[Federal Register: June 8, 2007 (Volume 72, Number 110)]
[Rules and Regulations]
[Page 31727-31749]
[DOCID:fr08jn07-8]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 51

[EPA-HQ-OAR-2003-0079, FRL-8324-3]
RIN 2060-AO00

Phase 2 of the Final Rule To Implement the 8-Hour Ozone National
Ambient Air Quality Standard--Notice of Reconsideration

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final notice of reconsideration.

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SUMMARY: On December 19, 2006, EPA published, as a proposed rule, a
notice of reconsideration for several aspects of the November 29, 2005,
Phase 2 of the final rule to implement the 8-hour ozone national
ambient air quality standard (NAAQS). These issues relate to nitrogen
oxide (NOX) reasonably available control technology (RACT)
for electric generating units (EGUs) in Clean Air Interstate Rule
(CAIR) states and to certain new source review (NSR) provisions. The
notice of reconsideration was published as a result of a petition for
reconsideration which had been submitted by the Natural Resources
Defense Council. In this action, EPA summarizes and responds to
comments received in response to the notice of reconsideration, and EPA
announces its final actions taken in response to these comments.
    As a result of this reconsideration process, EPA is changing the
deadline for states in the CAIR region to submit EGU NOX
RACT SIPs subpart 2 ozone nonattainment areas classified as moderate
and above. EPA is also modifying its guidance on the issue of
NOX RACT for EGUs in CAIR states.

DATES: This final rule is effective on July 9, 2007.

ADDRESSES: The EPA has established a docket for this action under
Docket ID No. EPA-HQ-OAR-2003-0079. All documents in the docket are
listed in http://www.regulations.gov. Although listed in the index,

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

(Air Docket), EPA/DC, EPA West, Room 3334, 1301 Constitution Ave., NW.,
Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30
p.m., Monday through Friday, excluding legal holidays. The telephone
number for the Public Reading Room is<PHONE_NUMBER>.

FOR FURTHER INFORMATION CONTACT: For further information on the issue
relating to NOX RACT for EGU sources in CAIR States, contact
Mr. William L. Johnson, Office of Air Quality Planning and Standards,
U.S. Environmental Protection Agency, (C539-01) Research Triangle Park,
NC 27711, phone number<PHONE_NUMBER>, fax number<PHONE_NUMBER> or by e-
mail at<EMAIL_ADDRESS>or Mr. John Silvasi, Office of Air
Quality Planning and Standards, U.S. Environmental Protection Agency,
(C539-01), Research Triangle Park, NC 27711, phone number (919) 541-
5666, fax number<PHONE_NUMBER> or by e-mail at<EMAIL_ADDRESS>
For further information on the NSR issues discussed in this notice,
contact Mr. David Painter, Office of Air Quality Planning and
Standards, (C504-03), U.S. EPA, Research Triangle Park, North Carolina
27711, telephone number<PHONE_NUMBER>, fax number<PHONE_NUMBER>, e-
mail<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

I. General Information

A. Does This Action Apply to Me?

1. Issue on Determination of CAIR/RACT Equivalency for NOX
EGUs
    Entities potentially affected by the subject rule for this action
include States (typically State air pollution control agencies), and,
in some cases, local governments that develop air pollution control
rules, in the region affected by the CAIR.\1\ The EGUs are also
potentially affected by virtue of State action in SIPs that implement
provisions resulting from final rulemaking on this action; these
sources are in the following groups:
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    \1\ Federal Register of May 12, 2005 (70 FR 25, 162).

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                                                SIC
               Industry group                   \a\                                                NAICS \b\
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Electric Services...........................     492  221111, 221112, 221113, 221119, 221121, 221122
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\a\ Standard Industrial Classification.
\b\ North American Industry Classification System.

2. NSR Issues
    Entities potentially affected by the subject rule for this action
include sources in all industry groups. The majority of sources
potentially affected are expected to be in the following groups:

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                                                SIC
               Industry group                   \a\                                                NAICS \b\
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Electric Services...........................     492  221111, 221112, 221113, 221119, 221121, 221122
Petroleum Refining..........................     291  324110
Industrial Inorganic Chemicals..............     281  325181, 325120, 325131, 325182, 211112, 325998, 331311, 325188
Industrial Organic Chemicals................     286  325110, 325132, 325192, 325188, 325193, 325120, 325199
Miscellaneous Chemical Products.............     289  325520, 325920, 325910, 325182, 325510
Natural Gas Liquids.........................     132  211112
Natural Gas Transport.......................     492  486210, 221210
Pulp and Paper Mills........................     261  322110, 322121, 322122, 322130
Paper Mills.................................     262  322121, 322122
Automobile Manufacturing....................     371  336111, 336112, 336211, 336992, 336322, 336312, 336330, 336340, 336350, 336399, 336212, 336213
Pharmaceuticals.............................     283  325411, 325412, 325413, 325414
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\a\ Standard Industrial Classification.
\b\ North American Industry Classification System.

    Entities potentially affected by the subject rule for this action
also include State, local, and Tribal governments that are delegated
authority to implement these regulations.

B. How Is This Notice Organized?

    The information presented in this notice is organized as follows:

I. General Information
    A. Does This Action Apply To Me?
    B. How Is This Notice Organized?
II. Background
    A. NOX RACT for EGUs in CAIR States
    1. Phase 2 Ozone Implementation Rule
    2. Petition for Reconsideration.
    B. Submission Date for EGU RACT SIPs for States in CAIR Regions
    1. Phase 2 Ozone Implementation Rule
    2. Notice of Reconsideration
    C. NSR Issues
    1. Our Previous and Final Rules.
    2. Petition for Reconsideration.
III. This Action
    A. NOX RACT for EGUs in CAIR States
    1. Final Action
    2. Response to Comments
    B. Submission Date for EGU RACT SIPs for States in CAIR Regions
    1. Final Action
    2. Response to Comments
    C. Provisions of Final Rule Addressing the Criteria for Emission
Reduction Credits From Shutdowns and Curtailments
    1. Major Source NSR Criteria for Emission Reduction Credits
(ERC) From Shutdowns and Curtailments
    2. Legal Basis for Changes to Criteria for Emission Reduction
Credits From Shutdowns and Curtailments
    3. Reconsideration of Emission Reduction Credits Final Rule
Language and Request for Public Comments
    4. Comments and Responses for Emission Reduction Credits Issues
    D. Applicability of Appendix S, Section VI
    1. Changes to Applicability of Appendix S, Section VI
    2. Legal Basis for Changes to Applicability of Appendix S and
the Transitional NSR Program
    3. Reconsideration of Appendix S, Section VI Final Rule
Amendments
    4. Comments and Responses for Appendix S, Section VI
IV. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review
    B. Paperwork Reduction Act
    C. Regulatory Flexibility Act (RFA)
    D. Unfunded Mandates Reform Act
    E. Executive Order 13132: Federalism
    F. Executive Order 13175: Consultation and Coordination With
Indian Tribal Governments
    G. Executive Order 13045: Protection of Children From
Environmental Health Risks and Safety Risks
    H. Executive Order 13211: Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use
    I. National Technology Transfer and Advancement Act
    J. Executive Order 12898: Federal Actions To Address
Environmental Justice in Minority Populations and Low-Income
Populations
    K. Congressional Review Act
    L. Judicial Review

II. Background

A. NOX RACT for EGUs in CAIR States

1. Phase 2 Ozone Implementation Rule
    In the Phase 2 Rulemaking to implement the 8-hour ozone NAAQS
(Phase 2 Rule), EPA determined that EGU sources complying with rules
implementing the CAIR requirements meet ozone NOX RACT
requirements in states where all required CAIR emissions reductions are
achieved from EGUs only.\2\ We noted that the CAIR establishes a
region-wide NOX emissions cap, effective in 2009, at a level
that, assuming the reductions are achieved from EGUs, would result in
EGUs installing emission controls on the maximum total capacity on
which it is feasible to install emission controls by that date. In
addition, the CAIR's 2015 NOX cap will eliminate all
NOX emissions from EGUs that are highly cost effective to
control. The 2009 cap represents an interim step toward that end. In
the Phase 2 Rule, EPA also explained that requiring source-specific
RACT controls on EGUs in nonattainment areas would not reduce total
NOX emissions below the levels that would be achieved under
CAIR alone and that it could result in more costly emission reductions.
For these and other reasons detailed in the Phase 2 Rule, EPA concluded
that EGUs subject to the CAIR NOX controls meet the
definition of RACT for NOX (in all states that obtain all
required CAIR NOX

emission reductions from EGU emission reductions). EPA said it was
making this finding for all areas in the CAIR region, such that states
need not submit RACT analyses for sources subject to CAIR that are in
compliance with a FIP or SIP approved as meeting CAIR. EPA noted that a
state has discretion to define RACT to require greater emission
reductions than specified in EPA guidance and also to require beyond-
RACT NOX reductions from any source it deems reasonable to
provide for timely attainment of the ozone standards.
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    \2\ However, EPA also determined that a state that elects to
bring its NOX SIP Call non-EGU sources into the CAIR
ozone season trading program could continue to rely on EPA's
determination that RACT is met for EGU sources covered by the CAIR
trading program. EPA further noted that a state could rely on this
determination if and only if the state retained a summer season EGU
budget under the CAIR that was at least as restrictive as the EGU
budget that was set in the state's NOX SIP Call SIP.
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2. Petition for Reconsideration.
    The EPA received a petition for reconsideration of the final Phase
2 Rule from the NRDC. This petition raised several objections to EPA's
determination that, in certain circumstances, EGUs in CAIR states may
satisfy the NOX RACT requirement for ozone if they comply
with rules implementing the CAIR. Specifically, NRDC argued that:
     The EPA unlawfully and arbitrarily failed to seek public
comment on the final rule's determination that the CAIR satisfies
NOX RACT requirements.
     The EPA's CAIR-RACT determinations are unlawful and
arbitrary because EPA's action illegally abrogates the Act's RACT
requirements.
    The EPA granted NRDC's petition by letter of June 21, 2006.
    In a notice of proposed reconsideration dated December 19, 2006,
EPA announced the initiation of the reconsideration process and
requested additional public comment on the issues raised by the
petition. In this notice, EPA also explained and requested comment on
the additional technical analyses it conducted to assess the
determination that compliance with rules implementing CAIR may satisfy
the NOX RACT requirement for certain EGUs. EPA included in
the docket a background document explaining that technical analysis.

