Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule Step 3 and GHG Plantwide Applicability Limitations

Response to Comments

                     (This page intentionally left blank.) Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule                Step 3 and GHG Plantwide Applicability Limitations

                             Response to Comments

                          Air Quality Policy Division                   Office of Air Quality Policy and Standards                      U. S. Environmental Protection Agency                        Research Triangle Park, NC  27711                                                                                June 2012                      (This page intentionally left blank.)                                Table of Contents

List of Acronyms and Abbreviations	ii 1.0	Introduction	1 1.1	Background	1 1.2	The Commenters	1 1.3	Organization of This Document	2 2.0	Comments on Proposed Step 3 Thresholds	7 2.1	Comments Supporting the Proposal Not to Lower the GHG Thresholds	7 2.1.1	Comments Related to the Criteria for Lowering the Thresholds	7 2.1.2	Comments on the Burden Associated with Lower Thresholds	11 2.1.3	Comments Supporting Higher Thresholds	14 2.2	Comments Opposing the Proposal Not to Lower the GHG Thresholds	15 2.3	Other Comments Received on the Proposed Thresholds	48 2.3.1	Comments on a Permanent Exclusion for Small Sources	48 2.3.2	Comments on a Permanent Exclusion/Deferral for Biogenic Emissions	49 2.3.3	Comments on the Need to Analyze the Impact on Sources in Evaluating Thresholds	50 2.3.4	Comments on "GHG-Only" Sources	51 2.3.5	Other Comments	52 3.0	Comments on PALS for GHGs	56 3.1	Comments on GHG PALs in General	56 3.2	Comments on Options Related to GHG PALs	71 3.2.1	Comments on the Major Source Opt-In and Minor Source Approaches	71 3.2.2	Comments on the Basis for GHG PALs (Mass or CO2e)	78 3.2.3	Comments on Setting the Level of a GHG PAL	84 3.3	Other Comments on GHG PALs	87 4.0	Miscellaneous Comments	90 4.1	Impacts Analysis	90 4.2	GHG NSPS Standard  -  EGUs ("Carbon Pollution Rule")	92 4.3	Implementation Issues	92 4.4	Other	93

List of Acronyms and Abbreviations

§ Section (used in this document for sections of the CFR) Act Clean Air Act (42 U.S.C. 7401 - 7671q) BACT best available control technology CAA Clean Air Act (42 U.S.C. 7401 - 7671q) CFR Code of Federal Regulations CO2e carbon dioxide equivalent D.C. Circuit U.S. Court of Appeals for the District of Columbia Circuit EGU electric generating unit EPA U. S. Environmental Protection Agency ESA Endangered Species Act FIP Federal implementation plan FR Federal Register FTE full-time equivalent GHG greenhouse gas MRR Mandatory Reporting Rule MSW municipal solid waste NAAQS National Ambient Air Quality Standard NESHAP National Emission Standards For Hazardous Air Pollutants NSPS New Source Performance Standards NSR New Source Review PAL Plantwide applicability limitations PSD Prevention Of Significant Deterioration RFA Regulatory Flexibility Analysis SIP State implementation plan Tpy tons per year U.S.C. United States Code

Introduction

Background

	On March 8, 2012, the U. S. Environmental Protection Agency (EPA or "we") proposed a rulemaking titled Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule Step 3, GHG Plantwide Applicability Limitations and GHG Synthetic Minor Limitations.  The proposal concerned the third step (Step 3) in the phase-in process for the EPA's Tailoring Rule. The proposed rule would determine not to lower the applicability thresholds for purposes of Prevention of Significant Deterioration (PSD) and title V permitting for greenhouse gas (GHG)-emitting sources from the current levels. The EPA also proposed two streamlining approaches, which would improve the administration of the PSD and title V permitting programs for GHGs. The first streamlining approach in the proposal addressed the implementation of GHG plantwide applicability limitations (PALs). We proposed to allow permitting authorities to issue GHG PALs on either a mass-basis (tons per year [tpy]) or a carbon dioxide equivalent (CO2e) basis and to allow PALs to be used as an alternative approach for determining whether a project is a major modification and whether GHG emissions are subject to regulation. The second streamlining approach in the proposal was to create the regulatory authority for the EPA to issue synthetic minor limitations for GHGs in areas subject to a GHG PSD Federal Implementation Plan (FIP). We also discussed our progress in evaluating the suitability of other streamlining approaches and solicited further comment.

	While a number of comments were submitted regarding the proposed issuance of synthetic minor limitations for GHGs in areas subject to a GHG PSD FIP and on various streamlining measures, we are not finalizing these proposed actions in this rulemaking. Therefore, we are not responding to such comments in this document. We appreciate the comments received on these issues and will consider them further as we continue to consider measures to further streamline PSD and title V permitting for GHG.

	This document, together with the preamble to the final rule titled: "Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule Step 3 and GHG Plantwide Applicability Limits," presents the responses of the EPA to public comments received on the notice of proposed rulemaking. All significant issues raised in timely public comments have been addressed.

The Commenters

	The public comment period ended on April 20, 2012. In addition, a public hearing was held on March 20, 2012. We received comments from 57 commenters, including one mass comment campaign with comments from 81 individuals. This total counts each entity one time even if it submitted more than one comment letter and/or presented testimony at the public hearing. The commenters can be broken down by general type as follows: 34 industry and industry association commenters, 8 state/local and regional agencies, 2 environmental advocacy organization commenters (one of which included a group of several organizations), and 94 private citizens (includes 13 individual commenter letters and one mass comment campaign comprised of 81 individual comment letters). The comments are listed at the end of this section.

Organization of This Document

	After this introductory section, this document is divided into three additional sections.  The sections are as follows:

   *          Section 2  -  Comments on the Proposed Step 3 Thresholds    *          Section 3  -  Comments on PALs for GHGs    *          Section 4  -  Miscellaneous Comments

                                 Document Id a                           EPA-HQ-OAR-2009-0517-xxxxx                                      Title                                      19250 American Chemistry Council et al                                      19251 G. Farr                                      19252 J. Van Heusen                                      19253 Lee R. Lemke, Exec. VP, Georgia Mining Association (GMA)                                      19254 Anonymous public comment                                      19255 G. A. Talbot                                      19256 Don Smith, P.E., Manager, Air Quality Permits Section, Industrial Division, Minnesota Pollution Control Agency                                      19257 Pamela F. Faggert, VP & CEO, Dominion Resources Services Inc.                                      19258 Matthew Page, VP, Smith Aldridge, Inc.                                      19259 William C. Herz, VP, Scientific Programs, The Fertilizer Institute (TFI)                                      19260 Michael G. Dowd, Air Division Director, Virginia Department of Environmental Quality                                      19262 Tim Serie, Counsel, Government Affairs and David Darling, Director, Environmental Affairs, American Coatings Association (ACA)                                      19263 Susan Eckerly, Senior Vice President, Public Policy, National Federation of Independent Business (NFIB)                                      19264 Misti Duvall, Staff Associate, National Association of Clean Air Agencies (NACAA)                                      19265 Zeynep Erdal, Program Manager, California Wastewater Climate Change Group (CWCCG)                                      19266 Mark R. Vickery, Executive Director, Texas Commission on Environmental Quality (TCEQ)                                      19267 Alice Edwards, Director, Division of Air Quality, State of Alaska, Department of Environmental Conservation                                      19268 Angus E. Crane, Executive Vice President, General Counsel, North American Insulation Manufacturers Association (NAMA)                                      19269 Joseph Otis Minott, Executive Director, Clean Air Council                                      19270 Robert A. Wyman, Counsel, Latham & Watkins LLP on behalf of National Climate Coalition (NCC)                                      19271 Michael Bradley, Director, The Clean Energy Group                                      19272 Patrick J. Hester, Associate General Counsel, Spectra Energy Corp                                      19273 Thure Cannon, Executive Director, Texas Pipeline Association (TPA)                                      19274 Susan Asmus, Sr. VP, Regulatory Affairs, National Association of Home Builders (NAHB)                                      19275 Joel Visser, Sidley Austin, LLP on behalf of David P. Tenny, President and CEO, National Alliance of Forest Owners (NAFO)                                      19276 Edward W. Repa, Director Environmental Programs, National Solid Wastes Management Association (NSWMA) and John H. Skinner, Executive Director and CEO, Solid Waste Association of North America (SWANA)                                      19277 William C. Allison V, Director, Air Pollution Control Division, Colorado Department of Public Health and Environment                                      19278 Robert D. Bessette, President, Council of Industrial Boiler Owners (CIBO)                                      19279 Amy Banister, Senior Director, Air Programs and Kerry Kelly, Director, Federal Public Affairs, Waste Management (WM)                                      19280 Mohsen Nazemi, P. E. Deputy Executive Officer, Engineering and Compliance; and Barbara Baird, District Counsel, Office of the District Counsel, South Coast Air Quality Management District (SCAQMD)                                      19281 Christian Huebner, Trade Association Coalition on behalf of American Chemistry Council et al                                      19282 Shannon S. Broome, Katten Muchin Rosenman LLP on behalf of the Association Coalition                                      19283 Leslie Sue Ritts, Counsel, Ritts Law Group, PLLC on behalf of the National Environmental Development Association's Clean Air Project (NEDACAP)                                      19284 Robert M. Dinneen, President, Renewable Fuels Association                                       19285 Allison D. Wood, Hunton & Williams LLP on behalf of Utility Air Regulatory Group (UARG)                                      19286 Renee Lesjak Bashel, Chair, National Steering Committee, State Small Business Ombudsman/Small Business Environmental Assistance Programs                                      19287 Tim Higgs, Corporate Environmental Engineer, Air Quality, Intel Corporation                                      19288 Quinlan J. Shea, III, VP, Environment, Edison Electric Institute (EEI)                                      19289 Angela D. Marconi, Project Manager, Delaware Solid Waste Authority (DSWA)                                      19290 David Isaacs, VP, Government Policy, Semiconductor Industry Association (SIA)                                      19291 Myra C. Reece, Chief, Bureau of Air Quality, Environmental Quality Control, South Carolina Department of Health and Environmental Control (DHEC)                                      19292 Pamela A. Campos, Environmental Defense Fund, Center for Biological Diversity, Clean Air Task Force, Natural Resources Defense Council, and Sierra Club                                      19293 Chris M. Hobson, Chief Environmental Officer and Sr. VP, Research & Environmental Affairs, Southern Company                                      19294 Mass Comment Campaign sponsoring organization unknown (81)                                      19295 M. Wozniak                                      19296 M. Troutman                                      19297 D. Plank                                      19298 C. Evans                                      19299 Dr. T. Jiunta                                      19300 P. Karpich                                      19301 M. Payan                                      19302 R. Kisberg                                      19303 Reed M. Content, Director, Global EHS & CSR, GLOBALFOUNDRIES, U.S. Inc.                                      19304 Lawrence Kennedy, Chief, Bureau of Air Pollution Control, Division of Environmental Protection, Nevada Department of Conservation and Natural Resources                                      19305 L. Wallach                                      19306 William H. Lewis, Morgan, Lewis & Bockius LLP on behalf of Clean Air Implementation Project (CAIP)                                      19307 Howard J. Feldman, Dir. Of Regulatory and Scientific Affairs, American Petroleum Institute (API) [a] Document ID identifies written comments found in Docket No. EPA-HQ-OAR-2009-0517 by document number.

Comments on Proposed Step 3 Thresholds

Comments Supporting the Proposal Not to Lower the GHG Thresholds

Comment:

	Many commenters, including many industry (19253, 19257, 19258, 19259, 19262, 19265, 19268, 19270, 19271, 19272, 19273, 19278, 19279, 19281, 19282, 19283, 19284, 19285, 19286, 19287, 19289, 19290, 19306, 19307) and state and local agency commenters (19260, 19264, 19267, 19277, 19280, 19291, 19304), expressed support for not lowering the GHG major source thresholds below the levels promulgated in Step 2 of the Tailoring Rule. These commenters typically agreed with one or more points in the rationale presented by the EPA in the proposal preamble, as detailed further in subsequent comments in this section. One of the industry commenters (19273) supported the EPA's proposal because it refrains from extending what the commenter believes is a largely untested program to even more sources. Although expressing support for the proposal, another industry commenter (19262) believes that the Tailoring Rule phase-in approach is flawed and will continue to create regulatory uncertainty. One industry commenter (19278) stated that EPA should not apply PSD to GHG-emitting sources that are smaller than the sources subject to PSD due to emissions of conventional pollutants.

