affected by CAIR. Of the 81 government entities, 20 may experience compliance costs in excess of one percent of revenues in 2010, and 39 may in 2015, based on our assumptions of how the affected States implement control measures to meet their emissions budgets as set forth in this rulemaking.

Government entities projected to experience compliance costs in excess of 1 percent of revenues have some potential for significant impact resulting from implementation of CAIR. However, as noted above, it is EPA's position that because these government entities can pass on their costs of compliance to rate payers, they will not be significantly impacted. Furthermore, the decision to include only units greater than 25 MW in size exempts 179 government entities that would otherwise be potentially affected by CAIR.

The above points aside, potentially adverse impacts of CAIR on State and municipality owned entities could be limited by the fact that the cap and trade program is 48 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite designed such that States determine how NOx allowances are to be allocated across units. A State that wishes to mitigate the impact of the rule on State or municipalityowned entities might choose to allocate NOX allowances in a manner that is favorable to these entities. Finally, the use of cap and trade in general will limit impacts on entities owned by small governments relative to a less flexible command and control program.

E. Executive Order 13132: Federalism Executive Order 13132, entitled " Federalism" ( 64 FR 43255, August 10, 1999), requires EPA to develop an accountable process to ensure " meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications."

" Policies that have federalism implications" is defined in the Executive Order to include regulations that have " substantial direct effects on the States, on the relationship between the national government and the States,

or on the distribution of power and responsibilities among the various levels of government."

This rule does not have federalism implications. It will not have substantial direct effects on the States, on the relationship between the national government and the 49 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. The CAA establishes the relationship between the Federal government and the States, and this rule does not impact that relationship. Thus, Executive Order 13132 does not apply to this rule. In the spirit of Executive Order 13132, and consistent with EPA policy to promote communications between EPA and State and local governments, EPA specifically solicited comment on this rule from State and local officials.

F. Executive Order 13175: Consultation and Coordination with Indian Tribal Governments Executive Order 13175, entitled " Consultation and Coordination with Indian Tribal Governments" ( 65 FR 67249,

November 9, 2000), requires EPA to develop an accountable process to ensure " meaningful and timely input by Tribal officials in the development of regulatory policies that have Tribal implications." This rule does not have " Tribal implications" as specified in Executive Order 13175.

This rule addresses transport of pollution that are precurors for ozone and PM2.5. The CAA provides for States and Tribes to develop plans to regulate emissions of air pollutants within their jurisdictions. The regulations 50 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite clarify the statutory obligations of States and Tribes that develop plans to implement this rule. The Tribal Authority Rule ( TAR) give Tribes the opportunity to develop and implement CAA programs, but it leaves to the discretion of the Tribe whether to develop these programs and which programs, or appropriate elements of a program, the Tribe will adopt.

This rule does not have Tribal implications as defined by Executive Order 13175. It does not have a substantial direct effect on one or more Indian Tribes, because no Tribe has implemented a federally enforceable air quality management program under the CAA at this time. Furthermore,

this rule does not affect the relationship or distribution of power and responsibilities between the Federal government and Indian Tribes. The CAA and the TAR establish the relationship of the Federal government and Tribes in developing plans to attain the NAAQS, and this rule does nothing to modify that relationship. Because this rule does not have Tribal implications, Executive Order 13175 does not apply.

If one assumes a Tribe is implementing a Tribal Implementation Plan, today's rule could have implications for that Tribe, but it would not impose substantial direct 51 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite costs upon the Tribe, nor preempt Tribal law. As provided above, EPA has estimated that the total annual private costs for the rule for the CAIR region as implemented by State,

Local, and Tribal governments is approximately $ 2.4 billion in 2010 and $ 3.6 billion in 2015 ( 1999$). There are currently very few emissions sources in Indian country that could be affected by this rule and the percentage of Tribal land that will be impacted is very small. For Tribes that choose to regulate sources in Indian country, the costs would be attributed to inspecting regulated facilities and enforcing adopted regulations.

Although Executive Order 13175 does not apply to this rule, EPA consulted with Tribal officials in developing this rule. The EPA has encouraged Tribal input at an early stage. Also, the EPA held periodic meetings with the States and the Tribes during the technical development of this rule. Three meetings were held with the Crow Tribe, where the Tribe expressed concerns about potential impacts of the rule on their coal mine operations. In addition, EPA held three calls with Tribal environmental professionals to address concerns specific to the Tribes. These discussions have given EPA valuable information about Tribal concerns regarding the development of this rule. The EPA has 52 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite provided briefings for Tribal representatives and the newly formed National Tribal Air Association ( NTAA), and other national Tribal forums. Input from Tribal representatives has been taken into consideration in development of this rule.

G. Executive Order 13045: Protection of Children from Environmental Health and Safety Risks Executive Order 13045, " Protection of Children from Environmental Health Risks and Safety Risks" ( 62 FR 19885,

April 23, 1997) applies to any rule that ( 1) is determined to be " economically significant" as defined under Executive Order 12866, and ( 2) concerns an environmental health or safety risk that EPA has reason to believe may have a disproportionate effect on children. If the regulatory action meets both criteria, Section 5   501 of the Order directs the Agency to evaluate the environmental health or safety effects of the planned rule on children, and explain why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives considered by the Agency.

This final rule is not subject to the Executive Order,

because it does not involve decisions on environmental health or safety risks that may disproportionately affect 53 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite children. The EPA believes that the emissions reductions from the strategies in this rule will further improve air quality and will further improve children's health.

