7. Why Was the Demand Growth Exclusion Retained? When we proposed to expand the scope of the WEPCO rulemaking to cover modifications at any existing emissions unit, we solicited comment on whether the demand growth exclusion ( currently available only to EUSGUs) should also be available to all source categories. In 1998, we noted that there were problems that could arise with the demand growth exclusion. 63 FR 39860   39861 ( July 24, 1998). Accordingly, we solicited comment on this new position. Several regulatory agency and environmental commenters support the total elimination of the demand growth exclusion. These commenters maintain that a facility's post change emissions increases due to demand growth could not be disassociated from those that resulted directly from the physical or operational change. These commenters believe the demand growth exclusion would be difficult to enforce. The demand growth exclusion would, they claim, also be burdensome because it would require projections, estimates, and post modification evaluations of increased emissions to determine whether the increases were the result of increased demand. On the other hand, numerous industry commenters oppose eliminating the demand growth provisions, stating that market factors do independently cause emissions increases absent physical and operational changes. These commenters maintain that when projected increased capacity utilization is in response to an independent factor, such as demand growth, the increased utilization cannot be said to result from the change and therefore may rightfully be excluded from the projection of the emissions unit's future actual emissions. They further argue that such increases should not be included in post change emissions even in the absence of a demand growth exclusion, as the increases would not be the result of the physical or operational changes that were made. Consequently, these commenters state that the proposed demand growth exclusion simply makes that principle explicit and eliminates confusion as to how emissions should VerDate Dec< 13> 2002 09: 09 Dec 30, 2002 Jkt 200001 PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 E:\ FR\ FM\ 31DER3. SGM 31DER3 80203 Federal Register / Vol. 67, No. 251 / Tuesday, December 31, 2002 / Rules and Regulations be calculated. The same commenters who support retaining demand growth provisions for utilities also believe these provisions should be extended to nonutilities Under today's new requirements, you will be allowed to apply the causation provision as originally contained in the WEPCO amendments. Both the statute and implementing regulations indicate that there should be a causal link between the proposed change and any post change increase in emissions, that is, ``* * * any physical change or change in the method of operation that would result in a significant net emissions increase * * *'' [ emphasis added]. See, for example, existing § 52.21( b)( 2)( i). Consequently, under today's new rules, when a projected increase in equipment utilization is in response to a factor such as growth in market demand, you may subtract the emissions increases from the unit's projected actual emissions if: ( 1) The unit could have achieved the necessary level of utilization during the consecutive 24 month period you selected to establish the baseline actual emissions; and ( 2) the increase is not related to the physical or operational change( s) made to the unit. See for example, new § 52.21( b)( 41)( ii)( c). On the other hand, demand growth can only be excluded to the extent that the physical or operational change is not related to the emissions increase. Thus, even if the operation of an emissions unit to meet a particular level of demand could have been accomplished during the representative baseline period, but the increase is related to the changes made to the unit, then the emissions increases resulting from the increased operation must be attributed to the project, and cannot be subtracted from the projection of projected actual emissions.

8. Should Increases in Plant Utilization Be Reviewed as Potential Major Modifications? Many commenters argue that emissions increases resulting from increased utilization should not be subjected to review as major modifications. They insist that EPA's policy and rules have always allowed increases in capacity utilization without triggering a modification, and not allowing utilization increases will limit new capacity to new emissions units instead of promoting increased efficiency at existing emissions units. One commenter argues that these sorts of changes do not require any sort of applicability determination and that Congress never anticipated that the NSR program would hamper a source's ability to increase utilization up to the original design capacity. We believe that an increase in utilization should not trigger the major NSR requirements unless it is related to a physical or operational change. As explained earlier, the CAA only applies the major NSR requirements to emissions increases that are the result of a physical or operational change. Thus, we do not believe that the major NSR requirements should apply to a utilization increase unless the increase is related to the modification. Under today's final rules, you may exclude emissions related to an increase in utilization if you were able to accommodate the increase in utilization during the 24 month period you select to establish your baseline actual emissions and the increased utilization is not related to the change.

9. Why Must You Track Physical or Operational Changes That Increase a Unit's Design Capacity or Potential To Emit Post Change Actual Emissions for a Longer Period of Time? We raised this issue in the 1998 NOA. Several commenters support applying what we then termed the `` actual toenforceable future actual'' test to increases in design capacity or PTE because it would be inappropriate to automatically assume that such increases will affect normal operations, which would require the actual topotential test. They say that these types of modifications are common and do not generally increase emissions because they improve efficiency and add control devices. One commenter explains that it is not uncommon for an emissions unit's capacity to be increased so as to speed up normal operations without increasing production, and that projected actual emissions could easily be calculated on the basis of past operating experience. On the other hand, another commenter indicates that it is very expensive to increase design capacity. Therefore, it can be assumed that a company would use the additional capacity as soon as it becomes available. Several regulatory agency commenters support the use of the actual topotential test for modifications that increase design capacity or PTE. One of these commenters stated that such modifications would alter an emissions unit's normal operation and make previous actual emissions `` unreliable and irrelevant.'' We do not believe that every modification that includes added capacity or an increase in the PTE is intended for full use of that new capacity or PTE. Such actions could well be intended to enhance current operations without resulting in increased production or operation. Therefore, under today's new requirements, you are not required to count the emissions increase that would result from full use of new capacity or PTE if you conclude that: ( 1) Such capacity or PTE will not be fully utilized, and ( 2) the emissions increase resulting from that portion of the capacity that will be used will not result in a significant emissions increase from the modification or a significant net emissions increase at the source. The new requirements include a provision that requires you to monitor the emissions from the project for 10 years following the resumption of regular operation of the emissions units modified. The 10 year period reflects our determination that this time frame best captures the normal business cycle for industry in general. Thus, in situations where your proposed project will in fact add new capacity or PTE to an existing emissions unit, yet you determine that the objective of the physical or operational change is not to use the increased capacity, your calculation of representative projected actual emissions may reflect this. However, you must maintain adequate information for 10 years following the completion of the project to track the actual annual emissions from the units associated with the project. This represents a special condition that supersedes the normal 5 year period for the recordkeeping requirements being adopted today. During the 10 year period, you must report to your reviewing authority within 60 days after any year if the annual emissions, in tpy, from the project exceed the baseline actual emissions by a significant amount for the regulated NSR pollutant and if such emissions differ from the preconstruction projection.

10. Does the Actual To Projected Actual Applicability Test Apply to Netting? We did not specifically request comment on this issue in the 1996 proposal. Nonetheless, we received several comments that assert that use of different methods to compute an emissions increase and determine a net emissions increase would result in `` absurd results'' and require two separate accounting records. Other commenters oppose using the actual tofuture actual test for netting. One commenter says that the sole purpose of the actual to future actual test was to determine if an emissions increase will occur. One commenter says we should go further and revise the definition of VerDate Dec< 13> 2002 09: 09 Dec 30, 2002 Jkt 200001 PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 E:\ FR\ FM\ 31DER3. SGM 31DER3 80204 Federal Register / Vol. 67, No. 251 / Tuesday, December 31, 2002 / Rules and Regulations 25 Information supporting these values can be found in the docket for today's rulemaking. `` contemporaneous'' to limit it to project activities ( vs. plantwide) and reduce credits for shutdowns and curtailments. As stated previously, we did not specifically request comment on this issue and we are not promulgating amendments to the netting regulations, on this point, at this time.

11. Should We Impose an Enforceable Projected Actual Emissions Level? Some commenters on our 1996 proposal support the establishment of an enforceable limitation on the modified source's projected future emissions level. Other commenters support our specific proposal in the 1998 NOA to use the projected actual emissions as a temporary cap for the emissions units involved in the project, that is, an enforceable 10 year emissions level. On the other hand, many other commenters oppose the concept, citing various reasons for their opposition. These included concerns that it would become a de facto baseline for any additional permitting and create additional enforcement liability, usurp State prerogatives, be inconsistent with the CAA, and require enforceable restrictions for too long. A few State and local air reviewing agencies indicate that they do not have the resources to adequately administer a program that would require permits to be issued for every physical or operational change at a major stationary source. Today's new requirements follow the 1996 proposal. You will not be required to make the projected actual emissions projection through a permitting action. After considering the comments received, we are concerned that such a requirement may place an unmanageable resource burden on reviewing authorities. We also believe that it is not necessary to make your future projections enforceable in order to adequately enforce the major NSR requirements. The Act provides ample authority to enforce the major NSR requirements if your physical or operational change results in a significant net emissions increase at your major stationary source.

12. Why Are Modified Sources That Are Not Considered Major Modifications Not Required To Submit Annual Reports of Actual Emissions Under the New Requirements? Several commenters support our proposal to require sources to track post change emissions for a 5 year period so that there is a factual finding as to whether emissions from the modified units actually increased. These commenters believe that the requirement to track emissions is a needed safeguard and that it should not be too difficult to track various operating parameters. They add that non utilities should be able to track emissions as well as utilities. Finally, commenters who oppose the proposed 10 year enforceable limit support retaining the 5 year tracking period in its place. Many other commenters object to the burden that tracking would impose in the absence of any additional environmental benefit. Some commenters suggest ways to reduce the burden, such as not requiring sources to report emissions unless there is a problem or reducing the tracking period to 2 or 3 years. Another industry commenter suggests that we require an up front notification to the reviewing authority whenever the actual to futureactual applicability test is used. We agree with those commenters who recommend that you should be required to track emissions for a period of time following a modification. Thus, we have retained our proposed requirement to maintain annual emissions information for a period of 5 years following resumption of regular operations after the change. As discussed previously, we expanded this requirement to 10 years for changes that increase an emissions unit's capacity or its potential to emit a regulated NSR pollutant. However, although we proposed a requirement for annual emissions reporting, we have concluded that the combination of the recordkeeping requirements of this rule, along with a requirement to report to the reviewing authority any annual emissions that exceed your baseline actual emissions by a significant amount for the regulated NSR pollutant and differ from your preconstruction projection, is an equally effective way to ensure that a reviewing authority can receive the information necessary to enforce the major NSR requirements. Moreover, your reviewing authority has the authority to request emissions information from you at any time to determine the status of your post change emissions. In response to the concern that these requirements might impose unnecessary burdens, we have also included further limits. First, you are only required to keep records if you elect to use the actual to projected actual applicability test to calculate your emissions increase from the project. Second, you are only required to keep the records if there is a reasonable possibility that your project might result in a significant emissions increase. Finally, you only need keep those records for projects that are not major modifications. We also considered requiring you to submit an up front notification to your reviewing authority, but concluded that this would result in an unnecessary paperwork burden. ( EUSGUs, however, will be required to submit a copy of their projections to reviewing authorities before beginning actual construction.) We anticipate that a large majority of the projects that are not major modifications may nonetheless be required to undergo a permit action through States' minor NSR permit programs. In such cases, the minor NSR permitting procedures could provide an opportunity to ensure that your reviewing authority agrees with your emission projections. Requiring a separate notification would not provide the reviewing authority with any additional information in such circumstances. Accordingly, we believe today's requirements provide reviewing agencies with the ability to obtain all the information necessary to ensure compliance.

13. Why Are We Promulgating Different Reporting Requirements for Existing Emissions Units Than for EUSGUs? Today we are finalizing slightly different requirements for EUSGUs than other industries. In 2000, boilers and turbines with greater than 25 MWe or 250 mmBTU/ hr of generating capacity represented 76 percent of this nation's emissions of nitrogen oxides ( NOX) and 85 percent of this nation's emissions of SO2 from stationary sources. 25 In view of the disproportionate amount of emissions generated by EUSGUs compared to other industry sectors, we believe that it is appropriate for reviewing authorities to have information on construction and modification activities at EUSGUs readily available. Accordingly, we are requiring EUSGUs to provide a copy of their emissions projection to the reviewing authority before beginning actual construction of a project. We are also requiring them to report their postchange annual emissions for every year they are required to generate them. This approach also makes sense because it focuses the limited resources of both sources and agencies on the sources that matter most.