Response:

      We agree with the commenters that support the EPA's proposed determination not to lower the Tailoring Rule thresholds, for the reasons described in the preamble and this document. Because these reasons provide adequate support for not lowering the thresholds, it is not necessary to respond to comments suggesting other reasons, such as the approach of not applying PSD to GHG-emitting sources that are smaller than sources subject to PSD due to emissions of conventional pollutants.        2.1.1	Comments Related to the Criteria for Lowering the Thresholds

Comment:

	Thirteen industry commenters (19257, 19259, 19262, 19270, 19271, 19281, 19282, 19283, 19285, 19287, 19290, 19306, 19307) and four state and local agency commenters (19260, 19266, 19280, 19304) agreed with the EPA that the capabilities or capacity of the state permitting authorities have not improved to the extent necessary for additional sources or an influx of permit applications to be brought into the system. Another industry commenter (19272) similarly stated that the proposed rule appears to be reasonable in that it allows the state permitting authorities the time to develop the required infrastructure for the potential increase in permit applications.

	One industry commenter (19259) noted that state budgets have decreased, which has led to a decrease in state environmental agency staff and longer permitting times. The commenter stated that lowering the thresholds would further add to permitting delays and tax state environmental agencies. The commenter reported that a recent letter from the National Association of Clean Air Agencies to the U.S. House of Representatives states that 80 percent of air agencies experienced a decline in staffing levels in the last 4 years, with an average staff loss of 16.7 percent for the period of 2008-2010. Therefore, according to the commenter, the EPA's second criterion for lowering the applicability (that states have had time to ramp up their permitting resources) has not been satisfied.

	One local agency commenter (19280) stated that staffing and permitting resources at that agency continue to drop and another reduction of 7.6 percent is planned in order to meet budget constraints. This commenter also reported that changes in California law have made it more difficult for the agency to increase permit fees (i.e., the commenter cited Proposition 26 which provides that all charges imposed by a local government are taxes, unless they qualify for an enumerated exemption, which increases the likelihood of litigation challenging any fee increase). A state agency commenter (19260) indicated that if the GHG applicability threshold levels were reduced, increased resources would be required and additional pressure would be placed on already strained agency resources. Another state agency commenter (19266) similarly indicated that lowering the thresholds would require resources that are not available.

	One state agency commenter (19304) stated that a number of recent and ongoing federal rulemakings, including the publication of a number of new NESHAP, are demanding resources that would otherwise be employed to help address permitting requirements and the needs of the regulated community. As an example, the commenter noted that the February 2011 NESHAP for Gold Mine Ore Processing and Production Area Source Category (40 CFR Part 63, Subpart EEEEEE) made all affected sources subject to title V permitting, increasing Nevada's universe of title V sources by almost 50 percent. According to the commenter, this increase, coupled with the current title V applicability threshold of 100,000 tpy CO2e for existing sources, will increase Nevada's universe of title V sources by approximately 150 percent over the next few years. The commenter added that in addition to impacting the agency's permitting resources, this expansion of the title V universe would place an immense burden on Nevada's oversight responsibilities for compliance and enforcement.

	An industry commenter (19259) stated that the issuance of only 18 GHG PSD permits since the promulgation of the Tailoring Rule demonstrates that states do not yet possess the requisite expertise to promptly act on GHG PSD and title V permit applications at the current applicability thresholds. Therefore, according to the commenter, the EPA's third criterion for lowering the applicability thresholds (that states have the ability to issue timely permits) has not been met. A state agency commenter (19260) made a similar point, asserting that states are still on a learning curve with the initial GHG regulations and in the process of developing appropriate GHG requirements for permits.

	Two industry commenters (19278, 19281) opined that the EPA should not interpret the lack of GHG or PSD permits related to GHG emissions as an indication that there is not a problem at the current GHG thresholds. The commenters stated that a number of permit actions were expedited to occur before the Tailoring Rule became effective, and that facilities are not pursuing other projects because of the permitting costs and challenges. Another industry commenter (19307) asserted that the discrepancy between the EPA's projection of GHG permit activity and the actual permit activity to date cannot be due simply to "the economy." Instead, the commenter believes that the GHG PSD requirements have caused businesses to delay investment and expansions, almost certainly with a resulting adverse impact on jobs.

	Another industry commenter (19279) agreed that current permit activity levels are not representative of the regulatory burden expected from current PSD and title V GHG permitting requirements. The commenter opined that the burden caused by implementation of multiple NAAQS changes in rapid succession, and the dramatic increase in air emissions modeling triggered by them, is delaying the development and submission of permit applications. The commenter reported that many sources are still evaluating the EPA's 1-hour SO2 and NO2 modeling guidance and the EPA has not yet issued implementation guidance for the new NAAQS.

	Two industry commenters (19281, 19283) alleged that there is currently a backlog of GHG-related PSD permits in EPA Region 6, where only one GHG-related PSD permit had been issued and approximately 20 other permit applications were pending. The commenter added that the additional backlog associated with GHG permitting is an addition to backlogs caused by non-GHG permitting requirements, citing as an example a recent study which found that less than one-third of all title V permit renewals are issued within the federally mandated 18-month window [U.S. EPA, Timely Issuance of Permit Renewals and Significant Permit Modifications Under Title V: An Evaluation of the Permit Issuance Process (February 2007), at ES-1, available at http://1.usa.gov/IASe4Y (last visited April 12, 2012)]. The commenter (19281) argued that the EPA's confidence that increased GHG permit applications will make things easier, not harder, is misplaced.

Response:                We appreciate these comments. Because they generally agree with our proposal, it is not necessary to evaluate each one. We appreciate the information that commenters provided about state budgets, the development by the states of permitting expertise, and possible explanations for the disparity between actual and expected numbers of GHG permitting actions, and we have incorporated this information, as appropriate, into our rationale for this action.                 To the extent that any comments  -  such as the comment that the EPA's confidence that increased GHG permit applications will make things easier, not harder is misplaced -- could be construed as calling into question the validity of any of the three criteria, we respond that those criteria were established in the Tailoring Rule and we are not re-opening them in this Step 3 rulemaking, so that we are not responding to such comments in this rulemaking. For the sake of completeness, if these comments concerning increased GHG permit applications were relevant to this Step 3 rulemaking, our response is that we determined in the Tailoring Rule that permitting authorities could, at present, accommodate a certain level of PSD and title V permitting, and whether they could accommodate a greater level of such permitting in the future would depend, in part, on whether they had developed expertise in such permitting.

Comment:

	Three industry commenters (19262, 19273, 19282) asserted that a prerequisite to lowering the thresholds is the establishment of meaningful streamlining techniques, which has not yet occurred. Another industry commenter (19290) stated simply that more streamlining is needed before a reduction in thresholds is adopted.

Response:

      We appreciate these comments and note that they are consistent with our rationale for this action.

Comment:

	Three industry commenters (19282, 19284, 19285) asserted that, while they believe the EPA reached the correct conclusion in deciding not to lower the applicability thresholds, its analysis fails to consider a critical criterion  -  whether sources are able to meet the requirements of the PSD program for GHGs. One of the commenters (19282) argued that the EPA must ensure that it evaluates the original criteria promulgated in the final Tailoring Rule (absent a new notice-and-comment rulemaking to change the criteria) when evaluating whether to lower the thresholds, and that the EPA cannot meet this criterion simply by evaluating the length of time it takes permitting authorities to issue permits (as the commenter alleges that the EPA claimed in footnote 30 of the Step 3 proposal preamble). Another of the commenters (19285) asserted that, had the EPA examined whether sources were able to meet the requirements of the PSD program, the analysis would have further supported its determination that the thresholds should not be lowered.

	One industry commenter (19282) stated that sources do not presently have the ability to meet PSD or title V permitting program requirements below the 100,000 tpy CO2e level for GHGs. The commenter contended that, for the small increment of additional GHG emissions brought into the PSD program, a huge number of additional sources that have no familiarity with PSD would be brought into the program. The commenter asserted that smaller sources will be unable to manage these requirements if suddenly brought within the PSD program, and added that the ability to meet requirements includes the ability to understand the provisions themselves in addition to meeting the permit application requirements. The commenter added that even for sources that would be part of the program at 100,000 tpy CO2e, the costs are high.

Response:

      We appreciate these comments. In the Tailoring Rule, we described this criterion as "information we have as to the sources' abilities to meet the requirements of the PSD program and the permitting authorities' ability to process permits in a timely fashion." Tailoring Rule, 75 FR 31559. We stated in the Tailoring Rule Step 3 proposal: "we note that in the Tailoring Rule, we made clear that sources' abilities to meet the requirements of the PSD and title V programs depend at least in part on the ability of the states to develop, as part of the state programs, outreach and educational efforts to facilitate source compliance. Accordingly, for present purposes, we think this component concerning sources may be examined by a review of the states' progress in developing state GHG permitting programs." Tailoring Rule Step 3 proposal, 77 FR 14232/col. 3. The commenters take issue with this statement, and assert that this criterion requires an examination of sources' abilities to meet PSD requirements that is independent of the permitting authorities' ability to process permits in a timely fashion.

      We do not find it necessary in this rulemaking to resolve this issue as to the meaning of the reference to sources. This is because for purposes of this rulemaking, the information we have about permitting authorities leads us to conclude that this criterion points towards determining not to lower the thresholds. Even if the sources were to be treated as a separate component of this criterion, no commenter suggested that information about the sources would lead us to conclude anything differently about this criterion. Because, in this rulemaking, information about sources does not play a role in assessing this criterion, it is not necessary to resolve the issue of the meaning of the sources' abilities to comply with GHG permitting requirements, and whether sources' abilities to comply should be considered independently from the permitting authorities' ability to administer GHG permitting.           2.1.2	Comments on the Burden Associated with Lower Thresholds

Comment:

	Five industry commenters (19253, 19258, 19262, 19281, 19306) and three state and local agency commenters (19266, 19280, 19304) asserted that lowering of the PSD applicability thresholds would impose a tremendous burden on state and local permitting agencies and the regulated community, without achieving any meaningful environmental benefit. In a similar vein, another state agency commenter (19291) indicated that at the current levels, small sources and state and local agencies will not be unnecessarily burdened with permit applications that result in very little, if any, environmental benefits. Similarly, an industry commenter (19272) indicated that lowering the thresholds to 75,000 would unduly burden the natural gas pipeline industry.  Furthermore, another industry commenter (19274) stated that lowering the thresholds would unduly burden the housing industry.

	One of the industry commenters (19281) opined that the additional emissions coverage (such as 1 percent) the EPA could achieve by decreasing the thresholds does not justify the significant additional burden to sources and the already-stressed state and local permitting authority resources. The commenter added that further lowering of GHG emissions thresholds would impact trade-sensitive industry sectors such as petroleum, manufacturing and chemical industries, which would create "leakage" of both jobs and carbon emissions overseas.

	One local agency commenter (19280) quoted the EPA's analysis to say that reducing the threshold to 50,000 tpy would almost double the number of permits issued (with a 540 percent increase in PSD permits) for a mere 3 percent increase in covered emissions. The commenter asserted that the EPA has previously estimated that an increase of 550 PSD permit actions would be administratively infeasible; therefore, an anticipated increase of 3,000 permit actions (with only an incremental benefit) would be overwhelming to permitting authorities.

	One industry commenter (19253) opined that the lead time required to apply for and obtain a PSD permit is already an impediment to economic activity, and that further burdening of the permitting infrastructure with additional applications by reducing the applicability thresholds would only exacerbate the problem.

      One industry commenter (19283) stated that the EPA underestimated permitting burdens because EPA apparently did not include biogenic CO2 emissions in its analyses.        	One industry commenter (19276) stated that the EPA required itself to propose or solicit comment on including, in Step 3, a permanent exemption for small sources on grounds of absurd results, and expressed concern that in light of the EPA's continued focus on streamlining measures, the EPA instead appears to be moving in the direction of ultimately lowering the thresholds to the statutory levels.