B. Submission Date for EGU RACT SIPs for States in CAIR Region

1. Phase 2 Ozone Implementation Rule
    The Phase 2 Rule established September 15, 2006 as the deadline for
the submission of RACT SIPs for moderate and above subpart 2 areas. EPA
explained that, since some states might rely on the submittal of SIP
revisions meeting the CAIR (i.e., the CAIR SIP) to also satisfy RACT
for some sources, it was extending the submittal date to 27 months
after designations to be consistent with the date for submittal of the
CAIR SIPs. For subpart 1 areas requesting an attainment date more than
five years after designation, the rule provides that the State shall
submit the RACT SIP for each area with its attainment demonstration
that requests to extend the attainment date.
2. Petition for Reconsideration
    In the notice of proposed reconsideration dated December 19, 2006,
EPA proposed to postpone the submission date for the portion of the 8-
hour ozone SIP that addresses NOX RACT for EGUs in the CAIR
region pending reconsideration. EPA proposed a new submission date of
June 15, 2007 and requested comments on that date.

C. NSR Issues

1. Our Previous Proposed and Final Rules
    The major NSR provisions in the November 29, 2005 Phase 2
rulemaking were proposed as part of two different regulatory packages.
On July 23, 1996 (61 FR 38250), we proposed changes to the major NSR
program, including codification of the requirements of part D of title
I of the 1990 CAA Amendments for major stationary sources of volatile
organic compounds (VOC), NOX, particulate matter having a
nominal aerodynamic diameter less than or equal to 10 microns
(PM10), and CO. On June 2, 2003 (68 FR 32802), we proposed a
rule to implement the 8-hour ozone NAAQS. In the 2003 action, we
proposed a rule to identify the statutory requirements that apply for
purposes of developing SIPs under the CAA to implement the 8-hour ozone
NAAQS (68 FR 32802). We did not propose specific regulatory language
for implementation of NSR under the 8-hour NAAQS. However, we indicated
that we intended to revise the nonattainment NSR regulations to be
consistent with the rule for implementing the 8-hour ozone NAAQS (68 FR
32844). On April 30, 2004 (69 FR 23951), we published a final rule that
addressed classifications for the 8-hour NAAQS. The April 2004 rule
also included the NSR permitting requirements for the 8-hour ozone
standard, which necessarily follow from the classification scheme
chosen under the terms of subpart 1 and subpart 2.
    In 1996, we proposed to revise the regulations limiting offsets
from emissions reductions due to shutting down an existing source or
curtailing production or operating hours below baseline levels
(``shutdowns/curtailments''). We proposed substantive revisions in two
alternatives that would ease, under certain circumstances, the existing
restrictions on the use of emission reduction credits from source
shutdowns and curtailments as offsets.
    In 1996, we proposed to revise 40 CFR 52.24 to incorporate changes
made by the 1990 CAA Amendments related to the applicability of
construction bans (61 FR 38305). To clarify our intent, our proposed 8-
hour ozone NAAQS implementation rule in June 2003 explained that
section 52.24(k) remained in effect and would be retained. In that
action, we also proposed that we would revise section 52.24(k) to
reflect the changes in the 1990 CAA Amendments (68 FR 32846). On June
2, 2003 (68 FR 32802), we explained implementation of the major NSR
program under the 8-hour ozone NAAQS during the SIP development period,
and proposed flexible NSR requirements for areas that expected to
attain the 8-hour NAAQS within 3 years after designation.
    In the final regulations, we included several revisions to the
regulations governing the nonattainment NSR programs mandated by
section 110(a)(2)(C) and part D of title I of the CAA. First, we
codified requirements added to part D of title I of the CAA in the 1990
Amendments related to permitting of major stationary sources in areas
that are nonattainment for the 8-hour ozone, particulate matter (PM),
and carbon monoxide (CO) NAAQS. Second, we revised the criteria for
crediting emissions reductions credits from shutdowns and curtailments
as offsets. Third, we revised the regulations for permitting of major
stationary sources in nonattainment areas in interim periods between
designation of new nonattainment areas and EPA's approval of a revised
SIP. Also, we changed the regulations that impose a moratorium (ban)
prohibiting construction of new or modified major stationary sources in
nonattainment areas where the State fails to have an implementation
plan meeting all of the requirements of part D.
2. Petition for Reconsideration
    The NRDC petition for reconsideration raised two objections to the
major NSR aspects of the Phase 2 rulemaking:
     Allowing sources to use pre-permit application emission
reductions as offsets if they occur ``after the last day of the base
year for the SIP planning process''; and
     Changes to Section VI of Appendix S, which is the section
allowing for waiver of nonattainment major NSR requirements in certain
circumstances.
    The EPA granted the petition by letter of June 21, 2006 and, on
December 19,

2006, EPA published, as a proposed rule, a notice of reconsideration.
This action presents the comments we received upon the proposal, our
responses to the comments and our decisions on whether to amend the
current regulation in response to the public comments.

III. This Action

A. NOX RACT for EGUs in CAIR States

1. Final Action
    In response to comments received during the reconsideration
process, EPA in this action modifies its guidance regarding when
compliance with the CAIR may satisfy NOX RACT requirements
for EGUs in CAIR states.\3\ EPA believes it is appropriate for the CAIR
states, under the conditions outlined in this action, to presume, in
general, that EGU NOX RACT requirements are satisfied
through implementation of the CAIR program. Further, in this action EPA
makes a determination that in certain areas compliance with the CAIR is
sufficient to satisfy the NOX RACT requirement for EGUs
covered by the CAIR program. The areas covered by this determination
are those where EPA's December 2006 emissions analysis \4\ shows that
the CAIR is projected to achieve greater emissions reductions than
application of source-by-source RACT within the nonattainment area or
state. For areas where EPA's emissions analysis does not clearly
demonstrate that the CAIR program is projected to achieve greater
emissions reductions than source-by source RACT, this action
establishes a separate presumption that compliance with CAIR, in
certain circumstances, satisfies NOX RACT requirements for
EGUs in any area subject to CAIR. As explained below, states may rely
initially on this presumption whether or not the aforementioned CAIR-
RACT determination applies.
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    \3\ In this rule, the phrase ``compliance with the CAIR'' is
used to mean compliance with a FIP or an EPA-approved SIP meeting
the requirements of the CAIR.
    \4\ Technical Support Document for Phase 2 of the Final Rule To
Implement the 8-Hour Ozone National Ambient Air Quality Standard --
Notice of Reconsideration; NOX RACT for EGUs in CAIR
States--Supplemental Technical Analysis. (Docket ID No. EPA-HQ-OAQ-
2003-0079, item number EPA-HQ-OAR-2003-0079-1044.2.)
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    More specifically, in this action, EPA determines that compliance
by EGUs with an EPA-approved CAIR SIP or a CAIR FIP satisfies the
nonattainment area NOX RACT requirements in CAA sections
172(c)(1) and 182(f) if: (1) The EGU is located in a state where all
required CAIR emission reductions are achieved from EGUs only \5\; and
(2) the emissions analysis presented by EPA in the December 16, 2006
notice of proposed reconsideration shows that the CAIR will achieve
greater or equal annual and ozone-season emissions reductions than
source-by-source RACT in the relevant nonattainment area.\6\ EPA also
determines that compliance by EGUs with an EPA-approved CAIR SIP or a
CAIR FIP satisfies the NOX RACT requirements for OTR states
in sections 184(b) and 182(f) if: (1) The EGU is located in a state
where all required CAIR emission reductions are achieved from EGUs
only; and (2) the emissions analysis presented by EPA in the December
16, 2006 notice of reconsideration shows that the CAIR will achieve
greater or equal annual and ozone-season emissions reductions than
source-by-source RACT in the relevant OTR state \7\. The determination
for OTR states is separate from the determination for nonattainment
areas within the OTR states. This means that the conditions of the
determination may be met for an OTR state, in its entirety, but a
particular nonattainment within the State may not meet the conditions
of the determination based on the results of the EPA's emissions
analysis.
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    \5\ However, a state that elects to bring its NOX SIP
Call non-EGU sources into the CAIR ozone season trading program need
not show that all the CAIR reductions are achieved solely from EGUs
if, and only if, the state retained a summer season EGU budget under
the CAIR that was at least as restrictive as the EGU budget that was
set in the state's NOX SIP Call SIP.
    \6\ 6 The EPA emissions analysis shows that for the following
nonattainment areas the CAIR is projected to achieve equal or
greater annual emissions reductions than source-by-source RACT:
Baltimore, MD, Buffalo-Niagara Falls, NY (Subpart 1); Charlotte-
Gastonia-Rock Hill, NC-SC; Chicago-Gary-Lake County, IL-IN;
Cleveland-Akron-Lorain, OH; Dallas-Fort Worth, TX; Greater
Connecticut, CT; Houston-Galveston-Brazoria, TX; Jefferson Co, NY;
Milwaukee-Racine, WI; New York-New Jersey-Long Island, NY-NJ-CT;
Philadelphia-Wilmington-Atlantic City, PA-NJ-MD-DE; Sheboygan, WI;
St Louis, MO-IL; Washington, DC-MD-VA. The emissions analysis shows
that for the following nonattainment areas the CAIR is projected to
achieve equal or greater summer emission reductions than source-by-
source RACT: Charlotte-Gastonia-Rock Hill, NC-SC; Cleveland-Akron-
Lorain; Dallas-Fort Worth, TX; Greater Connecticut, CT; Houston -
Galveston-Brazoria, TX; Jefferson Co., NY; Milwaukee-Racine, WI; New
York-N. New Jersey-Long Island, NY-NJ-CT; Philadelphia -Wilmington-
Atlantic City, PA-NJ-MD-DE; Sheboygan, WI; Springfield (Western MA),
MA; St. Louis, MO-IL; Washington, DC-MD-VA.
    \7\ EPA's emissions analysis shows that for the following OTR
states, the CAIR is projected to achieve equal or greater annual
emissions reductions than source-by-source RACT: Delaware, Maryland,
New Jersey, New York, Pennsylvania, and OTR portion of Virginia
(Alexandria and Prince Counties). For the following OTR states, the
CAIR is projected to achieve equal or greater summer emission
reductions than source-by-source RACT: Maryland, Pennsylvania and
OTR portions of Virginia (Alexandria and Prince William Counties).
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    In their RACT SIP submissions, states choosing to rely on a
determination that compliance with the CAIR satisfies NOX
RACT requirements for EGUs, should document their reliance on the
determination.
    In areas covered by the CAIR that do not meet the conditions
outlines in the preceding paragraph, EPA still believes it is
appropriate for these areas to presume that compliance with the CAIR
will satisfy the NOX RACT requirements for EGUs if all
required CAIR reductions in that state are achieved by EGUs only.
States may rely on this presumption in the first instance regardless of
whether the relevant nonattainment area or OTR state is covered by the
aforementioned determination. In their RACT SIP submissions, states
choosing to rely on this presumption should document their reliance on
the presumption. This presumption is rebuttable and the State's
documentation of reliance on this presumption must provide additional
justification if necessary.
    These final positions are based on a number of factors previously
identified in the Phase 2 Rule, and in the December 2006 notice of
proposed reconsideration. In evaluating RACT for EGUs, EPA believes it
is appropriate to consider the special attributes of EGUs, including
the unique interrelated nature of the power supply network, and the
facilities' compliance with rules implementing the CAIR. EPA also
asserts that the term ``reasonable'' in RACT may be construed to allow
consideration of the air quality impact of required emissions
reductions from region-wide cap-and-trade programs such as the CAIR
NOX trading programs.
    Due to the nature of regional emissions transport, EPA believes
that a combination of local and broader regional reductions, such as
those driven by the CAIR requirements for EGUs, will achieve a more
effective and economically efficient air quality improvement in
nonattainment areas than application of source-by-source RACT. This is
consistent with EPA's recognition in our 1986 emissions trading policy
that a ``bubble'' approach has a number of advantages including faster
compliance with RACT limits and earlier reductions. EPA does not
interpret the RACT provisions of CAA section 172(c)(1) to preclude
states' use of a cap-and-trade approach as a means of achieving RACT
reductions from existing sources, and believes such an approach is
consistent with Congresses' express authorization to auction emission
rights in section 172(c)(6). Many ozone nonattainment areas are