III. CMA Exhibit B In addition to the proposed changes based on the 1992 WEPCO amendments ( see section II of this preamble), the 1996 proposal package included alternative regulatory language that would enable you to determine whether VerDate Dec< 13> 2002 09: 09 Dec 30, 2002 Jkt 200001 PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 E:\ FR\ FM\ 31DER3. SGM 31DER3 80205 Federal Register / Vol. 67, No. 251 / Tuesday, December 31, 2002 / Rules and Regulations your facility has undertaken a modification based on the facility's prechange and post change potential emissions instead of its actual emissions. This action was part of the settlement of a challenge to our 1980 NSR regulations by CMA and other industry petitioners. The exact language we proposed was set forth in Exhibit B to the Settlement Agreement, which is contained in the docket for this rulemaking. Under this method, sources may calculate emissions increases and decreases based on the actual emissions method or the unit's pre change and post change potential emissions, measured in terms of hourly emissions ( that is, pounds of pollutant per hour). Sources could use this potential topotential test for NSR applicability, as well as for calculating offsets, netting credits, and other ERCs. We proposed to make several changes to the NSR regulations. First, we proposed to add the following exclusion to the definition of `` major modification'':

A major modification shall be deemed not to occur if one of the following occurs: ( a) there is no significant net increase in the source's PTE ( as calculated in terms of pounds of pollutant emitted per hour); or ( b) there is no significant net increase in the source's actual emissions.

Second, we proposed to delete all references to `` actual emissions'' in the definition of `` net emissions increase'' and added language indicating that all references to `` increase in emissions'' and `` decreases in emissions'' in the definition of `` net emissions increases'' `` shall refer to changes in the source's PTE ( as calculated in terms of pounds of pollutant emitted per hour) or in its actual emissions.'' Third, we proposed to modify the applicability baseline by eliminating the reference to the 2 year baseline period and to a method for determining actual emissions during the representative period. Finally, we proposed to provide express authorization for sources to use potential emissions in calculating offsets and in creating ERCs. We also indicated in the preamble for the 1996 proposed rulemaking that if we promulgated the Exhibit B settlement as a final rule, the Exhibit B rules would need to be updated to reflect other rule changes since 1980, as well as relevant provisions of the 1990 Amendments. Before proposing the Exhibit B language, we did a preliminary analysis of the impact on the NSR program of the Exhibit B changes. These changes would provide maximum flexibility to existing facilities with respect to determining if a significant net emissions increase would result from a physical or operational change. However, we also expressed concern about the environmental consequences associated with the Exhibit B provisions. For one, you could modernize your aging facilities ( restoring lost efficiency and reliability while lowering operating costs) without undergoing preconstruction review, while increasing annual pollution levels as long as hourly potential emissions did not change. Also, Exhibit B would allow your facilities to generate netting credits and ERCs for offsets based on potential hourly emissions, even if never actually emitted. This could sanction greater actual emissions increases to the environment, often from older facilities, without any preconstruction review. In addition, actual emissions increases resulting from unreviewed projects could go largely undocumented until a PSD review is performed by a new or modified facility that ultimately must undergo review. By that time, however, a violation of an increment could have unknowingly occurred. We were also concerned that Exhibit B would ultimately stymie major new source growth by allowing unreviewed increases of emissions from modifications of existing sources to consume all available increment in PSD areas. In our analysis supporting the 1996 proposal, we were unable to reach any conclusions as to the magnitude of any environmental impacts beyond noting that the effects would vary from State to State depending on how much cumulative difference exists between the unused potential emissions and actual emissions in a given inventory of sources and on the extent to which any unused potential emissions have been used in attainment demonstrations. However, our analysis did show that typical source operation frequently does result in actual emissions that are below allowable emission levels. We received many comments in response to the 1996 proposal regarding CMA Exhibit B. Some commenters believe the potential to potential test appropriately focuses on the significant emissions changes that could produce an adverse environmental impact. Several other commenters believe that a potential to potential test would be environmentally detrimental. These commenters believe that CMA Exhibit B represents a substantial weakening of the PSD program with large increases in actual emissions, which in itself could lead to a significant deterioration of air quality. They also express concerns regarding the creation of paper credits and other impacts on the broader air quality planning process. One commenter states that the potential topotential test would conflict with SIPs that are based on actual emissions, threaten a State's efforts to make reasonable further progress ( RFP) demonstrations, and interfere with emission credits relied on by SIPs. These commenters also cite the following concerns.   The potential to potential test would allow sources to escape the major modification provisions and could virtually eliminate NSR in most modification cases.   Once a facility has proceeded without NSR based on actual emissions, it would be difficult to take an enforcement action years later that would successfully require that facility to retrofit LAER and obtain offsets retrospectively. We agree that a potential to potential test for major NSR applicability could lead to unreviewed increases in emissions that would be detrimental to air quality and could make it difficult to implement the statutory requirements for state of the art controls. After consideration, we believe some of the comments in support of Exhibit B have merit. As noted by commenters who supported the CMA Exhibit B proposal, a potential to potential test could simplify and improve the NSR process. According to commenters, the CMA Exhibit B approach would have the following benefits.   Limit the scope of the program to encompass only those significant physical changes that Congress intended to cover   Reduce unnecessary NSR costs and delays and improve compliance and enforcement   Lower the cost of the NSR process by reducing the complexity of the NSR applicability determinations   Facilitate applicability decisions at the plant level The commenters also say that the CMA Exhibit B approach is more equitable than the existing actual topotential approach, which results in the capture of a source's unused capacity. These commenters prefer the potentialto potential test because it would allow utilization increases. This provision is especially useful for sources in cyclical industries where using existing capacity is critical. Sources in sectors where utilization and demand are closely related would also benefit. Our own concerns, coupled with the concerns expressed by some commenters, have caused us to reject the use of the Exhibit B regulatory changes for general purposes of determining whether a proposed VerDate Dec< 13> 2002 09: 09 Dec 30, 2002 Jkt 200001 PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 E:\ FR\ FM\ 31DER3. SGM 31DER3 80206 Federal Register / Vol. 67, No. 251 / Tuesday, December 31, 2002 / Rules and Regulations 26 In our 1996 proposal we used the term `` actual emissions,'' while today we are using the term `` baseline actual emissions.'' This change in terminology is consistent with the regulatory changes discussed in section II of today's preamble. Despite this change in terminology, there may be places in this section of the preamble where we still use the phrase `` actual emissions.'' In such cases we are either discussing PALs established under the old regulatory provisions, or summarizing and responding to comments received on the 1996 proposal. 27 Under our current NSR program, you can make physical changes or changes in the method of operation without triggering major NSR applicability, provided the individual changes do not result in significant net emissions increases. We have interpreted this requirement to permit you to make unrelated changes that, standing alone, do not result in significant emissions increases and to allow such changes to occur without considering whether other contemporaneous emissions increases render the change significant. Over time you could undertake numerous unrelated projects without triggering major NSR, provided the individual projects did not increase emissions by a significant amount, thus allowing source wide emissions to increase over time without requiring any emissions controls for these individual projects. For example, a large chemical plant that is located in an ozone attainment area adds a new product line in 2001 and properly avoids PSD ( including the BACT requirement) by limiting the VOC emissions increase to 39 tpy. Later, in 2003 the plant adds a different product line and also properly avoids PSD by limiting VOC emissions from the new line to 39 tpy. For this example, two process lines at the same plant with total potential emissions ( 78 tpy) above the 40 tpy VOC significant level under PSD were properly permitted over a 3 year period without BACT applying to either new product line. physical or operational change would result in a major modification. For the reasons stated above, we do not believe that a potential to potential approach is acceptable for major NSR applicability as a general matter. However, we agree with the commenters in part   some of the benefits of a potential to potential approach are desirable. We believe that in more limited circumstances a `` potential to potential'' like approach would be acceptable. Therefore, we are promulgating two new applicability provisions that capture the benefits of a potential to potential approach but still have the necessary safeguards to ensure environmental protection   PALs, and the Clean Unit Test. Today's rules provide for a PAL based on plantwide actual emissions. If you keep the emissions from your facility below a plantwide actual emissions cap, then you need not evaluate whether each change might be subject to the major NSR permitting when you make alterations to the facility or individual emissions units. The cumulative actual emissions become the de facto potential emissions for the plant, and you may emit up to the permitted level without going through major NSR, even if you are making changes to the facility. The PAL allows you to make changes quickly by allowing you to alter your facility without first going through major NSR review. It thus limits the number and complexity of NSR applicability determinations, and reduces unnecessary costs and delays. It also allows a plant manager to authorize changes, as long as the emissions remain under the permitted level, without first obtaining reviewing authority review. Furthermore, it provides an incentive to use state of theart controls and install new, lower emitting equipment, which will allow sources to increase utilization. In return for the flexibility a PAL allows, you must monitor emissions from all of your emissions units under the PAL. Therefore, the PAL ensures good controls and protection of air quality. We believe there are other mechanisms for establishing PALs that would achieve beneficial results. For example, we believe PALs based on allowable emissions would produce flexibility and assure environmental protection, provided affected sources had adequate safeguards. Therefore, we intend in the near future to propose a rule that would adopt PALs based on allowable emissions. Analogous to what the PAL does for facilities, the Clean Unit Test sets emission limitations or work practice requirements in conjunction with BACT, LAER, or Clean Unit determinations and identifies any physical or operational characteristics that formed the basis for the BACT, LAER, or Clean Unit determination for a particular unit. The Clean Unit Test recognizes that if you go through major NSR review ( including air quality review) and install BACT or LAER or comparable technology, then you may make any subsequent changes to the Clean Unit without triggering an additional major NSR review, as long as there is no need for a change in the emission limitations or work practice requirements in the permit for the unit that were adopted in conjunction with BACT, LAER, or Clean Unit determination or to alter any physical or operational characteristics that formed the basis for the BACT, LAER, or Clean Unit determination. Therefore, for Clean Units, given that the permit is based on a determination that is protective of air quality, the new test would deem there is no emissions increase as a result of any physical change or change in the method of operation. With these provisions, sources will have improved certainty and flexibility, reduced burden, and opportunity for utilization increases without compromising air quality. Like the PAL, the Clean Unit includes necessary safeguards by requiring enforceable permit terms and conditions to ensure environmental protection.

IV. Plantwide Applicability Limitations A. Introduction Today we are adopting a final rule for a PAL option that is based on the baseline actual emissions 26 from major stationary sources. A PAL is an optional approach that will provide you, the owners or operators of major stationary sources, with the ability to manage facility wide emissions without triggering major NSR. We believe the added flexibility of a PAL allows you to respond rapidly to market changes consistent with the goals of the NSR program. The final rules we are adopting today also benefit the public and the environment. Reviewing authorities, usually States, can only establish a PAL by using a public process that affords citizens the opportunity to comment upon the proposed PAL. This process is designed to assure local communities that air emissions from your major stationary source will not exceed the facility wide cap set forth in the permit unless you first meet the major NSR requirements. We believe that a PAL provides a more complete perspective to the public because in setting a PAL, your reviewing authority accounts for all current processes and all emissions units together and reflects the long term maximum amount of emissions it would allow from your source. Moreover, to comply with a PAL you must meet monitoring requirements prescribed in the rules that ensure that both your reviewing authority and the public have sufficient information from which to determine plantwide compliance. Additionally, through the final PAL regulations, we are promoting voluntary improvements in pollution controls by creating an incentive for you to control existing and new emissions units to maintain a maximum amount of operational flexibility under the PAL. Most importantly, for pollutants subject to a PAL, we are prohibiting serial, small, unrelated emissions increases, 27 which otherwise can occur under our existing regulations. If you choose to use it, we believe you will benefit from the PAL option because you will have increased operational flexibility and regulatory certainty, a simpler NSR applicability approach, and fewer administrative burdens. To comply with a PAL, you need to ensure that there are no emissions increases from your major stationary source, as measured against the PAL. For you to do that, there is no need for you to quantify VerDate Dec< 13> 2002 09: 09 Dec 30, 2002 Jkt 200001 PO 00000 Frm 00022 Fmt 4701 Sfmt 4700 E:\ FR\ FM\ 31DER3. SGM 31DER3 80207 Federal Register / Vol. 67, No. 251 / Tuesday, December 31, 2002 / Rules and Regulations 28 The term `` voluntary'' means that you have the option of entering into a PAL, rather than voluntary compliance with a PAL that is in place. Once you have a permit with PAL requirements, you must comply with the requirements. 29 Results of our study are reported in `` Evaluation of the Implementation Experience with Innovative Air Permits.'' A complete copy of this report is located in the docket for today's rulemaking. contemporaneous emissions increases and decreases for individual emissions units. Through the PAL we are allowing you to make timely changes to react to market demand and providing you additional certainty regarding the level of emissions at which your source will be required to undergo major NSR. The benefit to you is that you will not have to make numerous applicability decisions using different baselines. Also, in some situations where you would have been unable to `` net out'' a new project in the major NSR program, under a PAL you can begin construction on your new project without obtaining a major NSR permit, which can take from a few months up to 2 years. In addition, because you may make emissions reductions at emissions units under the PAL to create room for growth at other units, through the PAL we are providing a strong incentive for you to employ innovative control technologies and pollution prevention measures, to create voluntary emissions reductions to facilitate economic expansion.