Response:

      We appreciate the commenters' comments. Because we agree that the thresholds should not be lowered, and because we have sufficient support for that determination, based on our interpretation and application of the three criteria, it is not necessary to respond specifically to each of these comments, so that it is not necessary to evaluate each of the reasons they provide for not lowering the thresholds. We agree that at this time, the trade-off between the numbers of additional sources and the amount of emissions that would become subject to permitting requirements if the thresholds were lowered supports the reasonableness of our determination not to lower the thresholds. We also agree that due to the lack of progress made on the three criteria, lowering the thresholds could lead to an increase in the lead time required to obtain a PSD or title V permit.

      The comment concerning the EPA's treatment of biogenic emissions in the burden analysis is not relevant for present purposes because, again, the EPA is not lowering the thresholds.  In addition, as noted below, the EPA has in place a process for determining how to account for biogenic CO2 emissions.

	The EPA did not commit to propose or solicit comment on including, in Step 3, a permanent exemption for small sources on grounds of absurd results, but instead stated that the EPA may propose or solicit comment on that matter. 75 FR 31524/col. 2. The EPA did not, in fact, propose or solicit comment on such an exemption in the proposal, and so is not taking further action, or further considering comments, on such an exemption at this time. The EPA makes no additional statements in this rulemaking on whether it will propose or solicit comment on such an exemption in the future. The EPA does not believe its focus on streamlining measures provides any indication as to whether the EPA will or will not propose or solicit comment on such an exemption in the future.

Comment:

	Three industry commenters (19262, 19278, 19286) expressed concern that lowering the thresholds would unduly burden small sources and small businesses. One local agency commenter (19280) believes that Congress never intended for PSD and title V to apply to sources smaller than some reasonable threshold, and consequently, the EPA is not required to reduce the Tailoring Rule threshold.

	One of the industry commenters (19262) stated that the EPA should maintain existing permitting thresholds at current levels until the EPA can provide adequate assurance that smaller sources will remain outside the regulations in the foreseeable future. The commenter suggested that the EPA set a minimum floor for the permitting requirements.

	One of the industry commenters (19286) stated that lowering of the applicability thresholds would cause more small sources to be drawn into the requirements and place additional burdens on these facilities. The commenter recommended applicability thresholds that continue to minimize the impact on small businesses.

	Another industry commenter (19278) similarly stated that, as the EPA lowers the thresholds, more and more sources are swept out of state permitting structures and into the federal permitting process, and that these are generally smaller facilities with less access to resources. According to the commenter, small businesses are not equipped to accommodate the substantial additional PSD burden and are not in a position to net out or avoid PSD. The commenter asserted that this inhibits small businesses' ability to make improvements needed to remain competitive. The commenter added that even larger facilities with substantial resources are having difficulty obtaining PSD permits today.

	The industry commenter (19278) argued that, in order for the EPA to analyze the true impact of GHG Tailoring Rule changes, a more accurate analysis is needed, which would include an assessment of minor source permitting. The commenter indicated that the EPA should survey states to determine how many minor permit actions are completed annually that increase emissions at a facility by more than significance thresholds in order to evaluate the increased burden on PSD permitting associated with the current approach which, according to the commenter, federalizes state permitting actions. This commenter requested that the EPA not lower the threshold below the current level now or in the future.

Response:                 We appreciate the commenters' concerns about the burden that smaller sources would face if we implemented lower thresholds. Because we are able to justify our decision not to lower the thresholds on our analysis of the three criteria, as we interpret and apply those criteria, it is not necessary to address, at this time, the impact of lowering the thresholds on smaller sources. As we noted in the Tailoring Rule, in no event will EPA apply PSD or title V to sources below the 50,000 tpy CO2e levels prior to April 2016. In addition, the EPA has committed to conduct a study, to be concluded by April 30, 2015, evaluating the status of PSD and title V applicability to GHG sources, and, based on the study, to complete a rulemaking by April 30, 2016 that addresses another round of a phase-in approach. It is not necessary to decide at this time whether to permanently exempt some sources, based on size, from the PSD or title V requirements that would otherwise apply. We appreciate the comment concerning collecting more information from the states  -  including information about minor source permitting -- to obtain a more accurate burden analysis. We discuss in the preamble steps we intend to take to gather more information.        Comment:

	One industry commenter (19274) stated that the EPA appears to be heading toward lowering the emission thresholds in the future and expressed concern about how that will affect the housing sector. The commenter noted that the EPA has cited residential housing as a source category in several of its TSDs, and the commenter believes that this implies that the EPA intends to eventually include housing as a stationary source in its GHG regulatory framework under the Act. The commenter reported that this could result in the regulation of approximately 137,000 existing multifamily buildings and 6,400 new buildings, and at least 45,350 existing family homes and 515 new single family homes annually.

Response:

      We appreciate the comments received on the housing sector. At this time, we are not lowering the thresholds and will review the need to lower the threshold during the 5 year study. However, in no event will EPA apply PSD or title V to sources below the 50,000 tpy CO2e levels prior to April 2016. In addition, the EPA committed to conduct a study, to be concluded by April 30, 2015, evaluating the status of PSD and title V applicability to GHG sources, and, based on the study, complete a rulemaking by April 30, 2016 that addresses another round of phase-in.

2.1.3	Comments Supporting Higher Thresholds

Comment:

	Three industry commenters (19279, 19281, 19307) not only agreed that the thresholds should not be lowered, but recommended that the EPA increase the Tailoring Rule applicability thresholds.

	One industry commenter (19279) stated that municipal solid waste (MSW) landfills, while emitting only 2 percent of total anthropogenic U.S. GHG emissions, are disproportionately impacted by the Tailoring Rule. The commenter contended that closed landfills are particularly disadvantaged by a low applicability threshold. The commenter reiterated recommendations made in comments on the Tailoring Rule that the EPA tailor the PSD and title V applicability thresholds for landfills to reduce the disproportionate burden. The commenter recommended that the EPA consider the following PSD and title V applicability thresholds for GHGs:     *       A PSD applicability threshold of 820,000 tpy CO2e; and     *       A title V applicability major source threshold of 320,000 tpy CO2e (or 160,000 tpy CO2e for landfills based on the Landfill NSPS).

	Two industry commenters (19279, 19281) opined that the emissions data that the EPA has received pursuant to the GHG Reporting Rule will show that significantly more facilities and GHG emissions are covered at the current thresholds than the EPA believed when it promulgated the Tailoring Rule. The commenter stated that an analysis of the data would show that the EPA could substantially increase the thresholds for new PSD sources, major modifications and title V sources and still cover the same amount of GHG emissions under the PSD and title V programs, while at the same time significantly reducing the number of facilities actually subject to those programs. The commenters added that raising the thresholds would assure a closer match between sources subject to PSD due to their emissions of conventional pollutants and sources subject to PSD due to their emissions of GHGs. 	 	Another industry commenter (19307) suggested that the EPA consider raising the GHG thresholds to 250,000 tpy. The commenter believes that this threshold for GHGs would be more consistent with sources that are subject to the thresholds for criteria pollutants.

Response:

      The purpose of today's rulemaking is to determine whether, based on the three criteria, the thresholds should be lowered. We are not considering whether to increase the thresholds.  Accordingly, at this time, we are not taking action on the commenters' requests to raise the thresholds, and we are not responding to their comments seeking higher thresholds.              Although we are not responding to their comments, for the sake of completeness, we note that we that responded to comments concerning the MSW landfills and other requests for higher thresholds or industry-specific exemptions in the Tailoring Rule. See 75 FR 31589 (Tailoring Rule). In addition, we note that in the preamble and below, we address the issue of whether to consider, in Step 3, revising the data sets and methodology used as the basis for the Tailoring Rule, and steps we intend to take in the future to collect more information and take further action. Particularly with respect to the comment about reviewing the data that the EPA is receiving from the GHG Reporting Rule, it is not appropriate for the EPA, in this Step 3 rulemaking, to re-open and review components of the data sets and methodology that form the basis of the permitting burden estimates. However, the EPA expects to collect additional data concerning permitting activity from the states and evaluate this information during the five-year study. At the same time  -  during the five-year study  -  the EPA expects to evaluate data received through the GHG Reporting Rule.

Comments Opposing the Proposal Not to Lower the GHG Thresholds

Comment:

      One environmental advocacy organization commenter (19292)  -  a group of organizations that filed a joint comment -- opined that in order for the EPA to justify maintaining the current Tailoring Rule thresholds, "the doctrine of administrative necessity requires that EPA provide evidence of continuing administrative impossibility," and therefore the EPA must provide data demonstrating that lowering thresholds would create administrative impossibilities. The commenter stressed that the actual number of permit applications has been much less than the EPA's methodology estimated, and stated, "[w]here estimates of permitting burdens conflict with actual experience, the agency must update its methods for assessing administrative loads based on the actual experience of permitting agencies to date." As a result, the commenter asserted that in the Step 3 proposal, "EPA has not provided sufficient justification for its conclusion that the permitting load faced by permitting agencies warrants maintenance of the current thresholds for the period covered by Step 3. While maintenance of the current applicability thresholds for GHG emissions may be justified by a record demonstrating continued administrative necessity, the EPA has not yet provided sufficient evidence in its proposed action." The commenter added that the EPA "may wish to consider a supplementary proposal or notice of data availability that ensures adequate and transparent notice to stakeholders with adequate opportunity to comment."

      Elaborating, the environmental advocacy organization commenter (19292) stated that the EPA, in the Tailoring Rule, conceded that it was authorized to temporarily raise the statutory thresholds for PSD and title V applicability only, according to the commenter, "to the extent necessary to avoid administrative impossibility, and [EPA further conceded] that its burden of proving the existence of that impossibility was extremely high." The commenter added that "EPA also acknowledged that it must move towards implementing these programs as closely to their statutory thresholds and as quickly as administratively possible; EPA committed to issue, as Step 3 of the Tailoring Rule, a determination of whether the thresholds could be lowered by 2013 to bring additional sources into the permitting programs without overwhelming permitting authorities." According to the commenter, "[i]n other words, to justify maintaining current tailoring thresholds in Step 3, EPA must provide data demonstrating that lowering thresholds would create administrative impossibilities."

      The environmental advocacy organization commenter (19292) went on to state that "[r]elevant case law tightly limits [the EPA's] ability to phase in rather than fully implement clear statutory mandates to circumstances of clear administrative impossibility," which the agency carries the burden of proving, and cited Alabama Power Co. v. Costle, 636 F.2d 323, 358 (D.C. Cir. 1979). The commenter added that "[l]ater decisions confirm the limited scope of "administrative necessity" exemptions and the heavy burden EPA bears in advancing this justification for departure from statutory requirements," and cited Environmental Defense Fund v EPA, 636 F.2d 1267 (D.C. Cir. 1980) and Sierra Club v. EPA, 719 F.2d 436, 463 (D.C. Cir. 1983). The commenter added that the agency's burden of proving administrative impossibility "is even heavier when the Agency is looking ahead to the prospect of administrative difficulties, as opposed to asserting an existing inability to implement regulations," and cited Sierra Club v. EPA, 719 F.2d 436, 462-63 (D.C. Cir. 1983). The commenter added that "the doctrine does not allow an agency to deviate from the statute any more than the minimum extent necessary," and cited Pub. Citizen v. FTC, 869 F.2d 1541, 1556 (D.C. Cir. 1998) and, generally, Mova Pharm. Corp., 140 F.3d at 1069.