projected to achieve significant NOX reductions under the
CAIR program and EPA does not believe that requiring source-specific
RACT controls on specified EGUs in nonattainment areas would reduce
total NOX emissions from sources covered by CAIR below the
region-wide levels that will be achieved under CAIR alone. The region-
wide CAIR NOX EGU emissions cap for 2009 was established
based on the maximum total capacity on which EPA believes it is
possible to install controls by that date. So by design, the 2009 CAIR
region-wide NOX emissions cap for EGUs represents the most
reductions that are reasonable to achieve in the CAIR region by that
date. Because the CAIR achieves more annual and summer season EGU
NOX emission reductions overall across the CAIR region than
source-by-source application of RACT \8\, EPA believes this will result
in more region-wide air quality improvements than application of RACT
in the absence of the CAIR. As explained in greater detail in the
preamble to the CAIR rule, the CAIR is projected to improve ozone air
quality across much of the eastern half of the country, including many
current and projected future nonattainment areas. 70 FR 25254-25255
(May 12, 2005). The CAIR is projected to improve air quality in all of
the 40 projected 2010 nonattainment counties, and in all 22 of the
projected 2015 nonattainment counties, that were identified in the CAIR
rule modeling. The modeling also showed air quality improvement in
numerous counties projected to be in attainment.
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    \8\ For 2010, annual NOX emission reductions expected
from implementation of the CAIR in the entire CAIR region are 1.3
million tons/year. This compares with annual NOX emission
reductions projected from application of source-by-source RACT from
within the Ozone Transport Region (OTR) plus other nonattainment
areas in the CAIR region, but outside of the OTR, of 166,780 tons/
year. Ozone-season NOX emission reductions expected from
implementation of the CAIR in the entire CAIR region are 200,000
tons/season. This compares with summer time RACT-only emission
reductions from within the OTR plus other nonattainment areas in the
CAIR region, but outside of the OTR, of 19,210 tons/summer. These
estimates show that CAIR is projected to get overwhelmingly greater
NOX reductions than source-by-source RACT in the CAIR
region. The CAIR region emissions estimates are from ``Regulatory
Impact Analysis for the Final Clean Air Interstate Rule,'' EPA-452/
R-05-002, March 2005. This document can be found at http://www.epa.gov/interstateairquality/pdfs/finaltech08.pdf
 and is also in

the CAIR docket no. EPA-HQ-OAR-2003-0053. The RACT emission
estimates for OTR states and nonattainment areas in the CAIR region,
but outside OTR states, are found in ``Technical Support Document
for Phase 2 of the Final Rule To Implement The 8-Hour Ozone National
Ambient Air Quality Standard--Notice of Reconsideration;
NOX RACT For EGUs In CAIR states--Supplemental Technical
Analysis.'' (Docket ID No. EPA-HQ-OAQ-2003-0079, document number
EPA-HQ-OAR-2003-0079-1044.2).
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    For most EGUs in the CAIR region, based on the conclusions
explained here, states may rely on EPA's determination that RACT
requirements for these sources are satisfied by compliance with the
CAIR. However, this determination applies only to EGUs in states
achieving all required CAIR reductions from EGUs, except as noted
below. As explained in the preamble to the Phase 2 Rule, if only part
of the CAIR reductions are required from EGUs, and the balance of the
reductions obtained from non-EGU sources, then the stringency of the
CAIR EGU control would be diminished to some extent (an amount that
cannot be determined until a state submits a SIP indicating which
sources are participating in the program). Therefore, in these cases,
the rationale for our conclusions (either determinations or
presumptions) that these sources satisfy the RACT requirement would not
necessarily apply.
    EPA determined in the final Phase 2 Rule that sources complying
with the requirements of the NOX SIP Call trading system
meet their ozone NOX RACT obligations. A state that elects
to bring its NOX SIP Call non-EGU sources into the CAIR
ozone season trading program may under certain conditions continue to
rely on the determination that RACT is met for EGU sources covered by a
CAIR NOX trading program. It may rely on this presumption if
and only if the state retains a summer season EGU budget under the CAIR
that is at least as restrictive as the EGU budget that was set in the
state's NOX SIP call SIP. Therefore, if the summer season
EGU budget under CAIR is at least as restrictive as the budget in the
NOX SIP Call SIP, and if non-EGU sources after 2008 continue
to be subject to a SIP requirement that regulates those non-EGU sources
equally or more stringently than the state's current rules meeting the
NOX SIP Call, then those EGUs are meeting a level of control
at least as stringent as RACT.
    In addition, as we noted in the Phase 2 Rule, a state has
discretion to define RACT to require greater emission reductions than
specified in EPA guidance and also to require beyond-RACT
NOX reductions from any source (including sources covered by
the CAIR or NOX SIP Call programs), and has an obligation to
demonstrate attainment of the 8-hour ozone standard as expeditiously as
practicable. In certain areas, states may decide to require
NOX controls based on more advanced control technologies as
necessary to provide for attainment of the ozone standards.
    Based upon South Coast Air Quality Mgt District v. EPA (No. 04-
1200) (D.C. Cir. 2006), the status of nonattainment classifications for
8-hour ozone nonattainment areas is unclear at this time. EPA has
petitioned the court for rehearing of this issue. However, until this
issue is resolved, there will be continuing uncertainty regarding which
areas must submit RACT SIPs separate from attainment demonstrations.
Currently, all areas classified under subpart 2 as moderate or higher,
and areas classified under subpart 1 that are planning to request an
attainment date that extends beyond April 2009 are required to submit a
RACT SIP separate from attainment demonstrations. EPA is unable to
determine at this time if any areas in addition to those included in
the cited emissions analysis will be required to submit separate RACT
SIPs. Based on the outcome of EPA's petition for rehearing, EPA may
review and revise, as appropriate, the determinations made in this
action.
2. Response to Comments
    a. Comment: Commenters argue that the Clean Air Act (CAA) calls for
State Implementation Plans (SIPs) to provide for ``such reductions in
emissions from existing sources in the nonattainment area as may be
obtained through adoption'' of RACT. Therefore, they argue, each
particular affected source in a non-attainment area is required by law
to have the lowest emission limitation it is capable of meeting. One
commenter says that the CAA does not give EPA the option of requiring
CAIR or some other strategy in lieu of RACT, and that by deeming CAIR
controls to be equivalent to RACT, EPA is seeking to insulate
uncontrolled or poorly controlled EGUs in current or future
nonattainment areas from cost effective controls that would qualify as
RACT. Another commenter says that EPA's NOX Supplement to
the General Preamble (57 FR 55620, Nov. 25, 1992) concludes that it is
``permissible under the statute for individual sources to have greater
or lesser emissions reductions so long as the area wide average
emission rates associated with a RACT level of NOX emission
controls [are] met.'' They argue that it is consistent with the Act for
EPA and states to determine that compliance with an area-wide emission
trading program may constitute RACT in lieu of source-by-source
emission control requirements. The commenter adds that neither the
CAA's language nor EPA's 1979 statement [44 FR 53762] defining RACT
supports the arguments in the petition for reconsideration that