B. Relevant Background 1. What Is a PAL and How Does a PAL Compare to Other Major NSR Requirements and Netting? The concept of a PAL is simple. Under the Act, you are not subject to major NSR unless you make a `` modification,'' which by definition cannot occur without an emissions increase. CAA section 111( a)( 4). A PAL is a source wide cap on emissions and is one way of making sure that emissions increases from your major stationary source do not occur. The existing regulations require `` major modifications'' to undergo NSR, and the existence of a `` significant net emissions increase'' at the facility is a necessary prerequisite to a `` major modification.'' See, for example, § § 52.21( b)( 2) & ( 3); see also Chevron v. Natural Resources Defense Council, 467 U. S. 837, 863   64 ( 1984). Under our current system, we determine whether a `` significant net emissions increase'' occurs at your major stationary source by focusing initially on the change to the emissions unit( s) and then broadening the analysis to include other changes within the source. In order to determine whether there is a `` significant net emissions increase'' under major NSR as revised today, you must establish a pre change baseline for each change, project the actual level of emissions after the change, calculate the creditable emissions increases and decreases that have occurred that are contemporaneous with the change, and determine whether the change would result in a significant net emissions increase. We refer to this applicability process as `` netting'' under the major NSR regulations. Both you and reviewing authorities have maintained that the netting rules are unnecessarily complex and burdensome, and have urged us to craft rules that link NSR applicability to compliance with a predictable source wide emissions cap. We are responding to that request with the PAL concept. A PAL is a voluntary, 28 source specific, straightforward, flexible approach to account for changes, including alterations to existing emissions units and the addition of new emissions units, at your existing major stationary sources. Complying with the PAL ensures that there are no emissions increases that trigger major NSR. If your emissions of the PAL pollutant remain below the PAL, and you comply with all other PAL requirements, whatever changes occur at your plant will not be subject to major NSR for the PAL pollutant. Our July 23, 1996 proposal contains a thorough discussion of the proposed PAL concept and the background information used to develop the proposal.

2. Why Does EPA Believe That PALs Will Benefit the Environment? Over the past several years, we have allowed use of major stationary sourcewide emissions caps to demonstrate compliance with major NSR in a select number of pilot projects. We recently reviewed six of these innovative air permitting efforts and found substantial benefits associated with the implementation of permits containing emissions caps ( among other types of permit terms offering greater flexibility than major NSR permitting programs). 29 Specifically, we reviewed on site records to track utilization of these flexible permit provisions, to assess how well the permits are working and any emissions reductions achieved, and to determine if there were any economic benefits of the permits. Overall, we found that significant environmental benefits occurred for each of the permits reviewed. In particular, the six flexible permits established emissions cap based frameworks that encouraged emissions reductions and pollution prevention, even though such environmental improvements were not an explicit requirement of the permits. We found that in a cap based program, sources strive to create enough headroom for future expansions by voluntarily controlling emissions. For instance, one company lowered its actual VOC emissions over threefold in becoming a synthetic minor source ( that is, 190 tpy to 56 tpy). Other companies lowered their actual VOC emissions by as much as 3600 tpy by increasing capture, by using voluntary pollution prevention and other voluntary emissions control measures, and by reducing production rates. Participants reported that having the ability to make rapid, iterative changes to optimize process performance in ways that minimize emissions, and that reduce the administrative `` friction'' ( time delays and uncertainty) associated with making operational and equipment changes, encourages facilities to make changes that improve yields and reduce per unit emissions. It is also critical for responding to product development needs and market demand, and for maintaining overall competitiveness. Reviewing authorities consistently reported that the permits worked well and proved beneficial, and that there was a reduction in the number of caseby case permitting actions they needed to undertake. Specifically, we found that flexible permit provisions ( for example, emissions caps) are enforceable as a practical matter by using a mixture of mass balance based equations, CEMS, and parameter monitoring. No emissions cap exceedances or violations of the monitoring provisions were experienced by any of the pilot sources. In addition, the monitoring and reporting approaches worked well and were generally of higher quality and of more extensive scope than those directly required by individual applicable requirements. Based on the results of these pilot projects, we believe that PALs will over time tend to shift growth in emissions to cleaner units, because the growth will have to be accommodated under the PAL cap. Specifically, we expect that PALs will encourage you to undertake such projects as: replacing outdated, dirty emissions units with new, more efficient models; installing voluntary emissions controls; and researching and implementing improvements in process efficiency and use of pollution prevention technologies, so that you can maintain maximum operational flexibility. We also expect that you and the reviewing authority will need to devote substantially fewer resources to VerDate Dec< 13> 2002 09: 09 Dec 30, 2002 Jkt 200001 PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 E:\ FR\ FM\ 31DER3. SGM 31DER3 80208 Federal Register / Vol. 67, No. 251 / Tuesday, December 31, 2002 / Rules and Regulations 30 The key determination to be made is whether an emissions unit is `` permanently shut down.'' This issue is discussed in the Administrator's response to a petition objecting to an operating permit for a facility in Monroe, Louisiana. See Monroe Electric Generating Plant, Petition No. 6   99   2 ( Adm'r 1999). A copy of this decision is in the docket. In general, we explained in our `` reactivation policy'' that whether or not a discussing and reviewing whether major NSR applies to individual changes. Thus, overall, we believe that PALs will prove to be as beneficial to the environment as they are to you and your reviewing authority.

3. What Did We Propose for PALs? On July 23, 1996, we proposed to amend the NSR regulations to specifically authorize PALs and to clarify the methodology under which you can obtain a PAL. Under the proposal, your reviewing authority could have elected to include provisions in its SIP to allow you to apply for a permit that based your source's major NSR applicability on compliance with a pollutant specific, source wide emissions cap. We proposed that a facility's PAL would generally be based on source wide `` actual emissions'' plus an operating margin of emissions less than a significant emissions increase. We also sought comment on the circumstances under which it would be appropriate to use something other than actual ( for example, `` allowable'') emissions to set the PAL. On July 24, 1998, we published a notice in the Federal Register seeking further comment on how the PAL regulations could be reconciled with several environmental and legal concerns. The notice discussed how the PAL alternative fits within the Act's requirements for determining if changes at existing sources are subject to major NSR. Today we are adopting final regulations that address the issues and comments raised in the 1998 notice and the 1996 proposal.

C. Final Regulations for Actuals PALs Today's action establishes final regulatory provisions for actuals PALs. We are placing these requirements in the major NSR rules for nonattainment areas at § 51.165( f), and in the PSD regulations ( applicable in attainment and unclassifiable areas) at § § 51.166( w) and 52.21( aa). The PAL option adopted today provides you with a voluntary alternative for determining NSR applicability. Actuals PALs are rolling 12 month emissions caps ( that is, tpy limits) that include all conditions necessary to make the limitation enforceable as a practical matter. Through the regulations, we are allowing PALs on a pollutant specific basis and are also allowing you to opt for actuals PALs for more than one pollutant at your existing major stationary sources. You must continue to apply the major NSR applicability provisions to air pollutants at your source for which you have no PAL. This section sets forth the specific requirements for actuals PALs. The section addresses the following items: ( 1) The process used to establish a PAL and the public participation requirements; ( 2) how the PAL level is determined; ( 3) how long a PAL is effective and what happens when a PAL expires; ( 4) can a PAL be terminated before the end of its effective period; ( 5) how a PAL is renewed; ( 6) how a PAL can be increased during the effective period; ( 7) circumstances that would cause your PAL to be adjusted during the PAL effective period; ( 8) whether a PAL can eliminate enforceable emission limitations previously taken to avoid major NSR; ( 9) the compliance requirements and monitoring, recordkeeping, reporting, and testing ( MRRT) requirements that the permit must contain for emissions units under your PAL; ( 10) the process for incorporating conditions of the PAL into your title V operating permit; and ( 11) an example of how an actuals PAL would work under the regulations finalized today.

1. What Are the Permit Application Requirements, What Is the Process Used To Establish a PAL, and What Are the Public Participation Requirements? Under today's final rules, you must submit a complete application to your reviewing authority requesting a PAL. The application, at a minimum, must include a list of all emissions units, their size ( major, significant, or small); the Federal and State applicable requirements, emission limitations and work practice requirements that each emissions unit is subject to; and the baseline actual emissions for the emissions units at the source ( with supporting documentation). The calculation of baseline actual emissions must include fugitive emissions to the extent they are quantifiable. The reviewing authority must establish a PAL in a federally enforceable permit ( for example, a `` minor'' NSR construction permit, a major NSR permit, or a SIP approved operating permit program). To comply with our final regulations, the reviewing authority must provide an opportunity for public participation when issuing a PAL permit. This process must be consistent with the requirements at § 51.161 and include a minimum of a 30 day period for public notice and opportunity for public comment on the proposed permit. Where the PAL is established in a major NSR permit, major NSR public participation procedures apply. When establishing a PAL, you must comply with all applicable requirements of the reviewing authority's minor NSR program, including modeling to ensure the protection of the ambient air quality. Additionally, you must meet all applicable title V operating permit requirements. When adding new emissions units under a PAL, you must comply with the reviewing authority's minor NSR permit requirements for public notice, review, and comment. In contrast, when adding new emissions units that will require an increase in a PAL, you must comply with the reviewing authority's major NSR permit requirements for public notice, review, and comment.

2. How Is the Level of the PAL Determined?

We calculate the PAL level for a specific pollutant by summing the baseline actual emissions of the PAL pollutant for each emissions unit at your existing major stationary source, and then adding an amount equal to the applicable significant level for the PAL pollutant under § 52.21( b)( 23) or under the CAA, whichever is lower. You must first identify all your existing emissions units ( greater than 2 years of operating history) and new emissions units ( less than 2 years of operating history since construction). When establishing the actuals PAL level, you must calculate the baseline actual emissions from existing emissions units that existed during the 24 month period as described below. The baseline actual emissions will equal the average rate, in tpy, at which your emissions units emitted the PAL pollutant during a consecutive 24 month period, within the 10 year period immediately preceding the application for a PAL. Consistent with today's final rules, you will have broad discretion to select any consecutive 24 month period in the last 10 years to determine the baseline actual emissions. Only one consecutive 24 month period may be used to determine the baseline actual emissions for such existing emissions units. For any emissions unit ( currently classified as existing or new) that is constructed after the 24 month period, emissions equal to its PTE must be added to the PAL level. Additionally, for any emissions unit that is permanently shut down or dismantled 30 since the 24 month VerDate Dec< 13> 2002 09: 09 Dec 30, 2002 Jkt 200001 PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 E:\ FR\ FM\ 31DER3. SGM 31DER3 80209 Federal Register / Vol. 67, No. 251 / Tuesday, December 31, 2002 / Rules and Regulations shutdown should be treated as permanent depends on the intention of the owner or operator at the time of shutdown based on all facts and circumstances. Shutdowns of more than 2 years, or that have resulted in the removal of the source from the State's emissions inventory, are presumed to be permanent. In such cases it is up to the facility owner or operator to rebut the presumption. period, its emissions must be subtracted from the PAL level. Different rules apply for determining baseline actual emissions for EUSGUs. You should refer to the definition of baseline actual emissions to determine the specific method for calculating baseline actual emissions for your emissions units. Consistent with today's final rules for determining baseline actual emissions, your baseline actual emissions for an emissions unit cannot exceed the emission limitation allowed by your permit or newly applicable State or Federal rules ( RACT, NSPS, etc.) in effect at the time the reviewing authority sets the PAL. This means that for the purpose of setting the PAL, your baseline actual emissions for an emissions unit will include an adjustment downward to reflect currently applicable requirements. Additionally, your reviewing authority shall specify a reduced PAL level( s) ( in tpy) in the PAL permit to become effective on the future compliance date( s) of any applicable Federal or State regulatory requirement( s) that the reviewing authority is aware of prior to issuance of the PAL permit. See section II of today's preamble for additional information on determining the baseline actual emissions for your emissions units.