      Turning to the basis for the Step 3 proposal, the environmental advocacy organization commenter (19292) stated that in the Tailoring Rule, the EPA estimated that at the 100,000/75,000 level, permitting authorities would be required to issue 1,605 annual additional PSD permits and 190 annual additional title V permits (or 1,795 annual permits in total), and that this workload was manageable. The commenter emphasized that in the Tailoring Rule, the EPA was compelled to rely on estimates of demand for GHG permitting, but that the EPA now has data as to actual permitting during the first year of the phase-in.                However, the environmental advocacy organization commenter (19292) went on to point out that "the agencies' experience with the PSD permitting for GHGs differed greatly from what EPA estimated. Between January 1, 2011 (the commencement of Step 1) and December 1, 2011 (the date of the study it undertook to determine whether the 100,000/75,000 threshold could be lowered in Step 3), the EPA and state permitting authorities issued only 18 PSD permits to sources emitting GHGs at or above the Step 1 and 2 thresholds.... Only 50 additional permits were in process at that time." The commenter stated, "That reality necessarily displaces EPA's original projections, and must inform whatever revised estimates EPA may make of permitting burdens in the next few years," and added, "But EPA has not adjusted its predictions downwards. EPA's Step 3 permitting burden estimates contradict its real-world experience, and that of state permitting authorities. In light of the true 2011 permitting workload, the proposed rulemaking clearly does not meet the burden of demonstrating impossibility." The commenter reiterated that "[t]his gulf between reality and estimate must be thoroughly addressed in assessing future expected demand on permitting agencies, but EPA has not provided any new assessment here."              The environmental advocacy organization commenter (19292) added that the EPA must also update its estimates about the actual costs incurred on a per-permit basis, in light of the experience of the permitting agencies in issuing the 18 permits, and concluded, "Without engaging in this effort, EPA cannot meet its burden of demonstrating that lowering the thresholds in 2013 remains impossible."              The environmental advocacy organization commenter (19292) added  -

      that the increase in workload due to GHG PSD permitting activity of a scale seen in 2011 is well within the increased workload that EPA determined was manageable in the initial Tailoring Rule. At that time, EPA determined that permitting authorities would be able to accommodate an annual increase of 1,605 additional PSD permits (plus another 190 Title V permits), or an annual increase of 133% in PSD permitting alone. Actual experience shows the permitting volume, at 18, to have been two orders of magnitude less than the estimated amount of 1605 permits. Based on the current record, EPA cannot maintain that its predictions remain accurate or that they continue to demonstrate it is impossible to lower the thresholds set in the Tailoring Rule by 2013.              The environmental advocacy organization commenter (19292) then turned to the EPA's explanation for the limited permit activity, stating that although the EPA explains the difference between its projections and actual permitting as due to economic fluctuations, the EPA "includes no evidence in the record indicating how PSD permitting levels have varied with economic changes in the past or demonstrating that an increase from tens to thousands of permits per year is consistent with either past experience or credible forecasts of future activity." The commenter also stated that a review of permitting levels recorded in the RACT/BACT/LAER Clearinghouse indicated that the amount of variability in permitting activity would be limited.

      The environmental advocacy organization commenter (19292) then took issue with what it described as the EPA's assertion that the EPA's "proposed decision not to lower the thresholds is justified because doing so would bring a "very small" amount of additional greenhouse gas emissions within permitting programs." The commenter stated --

      though an assessment of environmental benefits may be pertinent to questions of how to tailor in the face of demonstrated administrative necessity; it is not relevant to a determination of whether administrative demands reach the very high levels necessary to justify departure from statutory text. EPA must show that it remains impossible to fold additional sources into the program as the statute requires; the size of the emissions controlled  -  i.e., the benefits of the undertaking  -  may not be considered as part of this inquiry.               The environmental advocacy organization commenter (19292) then took issue with the the EPA's three criteria for evaluating the thresholds, asserting that they "are pertinent only in the face of evidence that the permitting demand continues to exceed capacity by a significant amount. They may be considered only after showing that the permitting agencies are already running at capacity  -  established under the Tailoring Rule as 1,605 PSD permits per year  -  and that any additions beyond that level would exceed administrative capacity. EPA's current record does not so demonstrate."              Continuing to respond to the EPA's criteria for evaluating the thresholds, the environmental advocacy organization commenter (19292) stated that the EPA "introduces a new rationale for continued tailoring  -  lack of experience by state and local permitting agencies."  The commenter pointed out that many of the over 200 state and local permitting programs will not receive a single PSD permit application for years, and then asserted, "EPA's argument that each of these permitting authorities must have actual GHG permitting experience at the current thresholds before it will consider lowering the thresholds is untenable.... [M]ere lack of experience cannot be used as evidence that an administrative impossibility exists...."                The environmental advocacy organization commenter (19292) also cautioned against what it described as the "EPA['s] attempt to rely on a decision by one or more state legislatures to underfund CAA programs as evidence of `administrative necessity.'"           The environmental advocacy organization commenter (19292) concluded by asserting that the "EPA misapprehends the burden it must meet in other instances as well. For instance, the necessary inquiry for the Step 3 analysis is not whether permitting agencies have the capacity to "efficiently manage" the permitting program...; whether expanding the program would "add more burden,"... ; or whether the EPA can justify lowering the thresholds.... Rather, to retain the Tailoring Rule thresholds, the EPA must demonstrate that thresholds below Steps 1 and 2 exceed administrative capacity; that the additional burden would do the same; and that it can justify retaining, rather than lowering, the thresholds."

      Another environmental advocacy organization commenter (19269) asserted that the EPA does not meet the requirements of "administrative necessity" to avoid lowering the Step 3 thresholds. The commenter argues that, while the EPA committed in the Tailoring Rule to not lower the GHG PSD applicability threshold below 50,000 tpy CO2e until 2016, it has not met the requirements of "administrative necessity" to avoid lowering the threshold from 75,000 tpy CO2e in Step 3.

      The environmental advocacy organization commenter (19269) further argued that the EPA must lower the Step 3 thresholds under the three criteria the EPA committed to follow when determining whether to lower the GHG thresholds under Step 3. According to the commenter, each of these criterion is either not required to have been met, or has been met, primarily because the number of GHG permits have been fewer than expected. Specifically, streamlining measures have not been necessary, permitting authorities do not need time to ramp up their resources, and permitting authorities are able to issue timely permits, all because of the limited amount of permitting activity. With respect to permitting authority resources, the commenter pointed out that in Pennsylvania, Governor Corbett proposed an additional 5% budget cut for the Department of Environmental Protection (DEP) this year (after 5 years of budget cuts for the DEP). The commenter asserted that states cannot choose to make a decision to slash budgets for environmental programs and then rely on a lack of resources to avoid proper permitting of GHGs. With respect to the ability of sources in the regulated community to meet the requirements of the PSD program, the commenter pointed out that the EPA issued guidance in March of 2011 to assist sources in meeting the requirements (PSD and Title V Permitting Guidance for Greenhouse Gases ("Guidance")); that the Guidance provided a list of GHG control measure resources in Appendix J of the Guidance along with several examples of BACT analysis, and that, as of December 1, 2011, 68 GHG PSD permit applications had been received by state agencies from a variety of sources and areas. The commenter argued that the EPA cannot rely on speculation that the permitting burden may increase to avoid lowering the thresholds and complying with the requirements of the CAA as expeditiously as possible.

      The environmental advocacy organization commenter (19269) went on to emphasize that "GHG [e]missions [c]ontinue to [r]ise and [e]xacerbate [c]limate [c]hange and [m]ust be [r]egulated as [e]xpeditiously as [p]ossible."

      An estimated eighty-nine public citizen commenters (19294, et al) argued that, while the rule suggests that state agencies cannot handle implementing stricter emission levels, states like Pennsylvania have made a political choice to slash their environmental budget and cannot now be allowed to use this as a justification for avoiding implementation of the Tailoring Rule. These commenters also argued that, in order for the EPA to avoid further reducing the GHG permitting applicability thresholds under Step 3 of the Tailoring Rule, the EPA must be able to prove that lower thresholds would be virtually impossible for the agencies to administer.

Response:

I. Showing of Administrative Impossibility

      The EPA disagrees with commenters' views that in Step 3, the EPA must justify maintaining the current thresholds on grounds of administrative necessity. The structure of the Tailoring Rule's multi-step phase-in process makes clear that Step 3 is a narrow action designed to afford the EPA the opportunity to lower the Tailoring Rule thresholds shortly after promulgation of the Tailoring Rule if certain specific events were to happen. Those events are reflected in the three criteria the EPA articulated as the basis for Step 3, i.e., permitting authorities increase their capacity for permitting, whether through increased resources or the development of expertise; or permitting efficiency becomes improved through streamlining measures. Step 3 occurs too soon after the Tailoring Rule to permit a more fundamental review of the data and methodology underlying the EPA's estimates of permitting burdens. That more fundamental review, to the extent needed, could occur during the five-year study and Step 4 that are required several years later, in 2015 and 2016, respectively. The terms of the Tailoring Rule regulatory provisions and the discussion in the rule's preamble concerning this phase-in approach -- Step 3, the five-year study, and Step 4 -- as interpreted by the EPA, confirm the narrowness of Step 3. As a result, the EPA is authorized to proceed with Step 3 as we do in this rulemaking, which is by applying the three criteria to determine whether to lower the thresholds.

A. The structure, regulatory provisions, and preamble discussion of the phase-in process: Background

      The following is the schedule that the EPA established in the Tailoring Rule for the phase-in process, including Step 3 and subsequent action:

June 3, 2010:		Tailoring Rule is published in the Federal Register. January 2 2011:	Step 1 takes effect. July 1, 2011:		Step 2 takes effect. July 1, 2012:		Step 2 Title V permit applications are due. July 1, 2012:		EPA completes Step 3. July 1, 2013:		Step 3 takes effect. April 30, 2015: 	EPA completes five year study. April 30, 2016: 	EPA completes Step 4.

      The EPA established Step 3, the five year study, and Step 4 in the Tailoring Rule-promulgated regulations, as follows. 40 CFR 52.22(b) provides:              	(b) Further action to regulate GHGs under the PSD program.       	(1) Near term Action on GHGs. The Administrator shall solicit comment, under section 307(b) of the Act, on promulgating lower GHGs thresholds for PSD applicability. Such action shall be finalized by July 1, 2012 and become effective July 1, 2013.          	(2) Further Study and Action on GHGs.       	(i) No later than April 30, 2015 the Administrator shall complete a study projecting the administrative burdens that remain with respect to stationary sources for which GHGs do not constitute a regulated NSR pollutant. Such study shall account, among other things, for permitting authorities ability to secure resources, hire and train staff; experiences associated with GHG permitting for new types of sources and technologies; and, the success of streamlining measures developed by EPA (and adopted by the states) for reducing the permitting burden associated with such stationary sources.         	(ii) Based on the results of the study described in paragraph (b)(2)(i) of this section, the Administrator shall propose a rule addressing the permitting obligations of such stationary sources under §52.21 and §51.166 of this chapter. The Administrator shall take final action on such a rule no later than April 30, 2016.       (iii) Before completing the rule described in paragraph (b)(2)(ii) of this section, the Administrator shall take no action to make the pollutant GHGs subject to regulation at stationary sources that emit or have the potential to emit less than 50,000 tpy CO2e, or for physical changes or changes in the method of operations at stationary sources that result in an emissions increase of less than 50,000 tpy CO2e (as determined using the methodology described in §52.21(b)(49)(ii)).

For similar provisions under the title V regulations, see 40 CFR 70.12(b), 71.13(b).

      In the Tailoring Rule preamble, the EPA explained the phase-in process as follows:

Our final action reflects a multi-step process that we believe will facilitate a manageable expansion of PSD and title V applicability, as appropriate, to GHG-emitting sources. In our final action, we have established the initial two steps of a multi-step phase-in of lower threshold applicability with a commitment to take further regulatory activity to consider adopting lower thresholds. We believe this process will provide substantial opportunity for permitting authorities and sources to establish enough experience and information, and to provide significant real-world feedback to EPA, so as to better inform decisions on future phase-in steps.        With this overall phase-in approach in mind, in this final rule, EPA includes an enforceable commitment to undertake a notice-and-comment rulemaking that would begin with an SNPR that we expect to be issued in 2011 and that we commit will be finalized in 2012. The notice will propose or solicit comment on further reductions in the applicability levels. This rulemaking will take effect by July 1, 2013 and therefore, in effect, constitute Step 3. In this action, we are committing to a rulemaking for Step 3, but are not promulgating Step 3, because it is important to allow EPA and the permitting authorities to gain experience permitting sources under Steps 1 and 2, and to allow time to develop streamlining methods, before attempting to determine what would be the next phase-in levels for PSD and title V applicability. While committing to future action, we do not decide in this rule when the phase-in process will ultimately end, or at what threshold level, because all that depends on uncertain variables such as our progress in developing streamlining approaches and on permitting authorities' progress in developing permitting expertise and acquiring more resources. We may continue the phase-in process with further rulemaking(s) after 2016. Alternatively, we may make a final determination through future rulemaking that, under a Chevron analysis, accounting for the "absurd results" doctrine, PSD and/or title V do not apply to GHG sources that, while small and relatively inconsequential in terms of GHG contribution, are above the statutory tonnage thresholds for these programs, and thereby end the phase-in process.        In addition, in this action, we are determining that in no event  -  whether through Step 3 or a subsequent step  -  will we apply PSD or title V to sources at the 50,000/50,000 tpy CO - 2e level or lower prior to May 1, 2016....         In this action, EPA is also finalizing its proposal to commit to conduct an assessment of the threshold levels  -  to be completed in 2015, 5 years after this action - that will examine the permitting authorities' progress in implementing the PSD and title V programs for GHG sources as well as EPA's and the permitting authorities' progress in developing streamlining methods. We further commit to undertake another round of rulemaking - beginning after the assessment is done, and to be completed by April 30, 2016  -  to address smaller sources.