H. Executive Order 13211: Actions that Significantly Affect Energy Supply, Distribution, or Use Executive Order 13211 ( 66 FR 28355, May 22, 2001)

provides that agencies shall prepare and submit to the Administrator of the Office of Regulatory Affairs, OMB, a Statement of Energy Effects for certain actions identified as " significant energy actions." Section 4( b) of Executive Order 13211 defines " significant energy actions" as " any action by an agency ( normally published in the Federal Register) that promulgates or is expected to lead to the promulgation of a final rule or regulation, including notices of inquiry, advance notices of final rulemaking, and notices of final rulemaking ( 1) ( i) a significant regulatory action under Executive Order 12866 or any successor order, and ( ii) likely to have a significant adverse effect on the supply, distribution, or use of energy; or ( 2) designated by the Administrator of the Office of Information and Regulatory Affairs as a " significant energy action." This final rule is a significant regulatory action under Executive Order 12866, and this rule may have a 54 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite significant adverse effect on the supply, distribution, or use of energy.

In May of 2001, the Administration published the National Energy Policy which contained key recommendations for improving energy policy. CAIR has the potential to require installation of significant amounts of control equipment at power plants that are integral to the country's electric power supply, and in light of this, EPA has focused on minimizing the impacts of CAIR throughout the development of the rule in keeping with the National Energy Policy. The rule follows the recommendations of the National Energy Policy to use cost effectiveness and market based mechanisms while providing regulatory certainty and sufficient time to achieve reductions of SO2 and NOx from the power sector in a way that will help the country maintain electric reliability and affordability while ensuring environmental goals are met. Although the stated recommendation of the Administration's energy plan was to adopt multi pollutant legislation, like the Clear Skies Act, EPA has acted in accordance with the Clean Air Act to ensure substantial reduction of pollution to protect human health and welfare,

consistent with the National Energy Policy.

If States choose to obtain the emission reductions 55 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite required by this rule by regulating electricity generating units ( EGUs), EPA projects that approximately 5.3 GWs of coal fired generation may be removed from operation by 2010.

In practice, however, the units projected to be uneconomic to maintain may be ' mothballed,' retired, or kept in service to ensure transmission reliability in certain parts of the grid. For the most part, these units are small and infrequently used generating units that are dispersed throughout the CAIR region. Less conservative assumptions regarding natural gas prices or electricity demand would create a greater incentive to keep these units operational.

The EPA projects that the average annual electricity price will increase by less than 2.7% in the CAIR region. EPA does not believe that this rule will have any other impacts that exceed the significance criteria.

The EPA believes that a number of features of today's rulemaking serve to reduce its impact on energy supply.

First, the optional trading program provides considerable flexibility to the power sector and enables industry to comply with the emission reduction requirements in the most cost effective manner, thus minimizing overall costs and the ultimate impact on energy supply. The ability to use banked allowances from the existing Title IV SO2 trading program 56 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite and the NOx SIP Call Trading Program also provide additional flexibility. Second, the CAIR caps are set in two phases and provide adequate time for EGUs to install pollution controls. For more details concerning energy impacts, see the Regulatory Impact Analysis for the Final Clean Air Interstate Rule ( March 2005).

I. National Technology Transfer Advancement Act Section 12( d) of the National Technology Transfer and Advancement Act ( NTTAA) of 1995 ( Public Law No. 104 113;

15U. S. C. 272 note) directs EPA to use voluntary consensus standards in its regulatory and procurement activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards ( e. g., materials specifications, test methods, sampling procedures, business practices) developed or adopted by one or more voluntary consensus bodies. The NTTAA directs EPA to provide Congress, through annual reports to OMB, with explanations when an agency does not use available and applicable voluntary consensus standards.

This rule would require all sources that participate in the trading program under part 96 to meet the applicable monitoring requirements of part 75. Part 75 already incorporates a number of voluntary consensus standards. 57 Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite Consistent with the Agency's Performance Based Measurement System ( PBMS), Part 75 sets forth performance criteria that allow the use of alternative methods to the ones set forth in Part 75. The PBMS approach is intended to be more flexible and cost effective for the regulated community; it is also intended to encourage innovation in analytical technology and improved data quality. At this time, EPA is not recommending any revisions to Part 75; however, EPA periodically revises the test procedures set forth in Part 75. When EPA revises the test procedures set forth in Part 75 in the future, EPA will address the use of any new voluntary consensus standards that are equivalent.

Currently, even if a test procedure is not set forth in Part 75 EPA is not precluding the use of any method, whether it constitutes a voluntary consensus standard or not, as long as it meets the performance criteria specified; however, any alternative methods must be approved through the petition process under Sec. 75.66 before they are used under Part 75.

J. Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low Income Populations Executive Order 12898, " Federal Actions to Address Environmental Justice in Minority Populations and Low Income 58 12 U. S. Environmental Protection Agency, 1998. Guidance for Incorporating Environmental Justice Concerns in EPA's NEPA Compliance Analyses. Office of Federal Activities, Washington, D. C., April, 1998.

Section IX 3/ 4/ 2005 DRAFT Do Not Quote or Cite Populations," requires federal agencies to consider the impact of programs, policies, and activities on minority populations and low income populations. According to EPA guidance12, agencies are to assess whether minority or lowincome populations face risks or a rate of exposure to hazards that are significant and that " appreciably exceed or is likely to appreciably exceed the risk or rate to the general population or to the appropriate comparison group."

( EPA, 1998)

In accordance with E. O. 12898, the Agency has considered whether this rule may have disproportionate negative impacts on minority or low income populations. The Agency expects this rule to lead to reductions in air pollution and exposures generally. For this reason,

negative impacts to these sub populations that appreciably exceed similar impacts to the general population are not expected.