3. How Long Can a PAL Be Effective and What Happens When a PAL Expires? Through the final rules, we are requiring that the term of an actual PAL be 10 years. At least 6 months prior to, but not earlier than 18 months from, the expiration date of your PAL, you must submit a complete application either to request renewal or expiration of the PAL. If you meet this application deadline for a permit renewal, the existing PAL will continue as an enforceable requirement until the reviewing authority renews your PAL, even if the reviewing authority fails to issue a PAL renewal within the specified period of time. As part of an application to request expiration of the PAL, you must submit a proposed approach for allocating the PAL among your existing emissions units. The reviewing authority will retain the ultimate discretion to decide whether and how the allowable emission limitations will be allocated, including whether to establish limits on individual emissions units or groups of emissions units. As under the PAL, your emissions units must comply with their allowable emission limitations on a 12 month rolling basis. However, the reviewing authority retains the discretion to accept monitoring systems other than CEMS, CPMS, PEMS, etc., from you to demonstrate compliance with these unit specific limits. Until the reviewing authority issues the revised permit with allowable emission limitations covering each of your emissions units, your source must comply with a source wide multi unit emissions cap equivalent to the PAL level. After a PAL expires, physical or operational changes will no longer be evaluated under the PAL applicability provisions. Notwithstanding the expiration of the PAL, you must continue to comply with any State or Federal applicable requirements for a specific emissions unit. ( BACT, RACT, NSPS, etc.) When the PAL expires, none of the limits established pursuant to § § 51.166( r)( 2), 51.165( a)( 5)( ii), or 52.21( r)( 4), which the PAL originally eliminated, would return under today's final rules.

4. Can a PAL Be Terminated Before the End of Its Effective Period? Today's final rules do not contain specific provisions related to the issue of terminating a PAL. Decisions about whether a PAL can or should be terminated will be handled between you and your reviewing authority in accordance with the requirements of the applicable permitting program.

5. How Is a PAL Renewed? As previously discussed, you must submit a complete application to renew a PAL at least 6 months prior to, but not earlier than 18 months from, the expiration date of your PAL. If you submit a complete application to renew the PAL by this deadline, the existing PAL will continue as an enforceable requirement until the reviewing authority issues the permit with the renewed PAL. As part of your renewal application, you must recalculate and propose your maximum PAL level, taking into account newly applicable requirements and the factors described below. Your reviewing authority must review the complete application and issue a proposed permit for public comment consistent with the permitting procedures for issuing the initial PAL. As part of this public process, the reviewing authority must provide a written rationale for its proposed PAL level. If your source's PTE has declined below the PAL level, the reviewing authority must adjust the PAL downward so that it does not exceed your source's PTE. In addition, the reviewing authority may renew the PAL at the same level without consideration of other factors, if the sum of the baseline actual emissions for all emissions units at your source ( as calculated using the definition of `` baseline actual emissions'' at § § 51.165( a)( 1)( xii)( B), 51.166( b)( 21), and 52.21( b)( 21) as amended by today's final rules) plus an amount equal to the significant level is equal to or greater than 80 percent of the PAL level ( unless greater than the current PTE of the major stationary source). However, if the baseline actual emissions plus an amount equal to the significant level is less than 80 percent of the PAL level, the reviewing authority may set the PAL at a level that it determines to be more representative of the source's baseline actual emissions, or that it determines to be appropriate considering air quality needs, advances in control technology, anticipated economic growth in the area, desire to reward or encourage the source's voluntary emissions reductions, cost effective emissions control alternatives, or other factors as specifically identified by the reviewing authority in its written rationale. For instance, a reviewing authority may determine that PAL levels are inconsistent with the levels necessary to achieve the NAAQS, or a State may determine that PAL levels need to be reduced to provide room for new economic growth in the area. In some circumstances, such as in the example cited below, the reviewing authority may exercise its discretion in deciding that an adjustment is not warranted. We believe that such discretion is appropriate, based in part on our experience with the pilot projects previously mentioned. In one instance, a participant voluntarily agreed to reduce its actual emissions by 54 percent in exchange for obtaining a source wide emissions cap. After agreeing to this emissions reduction, the participant further reduced emissions by increasing capture efficiency and incorporating pollution prevention strategies into its operations. Unexpectedly, the participant also suffered an unusual economic downturn that caused a decrease in the rate of production and a corresponding decrease in actual emissions. At the time of renewal of the source wide emissions cap, the participant's actual emissions were 10 percent of its actual emissions before committing to the emissions cap. The participant chose not to renew its emissions caps, because renewal required an automatic VerDate Dec< 13> 2002 09: 09 Dec 30, 2002 Jkt 200001 PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 E:\ FR\ FM\ 31DER3. SGM 31DER3 80210 Federal Register / Vol. 67, No. 251 / Tuesday, December 31, 2002 / Rules and Regulations adjustment to its current actual emissions level. Clearly, such a result contravenes the mutual benefits that operating under a PAL provides, and discourages you from undertaking voluntary reductions. If your source would ordinarily be subject to a downward adjustment, but you believe such an adjustment is not appropriate, you may propose another level. The reviewing authority may approve the level that you propose if it determines, in writing, that the level is reasonably representative of the source's baseline actual emissions. Similarly, the reviewing authority may determine that a lower level best represents the baseline actual emissions from the source. Consistent with the effective period for the initial PAL, all renewed PALs will have a 10 year effective period.

6. How Can a PAL Be Increased During the Effective Period?

The reviewing authority may allow you to increase a PAL during the effective period if you are adding new emissions units or changing existing emissions units in a way that would cause you to exceed your PAL. However, today's rule only authorizes your reviewing authority to allow such an increase if you would not be able to maintain emissions below the PAL level even if you assumed application of BACT equivalent controls on all existing major and significant units ( emissions units that have a PTE greater than a significant amount ( as defined by § 52.21( b)( 23) or the CAA, whichever is lower). Such units must be adjusted for current BACT levels of control unless they are currently subject to a BACT or LAER requirement that has been determined within the preceding 10 years, in which case the assumed control level shall be equal to the emissions unit's existing BACT or LAER control level. The PAL permit must require that the increased PAL level will be effective on the day any emissions unit that is part of the PAL major modification becomes operational and begins to emit the PAL pollutant. Your proposed new emissions unit( s) and your existing emissions units undergoing a change must go through major NSR permitting, regardless of the magnitude of the proposed emissions increase that would result ( for example, no significant level applies). This is because the significant level for the pollutant is incorporated into the PAL. These emissions units must comply with any emissions requirements resulting from the major NSR process ( for example, LAER), even though they have also become subject to the PAL program or remain subject to the PAL. To request a PAL increase, you must submit a complete major NSR permit application. As part of this application, you must demonstrate that the sum of the baseline actual emissions of your small emissions units, plus the sum of the baseline actual emissions from your significant and major emissions units ( adjusted for a current BACT level of control unless the emissions units are currently subject to a BACT or LAER requirement that has been determined within the preceding 10 years, in which case the assumed control level shall be equal to the emissions unit's existing BACT or LAER control level), plus the sum of the allowable emissions of the new or modified existing emissions unit( s), exceeds the PAL. After the reviewing authority has completed the major NSR process, and thereby determined the allowable emissions for the new or modified emissions unit( s), the reviewing authority will calculate the new PAL as the sum of the allowable emissions of the new or modified emissions unit( s), plus the sum of the baseline actual emissions of your small emissions units, plus the sum of the baseline actual emissions from significant and major emissions units adjusted for the appropriate BACT level of control as described above. Your reviewing authority must modify the PAL permit to reflect the increased PAL level pursuant to the public notice requirements of § § 51.166( w)( 5), 51.165( f)( 5), or 52.21( aa)( 5) of today's final rule.

7. Are There Any Circumstances That Would Cause Your PAL To Be Adjusted During the PAL Effective Period? During the term of the PAL, at PAL renewal or at title V permit renewal, your reviewing authority may reopen your PAL permit and adjust the PAL level, either upward or downward, as needed by the reviewing authority. While certain activities require mandatory reopening, for others the reviewing authority may reopen at its discretion. The reviewing authority must reopen the permit for the following reasons: ( 1) To correct typographical/ calculation errors made in setting the PAL or to reflect a more accurate determination of emissions used to establish the PAL; ( 2) to reduce the PAL if the owner or operator of the major stationary source creates creditable emissions reductions for use as offsets; or ( 3) to revise a PAL to reflect an increase in the PAL. The reviewing authority may reopen the permit to: ( 1) Reduce the PAL to reflect newly applicable Federal requirements ( for example, NSPS) with compliance dates after the PAL effective date; ( 2) reduce the PAL consistent with any other requirement that is enforceable as a practical matter, and that the State may impose on the major stationary source under the SIP; or ( 3) reduce the PAL if the reviewing authority determines that a reduction is necessary to avoid causing or contributing to a NAAQS or PSD increment violation, or to an adverse impact on an AQRV that has been identified for a Federal Class I area by an FLM and for which information is available to the general public. While the final rule does not require your reviewing authority to immediately reopen the PAL permit to reflect newly applicable Federal or State regulatory requirements ( for example, NSPS, RACT) that become effective during the PAL effective period, it does require the PAL to be adjusted at the time of your title V permit renewal or PAL permit renewal, whichever occurs first. Notwithstanding this requirement, today's final rule provides your reviewing authority discretion to reopen the PAL permit to reduce the PAL to reflect newly applicable Federal or State regulatory requirements before the time we otherwise require.

8. Can a PAL Eliminate Existing Emission Limitations? An actuals PAL may eliminate enforceable permit limits you may have previously taken to avoid the applicability of major NSR to new or modified emissions units. Under the major NSR regulations at § § 52.21( r)( 4), 51.166( r)( 2), and 51.165( a)( 5)( ii), if you relax these limits, the units become subject to major NSR as if construction had not yet commenced on the source or modification. Should you request a PAL, today's revised regulations allow the PAL to eliminate annual emissions or operational limits that you previously took at your stationary source to avoid major NSR for the PAL pollutant. This means that you may relax or remove these limits without triggering major NSR when the PAL becomes effective. Before removing the limits, your reviewing authority should make sure that you are meeting all other regulatory requirements and that the removal of the limits does not adversely impact the NAAQS or PSD increments. We are not taking a position on whether compliance with requirements contained in a PAL permit could serve to demonstrate compliance with certain pre existing requirements on individual units. The reviewing authority may assess on a case by case basis whether VerDate Dec< 13> 2002 09: 09 Dec 30, 2002 Jkt 200001 PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 E:\ FR\ FM\ 31DER3. SGM 31DER3 80211 Federal Register / Vol. 67, No. 251 / Tuesday, December 31, 2002 / Rules and Regulations any streamlining would be appropriate in the title V permit consistent with part 70 procedures and our existing policies and guidance on permit streamlining.

9. What MRRT ( Collectively Referred to as `` Monitoring'') Requirements Must the Permit Contain for Emissions Units Under Your PAL?