emission controls must be installed on all major stationary sources in
a nonattainment area, nor is there anything in these documents that
indicates that the rule's CAIR = NOX RACT provision is
illegal. The commenter notes that Congress's choice of the phrase
``reasonably available'' bespeaks its intention that the EPA exercise
discretion in determining which control measures must be implemented.
    Response: As explained in the preamble to the Phase 2 Rule, EPA
disagrees with the commenters' assertion that RACT necessarily requires
every major source to install controls. See 70 FR 71656. To the
contrary, EPA allows states to demonstrate that RACT is met by groups
of sources. For example, the NOX Supplement to the General
Preamble, November 25, 1992 (57 FR 55625) permits states to ``allow
individual owners/operators in the nonattainment area * * * to have
emission limits which result in greater or lesser emission limits so
long as the area wide average emission rates * * * are met on a Btu-
weighted average.'' The General Preamble also ``encourage[s] states to
structure their RACT requirements to inherently incorporate an
emissions averaging concept (i.e., installing more stringent controls
on some units in exchange for lesser control on others).'' This
approach was based on EPA's conclusion that it was permissible under
the CAA for individual sources to have ``greater or lesser emission
reductions so long as the area wide average emissions rates''
associated with a RACT level of NOX emissions control were
met.
    In addition, EPA does not believe that requiring source-specific
RACT controls on EGUs in nonattainment areas will reduce total
NOX emissions from EGU sources covered by the CAIR below the
levels that would be achieved under the CAIR alone. EPA also believes
that EGU source-specific RACT would result in more costly emission
reductions on a per ton basis. The combination of EGU source specific
RACT and the CAIR emissions cap would not reduce the collective total
emissions from EGUs covered by the CAIR, but would likely achieve the
same total emissions reductions as the CAIR alone, in a more costly
way.
    Further, EPA's analysis for the CAIR shows the CAIR program will
result in EGUs installing emission controls on the maximum total
capacity on which it is feasible to install emission controls by the
2009 date. (70 FR 22515-22225) The CAIR budgets are based on the level
of emissions that can be achieved through the application of highly
cost-effective controls to EGUs in the CAIR region. Due to feasibility
constraints, EPA required a phased approach for achieving highly cost
effective emissions reduction. For NOX, the first phase
starts in 2009 (covering 2009-2014); the second phase of NOX
reductions begins in 2015 (covering 2015 and thereafter). (70 FR
71621). We also noted in the June 2, 2003 CAIR proposal that we
considered highly-cost effective controls for NOX for EGUs
and non-EGUs that were used to establish the statewide NOX
emission caps in the NOX SIP call to constitute a greater
level of control than RACT (68 FR 32839).
    EPA also disagrees with the comment arguing that EPA is seeking to
insulate uncontrolled or poorly controlled EGUs in current or future
nonattainment areas from cost effective controls that would qualify as
RACT. The final rule does not displace the RACT requirement for any
sources. Instead, EPA is exercising its authority to interpret the
section 172, 182, and 184 RACT requirements for purposes of
implementing the 8-hour ozone standards. For the reasons described in
this section, we believe that states can rely on EPA's conclusion that
compliance with a CAIR FIP or SIP, meeting certain requirements, will
satisfy the EGU NOX RACT requirement in certain areas.
    Moreover, EPA has predicted that the majority of large coal-fired
utilities will install advanced control technologies under the CAIR
because the larger and higher emitting sources offer opportunities to
obtain the most cost-effective emissions reductions. EPA expects that
the largest-emitting sources will be the first to install
NOX control technology and that such control technology will
gradually be installed on progressively smaller-emitting sources until
the ultimate emissions cap is reached.
    b. Comment: Several commenters argue that EPA's determination that
CAIR may be equivalent to RACT would illegally substitute controls on
sources outside of ozone nonattainment areas for controls on sources
within each nonattainment area. The commenters argue that reductions
must occur within the nonattainment area. They also argue that EGUs in
nonattainment areas may have significant NOX emissions if
they are not meeting a minimum level of NOX control, and
that the rule does not guarantee that any RACT level controls would
actually be installed in a CAIR state. Thus, one commenter argues, the
non-CAIR states and the public will bear the cost of EGUs not
installing RACT controls and continuing nonattainment of the NAAQS. The
commenter also argues that the public residing in nonattainment areas
would continue to suffer from the emissions from those EGUs located in
the CAIR state portion of the nonattainment area that purchase and use
allowances for compliance instead of installing controls. Another
commenter argues that CAIR is a cap-and-trade program which cannot
guarantee that a reasonable level of control will be installed where
most needed. On the other hand, other commenters emphasize that CAIR
achieves greater overall emissions reductions across the CAIR region
than would be achieved through the implementation of source-specific
RACT controls.
    Response: In this action, EPA has determined that EGU sources
complying with rules implementing the CAIR requirements meet ozone
NOX RACT requirements in states where all required CAIR
emissions reductions are achieved from EGUs only and EPA's emissions
analysis in the December 16, 2006 notice of reconsideration shows that
CAIR will achieve greater or equal reductions than source-by-source
RACT in the relevant nonattainment area (for CAA section 172 and 182
requirements) or the relevant OTR state (for CAA 184 requirements).\9\
For nonattainment areas and OTR states not covered by this
determination, states may still presume that compliance with CAIR will
satisfy the NOX RACT requirement for EGUs if all CAIR
reductions are achieved by EGUs. These states will have the option of
providing additional analysis to support this presumption. This
presumption is rebuttable and the state's documentation of reliance on
this presumption must address any information available that would
undermine this presumption.
---------------------------------------------------------------------------

    \9\ However, a state that elects to bring its NOX SIP
Call non-EGU sources into the CAIR ozone season trading program may
continue to rely on EPA's determination that RACT is met for EGU
sources covered by the CAIR trading program. It may rely on this
determination if and only if the state retains a summer season EGU
budget under the CAIR that is at least as restrictive as the EGU
budget that was set in the state's NOX SIP call SIP.
---------------------------------------------------------------------------

    As explained in greater detail above, EPA believes that it is
appropriate for states that achieve all CAIR NOX reductions
from EGUs to consider, when evaluating RACT for EGUs, the special
attributes of EGUs including the unique interrelated nature of the
power supply network, and the facilities' compliance with rules
implementing the CAIR. EPA also believes that the term, ``reasonable''
in RACT may be construed to allow consideration of the air quality
impact of required emissions reductions from region-wide cap-and-trade
programs such as the CAIR NOX trading programs.

The region-wide CAIR NOX emissions cap for 2009 was
established based on the maximum total capacity on which it was
possible to install controls by that date. So by design, the 2009 CAIR
region-wide NOX emissions cap for EGUs represents the most
reductions that are reasonable to achieve in that timeframe.
    EPA acknowledges that the RACT mandate applies in specific
geographic areas and determines that, in certain circumstances, the
specific RACT requirements in CAA sections 172, 182 and 184 are
satisfied by compliance with CAIR rules. As a practical matter, in most
nonattainment areas, the actual emissions reductions projected to occur
under CAIR are greater than the projected reductions from application
of source-by-source RACT. Further, in this action, EPA provides that
the determination that compliance with CAIR rules satisfies
NOX RACT requirements can only apply if the technical
analysis presented by EPA in the December 16, 2006 notice of
reconsideration shows that CAIR will achieve greater or equal annual
and ozone-season emissions reductions than source-by-source RACT in the
relevant nonattainment area or OTR state. Also, note that the
determination for an OTR state and a nonattainment area within that
State must be made separately, i.e., the determination may apply for an
OTR state but not for a particular nonattainment area in that State,
based on results of the technical analysis.
    In addition, the comments suggesting that EGUs many not meet a
``minimum level of NOX control'' and that the rule does not
guarantee that any ``RACT level controls'' would actually be installed
in a CAIR state, appear to assume that to satisfy RACT, each individual
source must achieve a specific level of control. As explained below,
EPA disagrees with this assumption. Further, in states that achieve all
CAIR reductions from EGUs, requiring source-specific RACT on EGUs and
compliance with rules implementing CAIR would not achieve greater
collective total emissions reductions from EGUs covered by the CAIR and
the collective reductions would likely be achieved at a higher overall
cost.
    c. Comment: Several commenters challenged EPA's suggestion that the
CAIR will achieve greater reductions than RACT. These commenters argued
that the suggestion that the CAIR will achieve greater reductions
without RACT is unsupportable. EPA, they argue, can and must require
RACT reductions on top of CAIR reductions. Not doing so ignores the
possibility that requiring both RACT and the CAIR will produce faster
RFP and earlier attainment than the CAIR alone.
    Response: EPA's emissions analyses prepared for the December 2006
notice of proposed reconsideration generally show that the CAIR will
achieve greater EGU NOX emission reductions across the CAIR
region and also in most of the designated nonattainment areas and OTR
states, than would be achieved by requiring EGUs in these areas to meet
a specific level of NOX control deemed to be RACT. The
analyses show that the CAIR obtains equal or greater summer season
emission reductions than source-by-source RACT in 13 out of 18 specific
nonattainment areas in the CAIR region, and in 3 out of 9 OTR states.
It also shows that CAIR obtains equal to or greater annual emission
reductions than source-by-source RACT in 15 out of 18 specific
nonattainment areas in the CAIR region and in 6 out of 9 OTR states.
The docket contains a Technical Support Document \10\ describing the
analysis.
---------------------------------------------------------------------------

    \10\ ``Technical Support Document for Phase 2 of the Final Rule
To Implement the 8-Hour Ozone National Ambient Air Quality
Standard--Notice of Reconsideration; NOX RACT for EGUs in
CAIR States--Supplemental Technical Analysis'' (Docket ID No. EPA-
HQ-OAR-2003-0079, item 1044.2).
---------------------------------------------------------------------------

    EPA also disagrees with the commenter's assertion that EPA can and
must require RACT reductions on top of the CAIR reductions. While EPA
agrees that the RACT requirement, and the requirement to address ozone
transport under CAA section 110(a)(2)(d) are separate requirements, EPA
asserts that the Act does not specify that these are additive or
mutually exclusive requirements. As such EPA has determined that the
CAIR may satisfy, under certain conditions, both requirements.
    As previously explained, requiring source-by-source RACT as an
additional constraint on EGU control strategy in the CAIR, in certain
areas would mean that controls would not necessarily be placed on the
sources for which it is most cost-effective to control. The result
would be the same emission reductions area wide, but at higher cost.
Further, by design, the 2009 CAIR region-wide NOX emissions
cap for EGUs represents the most reductions that are reasonable to
achieve. Consequently, EPA does not believe that further controls could
be considered reasonably available.
    Finally, as we have also previously noted, states have an
overarching obligation to provide such controls as are necessary to
attain the 8 hour ozone standard as expeditiously as practical. At a
minimum, this must include application of RACT to major sources, but
may also require beyond-RACT NOX reductions from any source
(including sources covered by the CAIR or NOX SIP Call
programs). In certain areas, states may determine that NOX
controls based on more advanced control technologies are necessary to
provide for timely attainment of the ozone standards.
    d. Comment: Several commenters argue that the EPA's analyses to
support its determination that the CAIR may satisfy certain RACT
requirements are flawed because they rely on improper assumptions. The
commenter notes that EPA's technical analysis relies on a number of
assumptions regarding source conduct, allowance pricing, and the like.
One Commenter argues that the 1992 and 1994 agency guidance referred to
by EPA is outdated and not consistent with RACT controls being imposed
by states today. Another commenter stated that new controls have been
developed in the 14 years since the early RACT guidance was issued.
These controls such as selective catalytic reduction (SCR) and
selective non-catalytic reduction (SNCR) will give a level of control
beyond what EPA assumed 14 years ago. One commenter claimed that there
are many new controls being studied that can reduce NOX
emissions at a fraction of the cost assumed in the CAIR rulemaking.
These new controls, which the commenter asserts would fall under RACT,
are a refinement of existing combustion control technologies, along
with injection of an inexpensive reagent in the boiler.
    Response: EPA believes the technical analyses are based on
reasonable assumptions. EPA's views on NOX RACT were set
forth in the ``NOX Supplement to the General Preamble,''
November 25, 1992 (57 FR 55620). In that document, EPA determined that
in the majority of cases, RACT will result in an overall level of
control equivalent to specified maximum allowable emission rates (in
pounds of NOX per million Btu) for certain specified
electric utility boilers. Section 4.6 of the NOX Supplement
to the General Preamble (57 FR 55625) noted in part, ``In general, EPA
considers RACT for utilities to be the most effective level of
combustion modification reasonably available to an individual unit.
This implies low NOX burners, in some cases with overfire
air and in other instances without overfire air; flue gas
recirculation; and conceivably some situations with no control at
all.'' The assumptions in EPA's technical analysis are consistent with
this guidance.
    EPA assumed that RACT is represented by combustion controls for
EGUs defined as: (1) Low NOX burners with overfire air for
wall-fired units; and