75 FR 31572/col. 1; 31573/col. 3.

B. The structure, regulatory provisions, and preamble discussion of the phase-in process: Discussion

      The EPA designed Step 3 narrowly as an opportunity to lower the thresholds very soon after finalizing the Tailoring Rule, if PSD implementation for GHGs was on track and if events were unfolding in a way that allowed permitting at a lower level without straining administrative resources. Under these circumstances, it would not have been appropriate to wait several years, until EPA completed the five-year study and then promulgated Step 4, before lowering the thresholds.

      The EPA scheduled Step 3 to be promulgated on the same day, July 1, 2012, as the completion of the first full year of Step 2. Of course, this means that the EPA would have had to begun the Step 3 rulemaking well before Step 2 had been implemented for even a single year, and as a practical matter, even before Step 1 had completed its first year. With so little time having passed for implementation of Steps 1 and 2, little information would be available to the EPA at the time of Step 3 about many aspects of the implementation process.

      Even so, in designing Step 3, the EPA recognized that it was possible that certain events could unfold in way that would point towards lowering the thresholds even during the very early stages of implementing Step 2. These events, which the EPA incorporated in the three criteria for lowering the thresholds, were if state permitting resources had increased, state expertise in GHG permitting had developed, or streamlining methods had been developed. The EPA recognized that if these events were to occur, it would be appropriate to lower the thresholds, even at that early date, rather than waiting until several years later. To reiterate, the three criteria reflected new developments that the EPA expected could possibly occur. It may well be that the possibility was not particularly high that the key events would unfold in a way that would allow a lowering of the thresholds  -  and if not, then the thresholds would remain at the Step 2 levels -- but the exercise was worthwhile because that possibility existed.

      It must be emphasized that the EPA never intended in Step 3 to conduct another administrative necessity determination to justify either retaining the Step 2 levels or lowering them. This is evident from the timing of Step 3, so soon after the Tailoring Rule, which included Steps 1 and 2. In promulgating Steps 1 and 2, the EPA had undertaken a robust analysis of administrative necessity. Key components of this analysis were the EPA's gathering of data and development of methodology to estimate the administrative burden  -  in terms of numbers of permitting actions and amount of time spent processing permits  -  at the various thresholds for PSD and title V applicability. This data and methodology are described in detail below, but to briefly summarize: In general, the methodology was designed to identify the various types of GHG permits, determine the number of each type of permit, determine the administrative costs of issuing each permit, calculate the overall administrative burden, and then compare those amounts to the current, non-GHG permitting burden, to determine the amount of the increase associated with GHG permitting. The methodology was necessarily complex due to the different types of permits: new construction and modifications; different industry types; and the fact that some sources were "anyway sources," that is, already required to get a PSD permit due to their conventional pollutants, while others were GHG-only sources, that is, subject to the permitting programs solely due to the GHG emissions. Because the methodology was complex, it required extensive information.

      The EPA scheduled Step 3 too soon after promulgation of Steps 1 and 2 to allow for the generation or processing of much new data or other information relevant to the methodology. As noted, the EPA began the Step 3 rulemaking in the fall-winter of 2011, a time before Step 1 had completed its first year and only just after Step 2 had begun. At the present time, as the EPA is completing the Step 3 rulemaking, Step 1 has approached the half-way mark of its second year and Step 2 is completing its first year. This schedule leaves no meaningful opportunity for the EPA, before promulgating Step 3, to gather and assess the wealth of information about permitting activity and permitting authority actions during Steps 1 and 2 that would be required to, if necessary, revise the data and re-evaluate the complex and information-intensive methodology. This schedule further supports our interpretation of Step 3 that it was not designed to include a broader review of the administrative-necessity basis of the thresholds.

      The narrowness of Step 3 is also clear from the description of the step in the regulatory provisions that promulgate it. The regulations establish Step 3 in a paragraph entitled, "Near term Action on GHG," and describe it simply as an action in which the EPA "shall solicit comment ... on promulgating lower GHGs thresholds for PSD applicability;" and go on to establish the finalization date of July 1, 2012 and the effective date of July 1, 2013.  40 CFR 51.22(b)(1). The Tailoring Rule preamble describes Step 3 in similar terms. 75 FR 31572/col.1. The EPA interprets these provisions that schedule Step 3 so soon after the implementation of Steps 1 and 2 and that tersely and narrowly define Step 3, to establish that the scope of Step 3 is as described above. It should also be noted that the above-described interpretation of the EPA's own regulations should be accorded the highest of deference. Auer v. Robbins, 519 U.S. 452, 461 (1997).

      The EPA's interpretation of these provisions for Step 3 finds support by contrasting them with the provisions and timing for Step 4, along with the five-year study. The regulations establish Step 4 in a paragraph entitled, "Further Study and Action on GHGs." 40 CFR 51.22(b)(2). Importantly, the regulations make clear that Step 4 is to be preceded by, and must be based on, the five-year study, which in turn is to be completed by April 30, 2015. That study is to be wide-ranging:  the regulations describe that study as "a study projecting the administrative burdens" of regulating sources below the then-existing thresholds. 40 CFR 52.122(b)(2)(i). The regulations go on to describe Step 4 as a rule that is "[b]ased on the results of the study" and "address[es] the permitting obligations of such sources," and to establish the finalization date of April 30, 2016. 40 CFR 52.122(b)(2)(ii).

      These provisions, along with the timing of Step 4, make clear that Step 4 has a broader scope than Step 3. By the time of the five-year study, several years of implementation of GHG permitting will have occurred, and as a result, the EPA will have a more robust set of information concerning this implementation, as well as the data and methodology that EPA relied on to establish the permitting thresholds. The EPA must undertake the five-year study, in which it evaluates that information as appropriate and "project[s] ... administrative burdens." The EPA must then conduct the Step 4 rulemaking based on the study. By virtue of the timing and description of Step 4, it is clear that Step 4 provides a greater opportunity for evaluating administrative necessity, as appropriate, in contrast to Step 3.

      Step 3 must be understood as a part of the overall process the EPA set forth to phase in PSD and title V applicability, as established in the EPA's regulations. Step 3 has the scope that is appropriate in that context and that the EPA's regulations give to it. Contrary to the environmental advocacy organization commenters' comments, Step 3 does not necessarily entail a re-analysis of administrative burdens or a new showing of administrative impossibility simply because Step 3 is an action that the EPA is taking within an overall context that involves the administrative-necessity doctrine.

      This narrow scope of Step 3 may be further illuminated by hypothesizing two alternative  -  and, in a sense, opposite  -  approaches for Step 3: First, consider a hypothetical approach in which the EPA drafted the Tailoring Rule so as to require Step 3 on a somewhat later  schedule than presently, and to further provide that as of the date that Step 3 was to be completed, the Steps 1 and 2 thresholds would automatically "sunset," that is, expire of their own accord, without the EPA rulemaking, so that absent further action, the statutory 100/250 thresholds would become applicable. Under these circumstances, if the EPA sought to continue limiting PSD and Title V applicability to larger sources, and not at the statutory 100/250 thresholds, the EPA would have to use Step 3 to promulgate new thresholds. Under these circumstances, if the EPA were to promulgate the new thresholds in Step 3 as the same levels as the thresholds in Steps 1 and 2, then the EPA arguably would need to support that hypothetical Step 3 rule with a new showing of administrative impossibility. In contrast, in the Tailoring Rule, the EPA did not in fact "sunset" the Tailoring Rule thresholds, but instead set up a different approach, and the scope of Step 3 should be ascertained by reference to that approach, as noted above, which was to limit Step 3 to lowering the thresholds if certain criteria were met. Considering this hypothetical approach for the Tailoring Rule makes clear that the commenters' argument that the EPA must support maintaining the current thresholds with a new showing of administrative necessity would have been valid if the Tailoring Rule approach had been to "sunset" the Steps 1 and 2 thresholds, but is not valid under the approach the Tailoring Rule actually took.

      Second, consider the opposite:  a hypothetical approach in which the EPA drafted the Tailoring Rule so as not to require any rulemaking at all by July 1, 2012 (what we now call Step 3), and instead require only the five-year study in 2015 followed by rulemaking in 2016 (what we  now call Step 4). Under these circumstances, because there would be no rulemaking by July 1, 2012, there would be no requirement for the EPA to undertake any new administrative necessity analysis by that date. Considering this hypothetical scenario makes clear that while in actuality, in the Tailoring Rule the EPA did establish a Step 3 and therefore must address the thresholds, the scope of Step 3 depends on its context and regulatory provisions.

      The importance of the structure of the phase-in process and the terms of the regulatory provisions themselves in determining the scope of Step 3 is made further clear by reference to the separate provision in the Tailoring Rule regulations that under no circumstances will the EPA lower the thresholds below the 50,000/50,000 level before April 30, 2016. 40 CFR 52.22(b)(2)(iii), 40 CFR 71.13(b)(2)(iii). This provision means that the EPA would not lower the thresholds below those levels during Step 3. The environmental advocacy organization commenters did not comment that the EPA was free to disregard this limit in Step 3, and as a result, those commenters appeared at least implicitly to accept that this limit remains a genuine constraint on whatever action the EPA may take in Step 3. The presence of this limit in the regulation clarifies the importance of the regulatory provisions in narrowing the scope of Step 3 by making clear that just as the EPA narrowed Step 3 by establishing the 50,000/50,000 floor, the EPA also narrowed Step 3 in other ways, described above. In addition, the presence of this limit contradicts commenters' argument that the EPA should be required to make a new evaluation of administrative burdens and a new showing of administrative impossibility in Step 3. That would be illogical if the EPA had already decided that no matter what the evaluation of administrative burdens revealed, Step 3 could not result in thresholds below the 50,000/50,000 level.

      With respect to the type of information on which to base our action in Step 3, we note that hand-in-hand with the narrow scope of Step 3  -  that the EPA implements the step by applying the 3 criteria concerning, in general, state resources, state experience, and streamlining  -  is that the EPA must be able to determine that those criteria have been met in order to lower the Tailoring Rule thresholds. If the EPA does not have sufficient information to determine that those criteria have been met, then the EPA would not lower the thresholds.

      Accordingly, we disagree with the environmental advocacy organization commenter's (19292) assertion that  -

      EPA misapprehends the burden it must meet in other instances as well. For instance, the necessary inquiry for the Step 3 analysis is not whether permitting agencies have the capacity to "efficiently manage" the permitting program...; whether expanding the program would "add more burden,"... ; or whether EPA can justify lowering the thresholds.... Rather, to retain the Tailoring Rule thresholds, EPA must demonstrate that thresholds below Steps 1 and 2 exceed administrative capacity; that the additional burden would do the same; and that it can justify retaining, rather than lowering, the thresholds.

We disagree with this comment because as discussed above, Step 3 has a narrower scope than the commenter describes and authorizes the EPA to lower the thresholds only if the EPA can obtain sufficient information to demonstrate that the criteria are met.

      We wish to emphasize that we fully recognize the imperatives of the administrative necessity doctrine. We discussed the doctrine at length in the proposed and final Tailoring Rule preambles, and we concluded that the doctrine authorized us to promulgate the Tailoring Rule only on the basis that we would phase-in the PSD and title V applicability thresholds as quickly as possible and as closely as possible to the statutory 100/250 levels, at least to a certain point. But we are authorized to structure the phase-in process as having multiple steps, and in so doing, we may design a particular step (such as Step 3) in a particular manner to serve a particular purpose, all of which may be different than for another step (such as Step 4). As noted, the narrow purpose of Step 3 is consistent with, and helps assure the success of, the overall phase-in process. Commenters in effect seek to take Step 3 out of the EPA's regulatory design and ascribe to it a different meaning that the EPA did not intend.

II. Comments on Specific Criteria for Step 3

      The EPA disagrees with various comments by the environmental advocacy organization commenters (19292, 19269) concerning the 3 criteria for lowering the Tailoring Rule thresholds.