Each permit must contain enforceable requirements that accurately determine plantwide emissions. A PAL monitoring system must be comprised of one or more of the four general approaches that meet the minimum requirements discussed below, and such monitoring systems must be approved by the reviewing authority. You may also employ an alternative approach if approved by the reviewing authority. Use of monitoring systems that do not meet the minimum requirements approved by the reviewing authority renders the PAL invalid. Any monitoring system authorized for use in the PAL permit must be based on sound science and must conform to generally acceptable scientific procedures for data quality and manipulation. In return for the increased operational flexibility of a PAL, your permit must include sufficient data collection requirements to ensure compliance with the PAL at all times. In addition, the PAL permit must contain enforceable provisions that ensure that the monitoring data meet the minimum legal requirements for admissibility in a judicial proceeding to enforce the PAL permit. This section addresses a number of issues associated with the practical enforceability of PALs and describes concepts that you and reviewing authorities must follow when establishing your PAL. The issues addressed include the following.   How do monitoring requirements for emissions units under a PAL differ from those for emissions units that are not under a PAL?   What are the testing requirements for your emissions units under a PAL?   What monitoring systems are appropriate to demonstrate compliance with your PAL?   What information about your proposed data collection systems must be submitted to your reviewing authority for approval?   What recordkeeping requirements must your permit contain to demonstrate compliance with your PAL?   What reporting requirements for your PAL must your permit contain? a. How Do Monitoring Requirements for Emissions Units Under a PAL Differ From Those for Emissions Units That Are Not Under a PAL?

Typically, when an emission limitation applies on a unit by unit basis, the monitoring must be sufficient to provide data that demonstrate that emissions do not exceed the applicable limit for a particular unit. Under this approach, if an emissions unit has to meet an NSPS VOC limit of 9 ppm, the monitoring need only demonstrate that VOC emissions are no higher than 9 ppm but not measure VOC emissions at any precise level below 9 ppm ( for example, 7 ppm, 8 ppm). In contrast, under a VOC emissions actual PAL, the VOC emissions from each emissions unit must be quantified ( in tpy), generally each month as the sum of the previous 12 months of VOC emissions. Thus, it becomes necessary to require monitoring that quantifies the emissions from each emissions unit to ensure that the annual limit is enforceable as a practical matter. As a result, the monitoring requirements for emissions units under a PAL may be more stringent than for those emissions units not under a PAL. In many instances, your emissions units may have monitoring suitable for determining compliance with a unitspecific emission limitation on a periodic basis, in accordance with title V requirements, but that monitoring frequency of data collection may not be appropriate for ongoing emissions quantification for a 12 month rolling total. Thus, even if your emissions unit's monitoring meets the title V requirements in § § 70.6( a)( 3)( i)( B) or 70.6( c)( 1), you must upgrade that monitoring if you request a PAL and the existing monitoring does not meet the minimum requirements of the PAL regulations. All units operating under a PAL must have sufficient monitoring to accurately determine plantwide emissions for a 12 month rolling total. For example, a source owner or operator with five units must be able, at any time, to quantify the baseline actual emissions for the past 12 months for each of the five units. That source should, in advance, outline how it plans to monitor each of the units in order to quantify the emissions. If one of the five units cannot accommodate one of the monitoring options provided in the rule in order to quantify the emissions, then the source owner or operator would be incapable of demonstrating ongoing compliance with the source's PAL. b. What Are the Testing Requirements for Your Emissions Units Under a PAL?

As part of your PAL application and as directed by your reviewing authority, you must use current emissions or other current direct measurement data to demonstrate that your monitoring systems accurately determine emissions from each unit subject to a PAL. You will need to collect such data from all units subject to the PAL, including those that are unregulated at the present time. If you do not have current emissions data, or if your emissions unit's operation and equipment have changed since collection of that data, you will need to obtain current, accurate data, typically by conducting performance tests or other direct measurements before submission of your complete permit application to obtain a PAL. In addition, you will need to revalidate the data and any correlation to demonstrate that your monitoring systems continue to accurately determine emissions from each unit subject to a PAL. This re validation must occur at least once every 5 years for the life of the PAL. Data must be revalidated through a performance evaluation test or other scientifically valid means that is approved by the reviewing authority. You must conduct all testing in accordance with test methods appropriate to your emissions unit and applicable requirements. For example, among the test methods for measuring organic emissions are Methods 18, 25, 25A, and 25B, which can be found in 40 CFR part 60, appendix A. During testing, your emissions unit must operate within the range you wish to operate, so as to provide an accurate quantification of emissions across the entire range. This may require you to perform more than one performance test.

c. What Monitoring Systems Are Appropriate To Demonstrate Compliance With Your PAL?

The PAL monitoring system must be comprised of one or more of four general approaches: ( 1) Mass balance for processes, work practices, or emissions sources using coatings or solvents; ( 2) Continuous Emissions Monitoring System ( CEMS); ( 3) Continuous Parameter Monitoring System ( CPMS) or Predictive Emissions Monitoring System ( PEMS) with Continuous Emissions Rate Monitoring System ( CERMS) or automated data acquisition and handling system ( ADHS), as needed; or ( 4) emission factors. Alternatively, another monitoring approach may be VerDate Dec< 13> 2002 09: 09 Dec 30, 2002 Jkt 200001 PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 E:\ FR\ FM\ 31DER3. SGM 31DER3 80212 Federal Register / Vol. 67, No. 251 / Tuesday, December 31, 2002 / Rules and Regulations used if approved in advance by the reviewing authority. The monitoring approaches mentioned above must meet minimum requirements established by today's rule. In the mass balance approach, you would consider all of the PAL pollutant contained in or created by any raw material or fuel used in or at your emissions unit to be emitted. Currently, we are limiting this approach to monitoring for processes, work practices, or emissions sources using coatings or solvents. In order to use the mass balance approach, you must validate the content of the PAL pollutant that is contained in or created by any raw material or fuel used on site. This validation may be accomplished by a regular testing program conducted by the vendor of the materials or by an independent laboratory. In addition, you are required to use the upper limit of any content range in the calculations, unless the reviewing authority determines that there is a site specific data monitoring system in place at the unit or that there are data to support the use of another content within the range. If your reviewing authority allows you to use a mass balance approach, then the PAL permit must require you to account for all material containing the PAL pollutant or use of all materials that could create PAL pollutant emissions ( through chemical decomposition, by product formation, etc.). For instance, if you are subject to a VOC PAL and your emissions units do not utilize add on control devices, you may use a mass balance approach to determine compliance. For example, suppose over 1 month you were using 8 tons of solvent with 25 percent VOCs ( as demonstrated using Method 311). You would be required to report and include 2 tons of VOC emissions ( since 8 × 0.25 = 2) for that month to compare with the PAL, even though some of the VOCs may not ultimately be emitted. ( For example, they could be retained in your emissions unit's product or in a process waste.) A CEMS, coupled with a CERMS as well as an ADHS ( collectively known as a CEMS), may be used to measure and verify the PAL pollutant concentration, volumetric gas flow ( if applicable), and PAL pollutant mass emissions discharged to the atmosphere from each emissions unit emitting the PAL pollutant. If your source utilize a CEMS approach, you must ensure that the CEMS meets the applicable Performance Specifications in 40 CFR part 60, appendix B. The CEMS must be capable of data sampling at least once every 15 minutes. In addition, you must be able to convert the data obtained from the CEMS system to a mass emissions rate. These types of monitoring systems are appropriate for emissions sources subject to respective SO2, NOX, carbon monoxide, particulate matter ( PM), VOC, total reduced sulfur ( TRS), or hydrogen sulfide ( H2S) regulations. A CPMS or PEMS coupled with CERMS and ADHS ( collectively known as parameter monitoring), may be used for emissions units as reviewed and approved by your reviewing authority. To determine emissions, parameter monitoring relies on: ( 1) Use of physical principles; ( 2) parameters such as temperature, mass flow, or pressure differential; and ( 3) performance testing results. Users of parameter monitoring must show a correlation between predicted and actual emissions across the anticipated operating range of the unit. An example is a source owner or operator who determines VOC emissions from an incinerator by multiplying the incinerator efficiency by the amount of VOC containing material used. Three assumptions are built into the emissions algorithm: ( 1) The VOC content remains constant; ( 2) the control device reduction efficiency remains constant over the temperature range established during performance testing; and ( 3) the unit load remains constant. Checks on these assumptions are established by: ongoing monitoring requirements ( for example, combustion chamber temperature and control device load); ongoing emissions testing requirements ( for example, periodic reevaluation of the correlation between combustion chamber temperature and control device efficiency); and ongoing testing of the VOC content of the material. Another example of parameter monitoring is an organic emissions condenser. The parameter monitoring design in this case is based on the laws of physics and the physical properties of the material ( for example, the lowest condensation temperature of the VOC constituent), the temperature of the condenser, and the maximum material feed rate. Some parameter monitoring works by calculating emissions using data from monitored parameters and a neural network system to optimize performance of a unit. By measuring numerous parameters, the network can then automatically analyze current operations, as well as emissions, and make adjustments to optimize performance. Establishing parameter monitoring is a resource intensive effort, requiring extensive up front testing, analysis, and development. Recently, we have developed draft performance specifications for evaluating appropriate, acceptable parameter monitoring accuracy, repeatability, and reproducibility ( e. g., Performance Specification 16). You and your reviewing authority should review these performance specifications in developing an interim protocol for using parameter monitoring to demonstrate continuous compliance with a PAL. Your approved protocol may require revision as we finalize performance specifications. Today's rule requires you to revalidate your monitoring systems, including parameter re certification emissions testing, at least once every 5 years during the PAL permit term. You may conduct such re validation as part of any other testing required by other non PAL program requirements, such as title V program requirements. If a parameter monitoring approach is taken, the owner or operator must use current site specific data to establish the emissions correlations between the monitored parameter and the PAL pollutant emissions across the entire range of the operation of the emissions unit. If the owner or operator cannot establish a correlation for the entire operation range, the reviewing authority shall, at the time of the permit issuance, establish a default value( s) for determining compliance with the PAL based on the highest potential emissions reasonably estimated during the operational times when an emissions correlation is not available. Alternatively, the reviewing authority may decide that operation of the emissions unit during periods where there is no emissions correlation is a violation of the PAL. The PAL permit must include enforceable requirements if either of these alternatives to the required correlation for parameter monitoring are used. Emission factors may be used for demonstrating compliance with PALs, so long as the factors are adjusted for the degree of uncertainty or limitations in the factors' development. In ascertaining whether an emission factor is appropriate, you and your reviewing authority should consider the contribution of emissions from the emissions unit in relation to the PAL, the size of the emissions unit, and the margin of compliance of the emissions unit. In addition, if the emission factor approach is taken, the emissions unit shall operate within the designated range of use for the emission factor. The owner or operator of a significant emissions unit that relies on an emission factor to calculate PAL VerDate Dec< 13> 2002 09: 09 Dec 30, 2002 Jkt 200001 PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 E:\ FR\ FM\ 31DER3. SGM 31DER3 80213 Federal Register / Vol. 67, No. 251 / Tuesday, December 31, 2002 / Rules and Regulations pollutant emissions shall conduct validation testing using other monitoring approaches ( if technically practicable) to determine a site specific emission factor within 6 months of PAL permit issuance, unless the reviewing authority determines that testing is not required. For example, should you demonstrate to your reviewing authority's satisfaction that the use of your emission factor would yield a result that is protective of the environment, then you may not need to conduct site specific performance testing. An emissions unit is considered significant if the emissions unit has the potential to emit the PAL pollutant in amounts greater than those listed in § 51.165( a)( 1)( x). In the event you choose to use one or more emission factors for your significant or small emissions units, you bear the burden to prove to the reviewing authority that the emission factors are appropriate and adjusted for any uncertainty in the factors' development. By way of example, the sulfur dioxide emission factor for 2 stroke, lean burn, natural gas fired reciprocating engines, 5.88 * 10 4 pounds of sulfur dioxide emitted per million British Thermal Unit ( mmBTU) of natural gas combusted, as published in our Compilation of Air Pollutant Emission Factors AP   42, Fifth Edition Volume 1: Stationary Point and Area Sources, which is found on our Internet Web site at http:// www. epa. gov/ ttn/ chief/ ap42/ index. html, represents an appropriate emission factor. The reviewing authority may approve other types of monitoring systems that quantify emissions to demonstrate compliance with PALs. Other types of monitoring that may be approved include a Gas Chromatographic ( GC) or a Fourier Transform Infrared Spectroscopy ( FTIR) CEMS that relies on extractive techniques, coupled with a CERMS as well as an ADHS, to measure and verify the VOC concentration, volumetric gas flow ( if applicable), and VOC mass emissions ( in lb/ hr) discharged from stacks ( that is, non fugitive emissions) to the atmosphere. For processes, work practices, or emissions sources subject to VOC or organic hazardous air pollutant ( HAP) regulations, these types of monitoring systems may be used for each emissions unit emitting VOC. d. What information about your monitoring system must be submitted to your reviewing authority for approval? You need to propose a monitoring system as part of your PAL permit application submission to your reviewing authority. The monitoring system proposed must accurately determine plantwide emissions. In your permit application, you must describe how you will collect and transform data from each emissions unit subject to a PAL permit, so that the emissions from each unit can be quantified as a 12 month rolling total. In addition, you need to demonstrate how you can be assured the data are and remain accurate by describing how you will install, operate, certify, test, calibrate, and maintain the performance of your monitoring system( s) on each emissions unit that will be subject to the PAL. You will also need to provide calculations for the maximum potential emissions without considering enforceable emission limitations or operational restrictions for each unit in order to determine emissions during periods when the monitoring system is not in operation or fails to provide data. In lieu of the permit requiring maximum potential emissions during periods when there is no monitoring data, you may propose another alternate monitoring approach as a backup. This backup monitoring, however, must still meet the minimum requirements for the monitoring approaches prescribed in the regulation. Note that each monitoring system with applicable requirements contained in appendix B of 40 CFR part 60 must be installed, operated, and maintained according to the applicable Performance Specification of 40 CFR part 60, appendix B. For purposes of determining emissions from an emissions unit, a unit is considered operational not only during periods of normal operation, but also during periods of startup, shutdown, maintenance, and malfunction'even if compliance with a non PAL emission limitation is excused during these latter periods. Your reviewing authority may approve different monitoring for various operating conditions ( for example, startup, shutdown, low load, or high load conditions as demonstrated through multiple performance tests) for each emissions unit. You must, however, use one of the accepted monitoring approaches, including alternative monitoring approved by the reviewing authority, for these periods or calculate the emissions during these periods by assuming the highest PTE without considering enforceable emission limitations or operational restrictions. In addition, the rule permits the reviewing authority to use the reasonably estimated highest potential emissions for periods when your emissions unit operates outside its parameter range( s) established in the performance test, unless another method is specified in the permit, and include those emissions in the 12 month rolling total in order to demonstrate compliance with the PAL. Alternatively, the reviewing authority may decide that operation outside the range( s) established in the performance test is a violation of the PAL. The reviewing authority must decide how to handle emissions when the unit is operating outside the ranges established in the performance tests prior to the issuance of the PAL permit and must include appropriate enforceable conditions in the PAL permit. For parameter monitoring to be approved by your reviewing authority, your proposed monitoring system must measure the operational parameter value( s) within the established sitespecific range( s) of operating parameter values demonstrated in recent performance testing. The monitoring system must then record the associated PAL pollutant mass emissions rate for that period based on the correlations demonstrated with the current test data.