(2) low NOX coal-and-air nozzles with close-coupled and
separated overfire air for tangentially-fired units. For oil and gas
steam EGUs, the RACT-level of control was assumed to be 0.20 pounds of
NOX per million BTU for tangentially-fired gas or oil
burning and 0.30 for wall-fired gas or oil burning. As EPA's CAIR
technical analysis has shown, and as previously noted the CAIR
requires, the installation of NOX controls on the maximum
capacity on which it is feasible to install such controls by 2009.
Therefore, additional controls are not ``reasonably available.''
    EPA does not restrict individual states from requiring EGU
NOX control levels more stringent than what EPA has
determined is RACT in order to achieve compliance with the ozone NAAQS.
EPA believes more stringent levels of NOX control
(represented by SCR and SNCR) are beyond RACT. The fact that some
states may chose to require controls that go beyond RACT to attain the
ozone standards does not necessarily mean that this level of control
should be considered RACT.
    e. Comment: EPA received several comments regarding the cost of
RACT. These commenters argue that states have adopted RACT requirements
for ozone precursors with costs per ton in excess of the $900/ton
control cost estimated for the CAIR. The commenter argues that the EGU
sector can make reasonably effective emission reductions up to a $4500/
ton threshold. Further, commenters state that in connection with the
adoption of the 1997 ozone and PM NAAQS, the President issued a
memorandum indicating EPA's agreement with control costs of up to
$10,000 per ton as being within the reasonable range. One commenter
also points out that the Washington DC-MD-VA region has required RACT
with costs of approximately $4,000-$10,000 per ton.
    Response: EPA believes the assumptions in its technical analysis
regarding the controls that would be considered RACT (if RACT were to
be applied on a source-by-source basis) are reasonable. This level of
control is consistent with EPA's past NOX RACT guidance [see
``NOX Supplement to the General Preamble,'' November 25,
1992 (57 FR 55620)]. EPA considers the combustion modification guidance
from the early 1990's to express what is RACT for NOX
control of EGUs considering technical feasibility and cost.
    In making a general determination of what controls are
representative of RACT, EPA does not necessarily recommend the highest
level of stringency that is imposed by any state. However, EPA does not
restrict states from imposing controls with relatively high costs if
the states determine they are necessary to attain the ozone NAAQS. EPA
cautions that if all states choose to impose beyond RACT controls on
all EGUs by 2009 it could create shortages of labor and materials that
would substantially increase the cost of compliance or make it
infeasible to meet the 2009 deadline. EPA's analysis shows that the
CAIR achieves the maximum level of control that is feasible by 2009 on
a region-wide basis.
    f. Comment: Several commenters argue that EPA's technical analysis
shows that at least some nonattainment areas would achieve greater
emission reduction with implementation of source by source RACT than
with CAIR. They argue that, in these areas, CAIR would not be
``equivalent'' to RACT for EGUs.
    Response: In this action we are determining that compliance with
CAIR satisfies NOX RACT requirements for EGUs in areas where
EPA's emissions analysis shows that CAIR is projected to achieve
greater emissions reductions than application of source-by-source RACT.
As explained above, other areas may still rely on the presumption that
compliance with the CAIR satisfies NOX RACT requirements in
certain circumstances. This presumption is rebuttable and the State may
choose to provide supporting analyses and will have to respond to any
comments received during the comment period that address the
presumption.
    g. Comment: One commenter suggested that EPA adopt the Ozone
Transport Commission's (OTC) approach to cap-and-trade programs where
RACT was applied first. Thus, the cap-and-trade program operates in an
environment that assumes RACT is in force, not in lieu of RACT. Another
commenter argued that an effective attainment strategy requires both
area wide programs like CAIR and nonattainment area specific program
such as source-by-source RACT on EGUs. Thus, the commenter argues that
in its technical analysis, EPA should have looked at CAIR + RACT versus
RACT, rather than CAIR alone versus RACT.
    Response: The supplemental technical analysis prepared by EPA for
the reconsideration proposal was designed to analyze whether compliance
with a SIP or FIP meeting the requirements of CAIR may also satisfy the
NOX RACT requirement for certain EGUs. Thus, it was
appropriate for EPA to compare the reductions under CAIR alone with the
reductions that would be achieved by another possible method of
satisfying RACT requirements (i.e. the application of source-by-source
RACT controls). The comparison that the commenter suggests should have
been prepared would not have shed light on the question the analysis
sought to answer, namely whether compliance with CAIR satisfies the
nonattainment program requirement in question.
    In addition, as noted above, by design, the 2009 CAIR region-wide
NOX emissions cap for EGUs represents the most reductions
that are reasonable to achieve. Further, as explained in the
reconsideration notice, source-specific control requirements layered on
top of the overall allowance-based emissions cap might affect the
temporal distribution of emissions or the spatial distribution of
emissions but would not affect total allowed emission in the CAIR
region. EPA expects that, under the CAIR trading programs the largest-
emitting EGU sources (and those with the most cost effective reductions
available) will be the first to install NOX control
technology. If states were to require smaller-emitting EGU sources in
nonattainment areas to meet source-specific RACT requirements, they
would likely use labor and other resources that would otherwise be used
for emission controls on larger sources and the cost of achieving the
regional reductions would be greater on a per ton basis.
    h. Comment: One commenter argues that EPA's determination that
compliance with the CAIR, in some circumstances, satisfies
NOX RACT requirements for EGUs will create inequality
between CAIR states and bordering non-CAIR states. They argue that
EPA's determination creates an inequity where the geographic boundary
of a nonattainment area crosses state lines from a CAIR state into a
non-CAIR state. In the CAIR state portion of the non-attainment area,
EPA would allow compliance with CAIR rules to satisfy NOX
RACT for EGUs while in the non-CAIR state portion of the nonattainment
area NOX RACT for EGUs would still be a source-specific
requirement.
    Response: Since sources in non-CAIR states are not subject to rules
implementing the CAIR emission reduction requirements, those states
naturally could not rely on compliance with those rules to show that
the NOX EGU RACT requirements has been satisfied. The fact
that the non-CAIR states may use a different method to show that the
same RACT requirement has been met does not create an inequity between
states. Further, none of the nonattainment areas covered by the EPA's
determination that compliance

with CAIR rules satisfies certain NOX RACT requirements
(i.e. those for which our technical analysis shows that CAIR provides
equal or greater annual and ozone-season emissions reductions than
source-by-source RACT) lie across the boundary of two states, one of
which is a CAIR state and the other of which is a non-CAIR state.
    j. Comment: EPA received several comments arguing that EPA's
determination that CAIR may satisfy the EGU NOX RACT
requirements for some areas is improper because the purpose of RACT is
not the same as the purpose served by the CAIR. The commenters argue
that the purpose of the CAIR is to address interstate transport of
NOX from EGUs that contributes to nonattainment in downwind
states, while the RACT requirement is intended to reduce emissions
within a nonattainment area. They argue that RACT is intended to reduce
emissions in nonattainment areas by requiring emission control
technologies to be installed at particular sources, where CAIR does not
require such emission controls. The commenter asserts that the CAIR is
not intended as an attainment strategy.
    Response: We find the attempt by commenters to characterize CAIR as
a strategy to address only regional pollution transport as overly
simplistic. The EPA analyses for the CAIR show that there are
significant emissions reductions and air quality benefits projected for
individual nonattainment areas as a result of NOX reductions
across the multistate CAIR region. The Clean Air Act does not prevent
states from properly crediting measures that achieve multiple
objectives (e.g. regional transport and local nonattainment). Moreover,
CAA section 110(a)(2)(D) requires SIPs to contain adequate provisions
to assure that sources in the state do not contribute significantly to
nonattainment in any other state. The CAIR rule is an integral element
in meeting the states' section 110 attainment obligations. Accordingly,
it is reasonable to incorporate this consideration in determining what
measures qualify as RACT. Even though the CAIR may have been initially
designed to get regional reductions, if it produces the most reductions
that are feasible it can also represent RACT for subject areas.
    j. Comment: One commenter says the EPA ignores the impact on non-
EGU sources of its determination that compliance with the CAIR may
satisfy the RACT requirement for certain EGUs. The commenter argues
that states may be required to impose more costly controls on non-EGUs
to make up for lost reductions due to the failure to impose RACT on
EGUs.
    Response: As explained above, EPA disagrees with the commenters'
assertion that EPA's determination that compliance with the CAIR may
satisfy NOX RACT requirements for EGUs constitutes ``failure
to impose RACT on EGUs.'' Nothing in the final rule displaces the RACT
requirement for EGUs. Further, CAIR will achieve widespread
SO2 and NOX emission reductions from EGUs and
will provide significant air quality benefits for ozone and
PM2.5 nonattainment areas. In developing attainment SIPs and
identifying control measures, states may need to consider more
stringent controls on all sources, including EGUs, in order to reach
attainment as expeditiously as practicable. States must also consider
the economic feasibility of implementing a given control measure, and
EPA has determined that the CAIR will result in EGUs installing
controls on the maximum total capacity on which it's feasible to do so
by 2009 in the CAIR region. Further, EPA acknowledges that to achieve
attainment as expeditiously as practicable, some states may need to
adopt control measures for some sources which cost more per ton than
the controls on EGUs, but which are still considered to be reasonable
and cost-effective. Because of facility-specific factors (e.g. input
costs in the geographic area and the facility's ability to sustain the
cost), EPA does not believe it would be appropriate to establish a
threshold of control effectiveness (e.g. dollars per ton) based on
control of EGUs and apply this threshold to all source categories.
    k. Comment: Another commenter argues that states such as Illinois
may be forced to require additional emission reductions, including
application of RACT within their nonattainment areas, that must be
achieved earlier than CAIR reductions. They argue that these additional
controls on non-EGU sources will be very costly and that EGUs are
usually the largest and most easily controlled NOX sources
in a nonattainment area. More specifically, they note that there are 15
coal-fired boilers in two ozone nonattainment areas in Illinois, none
of which have installed SCRs. EPA projects that only two of those units
will install SCRs in response to CAIR. However, based on that
projection, the Chicago area will not meet the 8-hour standard by 2010.
    Response: Just because the RACT requirement results in relatively
less control on one source category compared to another is no reason
why the RACT determination for a source category is invalid, since the
two categories may be sufficiently dissimilar so as to render a
comparison irrelevant. RACT represents only such technology as is
reasonably available, not all controls that may be necessary to attain
as expeditiously as practicable. The State is still required to
demonstrate attainment as expeditiously as practicable and has the
discretion to choose in its public process how to apportion
responsibility for emission reductions to meet that requirement.
    l. Comment: Several commenters, all associated with electric power
companies, agreed that CAIR will likely achieve the same emissions
controls as RACT, but in a more cost effective manner. One commenter
points out that CAIR will achieve substantially more area wide emission
reductions that source-by-source RACT controls, and says this is true
in most nonattainment areas also. The commenter points out that in the
few areas where source-by-source RACT is projected to produces greater
emission reductions than CAIR under EPA's conservative analysis, the
differences are relatively small.
    Response: EPA agrees that CAIR will achieve the same or lower
NOX emissions over the CAIR area than source-by-source RACT
and that it will achieve these NOX reductions in the most
cost effective manner.
    m. Comment: Several commenters addressed the contention in EPA's
analysis that CAIR will result in EGUs installing controls on the
maximum total capacity on which it is feasible to do so by 2009. One
commenter agreed with this contention and noted that further controls
will be installed by 2015. Another commenter says that this contention
is contradicted by a 2004 analysis conducted by the Institute of Clean
Air Companies (ICAC) which concluded that labor is available to install
2015 CAIR levels of reduction by 2010. If CAIR 2015 controls are closer
to RACT, they argue, ``EPA's implication that RACT requirements on EGUs
in the CAIR regions would not achieve more reductions than those
achieved by CAIR by 2010 is incorrect. However, another commenter says
that CAIR requires controls as quickly as they can be practically
installed given the constraints of specialized labor needed for this
type of construction.
    Response: EPA considered a number of analyses related to
boilermaker labor availability provided by various commenters,
including the 2004 Institute of Clean Air Companies analysis, when it
prepared the Clean Air Interstate Rule (CAIR) which was published May
12, 2005 (70 FR 25162). EPA prepared its own technical analysis as part
of the CAIR development, and