      One environmental advocacy organization commenter (19292) stated that the three criteria should not be considered to be pertinent because the permitting agencies were not "running at capacity -- established under the Tailoring Rule as 1,605 PSD permits per year" -- in light of the fewer permitting actions actually taken. The second environmental advocacy organization commenter (19269) stated that due to the fewer permitting actions, the three criteria should be considered either as (i) not having been required to have been met or (ii) having been met.

      We disagree with these comments. In establishing the three criteria in the Tailoring Rule, the EPA did not premise them on the permitting agencies "running at capacity." Rather, the three criteria may be applied by their terms regardless of the fact that the actual number of permits is less than the expected number of permits. For the same reason, the three criteria cannot be considered to have been met, or be considered to no longer be required, due to the lower-than-expected number of permits. Thus, we disagree with the commenters' attempts to read into the three criteria a premise that actual permitting activity achieve the levels expected in the Tailoring Rule, or to construe the three criteria in light of actual permitting activity, because those attempts have the effect of marginalizing the three criteria, and replacing them with a different criterion based on actual permitting levels. In addition, for the reasons stated below, even if the disparity between the levels of actual and expected permitting activity could be relevant, it is premature to discard or attempt to revise the data and methodology for determining administrative burdens; and we believe that to at least some extent, the unexpectedly lower number of permitting actions may be temporary.

      With respect to the first criterion (generally, state resources), the environmental advocacy organization commenter (19292) also cautioned against what it described as  -

      EPA[`s] attempt to rely on a decision by one or more state legislatures to underfund CAA programs as evidence of "administrative necessity." EPA's original Tailoring Rule argument was to provide state and local permitting authorities the time needed to develop the necessary permitting capacity. While some deference to recent economic conditions may be appropriate, we cannot support a decision on threshold levels based on the failure of permitting authorities to use the time provided in the agency's earlier decision.

      The second environmental advocacy organization commenter (19269) made a similar comment, pointing out that in its home state of Pennsylvania, the state environmental agency has seen 5 years of budget cuts and is proposed to have an additional 5% cut this year, and asserting that states cannot choose to make a decision to slash budgets for environmental programs and then rely on a lack of resources to avoid proper permitting of GHGs. Private citizen commenters (19294, et al) made similar comments.

      We appreciate these comments and acknowledge the commenters' concern as to whether a state could in effect manipulate the first criterion in the manner they suggest by underfunding the environmental agency. However, we apply the first criteria on a nationwide basis, so that we examine whether the states taken as a whole have increased their resources. At proposal, we noted evidence that because of the recent economic downturn, state environmental agencies across the country have generally seen budget reductions. This includes agencies in states that have moved forward to regulate GHGs in other ways, such as some of the eastern states in the Regional Greenhouse Gas Initiative. See Environmental Council of States, "ECOS Green Report: The Status of State Environmental Agency Budgets, 2009-2011 (2010); Letter from S. William Becker, NACAA, to Honorable Michael Simpson and Honorable James Moran, U.S. House of Representatives (June 28, 2011). Applying this criterion on a nationwide basis minimizes concerns about a particular state seeking to underfund the environmental agency.

      With respect to the second criterion (generally, state permitting implementation experience), the environmental advocacy organization commenter (19292) stated that in the Step 3 proposal, the "EPA introduces a new rationale for continued tailoring  -  lack of experience by state and local permitting agencies." The commenter asserts that "[s]uch a rationale cannot be lawfully used to justify departure from statutory requirements" and points out that "[t]here are over 200 state and local permitting programs," many of which may see few or even no permit applications for many years. The commenter concludes that the "EPA's argument that each of these permitting authorities must have actual GHG permitting experience at the current thresholds before it will consider lowering the thresholds is untenable."

      The commenter has misconstrued the Step 3 proposal. The proposal described the second criterion as follows:

      The second criterion we address is whether permitting authorities have the ability to issue timely permits based on efficiencies resulting from GHG permitting implementation experience. In describing this criterion in the Tailoring Rule, we expected that permitting authorities, by acting on the anticipated volume of GHG PSD permit actions, would have the opportunity to establish efficient methods for resolving issues and processing permits, including developing expertise within their staff. This would allow them to achieve efficiencies that, in turn, would create capacity for processing more GHG permit applications.

      The proposal goes on to note that "[a]s of December 1, 2011, the EPA and state permitting authorities have issued only 18 GHG PSD permits ... [which] have been spread among 11 states and the EPA.... This activity has simply been too limited to allow States to ... build up their GHG permitting infrastructure."  77 FR 14236/col. 3  -  14237/col. 1 (footnote omitted). As this discussion makes clear, contrary to the comment, the permitting authorities' "experience" is not "a new rationale," but rather is part and parcel of the second criterion. In addition, contrary to the comment, our proposal did not suggest that "each of these permitting authorities must have actual GHG permitting experience...." Rather, our proposal reviewed state experience on a nationwide basis and concluded that the overall level of state experience was limited. Nowhere did we assert that this criterion called for each of the state or local permitting authorities to have experience.

III. Disparity between numbers of actual permits and expected permits.

      One environmental advocacy organization commenter (19292) emphasized that in the Tailoring Rule, the EPA estimated that at the 100,000/75,000 thresholds, permitting authorities would have a workload of 1,605 GHG PSD permits on an annual basis, but that in the Step 3 proposal, the EPA acknowledged that in actuality, as of December 1, 2011, only 18 GHG PSD permits had been issued and 50 applications had been submitted. The commenter emphasized "[t]his gulf between reality and estimate" and argued that the "EPA must [check the accuracy of the Tailoring Rule cost assumptions and] adjust the expected agency costs... or provide a reason why the actual experience does not warrant an adjustment. Without engaging in this effort, the EPA cannot meet its burden of demonstrating that lowering the thresholds in 2013 remains impossible." The commenter suggested that the EPA consider issuing a supplemental notice of proposed rulemaking. The second environmental advocacy organization commenter (19269) similarly emphasized the disparity between estimated and actual permit activity, but stated that in light of that disparity, the EPA is required to lower the thresholds. Private citizen commenters (19294, et al) made similar comments.

      With this comment, the first environmental advocacy organization commenter explicitly took the position that in light of the disparity, the EPA must review and, as needed, revise the data and methodology set forth in the Tailoring Rule, by which the EPA estimated the number of GHG-related permits and per-permit administrative costs. The second environmental advocacy organization commenter at least implicitly took the same position by urging the EPA to lower the thresholds because that data and methodology are the means by which the EPA determines the appropriate threshold. Private citizen commenters (19294, et al) took similar positions.

      We disagree with these comments, for the reasons discussed next.

A. Step 3 is not designed to reconsider the methodology

      We recognize the disparity that the commenters stress between the estimated and actual permitting. However, we disagree that this disparity obliges us to reconsider the Tailoring Rule methodology during Step 3. For the reasons described above, Step 3 has a narrow scope: it is limited to the three criteria described elsewhere, and as a result, it does not entail a review of the underlying methodology.

B. In Step 3, EPA has not re-opened the methodology.

      It should be noted that in the Step 3 proposal, the EPA did not re-open the underlying methodology. Instead, as the EPA stated in the preamble to the proposal:

      To support this Step 3 rulemaking, the EPA has gathered additional information on the impact that GHG permitting is having on permitting authorities at the current threshold levels and the potential impact that would result from a reduction in the GHG permitting thresholds to levels as low as 50,000 tpy CO2e. [This includes information concerning] the actual permitting that has occurred since January 1, 2011[, and] ... information gathered through preliminary consultations with eight state PSD permitting authorities, as well as, experience garnered from the EPA regional offices that are the PSD permitting authorities for certain states.... [In addition,] EPA carried out an analysis to estimate the number of facilities that would exceed different GHG emissions threshold levels. This analysis built upon analysis the EPA included in the Tailoring Rule to support the threshold decisions in that action. In the Tailoring Rule analysis, the EPA evaluated eight different PTE thresholds between 100 and 100,000 tpy CO2e, including 50,000 tons per year. For this Step 3 analysis, the EPA evaluated nine additional thresholds between 50,000 and 100,000 tpy CO2e in 5,000 tpy increments (that is, 55,000 through 95,000 tpy CO2e).

77 FR 14233/col. 2, 14234/col. 1 (footnotes omitted). In addition, in the proposal, the EPA asked the states a set of questions concerning their permitting activity and permitting programs, which questions were "structured to help the EPA best assess the status of GHG permitting programs based on the three criteria outlined in the Tailoring Rule, which forms [sic: form] the basis for [Step 3]." 77 FR 14255/col. 3. Indeed, in the proposal, we specifically stated,

      We note that in this rulemaking, we are not re-opening or soliciting comment on the Tailoring Rule's decision to phase in the thresholds, to begin with the Steps 1 and 2 levels, or the legal or policy basis for the Tailoring Rule. By the same token, as noted previously in section V, in this rulemaking, we are relying on the same methodology used in the Tailoring Rule to calculate administrative burdens, and we are not re-opening that methodology or soliciting comment on it. We are simply proposing action and soliciting comment on Step 3 of the phase-in approach.   77 FR 14255/col. 3. Our views have not changed in our action today.

C. Lack of sufficient information concerning the data and methodology to conclude that it should be revised

1. Summary

      Although we are not re-opening the data and methodology, we note that even if we were prepared to do so, we would conclude that notwithstanding the disparity commenters emphasize, they have not provided, and we do not have, sufficient information to be able to conduct a review and revision of the data and methodology at this time. Thus, it is premature to discard or attempt to revise the Tailoring Rule data sets or methodology for determining administrative burdens.

      At the outset, it must be emphasized that in the Tailoring Rule, our analysis of administrative burden was rendered complex by the fact that there are many different types of sources (that is, many different types of industrial sources as well as commercial sources and residential sources), many different sizes of sources (that is, minor and major sources, and many sizes of major sources), two types of activity that trigger PSD (that is, new construction and modifications), two types of sources based on their association with the PSD and title V programs (that is, "anyway" sources that are subject to PSD and title V anyway due to their non-GHG emissions, and GHG-only sources for whom the PSD or title V requirements are triggered solely because of their GHG emissions); and two permitting programs (that is, PSD and title V). To estimate the administrative burdens of permitting all these types of sources, we had to rely on several different sources of data concerning the amounts of PSD and title V permitting activity. The most important of these was the 2008 information collection request (ICR) for the New Source Review (NSR) program (the NSR ICR), which indicated the numbers of minor source and major source permits issued annually on a nationwide basis.  In addition, we had to develop a complex and multi-component methodology, with numerous assumptions and estimates concerning, among other things, what percentages of different populations of sources would meet certain criteria or engage in certain activities.

      The sources of data were the best available, and the assumptions in the methodology were reasonable. Importantly, the data sources and methodology were fully vetted through the Tailoring Rule process. At proposal, no one commented that the methodology over-estimated the amount of permitting burden. Following promulgation of the Tailoring Rule, no one sought administrative reconsideration of the methodology and no one challenged it in court. In addition, EPA has completed the triennial renewal of the NSR ICR, through the mandated Federal Register notice processes. The renewed NSR ICR has essentially the same estimates, for present purposes, of the numbers of permits as in the 2008 NSR ICR (which, in turn, formed the basis for the data sets in the Tailoring Rule), and no one commented on those estimates.

      In this Step 3 rulemaking, although environmental advocacy organization commenters have pointed out the disparity between the total number of expected annual GHG permit actions, based on the EPA's methodology, and the actual number to date, these commenters did not provide any specific information that casts doubt on any particular aspect of this data and methodology.

      In the absence of such information, there are several possible explanations for the disparity between expected and actual permits. It is possible that the unexpectedly small number of permits is at least in part a temporary phenomenon due to a combination of macro-economic conditions; prospective permittees having accelerated their applications to 2010 to avoid GHG PSD requirements; as industry suggests, companies adopting a wait-and-see approach; or under-reporting, particularly by smaller companies, due to lack of awareness.

      Even so, we recognize that it is also possible that various aspects of this complex set of data and methodology  -  again, with numerous assumptions and estimates  -  do contain inaccuracies that yield an over-estimation of the number of GHG permits. However, our purpose is to estimate overall GHG permitting burden, which entails not only the number of GHG permits, but also the amount of per-permit processing costs and other components of permitting administration, which in turn include minor source permitting, hiring and training, education and outreach, and enforcement. Moreover, it must be borne in mind that the ultimate purpose of determining permitting burden is to determine the applicable thresholds.