e. What Recordkeeping Requirements Must Your Permit Contain To Demonstrate Compliance With Your PAL?

Your permit must require you to maintain records of your monitoring and testing data that support any compliance certifications, reports, or other compliance demonstrations. This information should contain, but is not necessarily limited to, the following data.   The date, place ( specific location), and time that testing or measuring occurs   The date( s) sample analysis or analyses occur   The entity that performs the analysis or analyses   The analytical techniques or methods used   The results of the analyses   Each emissions unit's operating conditions during the testing or monitoring   A summary of total monthly emissions for each emissions unit at the major stationary source for each calendar month   A copy of any report submitted to the reviewing authority   A list of the allowable emissions and the date operation began for any new emissions units added to the major stationary source. You must also record all periods of deviation, including the date and time that a deviation started and stopped and whether the deviation occurred during a period of startup, shutdown, or malfunction.

VerDate Dec< 13> 2002 17: 13 Dec 30, 2002 Jkt 200001 PO 00000 Frm 00029 Fmt 4701 Sfmt 4700 E:\ FR\ FM\ 31DER3. SGM 31DER3 80214 Federal Register / Vol. 67, No. 251 / Tuesday, December 31, 2002 / Rules and Regulations You must retain records of all required testing and monitoring data, as well as supporting information, for at least 5 years from the date of the monitoring sample, measurement, report, or application. Supporting information includes all calibration and maintenance records and all original strip chart recordings for continuous monitoring instrumentation, and copies of all required reports. Instead of paper records, you may maintain records on alternative media, such as microfilm, computer files, magnetic tape disks, or microfiche, provided that the use of such alternative media allows for expeditious inspection and review and does not conflict with other recordkeeping requirements. You must also retain a copy of the following records for the duration of the PAL effective period plus 5 years: ( 1) A copy of the PAL permit application and any applications for revisions to the PAL; and ( 2) each annual certification of compliance pursuant to title V and the data relied on in certifying the compliance. f. What reporting requirements for your PAL must your permit contain? You must provide semi annual monitoring and prompt deviation reports. The terms and conditions of an approved PAL become title V applicable requirements that will be placed in your title V permit. Therefore, the reports required under title V may meet the requirements of the PAL rule, so long as the minimum reporting requirements listed in the regulations are met. You must submit a semi annual emissions report to the reviewing authority within 30 days after the end of each reporting period. The reviewing authority will use this report to determine compliance with the conditions of the PAL, including the PAL level. The compliance period for an actuals PAL emissions level is a consecutive 12 month period, rolled monthly. Block 12 month periods are not allowed ( for example, Jan. Dec. of each year). The emissions report must include the total baseline actual emissions of the PAL pollutant for the previous 12 months and compare the previous 12 months' total emissions with the PAL level to determine compliance. Additionally, the emissions report must identify: the site; the owner or operator; the applicable PAL; the monitored parameters, the method of calculation with appropriate formulas, any emission factors used, the capture and control efficiencies used and the calculated emissions; total monthly emissions ( tons) and the equations used to compute this value for each of the 12 months before submission of the emissions report ( or for all prior months if the PAL has not been effective for 1 year); total annual emissions ( tpy); a PAL compliance statement; a list of any emissions units added or modified to the site; and information concerning shutdown of any monitoring system, including the method that was used to measure emissions during that period. Finally, in accordance with title V requirements, your permit will require all reports to be certified by your responsible official as true, accurate, and complete.

10. What is the process for incorporating conditions of the PAL into your title V operating permit? As discussed previously, the reviewing authority establishes a PAL in a federally enforceable permit using its minor NSR construction permit process or the major NSR permit construction process and eventually rolling these requirements into its title V operating permit. The reviewing authorities' rules for establishing or renewing PALs must include a public participation process prior to permit approval of the PAL. The process must be consistent with the requirements at § 51.161 and include a minimum 30 day period for public notice and opportunity for public comment on the proposed permit. PALs established through the major NSR process are subject to major NSR public participation requirements. When adding a new emissions unit under an established PAL, you must comply with the reviewing authority's minor NSR permit requirements for public notice, review, and comment. The process for incorporating the conditions of a PAL into the title V operating permit depends on whether the initial title V permit has already been issued for the source. If the initial title V permit has not been issued, a PAL created in a minor or major NSR permit would be incorporated during initial issuance of the title V permit. If the initial title V permit has already been issued, the PAL would be incorporated through the appropriate part 70 modification procedures. As discussed later in this preamble, we suggest that you request that your reviewing authority renew your title V permit concurrently with issuance of your PAL in order to align the two processes together and decrease the administrative burden on you and your reviewing authority. Once a PAL is established, a change at a facility is exempt from major NSR and netting calculations, but could require a title V permit modification, as could any other change. Whether a title V permit modification would be required, and which permit modification process would be used, is governed by the current part 70 rule as implemented by the reviewing authority.

11. What is an example of an actuals PAL?

The following example is based upon a hypothetical source that wishes to obtain an actuals PAL under the final regulations adopted today. A manufacturing plant ( a major stationary source) located in a serious ozone nonattainment area seeks an actuals PAL for VOC in January 2002. The major source threshold for VOC in a serious ozone nonattainment area is 50 tpy and the significant level for VOC modifications is 25 tpy. The plant has 5 emissions units with a total PTE of 640 tpy of VOC. The PTE for VOC for each of the emissions units at the plant is as follows: ( 1) Unit A is 335 tpy; ( 2) unit B is 20 tpy; ( 3) Unit C is 125 tpy; ( 4) unit D is 60 tpy; and ( 5) unit E is 100 tpy. Units A, B, C, and D are existing emissions units with more than 2 years of operating history. Unit E has been in operation for only a year. Unit D was dismantled in year 2000 and is considered permanently shutdown. For units A, B, C, and D, the source has selected July 1, 1996 to June 30, 1998 ( a consecutive 24 month period) to determine baseline actual emissions. Unit A is subject to a RACT requirement that became effective in year 2000. The baseline actual emissions for each emissions unit during this period are as follows: unit A, 140 tpy ( including RACT adjustment); unit B, 10 tpy; unit C, 90 tpy; and unit D, 20 tpy. The actuals PAL level for VOC is = 260 + 100 ¥ 20 + 25 = 365 tpy WHERE   260 tpy = the sum of the baseline actual emissions for emissions units A   D ( with 2 or more years of operation)   100 tpy = the allowable emissions ( PTE) of unit E, which was constructed after the 24 month period;   20 tpy = baseline actual emissions of unit D, which is permanently shut down since the 24 month period; and   25 tpy = significant level for VOC in a serious nonattainment area.

D. Rationale for Today's Final Action on Actuals PALs We received voluminous comments and suggestions in response to the 1996 NSR proposal, the 1998 NOA, and numerous meetings with interested stakeholders. This section addresses the more significant comments we received. For a more detailed discussion of the comments received and our responses,

VerDate Dec< 13> 2002 09: 09 Dec 30, 2002 Jkt 200001 PO 00000 Frm 00030 Fmt 4701 Sfmt 4700 E:\ FR\ FM\ 31DER3. SGM 31DER3 80215 Federal Register / Vol. 67, No. 251 / Tuesday, December 31, 2002 / Rules and Regulations please refer to the Technical Support Document included in the docket for this rulemaking. The comment areas addressed in this section include: ( 1) How do the PAL regulations meet the major NSR requirements of the Act? ( 2) Are PALs consistent with the concept of `` contemporaneity'? ( 3) Are PALs permissible in serious and severe nonattainment areas? ( 4) Is it appropriate for a PAL to be based on actual emissions? ( 5) How should actual emissions be determined in setting the PAL level? ( 6) Should emissions from shut down or dismantled units be excluded from a PAL? ( 7) Should a PAL include a margin for growth? ( 8) Should PALs be required to expire? ( 9) Should we require PALs to be adjusted at the time of PAL renewal? ( 10) Should certain new emissions units that are added under a PAL be required to meet some level of emissions control? ( 11) Under what circumstances should you be allowed to increase your PAL and how should we apply the major NSR requirements to that increase? ( 12) What monitoring requirements are necessary to ensure the enforceability of PALs as a practical matter? ( 13) Is EPA adopting an approach that allows area wide PALs? and ( 14) When should modeling or other types of ambient impact assessments be required for changes occurring under a PAL?