decided as a result of its analysis that the dates in the final CAIR
rule of January 1, 2009 for phase I for NOX controls,
January 1, 2010 for phase II SO2 controls and 2015 for phase
2 controls for both NOX and SO2 were appropriate
based on projected labor availability. The EPA's analysis shows that
the amount of additional NOX emissions control that will be
obtained under the CAIR in 2015 is infeasible to obtain in 2009, when
RACT emission reductions under the 8-hour ozone NAAQS must be
implemented. EPA believes it has set the 2009 CAIR NOX cap
at a level that, assuming the reductions are achieved from EGUs, would
result in EGUs installing emission controls on the maximum total
capacity on which it is feasible to install emission controls by that
date. Thus, in that timeframe controls beyond CAIR cannot be considered
``reasonably available''. The EPA analysis, titled ``Boilermaker Labor
Analysis and Installation Timing'', March 2005, has been placed in the
docket for the CAIR rule, docket number EPA-HQ-OAR-2003-0053, document
number EPA-HQ-OAR-2003-0053-2092. This issue is also discussed in the
preamble to the CAIR rule under the heading ``Schedule for Implementing
SO2 and NOX Emissions Reductions Requirements for
PM2.5 and Ozone'' starting at 70 FR 25215. EPA concluded
that its analysis rather than the ICAC analysis of feasibility is
correct and EPA believes it is still the most credible analysis
addressing the issue.
    n. Comment: Several commenters argue that the economic test for
CAIR is different from that for RACT. CAIR requires only ``highly cost
effective controls,'' whereas RACT requires economically feasible
controls. Thus, the commenters conclude, more controls ``pass the
economic test'' under RACT than under CAIR.
    Response: EPA believes that the emission reductions achieved by
CAIR, while still highly cost effective, also represent the level of
control that is economically and technologically feasible as RACT for
EGUs in states that achieve all their emission reductions from EGUs.
The CAIR final rulemaking established a region-wide NOX
emissions cap, effective in 2009, at a level that, assuming the
reductions are achieved from EGUs, would result in EGUs installing
emission controls on the maximum total capacity on which it is feasible
to install emission controls by that date. Further, EPA does not
believe that requiring source-specific RACT controls on EGUs in
nonattainment areas would reduce total NOX emissions from
EGU sources covered by the CAIR below the levels that would be achieved
under the CAIR alone. The most expensive controls available, which
might be chosen for BACT or LAER, are not always justified as RACT.
States have the flexibility to require such controls as part of their
attainment strategy if they find such controls are reasonable and
necessary to achieve attainment of the ozone NAAQS as expeditiously as
practicable.
    o. Comment: One commenter argued that the time frames for the CAIR
and the RACT requirement are different. This commenter says RACT is
required within 30 months of when the RACT SIP is due which would
require controls to be installed by the 2009 ozone season, but that
CAIR sources have until 2010 or 2015.
    Response: As explained in the final CAIR rule (70 FR 25226), the
first phase of CAIR NOX emissions cap starts in 2009, not in
2010 as the commenter states. For states affected by the CAIR annual
NOX emission reduction requirements, the first phase cap
begins on January 1, 2009. For states affected only by the CAIR ozone
season NOX emission reduction requirements, the first phase
starts May 1, 2009. EPA believes it has set the 2009 CAIR
NOX cap at a level that, assuming the reductions are
achieved from EGUs, would result in EGUs installing emission controls
on the maximum total capacity on which it is feasible to install
emission controls by that date.
    p. Comment: EPA received comments arguing that states are not free
to require more control on EGUs, as EPA suggests, since the law in many
states prohibits state air agencies from being more stringent that
federal law. One survey found the 26 state agencies (of 50 respondents)
and 9 local agencies (of 42 respondents) reported being precluded from
adopting more stringent requirements than the federal government. A
commenter said that the ``CAIR equals RACT'' determination removes
state authority and obligation to impose NOX RACT
requirements for some of the largest NOX sources in their
nonattainment areas.
    One commenter said that the petition for reconsideration ignores
the point that, entirely apart from what emission controls are deemed
RACT, states must require emission controls as necessary to attain the
NAAQS as expeditiously as practicable. Thus a state has discretion to
require beyond-RACT NOX reductions.
    Response: There are no provisions in the CAA or federal law that
prohibit state governments from imposing requirements more stringent
than federal law. EPA recognizes, nonetheless, that some states have
voluntarily chosen to adopt such limits. All states, regardless of
whether such limits have been adopted, are required by section 172 of
the CAA to attain the ozone NAAQS as expeditiously as practicable.
Thus, requirements that are determined by the state to be necessary to
attain as expeditiously as practicable with reasonably available
control measures, are in fact required by federal law and cannot be
considered more stringent than federal requirements. In this action,
EPA has decided that it will accept a determination that NOX
RACT for EGUs is satisfied by compliance with rules implementing CAIR
in a state that achieves all CAIR emission reductions from EGUs and
where EPA's technical analysis presented in the December 16, 2006
notice of reconsideration shows that CAIR will achieve greater or equal
annual and ozone-season emissions reductions than source-by-source RACT
in the relevant nonattainment area (or for section 184 requirements,
the relevant OTR state). If a state chooses to rely on this
determination, it will not be required to perform NOX RACT
analyses for sources in the relevant nonattainment area or OTR state
that are subject to a CAIR NOX trading program.\11\
Nonattainment areas and OTR states that cannot rely on this
determination, may still initially presume that CAIR will satisfy the
NOX RACT requirements if all CAIR reductions are achieved by
EGUs. Under this presumption, states are free to conduct case-by-case
RACT determinations at their discretion. Further, the requirement to
attain the NAAQS as expeditiously as practicable is distinct from the
analysis of what specific emission controls are deemed RACT for a
particular source. Thus, all states have discretion to require beyond-
RACT NOX reductions if necessary to comply with the
requirements of CAA section 172.
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    \11\ The determination for OTR states is separate from the
determination for nonattainment within the OTR states, i.e., this
determination applies to areas in these OTR states other than (a)
moderate and above subpart 2 areas and (b) subpart 1 areas that
request an attainment date more than 5 years after designation for
the 8-hour NAAQS. This means that an OTR state can get a
determination that CAIR equals RACT within the State, but a
particular nonattainment within the State may not get this
determination based on the results of the technical analysis.
---------------------------------------------------------------------------

    q. Comment: One commenter argues that EPA attempts to stretch Sec.
172 (c)'s definition of ``reasonable,'' when EPA states that it
believes that the term ``reasonable'' in RACT may be construed to allow
consideration of the air quality impact of required emissions reduction
from a region-wide cap-and-trade

program such as CAIR. Another commenter argues that EPA's theory that
the term ``reasonable'' is ambiguous and ignores the statutory language
which only speaks to RACT, with the term reasonably modifying the word
available. The commenter said that it is not reasonable for EPA to
interpret reasonable to apply in one manner for EGUs and a wholly
different manner for other sources.
    Response: EPA disagrees with commenter's assertion that EPA
interprets the term ``reasonable'' to apply in one manner for EGUs and
in a different manner for other sources. Section 172(c)(1) of the CAA
requires that nonattainment plans shall provide for the implementation
of all reasonably available control measures as expeditiously as
practicable. EPA has previously stated that reasonable control measures
can include area wide averaging programs. (See NOX
Supplement to the General Preamble, November 25, 1992 (57 FR 55620).)
EPA's determination that the term ``reasonable'' in RACT may be
construed to allow consideration of the air quality impact of required
emissions reduction from a region-wide cap-and-trade program such as
CAIR is consistent with past practice and appropriate for the reasons
explained in this notice.
    Further, in determining a level of control which EPA recommends as
RACT, EPA studies a variety of sources and controls and determines what
level of control is applicable in the industry across a wide variety of
sources at a reasonable cost. States are free to tailor this RACT
guidance to the particular situation confronting individual sources in
that state. Each permitting agency determines for each source or
source-category in the state, the specific controls that constitute
RACT. Thus, the precise requirements applied to ensure that RACT is met
may differ from source to source and source-category to source-
category.
    EPA's determination that, in certain circumstances, compliance with
CAIR will satisfy the RACT requirement for EGUs in most CAIR states,
does not, as petitioner suggests, reinterpret the term RACT as it
applies to EGUs. Instead, EPA has determined that the existing RACT
requirement is satisfied by compliance with a rule implementing the
CAIR requirements, if and only if a state achieves all its reductions
from EGUs and the EPA's technical analysis presented in the notice of
reconsideration shows that CAIR will achieve greater or equal
reductions for annual and ozone-season emission reductions than source-
by-source RACT in the relevant nonattainment area or OTR state.\12\ If
a state achieves all of its CAIR emission reductions from EGUs then the
emissions of other source categories in the state are not controlled by
the CAIR. Thus, it would be impossible for EPA to make a similar
determination that they have met their RACT requirements through
compliance with CAIR.
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    \12\ The determination for OTR states is separate from the
determination for nonattainment within the OTR states, i.e., this
determination applies to areas in these OTR states other than (a)
moderate and above subpart 2 areas and (b) subpart 1 areas that
request an attainment date more than 5 years after designation for
the 8-hour NAAQS. This means that an OTR state can get a
determination that CAIR equals RACT within the State, but a
particular nonattainment within the State may not get this
determination based on the results of the technical analysis.
---------------------------------------------------------------------------