      Viewed in this context, it is clear that even if we were to conclude, based on the actual data, that our estimates of the number of GHG permits were over-estimates, we are not in a position at present to attempt to revise the applicability thresholds, as one of the environmental advocacy organization commenter urged. There are several reasons:

      First, the information concerning numbers of permits tells only part of the overall administrative-burden story. Other information indicates that our data sets and methodology may not account for certain components of permitting administration, which would point towards an under-estimate of permitting burden. For example, states face additional expenses in permitting synthetic minor sources due to efforts to avoid GHG requirements. In addition, as we acknowledged in the Tailoring Rule, we did not include additional costs of staff training, public education and outreach (as opposed to support provided to individual sources seeking permits), see 75 FR 31568/col. 2; 31571/col. 1 (Tailoring Rule) and enforcement associated with GHG permitting.

      Second, we have little information as to the amount of the possible overestimate, in light of the fact that at least some of it may be due to macro-economic conditions and other factors. Moreover, the data concerning the actual number of GHG permits issued provides little information as to which of the many data points or assumptions and estimates in the methodology may have lead to the overestimate. This lack of information would confound any effort to adjust the estimates of overall permitting burden and, based on that, the applicable thresholds.

      Third, and more broadly, we expect to receive more information over time that may shed light on the accuracy of various aspects of our data sets and methodology. This is true not only for the numbers of permits that we estimate, but also for the estimates of the per-permit costs to the permitting authorities and the other components of permitting administration. For example, affected sources have not been required to submit their Step 2 title V permit applications until July 1, 2012, and as a result, we have little information concerning actual numbers of title V permits or other aspects of title V permitting.                This information may point towards adjustments in overall permitting burden and, ultimately, in the applicable thresholds, but at the present time  -  when we are required by our regulations to complete Step 3 - we cannot predict the direction and extent of those adjustments. As a result, attempting to make an adjustment at this time to permitting thresholds based on the information concerning numbers of GHG permits would amount to a piecemeal approach, one that would lead to calls for the EPA to continue to revise the data sets and methodology whenever additional information became available that pointed towards a different burden estimate and therefore a different threshold. A piecemeal approach would create significant uncertainty for the permitting authorities and regulated community, and we decline to adopt it.

      For all these reasons, it would be premature to attempt to lower the permitting thresholds based on the partial information we have concerning numbers of GHG permits.

      We also disagree with another environmental advocacy organization's comment that the EPA should consider issuing "a supplemental notice of proposed rulemaking or notice of data availability that ensures adequate and transparent notice to stakeholders with adequate opportunity to comment." Instead, we consider it reasonable at this time to finalize the Step 3 rulemaking as proposed, thereby determining not to lower the thresholds. This is consistent with the schedule for action already established in the Tailoring Rule regulations. These regulations obligate the EPA to undertake a 5-year assessment (to be completed by April 30, 2015), followed by Step 4 (to be promulgated by April 30, 2016).

      This regulatory schedule accommodates very well the gathering and analyzing of additional information to review and, as needed, revise the data and methodology. We intend to take steps to gather information from the permitting authorities concerning permitting activity. Because GHG permitting is a new addition to the PSD program, we believe that it is important that we acquire information concerning two full years of implementation of Step 2, after the initial, "start-up" year. That two-year period is July 1, 2012 to June 30, 2014. Importantly, this regulatory schedule will also accommodate the development of GHG permitting under title V, including the collection and analysis of information concerning progress.

      We see little value to issuing a supplemental notice of proposed rulemaking at this time.  Continuing with the schedule prescribed in the Tailoring Rule regulations, as just described, will accommodate any needed review and revision of our data and methodology and, based on those, of the thresholds. Maintaining the regulatory schedule will avoid uncertainty concerning the timing of when the EPA may revise the thresholds.

2. Data and methodology

a. Background

      We described in the Tailoring Rule and supporting documents the data and methodology that formed the basis of the Tailoring Rule estimates of administrative burden. For convenience, we describe the key components, for purposes of this rulemaking, of those data sets and methodology, in a supplement to this Response to Comments Document (Step 3 RTC Supplement).

      Note that in the Tailoring Rule, our methodology indicated 1,607 permit actions per year at the 100,000/75,000 Step 2 thresholds. This includes 242 newly constructed sources and 1,365 modifications. The modifications included 448 "anyway" sources and 917 "GHG-only" sources.  Tailoring Rule Step 3 proposal, 77 FR 14234/col. 3.

      The Tailoring Rule supporting documents and the Step 3 RTC Supplement describe the NSR ICR, which serves as the primary source of data sets for the burden estimates. It should be noted that in the Tailoring Rule, the EPA relied in information in the version of the NSR ICR that had been approved in 2008. The EPA is currently in the process of renewing the NSR ICR. In this renewal, the EPA identified the number of permit applications, minor sources, and time spent as the same as the 2008 ICR, except that the EPA increased the number of permit applications to account for tribal and GHG permitting. The EPA published the two Federal Register notices containing the NSR ICR on November 25, 2011 (76 FR 72700-72702) and April 17, 2012 (74 FR 22779-22780), and allowed 30-day comment periods for each notice. The EPA did not receive any comments on the NSR ICRs during those comment periods. Thus, no one has contested the amounts of permitting activity, including the numbers of minor sources, and the permitting authority time spent on processing permits.

      For purposes of responding to comments, we note that in the 1990 Clean Air Act Amendments, Congress established the RACT-BACT-LAER Clearinghouse (RBLC) in CAA §108(h):              (h) RACT/BACT/LAER Clearinghouse              The Administrator shall make information regarding emission control technology available to the States and to the general public through a central database.  Such information shall include all control technology information received pursuant to State plan provisions requiring permits for sources, including operating permits for existing sources.

At the same time, Congress provided, in CAA section 173(d):

      The State shall provide that control technology information from permits issued under this section [i.e. nonattainment NSR permits] will be promptly submitted to the Administrator for purposes of making such information available through the RACT/BACT/LAER clearinghouse to other States and to the general public.              The RBLC is intended to be a repository for data concerning the reasonably available control technology (RACT) requirements of the CAA general nonattainment provisions (e.g., CAA §172(c)(1)), the best available control technology (BACT) requirements of the PSD provisions (CAA §165(a)(4)), and the lowest achievable emission reduction (LAER) requirement of the nonattainment NSR provisions (e.g., CAA §173(a)(2)). Specifically, the EPA describes its purpose as follows:

      EPA established the RACT/BACT/LAER Clearinghouse, or RBLC, to provide a central data base of air pollution technology information (including past RACT, BACT, and LAER decisions contained in NSR permits) to promote the sharing of information among permitting agencies and to aid in future case-by-case determinations.        http://www.epa.gov/ttn/catc/rblc/htm/welcome_eg.html.

The RBLC is focused on types of control technology that form the basis for emission limits in the general nonattainment, PSD, and nonattainment NSR requirements. The RBLC is not designed to track all PSD or all nonattainment NSR permitting actions. In addition, participation by states in the RBLC for PSD information is voluntary. Overall, participation by states in the RBLC varies. For example, the State of North Carolina recently declined a request by the EPA that the state provide information for all major permitting actions, and informed the EPA that instead it would provide information to the RBLC only "when a state BACT/LAER determination involves the setting of a limit based on a technology currently not included in the RBLC database." As a result, we are aware that the information in the RBLC is partial, but of course we do not know what information states do not submit. Because of our lack of information concerning the robustness of the RBLC as a database, we did not rely on it in estimating permit burdens in the Tailoring Rule.

      It should also be noted that starting in 2011, The EPA regional officials have tracked the progress of permitting authority action on GHG permit applications through informal communications with state officials. The information that the EPA has compiled in this manner is the source of our knowledge about numbers of GHG permits, which we cite in this rulemaking.

b. Actual permits

      In the Step 3 proposal, we estimated that as of December 1, 2011, the state permitting authorities and the EPA (in its capacity as permitting authority in several states) had issued 18 GHG permits. As of May 21, 2012, the number of GHG permits issued has increased to 44. We base these numbers on an ongoing informal survey of State permitting activity conducted by the EPA regions.

c. Evaluation of Methodology

i. Numbers of expected GHG permits and actual GHG permits

      From the Tailoring Rule Summary of Methodology, the EPA estimated that Step 1 alone would result in 688 GHG permitting actions on an annual basis, 75 FR  31540 (Table V-1), and that Step 2 (which included all the GHG permitting actions under Step 1) would result in a total of 1,607 GHG permitting actions on an annual basis. The 1,607 sources that the EPA estimated would seek permits each year, once Step 2 had been in place for a full year, included 242 for new sources (almost all of which were from "anyway" sources, that is, "Newly Constructed Major Sources  -  Add Additional GHG"), and 1,365 from modifications (about two-thirds of which were "Minor Modifications Becoming Newly Major" and most of the rest of which were from "anyway" modifications, that is, "Current Modifications  -  Add Additional GHG"). Tailoring Rule Summary of Methodology, at 5, Table 2-1.

      Under this methodology, by December 1, 2011, the expected number of permits was 1,013. As the EPA noted in the Step 3 proposal, 18 GHG permits were issued by that date.

      The EPA's information indicates that by May 21, 2012, 43 permits were issued, although the total number of expected permits had also increased by that time.

      As commenters have observed, there is a disparity between the total number of annual permits that, based on the EPA's methodology, were expected, and the total number actually issued. However, as discussed below, no specific information is available that casts doubt on any particular aspect of the data sets or methodology that are the basis of the expected number of permits.

ii. Full consideration of, and lack of challenges to, the data and methodology during or after the Tailoring Rule.         During the Tailoring Rule rulemaking and the ensuring litigation, no one adversely commented on, sought reconsideration on, or challenged in court any aspect of the EPA's data or methodology on grounds of overstating the numbers of permits or the per-permit costs in time and money to the permitting authorities. On the contrary, during the comment period following the proposed rulemaking, stakeholders commented that the EPA had significantly underestimated the numbers of permits and per-permit costs. Based on those comments and the EPA's further analysis, the EPA revised its methodology to substantially increase the expected number of GHG permitting actions and the amount of time the permitting authorities would need to process some of them.

      Specifically, in the Tailoring Rule proposal, the EPA recognized that the 282 annual PSD permitting actions (as identified in the NSR ICR) would generally require GHG permitting, but following the proposal, based upon further analysis, recognized that most of the 519 nonattainment annual NSR permitting actions (as identified in the NSR ICR) generally would also require GHG permitting. Accordingly, in the final action, the EPA increased the expected number of annual GHG permitting actions to include nonattainment annual NSR permitting actions. 75 FR 31537/col. 1 (final Tailoring Rule). Most significantly, commenters pointed out that the Tailoring Rule proposal failed to account for the state minor source permitting actions that include GHG emissions, many of which would be expected to become subject to GHG permitting requirements. The information available to the EPA indicated that those sources numbered in the thousands. The EPA agreed with commenters and, in the final action, adjusted the permitting actions that required a higher threshold (100,000/75,000) compared to what we had proposed (25,000/25,000). 75 FR 31537/col. 2  -  31538/col. 1 (final Tailoring Rule). In addition, commenters pointed out that in the Tailoring Rule proposal, EPA underestimated the amount of time needed for permitting authorities to process commercial and residential GHG permits. In the final rule, the EPA agreed and more than tripled the amount of time. Tailoring Rule Summary of Methodology, at 11. Following promulgation of the Tailoring Rule, as noted, no one petitioned the EPA to reconsider these increases or sought judicial review of this data or methodology.

iii. Basis of permit-burden estimates on best data available and on reasonable assumptions and estimates in methodology that were unchallenged

      In the Tailoring Rule, the EPA's permit burden estimates were based on data sets that were the best available and a methodology that incorporated estimates and assumptions that are reasonable. In addition, the public had the opportunity to comment on the data sets and methodology and no one challenged them as leading to overstatements in the number of GHG permitting actions or in the burden estimates in any other way.