1. How do the PAL regulations meet the major NSR requirements of the Act?

The PAL regulations adopted today meet the requirements of the CAA and are consistent with the Congressional purpose and intent underlying NSR. We believe the PAL regulations constitute a reasonable interpretation of the Act's definition of `` modification'' and are permissible under current law. The definition of `` modification'' set forth in section 111( a)( 4) of the Act is fundamental to determining major NSR applicability. Pursuant to the Act, the term modification means `` any physical change in or change in the method of operation of a stationary source which increases the amount of any air pollutant emitted by such source or which results in the emission of any air pollutant not previously emitted.'' The statute, however, does not prescribe the methodology for establishing a stationary source's emissions baseline from which emissions increases are measured. When a statute is silent or ambiguous with respect to specific issues, the relevant inquiry is whether the agency's interpretation of the statutory provisions is permissible. Chevron U. S. A., Inc. v. NRDC, Inc., 467 U. S. 837, 865 ( 1984). Accordingly, EPA is exercising its discretion to develop reasonable alternatives to determine NSR applicability that are consistent with the statutory provisions and Congressional intent underlying the NSR requirements. We believe that the PAL regulations adopted today represent a permissible construction of the Act.

2. Are PALs consistent with the concept of `` contemporaneity''? In the 1998 NOA, we solicited comment on whether and how a program that recognizes PALs as an alternate method for determining NSR applicability should address a particular legal concern: the need to have some `` contemporaneity'' between an emissions increase and any decrease relied upon to net the increase out of review. As we discussed in the 1998 notice, the current regulations specify that, to be creditable, emissions increases and decreases must have occurred within a `` contemporaneous'' period. Our current regulations governing SIP approved programs do not specify a precise time frame. However, the Federal PSD rules generally only credit those emissions increases and decreases that occur within the 5 years preceding a given change. We established these regulatory requirements after the court's decision in Alabama Power, in which the court interpreted the Act as requiring plantwide bubbling in the PSD program, but stated that `` any offset changes claimed by industry must be substantially contemporaneous.'' 636 F. 2d 402. In the 1998 notice, we sought comment on whether a PAL program that never required PALs to be periodically updated to reflect current emissions at the source would allow sources to make emissions reductions and hold them indefinitely, only to use them several decades later to offset new increases, and whether such a system would contravene the contemporaneity principle the court announced. Many commenters, including several regulatory agencies, maintain that PALs are consistent with the NSR requirements under the Act. These commenters contend that the court gave EPA the discretion to define contemporaneity. See 636 F. 2d 402 (`` The Agency has discretion, within reason, to define which changes are substantially contemporaneous.''). Others contend that changes made under a PAL are not subject to the Alabama Power `` contemporaneity'' requirement because a change made under the PAL is either excluded from NSR or alternatively does not exceed the applicable NSR significance threshold. Therefore, they contend that netting is not implicated by such changes. On the other hand, a few commenters assert that PALs conflict with the purpose of the Act. We believe that the concept of contemporaneity, as articulated in Alabama Power and as set forth in the regulations governing the major NSR program, does not apply to PALs. The PAL program differs in certain important respects from our current regulations and from the 1978 regulations at issue in Alabama Power. The Alabama Power court was not presented with the PAL approach for determining whether there was an increase in emissions and did not consider whether the principles it set forth in its opinion would apply to such an approach. Under the 1978 PSD regulations ( 43 FR 26380), a source was subject to BACT review only if `` no net increase in emissions of an applicable pollutant would occur at the source, taking into account all emissions increases and decreases at the source which would accompany the modification.'' 43 FR 26385. The test for whether a `` major modification'' had occurred required the source to sum all accumulated increases in potential emissions that had occurred at the source since issuance of the regulations, or since issuance of the last construction permit, whichever was more recent. Reductions achieved elsewhere in the source could not be taken into account. In Alabama Power, the D. C. Circuit held that EPA was correct in excluding from BACT review any changes that did not result in a net increase of a pollutant. 636 F. 2d 401. It concluded, however, that EPA had incorrectly excluded contemporaneous decreases from the calculation of whether a `` major modification'' had occurred. Id. at 402   03. The current regulations take contemporaneous decreases into account for all PSD review purposes. Under the current regulations, you look initially at the emissions unit undergoing the change and determine whether there will be a significant increase at that unit. If there is no significant increase at the unit, the inquiry ends there. While we continue to believe that this is a permissible approach, one drawback to this approach is that it allows a series of small, unrelated emissions increases to occur, which is discussed elsewhere in this preamble. If there will be a significant increase at the unit, then you expand the inquiry to other units at the source. You take into account contemporaneous increases and VerDate Dec< 13> 2002 09: 09 Dec 30, 2002 Jkt 200001 PO 00000 Frm 00031 Fmt 4701 Sfmt 4700 E:\ FR\ FM\ 31DER3. SGM 31DER3 80216 Federal Register / Vol. 67, No. 251 / Tuesday, December 31, 2002 / Rules and Regulations 31 Eastern Research Group Inc. report on `` Business Cycles in Major Emitting Source Industries'' dated September 25, 1997. decreases at the source in determining whether there will be an increase for the source as a whole. Thus, you must calculate increases and decreases at individual units in order to arrive at a net figure for the entire source. In contrast, under today's PAL regulations, the inquiry begins and ends with the source. Your PAL represents source wide baseline actual emissions. As such, it is the reference point for calculating increases in baseline actual emissions. If your source's emissions will equal or exceed the PAL, then there will be an emissions increase at your source. There is no need to calculate increases and decreases at individual units. Today's PAL regulations constitute a reasonable, though not the only, approach to determining whether there is an emissions increase at your source. While we believe that the principle of contemporaneity continues to be important for purposes of major NSR netting calculations, we do not believe that it is a necessary concept for purposes of PALs. This is because if your source has a PAL, you have accepted a different means of calculating an emissions increase for the PAL pollutant. The only relevant question is whether your source has reached or exceeded the PAL level. Even though PALs are a new approach, they do not alter the fundamental question, which is whether there will be an increase in emissions from your source. For actuals PALs, we consider whether there will be an increase in baseline actual emissions. Because the PAL serves as the baseline for measuring an increase, we have taken steps to ensure that the PAL is reasonably representative of baseline actual emissions. In taking these steps, we have also ensured that actuals PALs as finalized today are consistent with the concept of contemporaneity, to the extent such a concept has any application in this context. One way of viewing a PAL is to focus on the increases and decreases at individual emissions units that, taken together, result in the net emissions from your source as a whole. As long as the decreases that have occurred during the term of the PAL are sufficient to offset any increase that occurs, total emissions for your source will remain below the PAL, and your source will not experience a `` significant net emissions increase.'' Viewed from this perspective, the term of the PAL constitutes the `` contemporaneous'' period. We believe that 10 years is a reasonable contemporaneous period for PALs for the following two reasons. First, we believe that a 10 year period is practical and reasonable both for you and for the reviewing authority. While a logical stopping point may seem to be 5 years in line with the title V permit period, setting a PAL can be a complex and time consuming process, so a 5 year period would be too short and hence not beneficial either to you or to the reviewing authority. Second, a study conducted by Eastern Research Group, Inc. 31 supported a 10 year look back to ensure that the normal business cycle would be captured generally for any industry. In addition, we believe that the PAL renewal provisions ensure that each 10 year term represents a distinct `` contemporaneous'' period. The renewal process is designed to prevent decreases that occurred outside of the current 10 year PAL term from being used to offset increases during that term. At renewal, the reviewing authority must consider whether decreases have occurred at your source because of compliance with newly applicable requirements. Thus, for example, if the compliance date for a new RACT requirement occurred during the initial term of the PAL, and the reviewing authority has not already adjusted the PAL downward to account for that requirement, it must do so at renewal. More generally, the reviewing authority is required to evaluate baseline actual emissions and provide a written rationale for public comment if it determines that an adjustment to the PAL is warranted. As part of this process, the reviewing authority must adjust the PAL downward if your source's current PTE is below the PAL level. We believe that this adjustment is important for air quality planning purposes. Additionally, the reviewing authority may renew the PAL at the same level if your source's baseline actual emissions plus the significant level are equal to or greater than 80 percent of the PAL level without consideration of other factors. We believe that this level is reasonably representative of the source's baseline actual emissions. If your source's baseline actual emissions plus the significant level are less than 80 percent of the PAL level, the reviewing authority may set the PAL at a level that it determines to be more representative of the source's baseline actual emissions, or that it determines to be appropriate considering air quality needs, advances in control technology, anticipated economic growth in the area, desire to reward or encourage the source's voluntary emissions reductions, or other factors as specifically identified by the reviewing authority in its written rationale. We recognize that fluctuations in baseline actual emissions will occur at most sources as part of the normal business cycle. We also recognize that requiring the reviewing authority to adjust the PAL downward if your source's baseline actual emissions do not equal 100 percent of the PAL level could create an incentive for you to maximize your baseline actual emissions. In addition, most sources do not emit at a level just below the maximum allowable level but rather build in a margin to prevent accidental exceedances. However, the PAL should be reasonably representative of baseline actual emissions so that it can continue to serve as the baseline for calculating an emissions increase. We have balanced these competing concerns in adopting a requirement, subject to the provisions noted below, to provide discretion to the reviewing authority to adjust the PAL level if baseline actual emissions plus the significant level do not equal at least 80 percent of the PAL level. To maintain flexibility, today's actuals PAL regulations allow the reviewing authority to determine representativeness on a case by case basis. If you believe that the new PAL level that the reviewing authority proposes for your source is not representative of your source's baseline actual emissions, you may propose a different level. In addition, any person may propose a different level as being more representative of your source's baseline actual emissions. The reviewing authority may approve a higher or lower level if it determines that it is reasonably representative of your source's baseline actual emissions. For example, assume that your source was designed to burn either fuel oil or natural gas, and that your source's permit allowed the use of either fuel. During the initial term of the PAL, you used only natural gas at the source and your source wide emissions were consistently less than 80 percent of the PAL level. However, due to shifting market conditions, you expected to use fuel oil for a period beginning after PAL renewal. Under these circumstances, the reviewing authority could reasonably determine that a higher level would be more representative of your source's baseline actual emissions. Similarly, your source might be designed to manufacture several different products, and your permit might allow you to switch from one product to another. During the initial term of the PAL, you might produce a VerDate Dec< 13> 2002 09: 09 Dec 30, 2002 Jkt 200001 PO 00000 Frm 00032 Fmt 4701 Sfmt 4700 E:\ FR\ FM\ 31DER3. SGM 31DER3 80217 Federal Register / Vol. 67, No. 251 / Tuesday, December 31, 2002 / Rules and Regulations product associated with low emissions, resulting in source wide emissions that were consistently less than 80 percent of the PAL level. However, you might be planning to produce a product that would cause the source to emit at a higher level following PAL renewal. This is another example of a circumstance in which the reviewing authority could reasonably determine that a higher level was more representative of your source's baseline actual emissions. In addition, for SIP planning purposes, the reviewing authority may adjust the PAL level at its discretion based on air quality needs, advances in control technology, anticipated economic growth in the area, or other relevant factors. Because of the safeguards described above, we believe that the actuals PAL program as finalized today ensures that the PAL will serve as an appropriate baseline for determining whether there is a significant net `` increase'' in overall emissions from the source, and thus whether the source is undergoing a `` modification.'' Moreover, we believe that a PAL approach satisfies Congressional intent to only apply the NSR permit process when industrial changes cause significant net emissions increases to an area and not when changes in plant operations result in no emissions increase from the major stationary source. See Alabama Power, 636 F. 2d 401.