    r. Comment: EPA received several comments on whether the U.S. Court
of Appeals for the D.C. Circuit decision in South Coast Air Quality
Management District v. EPA, (No. 04-1200) (D.C. Cir. 2006), will affect
the issues in the Ozone Phase 2 Rule that are currently under
reconsideration. Specifically, commenters suggested that the South
Coast decision may affect EPA's analysis and conclusions regarding
whether compliance with rules implementing CAIR may satisfy
NOX RACT for EGUs in certain circumstances. One commenter
argued that the decision would affect the validity of the supplemental
technical analysis discussed in the December 2006 notice of
reconsideration. This commenter argued that the analysis would be
affected since, as a result of the South Coast decision, certain areas
may be moved from subpart 1 to subpart 2 nonattainment classifications.
Another commenter urged that there be no further delay as a result of
that ruling and argued that the issues being considered in the
reconsideration of phase 2 are not affected by the South Coast
decision. Another commenter argued that based on that decision, EPA
cannot use its discretionary powers to replace source-specific
provisions of the CAA such as RACT that were designed to achieve
specific air quality goals with trading programs such as CAIR that were
designed for other specific air quality goals.
    Response: EPA disagrees with the comment to the extent it suggests
EPA is seeking to replace the RACT requirement with CAIR. The final
rule does not displace the RACT requirement for any sources. EPA also
disagrees with the comment to the extent it suggests that EPA's
interpretation of the RACT requirements in sections 172(c)(1), 182(f)
and 184(b) is inconsistent with the South Coast decision. Further, on
March 22, 2007, EPA filed a petition for panel rehearing of the South
Coast decision and thus the full impact of that decision cannot yet be
assessed. At this time, EPA is unable to determine which areas, if any,
in addition to those included in the analysis will be required to
submit separate RACT SIPs. However, as indicated above in footnote 8,
region-wide emissions reductions from the CAIR are projected to be
significantly greater than reductions that would be projected to occur
from application of source-by-source RACT, such that the possible
movement of areas designated in the phase 1 rule as subpart 1 to
subpart 2 area designations is not expected to alter the conclusion
that the CAIR achieves greater emission reductions in the region than
source-by-source RACT. In addition, as previously discussed, EPA is
limiting the scope of its determination that compliance with the CAIR
satisfies NOX RACT requirements. This determination applies
in areas where EPA's emissions analysis in the December 16, 2006 notice
of reconsideration shows that the CAIR will achieve greater or equal
annual and ozone-season emissions reductions than source-by-source
RACT.

B. Submission Date for EGU NOX RACT SIPs for States in the
CAIR Region

1. Final Action
    In this action, EPA also extends the deadline for the submission,
by states in the CAIR region, of EGU NOX RACT SIPs for
moderate and above subpart 2 areas. Specifically, EPA has determined
that states subject to the requirements of CAIR shall submit
NOX RACT SIPs for EGUs no later than the due date for the
area's attainment demonstration (prior to any reclassification under
section 181(b)(3)) for the 8-hour ozone NAAQS or July 9, 2007,
whichever comes later.\13\ EPA is therefore changing the deadline in 40
CFR 51.912(a)(2) as it applies to that portion of the RACT SIPs
addressing EGU NOX emissions in the CAIR region. EPA is not
changing the deadline in 40 CFR 51.912(c)(2) that applies to RACT SIP
submittals for subpart 1 areas that request an attainment date that
extends beyond April 2009, since those RACT SIPs are already due with
the area's attainment demonstration by June 15, 2007.
---------------------------------------------------------------------------

    \13\ The current deadline for submitting attainment
demonstrations in these areas is June 15, 2007.
---------------------------------------------------------------------------

    EPA decided to extend the deadline for the submission of these EGU
NOX RACT SIPs because of the continuing uncertainty
regarding the required content of such SIPs and to avoid promulgating a
retroactive deadline.

The Administrative Procedures Act generally prohibits retroactive
rulemaking. In this case, EPA also determined that it would not be
reasonable to enact a retroactive deadline because it would only serve
to potentially expose states to fines and suits for failure to make SIP
revisions even though they previously faced substantial ambiguity
regarding the required content of the SIP submissions. See Sierra Club
v. Whitman, 285 F.3d 63, 68 (D.C. Cir. 2002).
    EPA recognizes that significant uncertainty regarding the EGU
NOX RACT SIPs for states in the CAIR region was created by
its decision to grant NRDC's petition for reconsideration. It was for
this reason that, in the December 2006 notice of reconsideration, EPA
proposed to extend the September 15, 2006 deadline to June 15, 2007 for
this source category. This new deadline affects only moderate 8-hour
ozone nonattainment areas in the CAIR region and only the portion of
the RACT SIPs that covers EGUs. EPA is aware that uncertainty regarding
area classifications, and hence the requirement for RACT SIPs was
created by South Coast v. EPA, in which the court decided to vacate
EPA's nonattainment classifications. These classifications determine,
among other things, which nonattainment areas must submit RACT SIPs
separate from their attainment demonstrations under the Phase 2 Rule.
EPA does not believe it would be reasonable to retain the September 15,
2006 deadline for submission of the EGU NOX RACT SIPs for
states in the CAIR region since this date has now passed and the
uncertainty regarding the required content of these SIPs has not been
resolved. This final action removes the uncertainty created by the
decision to grant reconsideration. The uncertainty regarding the
classifications will be eliminated either by the reclassification of
certain areas by EPA, or by a decision of the Court on rehearing not to
vacate some or all of the original classifications.\14\ The due date
for attainment demonstrations is tied to the date of the
classification, and for any classifications that are upheld on
rehearing, the attainment demonstrations for moderate areas will
continue to be due on June 15, 2007. Because the classifications also
determine what areas must submit RACT SIPs, and in light of the passage
of time during this reconsideration process, EPA believes that the EGU
RACT SIP submittal deadlines for states in the CAIR region should now
also be linked to the deadline for submitting attainment
demonstrations. EPA recognizes that for many areas this deadline may be
June 15, 2007--a date prior to the effective date of this rule. EPA
also recognizes that CAA section 172(b) requires states to make all
nonattainment SIP submissions within 3 years of designation (i.e. by
June 15, 2007). Nonetheless, to avoid creating a retroactive deadline
and because of the continuing uncertainty regarding the
classifications, EPA has decided to require the submission of EGU
NOX RACT SIPs on the due date for the area's attainment
demonstration under its original classification for the 8-hour
standard, or the effective date of this rule, whichever is later.
---------------------------------------------------------------------------

    \14\ The decision of the Court in South Coast v. EPA vacated the
Phase 1 ozone implementation rule, including the classifications
contained within that Rule. On March 22, 2007, EPA filed a petition
for panel rehearing of this decision. Among other things, EPA
requested further briefing and panel rehearing on whether the Court
erred in vacating the entire Rule even though many provisions of the
Rule were not challenged or were upheld by the Court.
---------------------------------------------------------------------------

2. Response to Comments
    a. Comment: Several commenters opposed the extension of the EGU
NOX RACT SIP submittal deadline. One commenter argued that
EPA has no authority to extend the due date for RACT SIPs for EGUs to
June 15, 2007 because section 182 of the CAA requires submittal of RACT
SIPs within 2 years of designation. Other commenters urged EPA to
finalize a rule that would expedite SIP submittals.
    Response: Section 182 does not explicitly provide that RACT SIPs
must be submitted a certain number of months after an area is
designated nonattainment for the 8-hour ozone NAAQS. EPA interprets the
comment to suggest that the final rule contains requirements similar to
the VOC RACT requirements in section 182(b)(2)(C), which must be
submitted to the Administrator by two years after November 15, 1990
(the date of enactment of the CAA Amendments of 1990). Therefore, the
argument goes, the RACT SIPs must similarly be submitted within two
years of the nonattainment designation, or June 15, 2006. In the final
Phase 2 Rule, we determined that because some states might rely on the
submittal of SIP revisions meeting the CAIR to also satisfy RACT for
some sources, it was reasonable to extend the RACT submittal date to
September 15, 2006 to correspond to the required date for submitting
CAIR SIPs. This date has now passed, and for the reasons explained in
section III.B.1 of this notice, EPA does not believe it would be
appropriate to finalize this rule with a retroactive deadline.
    b. Comment: Other commenters supported the extension at least until
June 15, 2007 and some argued a longer extension may be necessary given
the uncertainties regarding classifications created by the decision in
South Coast v. EPA.
    Response: As discussed in section III.B.1 of this notice, the RACT
SIP submittal date in the final rule reflects EPA's recognition that
the South Coast v. EPA decision has created some uncertainty about
which areas, by virtue of their classification, would be required to
address RACT requirements and in what timeframe.

C. Provisions of Final Rule Addressing the Criteria for Emission
Reduction Credits From Shutdowns and Curtailments

1. Major Source NSR Criteria For Emission Reduction Credits (ERC) From
Shutdowns snd Curtailments
    The November 29, 2005 Phase 2 rule removed the requirement that a
State must have an approved attainment plan before a source may use
pre-application credits from shutdowns or curtailments as offsets. It
also revised the availability of creditable offsets, consistent with
the requirements of section 173 of the CAA. We revised the provisions
at 40 CFR 51.165(a)(3)(ii)(C) and appendix S concerning emission
reduction credits generated from shutdowns and curtailments as proposed
in Alternative 2 of the 1996 proposal, with one exception. Alternative
2 of the 1996 proposal provided that, in order to be creditable, the
shutdown of an existing emission unit or curtailing of production or
operating hours must have occurred after the ``most recent emissions
inventory.'' As described in prior notices referenced herein, a public
comment raised concerns about usage of this terminology. Upon
consideration of various aspects of the terminology, we amended the
rules at 40 CFR 51.165(a)(3)(C)(1) and Appendix S paragraph IV.C.3. to
specify the cutoff date after which the shutdown or curtailment of
emissions must occur as ``the last day of the base year for the SIP
planning process.'' In our responses to comments below, we further
detail our rationale supporting this change. As explained previously,
this regulatory language is consistent with our previous guidance on
how emission reduction credits from shutdowns and curtailments are used
in attainment planning.\15\ The base year inventory

includes actual emissions from existing sources and would not normally
reflect emissions from units that were shutdown or curtailed before the
base year, as these emissions are not ``in the air.'' To the extent
that these emission reduction credits are to be considered available
for use as offsets and are thus ``in the air'' for purposes of
demonstrating attainment, they must be specifically included in the
projected emissions inventory used in the attainment demonstration
along with other growth in emissions over the base year inventory. This
step assures that emissions from shutdown and curtailed units are
accounted for in attainment planning.\16\ As with the prior rules,
reviewing authorities thus retain the ability to consider a prior
shutdown or curtailment to have occurred after the last day of the base
year if emissions that are eliminated by the shutdown or curtailment
are emissions that were accounted for in the attainment demonstration.
However, in no event may credit be given for shutdowns that occurred
before August 7, 1977, a provision carried over from the previous
regulation. See 40 CFR 51.165(a)(3)(C)(1)(ii) and 40 CFR Part 51
Appendix S Paragraph IV.C.3.
---------------------------------------------------------------------------