      Central to the permit burden estimates is the underlying data concerning the numbers of permitting actions and the time and cost to permitting authorities in processing permit applications. For most components of the burden estimates, the EPA relied on the data contained in the NSR ICR; and for some components, on data contained in the title V ICR and the GHG MRR. In 2009-2010, when the EPA developed and promulgated the Tailoring Rule, the EPA had available the 2008 NSR ICR, which provided the numbers of annual PSD and nonattainment permitting actions as well as minor source permitting actions, and the per-permit processing time by the permitting authorities, that the EPA relied on in the Tailoring Rule. In 2011, the EPA began the process to renew this NSR ICR, and increased estimates in the number of permitting actions to account for, among other things, GHG and tribal permitting. Public comment was solicited on the renewal through two Federal Register notices, with the most recent comment period closing on May 17, 2012, which was shortly after the comment period closed in this Tailoring Rule Step 3 rulemaking. No one commented on this renewal, including on those estimated number of permitting actions.

      The environmental advocacy organization commenters on the Tailoring Rule Step 3 proposal did not provide any information specifically to suggest any errors in the underlying data used in the Tailoring Rule concerning the numbers of permitting actions or the per-permit processing time for the permitting authorities. Similarly, these commenters did not specifically call into question any of the various assumptions or estimates in the Tailoring Rule methodology. The state and industry commenters generally were supportive of the EPA's step 3 proposal and also did not submit any information that would specifically call into question any aspect of the Tailoring Rule data sets or methodology.              Moreover, aside from the disparity between the numbers of actual GHG permit actions, the EPA does not have available any other source of information that would call into question any particular aspect of the data or methodology. The EPA does not have any other reliable source of information concerning permitting activity. The RACT-BACT-LAER Clearinghouse includes certain information about PSD and nonattainment permits issued, but it is incomplete and therefore cannot be used to estimate the amount of permitting activity.

iv. Possibility that unexpectedly low numbers of permits are temporary, at least in substantial part

      In the absence of information calling into question any particular aspect of the underlying data or methodology, there are several possible explanations for the disparity between expected and actual GHG permits. It is possible that the unexpectedly small number of GHG permits is at least in substantial part a temporary phenomenon due to one or more of the following: First, as discussed in the proposal, it is possible that prospective permittees and some permitting authorities accelerated permitting activity to 2010 to avoid the GHG PSD requirements that took effect as of January 2, 2011. Industry commenters on the Step 3 proposal stated that such accelerated permitting activity occurred.

      Second, it is possible that the economic downturn and slow recovery that the nation has experienced in the past several years have reduced the amount of permitting activity. This is made clear by a review of three of the key economic indicators tracked by the Federal Reserve Board: industrial production, capacity, and capacity utilization. Industrial production and capacity measure both actual and potential output in real terms. Capacity utilization is reported as the percent of capacity used. The most recent report, issued May 16, 2012, includes a chart showing all three indicators from 1966 through the present.

Figure 1. Industrial Production and Capacity

Source: Federal Reserve Board, 2012. Note: The shaded areas are periods of business recession as defined by the National Bureau of Economic Research (NBER).

Figure 2. Capacity Utilization

Source: Federal Reserve Board, 2012. Note: The shaded areas are periods of business recession as defined by the National Bureau of Economic Research (NBER).

      While available capacity remained relatively stable through the current recession, industrial production decreased dramatically beginning in 2008 and has yet to return to pre-recession levels. Similarly, in 2009, utilization reached the lowest rate in the period presented and has yet to fully recover.

      As long as significant capacity remains unutilized, companies have the ability to expand production within existing facilities. This will reduce the demand for construction of new facilities or expansion of existing facilities and, thus, limit the applications for PSD permits for new construction or modifications. Additionally, during a period of uncertain recovery, companies may be hesitant to make significant investments in new facilities, causing capacity growth to lag production increases. In the Annual Capital Expenditures Survey, the U.S. Census Bureau reports a significant drop in capital spending (i.e., spending on structures and equipment) for the manufacturing sector between 2008 and 2009. Early reports of 2010 capital spending show similar levels as in 2009.

      With the exception of periods of stagnation following the early-2000s and most recent recessions, capacity has grown consistently over the more than 40-year period presented in the Federal Reserve report. Although future projections are inherently uncertain, these historical trends indicate that future permitting activity will increase as the economy continues to recover from the slowdown.

	With respect to an environmental advocacy organization commenter's (19292) comment that EPA "includes no evidence in the record indicating how PSD permitting levels have varied with economic changes in the past," we note first that because, as discussed above, Step 3 is a narrowly based action that does not depend on the amount of permitting activity (but rather, depends on the three criteria, including the development of permitting authority expertise), such information is not relevant and therefore it is not necessary for us to include it. Even if such information were relevant, the fact remains that we simply do not have such information.  That is, our data is limited to the data in the current and prior versions of the NSR ICR, which generally shows permitting activity at similar levels to what the current ICR shows, and we do not have data concerning year-to-year PSD permitting levels in the past. As a result, it is impossible to determine whether and how they have varied with economic changes.

	With respect to the same commenter's comment that the EPA "includes no evidence in the record ... demonstrating that an increase from tens to thousands of permits per year is consistent with either past experience or credible forecasts of future activity," we acknowledge, again, that our data is limited to the NSR ICR data, so that we do not have year-to-year data concerning past PSD permitting levels, and therefore that we cannot determine "past experience" concerning increases in PSD permitting levels. By the same token, the lack of data about year-to-year past permitting levels and how they may have varied with economic activity renders it problematic to develop "credible forecasts of future activity." The EPA believes that in the absence of that data, the best that can be done is to point to the several factors  -  of which macro-economic conditions are an important one, but not the only one  -  that indicate that the unexpectedly lower amounts of permitting may, at least in part, be temporary.

	The same commenter added the following comment based on information in the RACT-BACT-LAER Clearinghouse:

      A review of the permitting data contained in EPA's RACT/BACT/LAER Clearinghouse ("RBLC") confirms that while fewer PSD permits were issued in 2011 than in earlier years, the difference is not sufficient to establish the administrative impossibility of a lower threshold under EPA's analysis of administrative burdens. The RBLC lists 114 permits in 2007 and 39 in 2011. Over a ten-year average, approximately 140 permits are issued ear [sic: each] year. Assuming similar variability between 2011 and 2013, a reasonable estimate for the number of GHG PSD permits would fall between 50-150. As discussed above, EPA has determined that an additional workload significantly higher than this figure is feasible.

The commenter adds that "The RBLC is generally understood to under-report the number of actual permits by approximately 50 percent."

      We appreciate the commenter's careful analysis of the information in the RBLC, but because the RBLC is focused on information about technology, and not numbers of permitting actions; and because participation for PSD permitting activity is voluntary with the states, we do not believe that the RBLC can provide credible evidence about the variability of permitting levels over time. We see no basis to the commenters' assertion that the RBLC "under-report[s] the number of actual permits by approximately 50 percent." The RBLC is useful as a qualitative indication that permitting levels have dipped in recent years along with the economic downturn and slow recovery, but not as a quantitative indication of amount of permitting activity variability over time.

      Third, industry commenters have stated that this initial stage of GHG permitting has created uncertainty within the regulated community that has lead to reduced permitting activity.

      Fourth, it is possible that some of the smaller sources that have never before been subject to the PSD program, but that are now subject to GHG PSD permitting requirements, are unaware of their permitting obligations. These smaller sources constitute some 57% of the sources subject to GHG permitting. They are the Step 2 sources, that is, the GHG-only sources, which generally are industrial or manufacturing sources that are too small to trigger PSD for their conventional pollutants, and that, as a result, in the past, have not been subject to PSD permitting requirements. It is possible that at this early stage of GHG permitting, lack of familiarity with the PSD program has lead to some degree of under-reporting among these sources. For example, in its comments, the State of Colorado (19277) responded to the EPA's inquiry as to states' outreach efforts for small sources by stating:

      The Division has engaged in an active in an active outreach effort to inform sources of the requirements of the PSD and Title V programs for GHG.  However, the Division has still not identified all nontraditional sources that might have GHG emissions above the 100,000 tpy CO2e threshold...

      Our view that the disparity between expected and actual amount of permitting activity is at least in part temporary is confirmed by, as we noted in the Tailoring Rule Step 3 proposal, officials in several states, who have stated that they thought the pace of GHG permitting would increase above the pace observed in 2011:

      These states ... confirm that they have not yet experienced the increase in the number of major source permitting actions that was predicted to result from the implementation of Step 1 and Step 1.  They generally do not believe that 2011 has been representative of the permitting burdens that they expect will ultimately occur under the current Tailoring Rule.

77 FR 14233/col. 3  -  14234/col. 1.

      For all these reasons, although we acknowledge the disparity between expected and actual numbers of permitting actions, because there is a meaningful possibility that at least a substantial part of the disparity is temporary, the disparity does not, at this time, lead us to conclude that our data sets or methodology are erroneous and must be revised.         v. Reasons why at this time, any over-estimates in permitting activity do not provide basis for revising overall permitting burden

      Even so, we recognize that it is possible that part of the reason for the disparity between expected and actual numbers of GHG permits is that our estimates of GHG permits in the Tailoring Rule will turn out to be over-estimates. Even if this is the case, however, we are not in a position, during this Step 3, to attempt to revise the Steps 1 and 2 applicability thresholds on the basis of a new determination of permitting burden, as one of the environmental advocacy organizations (19269) has suggested. To understand why, it must be borne in mind that in order for us to determine overall GHG permitting burden, we must determine not only the amount of GHG permits, but also the amount of per-permit processing costs and the amount of the costs of other components of permitting administration. Moreover, this calculation requires determining those amounts with as much specificity as possible.

      Viewed in this context, the following reasons prevent us from being able, at this time, to revise our estimates of permitting burden and, on that basis, lower the applicability thresholds:

(a). Possibility of under-estimates of part of permitting burden

      First, we must recognize that in certain respects, our data sets and methodology under-estimated permitting burden by not accounting for certain costs. In part, we acknowledged this in the Tailoring Rule.

      As noted, states face increases in their permitting expenses due to an increase in synthetic minor source permit applications from sources seeking to avoid GHG requirements. This permitting activity concerns minor sources that would become major, and therefore would be in need of a PSD permit, solely because of their GHG emissions. However, many of these sources will be able to apply to their state or local permitting authority for a permit limit that restricts their GHG emissions to a level below the Tailoring Rule thresholds, so that they would remain minor sources and not become subject to PSD or, title V. We call sources that take such a permit limit "synthetic minor sources." Permitting authorities' issuance of synthetic minor permits for GHG sources constitutes a GHG administrative burden because those sources would not need synthetic minor permits if PSD and title V did not apply to GHG sources. At the time of the Tailoring Rule and presently, we have not had information that would allow us to estimate the number of these synthetic minor permits or, as a result, their cost to the permitting authorities.

      In addition, in the Tailoring Rule, we noted that we expected permitting authorities to incur certain administrative costs that were difficult to monetize and therefore that we did not include in our estimates of administrative burden. We stated that those administrative costs included, at least before and during Step 1, costs for hiring and training additional staff to handle the influx of GHG permits as well as public education and outreach for affected sources:

      In addition to [the] workload and monetary costs [that EPA quantified], permitting authorities will confront additional burdens before and during Step 1, which we have not attempted to quantify. One of the most significant of these is training staff in the PSD-related areas of GHG emissions calculations and BACT evaluations. In addition, permitting staff will need to build staff expertise and capacity for addressing GHG requirements in preparation for Step 2....; and in communicating and providing outreach to sources addressing GHG emissions for the first time. Based on comments we received on the proposal from permitting authorities, we believe these additional training and outreach requirements  -  for both the PSD and title V programs  -  will add significantly to the permitting authorities' burden during the initial 6-month period under Step 1.        Tailoring Rule, 75 FR 31568/col. 2. It is apparent that many permitting authorities did not incur those costs before and during Step 1 due to budget limitations and the unexpectedly limited GHG permitting activity. Thus, the permitting authorities may be expected to incur those costs going forward, as permitting activity increases. In addition, we explained in the Tailoring Rule that we expected some of these costs to be ongoing.  See Tailoring Rule, 75 FR 31571/col. 1 ("In addition to the administrative burdens we have been able to monetize, we must be mindful that permitting authorities will incur other burdens, including the significant support and outreach activities by permitting staff for the many newly permitted sources."). Similarly, permitting authorities can be expected to incur costs for additional enforcement work associated with GHG permitting, but we did not attempt to account for those costs in our estimates of administrative burdens either.

      These unaccounted for costs create the risk that if we were to attempt to lower the thresholds at this time, permitting authorities might face administrative burdens higher than what we would expect, which would give rise to risks that permitting authorities could incur unexpectedly high administrative burdens that could delay PSD and title V permitting.