3. Are PALs Permissible in Serious, Severe, and Extreme Ozone Nonattainment Areas? In our 1996 proposal, we requested comment on whether PALs could be implemented in serious and severe ozone nonattainment areas in a manner that was consistent with section 182( c)( 6) of the Act. Section 182( c)( 6) contains special provisions for major stationary sources that increase VOC emissions in serious or severe ozone nonattainment areas as a result of a physical change or a change in the method of operation. In some of these areas, the provisions also apply if you increase NOX emissions. In general, these special provisions change the significant level for VOC emissions in serious and severe nonattainment areas from 40 tpy to greater than 25 tpy. They also specify that you must go through a major NSR permitting review if you have a net emissions increase in the aggregate of more than 25 tpy over a period of 5 years. In addition, we requested comment on whether PALs could be implemented in extreme ozone nonattainment areas. Section 182( e)( 2), which applies in such areas, provides that any physical change or change in the method of operation at the source that results in `` any increase'' from any discrete operation, unit, or other pollutant emitting activity at the source, generally must be considered a modification subject to major NSR permit requirements, regardless of any decreases elsewhere at the source. A few industry commenters believe that the `` accumulation'' provisions of CAA section 182( c)( 6) should make no difference to the acceptability of a PAL in `` serious'' and `` severe'' ozone nonattainment areas. They contend that we have correctly concluded that CAA section 182( c)( 6) only applies when net emissions at the source as a whole increase above the 25 ton level. Accordingly, any change that triggered CAA section 182( c)( 6) would already have breached the PAL limits. On the other hand, an environmental commenter states that a PAL in a serious, severe, or extreme ozone nonattainment area could be problematic because it could allow for an increase at an emissions unit in situations where source wide emissions would not exceed the PAL. We agree with commenters who believe that the PAL approach does not conflict with the provisions of CAA section 182( c)( 6). We do not interpret section 182( c)( 6) to be a limitation on our ability to authorize PALs in serious and severe nonattainment areas. This section directs that when there is an increase meeting certain criteria, it may not be considered de minimis, but it does not specify the methodology by which an emissions increase must be calculated. Accordingly, we exercise our discretion in establishing the methodology, and we are doing so today by having the PAL serve as the actuals emissions baseline against which future emissions increases are measured. Chevron U. S. A., Inc. v. NRDC, Inc., 467 U. S. 837, 865 ( 1984). If your source's emissions equal or exceed the PAL, it will trigger NSR, whereas maintaining plant emissions below the PAL ensures that there is no emissions increase. We believe that our interpretation reasonably implements the statutory purpose of the section, given that PAL sources agree to be subject to a plantwide cap that serves as the reference point for determining whether there has been an increase and given that the appropriateness of the PAL level is reviewed at 10 year intervals. Actuals PALs effectively prevent the uncontrolled, unrelated, small, serial emissions increases section 182( c)( 6) is designed to address. Because CAA section 182( e)( 2) clearly requires consideration of increases at individual emissions units in extreme ozone nonattainment areas, PALs are not allowed in such areas, since any increase in emissions from any unit in those areas constitutes a modification.

4. Is It Appropriate for a PAL to Be Based on Actual Emissions? In 1996, we proposed and sought comment on a broad range of alternative approaches for setting PAL emission limitations, including a PAL based on the following: ( 1) Actual emissions as defined under the current and then proposed regulations at § 51.166( b)( 21)( ii); ( 2) actual emissions with the addition of an operating margin greater than the applicable significance rate; ( 3) for new stationary sources, limits established pursuant to a review of the entire facility under PSD; and ( 4) for nonattainment pollutants ( in nonattainment areas), any emissions level completely offset and relied upon in an EPA approved State attainment demonstration plan. 61 FR 38250, 38256 ( July 23, 1996). We received general support for the PAL concept and for the different approaches we proposed. Some comments express support for a PAL approach based on allowable emissions, and others indicate support for a PAL approach based on actual emissions. Some commenters generally believe that an allowables approach is necessary to ensure increased operating flexibility and capacity utilization. They also assert that an allowables approach would protect air quality management goals, because they claim that air quality planning historically has been based on permitted emissions levels. Other commenters believe that an actuals approach is preferable because it facilitates more accurate air quality planning and provides a more reliable basis for determining the availability of offsets. We have concluded that a major stationary source's compliance with an actuals based PAL system is a permissible means of assuring that a major stationary source does not have a significant emissions increase. We also conclude that this approach can be implemented in a manner that is consistent with the Act. Thus, in today's action, we are adopting regulations that authorize States to issue actuals PALs. We plan to address allowables PALs in an upcoming rulemaking.

5. How Should Actual Emissions Be Determined in Setting the PAL Level? In the 1996 proposal, we requested comment on whether the definition of VerDate Dec< 13> 2002 09: 09 Dec 30, 2002 Jkt 200001 PO 00000 Frm 00033 Fmt 4701 Sfmt 4700 E:\ FR\ FM\ 31DER3. SGM 31DER3 80218 Federal Register / Vol. 67, No. 251 / Tuesday, December 31, 2002 / Rules and Regulations actual emissions for the purpose of determining the level of the PAL should be based on the definition of actual emissions in the current major NSR regulations, or whether it should be based on the proposed revisions to the actual emissions definition contained in that 1996 proposal. The fundamental difference between these two approaches is that the current NSR regulations would only allow you to look back 5 years to determine the actual emissions ( the sum of actual emissions for all emissions units at your major stationary source). The 1996 proposed changes to this definition would allow you to look back 10 years to determine the actual emissions. Several commenters prefer a 10 year baseline period for setting PALs based on actual emissions. A few commenters prefer a 5 year baseline period. One commenter advocates use of an actual emissions level that is initially based on the previous 2 years but that would decline over time. In a separate section of today's final rules, we are finalizing changes to our definition of baseline actual emissions. Among other changes to the definition, you will be allowed to look back for a period of 10 years to establish the baseline actual emissions ( except for EUSGUs). For program consistency and ease of implementation, we believe that the procedure for determining the baseline actual emissions for establishing your PAL should be the same as the baseline actual emissions that you will be required to use under the other major NSR program requirements. Accordingly, we are adopting an approach for establishing your actuals PAL that is consistent with how the baseline actual emissions are determined for an emissions unit under other requirements of the major NSR program. We are, however, including a special allowance for emissions units that have operated for less than 2 years. Under such circumstances, the emissions unit has not operated long enough to establish a reliable baseline actual emissions calculation. Therefore, today's rule allows your reviewing authority to consider the allowable emissions of such emissions units when establishing or renewing the PAL. The baseline actual emissions of such emissions units would be adjusted to reflect a more representative level of baseline actual emissions at the time of the next PAL renewal.

6. Are Emissions From Shut Down or Dismantled Units Excluded From a PAL? We proposed several options to adjust PAL levels to account for emissions units that are shut down or dismantled before setting a PAL. Several commenters support adjusting the PAL level for permanently shut down or dismantled units. A few commenters maintain that PAL adjustments are only appropriate for long term shutdowns. Other commenters oppose allowing adjustments for shutdowns. They indicate that it would be difficult to implement and that it could penalize sources that were meeting environmental goals. We agree with commenters that the baseline actual emissions used in establishing the PAL should exclude emissions from units that are permanently shut down or dismantled after the 24 month period selected for establishment of baseline emissions. We believe that excluding such emissions from your PAL level is appropriate for air quality planning purposes. Moreover, the environment has already seen the benefit of the reduced emissions. We also do not agree with those commenters who advocate adjusting the PAL only for long term shutdowns, because it is too difficult to define and enforce `` long term.'' As described in section IV. C. 2 of this preamble, the PAL level includes baseline actual emissions from each existing emissions unit and new emissions unit at the source. For any emissions unit that has been permanently shut down since the 24 month period, its emissions should not be included in calculating the PAL level. Conversely, for an emissions unit that began construction after the 24 month period, the emissions ( equal to the potential emissions of that emissions unit) must be included in setting the PAL level. One shutdown option we considered, but did not adopt, is to exclude emissions from PALs only for units that did not operate at all during the 10 year life of the PAL. Under this option, the PAL would not be adjusted downward if you utilized those emissions from the shut down or dismantled units elsewhere at your source during the period since the shutdown ( for example, by adding new emissions units or capacity, or by increasing capacity utilization at existing emissions units). As we indicated in our proposal, we believe it would be too difficult to determine whether you have actually relied on these emissions decreases in undertaking other activities at your source. We did not receive any comments suggesting ways to overcome this identified problem. 7. Does a PAL Include a Reasonable Operating Margin?

In the July 23, 1996 action, we proposed that a PAL for existing sources be based on source wide actual emissions, including a reasonable operating margin less than the applicable significant emissions rate. We also requested comment on several other options for establishing a PAL. Several commenters support the option of basing the PAL on source wide actual emissions plus a reasonable operating margin less than the applicable significance amount. Other commenters believe an operating margin tied to significant levels would be too restrictive. Today we are finalizing an option that allows you to include, when setting the initial PAL, an amount that corresponds to the significant level for modifications of the PAL pollutant as specified in the major NSR rules [ for example, in the PSD regulations at § 52.21( b)( 23)( i)], or as specified in the CAA, whichever is lower. For example, for SO2 PALs you may add to the PAL baseline level the 40 tpy significant level; for CO PALs you may add 100 tpy to the PAL baseline level. Also, for serious and severe ozone nonattainment areas the VOC significant level added to the PAL level is 25 tpy. For major sources of NOX located in serious and severe ozone nonattainment areas, where NOX is regulated as an ozone precursor, you may add to the NOX PAL baseline the NOX significant level of 25 tpy, and not the 40 tpy NOX significant level specified under PSD. In extreme ozone nonattainment areas, PALs are not allowed since any increase in emissions in these areas constitutes a modification. While other approaches to providing a reasonable operating margin may be consistent with the CAA, we believe that the approach we are adopting today comports most closely with existing regulatory provisions for major NSR applicability. That is, it assures that the environment sees no significant increases in emissions compared to the baseline actual emissions existing before the PAL is established. In our 1998 NOA, we also requested comment on whether we should provide for an operating margin when renewing a PAL. We proposed four possible approaches for maintaining a reasonable operating margin, including an option that would include in the adjusted PAL level an operating cushion equal to 20 percent of the current PAL. In a separate section of the NOA, we also requested VerDate Dec< 13> 2002 17: 13 Dec 30, 2002 Jkt 200001 PO 00000 Frm 00034 Fmt 4701 Sfmt 4700 E:\ FR\ FM\ 31DER3. SGM 31DER3 80219 Federal Register / Vol. 67, No. 251 / Tuesday, December 31, 2002 / Rules and Regulations comment on how PALs should be adjusted for emissions units that have installed good emissions controls. Many commenters indicate that we must provide for a reasonable operating margin. However, we generally received unfavorable comments on all the approaches we suggested. Several commenters believe that our suggested approaches do not provide an adequate operating margin. In responding to our request for comment on how to adjust PALs for emissions units that have installed good emissions controls, many commenters indicate that it would be inappropriate for EPA to `` confiscate'' such emissions reductions. Such an approach would encourage sources to pollute to maintain higher baseline emissions, and would penalize those sources who would voluntarily reduce emissions. At least one commenter maintains that both you and the environment should benefit from these reductions, and thus, you should be allowed to retain a portion of your voluntary emissions reductions. We agree with some commenters that mandating an adjustment at renewal, based solely on current operations and emissions levels, would discourage the voluntary emissions reductions the PAL is specifically designed to encourage. We agree with commenters that both you and the environment should benefit from your commitment to comply with a PAL. Should you engage in voluntary emissions reductions, we believe you should be able to retain the accompanying flexibility that encouraged you to make these reductions. At the time of renewal, it may be very difficult for a reviewing authority to distinguish the reason for a decrease in your baseline actual emissions level. It could be because you have aggressively applied emissions controls, or because of a decrease in utilization, a loss of capacity, a desire to maintain a compliance margin, or any of a number of other reasons. Accordingly, we believe that it would be difficult to advise a reviewing authority to only retain a certain percentage of your emissions reductions that resulted from applying emissions controls. Therefore, for simplicity, and for what we believe to be a reasonable policy position to encourage you to voluntarily reduce emissions without a fear of a complete loss of operational flexibility, we are allowing your reviewing authority discretion to renew the PAL at an appropriate level. Hence, your reviewing authority may renew the PAL at the same level without consideration of other factors, if the baseline actual emissions plus the significant level is equal to or greater than 80 percent of the PAL level. If not, today's rules also allow your reviewing authority to renew the PAL at a different level if it determines that level is more representative of baseline actual emissions. See section II. D. 9, `` Should we require PALs to be adjusted at the time of PAL renewal,'' for more information on our rationale for allowing this discretion.