    \15\ See 57 FR 13553. After the 1990 CAA Amendments were
enacted, 1990 was the base year for 1-hour ozone NAAQS attainment
planning purposes. See 57 FR 13502. The EPA encouraged States to
allow sources to use pre-enactment banked emissions reductions
credits for offsetting purposes. States have been allowed to do so
if the restored credits meet all other offset creditability
criteria, and States consider such credits as part of the attainment
emissions inventory when developing their post-enactment attainment
demonstration.
    \16\ For a discussion of emission inventories for the 8-hour
ozone standard, see our emission inventory guidance, ``Emissions
Inventory Guidance for Implementation of Ozone and Particulate
Matter National Ambient Air Quality Standards (NAAQS) and Regional
Haze Regulations--Final,'' at http://www.epa.gov/ttn/chief/eidocs/eiguid/index.html.
 For a discussion of emission projections used in

attainment demonstrations, see Emission Inventory Improvement
Program, Volume X, Emission Projections, December 1999, available at
http://www.epa.gov/ttn/chief/eiip/techreport/.

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

2. Legal Basis for Changes to Criteria for Emission Reduction Credits
From Shutdowns and Curtailments
    The revisions made to the rules governing use of emissions
reductions from shutdowns/curtailments as offsets were warranted by the
more detailed attainment planning and sanction provisions of the 1990
CAA Amendments. These provisions specifically address air quality
concerns in nonattainment areas lacking EPA-approved attainment
demonstrations. As a threshold matter, we noted (See 70 FR 71677,
November 29, 2005) that CAA section 173 does not mandate the prior
restrictions on shutdown credits, specifically, the requirement to have
an approved attainment demonstration before shutdown credits may be
allowed. (See 48 FR 38742, 38751; August 25, 1983). Rather, in
promulgating these restrictions in 1989, EPA recognized that it had a
large degree of discretion under the CAA to shape implementing
regulations, as well as the need to exercise that discretion such that
offsets are consistent with reasonable further progress (RFP) as
required in CAA section 173. (See 54 FR 27286, 27292; June 28, 1989).
Originally, EPA believed that areas without approved attainment
demonstrations lacked adequate safeguards to ensure that shutdown/
curtailment credits would be consistent with RFP. We thus subjected
those areas to more restrictive requirements to ensure a link between
the new source and the source being shutdown/curtailed (that is,
shutdown/curtailment must occur after the application for a new or
modified major source is filed).
    The 1990 CAA Amendments changed the considerations involved. For
areas subject to subpart 2 of CAA Part D, Congress emphasized the
emission inventory requirement in section 172(c)(3) as a fundamental
tool in air quality planning (See Section 182(a)(1). Congress also
added new provisions keyed to the inventory requirement, including
specific reduction strategies (e.g., section 182(b)(3) and (4)
(regarding gasoline vapor recovery and motor vehicle inspection and
maintenance programs)) and ``milestones'' that measure progress toward
attainment from the base year emissions inventory or subsequent revised
inventories (See section 182(b)(1)). Subpart 4 sets forth specific
reduction strategies and milestones for attainment of the
PM10 standards. Additionally, there are now several adverse
consequences where States fail to meet the planning or emissions
reductions requirements of the CAA. For example, the CAA contains
mandatory increased new source offset sanctions at a 2:1 ratio where
the Administrator finds that a State failed to submit a required
attainment demonstration (See section 179). In areas that are subject
to subpart 2 and subpart 4, failure to attain the air quality standard
by the attainment deadline results in the area being bumped up to a
higher classification (see sections 181(b)(2) and 188(b)(2)).
Additional regulatory requirements are imposed as a result of the
higher classification (see, e.g., section 182(c), (d), and (e), and
section 189(b)). These statutory changes justify shifting the focus of
the prior regulations from individual offset transactions between a
specific new source and shutdown source and towards a systemic
approach. Considering the changes to the 1990 CAA Amendments, we now
believe that continuing the prohibition on the use of shutdown/
curtailment credits generated in a nonattainment area that is without
an approved attainment demonstration is not warranted. We believe that
use of emission reduction credits from shutdowns/curtailments will be
consistent with RFP towards attainment under CAA section 173, even in
the absence of an approved attainment demonstration, if the shutdown or
curtailment occurs after the last day of the base year for the SIP
planning process or is included in the projected emissions inventory
used to develop the attainment demonstration. From an air quality
planning perspective, emissions from the shutdown source actually
impacted the measurements of air quality used in determining the
nonattainment status of an area. Therefore, emissions reductions from
such source shutdowns/curtailments are actual emissions reductions, and
their use as emission offsets at a ratio of 1:1 or greater is
consistent with RFP towards improved air quality as set forth in CAA
section 173(a)(1)(A) provided they are included in the baseline
emissions inventory.
3. Reconsideration of Emission Reduction Credits Final Rule Language
and Request for Public Comments
    In its January 30, 2006, petition for reconsideration, NRDC
requested that EPA reconsider provisions in the final Phase 2 Rule that
pertain to ERC. NRDC argued that EPA failed to present portions of the
rule's ``shutdown-curtailment offset provisions'' and accompanying
rationales to the public for comment. In our December 19, 2006,
proposal for reconsideration we presented our opinion that the basis
for the ERC provisions of the final rule was adequately provided in the
November 29, 2005, rule and in earlier actions leading to that rule.
Petitioners asserted in their request for reconsideration that certain
aspects of our clarifying amendments to the ERC provisions of the final
rule were not a logical outgrowth of the ERC provisions we proposed.
While disagreeing, we nonetheless presented certain changes made in the
November 29, 2005, final rule for additional public comment as
requested by the petitioners. Concerning emission reduction credits,
our proposal for reconsideration drew twelve public comments. Of those
comments, eight supported the rules as now written. Among those opposed
were the

petitioners, who continued presentation of the concerns leading to
today's notice. Detailed discussion and analysis of arguments raised by
all of the commenters is given below.
4. Comments and Responses for Emission Reduction Credits Issues
    Two commenters objected to the inclusion of NSR program elements
into the same action as the requirements for the implementation of the
eight-hour ozone standard. Our response to that concern is that we
considered it more efficient to combine the two actions. We observed in
70 FR 71672 that we did not propose specific regulatory language for
implementation of NSR under the 8-hour NAAQS. However, we indicated
that we had intended to revise the nonattainment NSR regulations to be
consistent with the rule for implementing the 8-hour ozone NAAQS. We
found it expeditious to address these and other NSR matters in the same
regulatory package as the phase 2 ozone rule. In the future, any
combination of actions affecting multiple aspects of an overall program
would be considered in light of the pros and cons of doing so at that
time. In this instance, coordination of distinct program elements was a
primary concern.
a. Comments on Emission Reduction Credits and Emissions Inventories
    In the January 30, 2006, NRDC petition for reconsideration,
Earthjustice argued on behalf of NRDC that EPA failed to present
portions of the rule's ``shut down-curtailment offset provisions'' and
accompanying rationales to the public for comment. The petitioners
asserted in their request for reconsideration that certain aspects of
our clarifying amendments to the ERC provisions of the final rule were
not a logical outgrowth of the ERC provisions we proposed on the July
23, 1996 proposal. First, they identified the change in language
regarding when shutdowns and curtailments must have occurred in order
to be creditable. The proposed language (alternative 2) said that
shutdowns and curtailments could be credited ``if such reductions
occurred after the last day of the baseline year of the most recent
base year emissions inventory used (or to be used) in the plan.'' In
the final rule, after considering comments, we changed the language to
say that such reductions could be credited if they occurred ``after the
last day of the base year for the SIP planning process.'' Earthjustice
objected to this change because, in their view, the final rule ``allows
offsets from pre-application shutdowns and curtailments even in the
absence of an emission inventory for the attainment plan.'' While we
believe the ERC provisions in the final rule were a logical outgrowth
of the proposal, we nevertheless granted their request for
reconsideration with respect to this particular language change, as
indicated in the December 19, 2006, notice. The NRDC/Earthjustice
petition also contained a second argument, which was that the final
rule ``could allow pre-baseline reductions from shutdowns or
curtailments to be used as post-baseline offsets.'' This argument
hinged on the second sentence of Sec.  51.165(a)(3)(C)(1)(ii), which
now provides that ``a reviewing authority may choose to consider a
prior shutdown or curtailment to have occurred after the last day of
the base year if the projected emissions inventory used to develop the
attainment demonstration explicitly includes the emissions from such
previously shut down or curtailed emission units.'' While we did not
specifically open this issue for reconsideration, we nevertheless
address related comments below. For the purpose of providing potential
commenters context and clarity, we included the full language of Sec.
51.165(a)(3)(C)(1) and Appendix S paragraph IV.C.3 in our December 19,
2006 notice of reconsideration.
    In its comments upon our proposal for reconsideration, Earthjustice
essentially repeated the points made in the NRDC/Earthjustice petition,
stating that the final ERC provisions ``would allow use of such pre-
application offsets before the state even knows the degree of emission
reductions needed to assure RFP, and before the state has even
developed a baseline emission inventory.'' Earthjustice also pursued
the second issue, stating that ``the proposed rule further violates the
Act to the extent that it allows the source to claim offsets from
reductions that occurred prior to the baseline year for the attainment
demonstration.'' In addition, Earthjustice offered broad comments that
relate to aspects of the ERC provisions that pre-dated the Phase II
rule. We will examine those comments after first addressing the
discrete issues that were the subject of the reconsideration proposal.
    As summarized above, the first concern raised by NRDC/Earthjustice
in the petition for reconsideration was with the replacement of the
terminology ``most recent emissions inventory'' as used in the July 23,
1996 proposal (61 FR 38250) with the terminology ``the last day of the
base year for the SIP planning process.'' Alternative 2 of the 1996
proposal provided that, in order to be creditable, the shutdown of an
existing emission unit or curtailing of production or operating hours
must have occurred after the ``most recent emissions inventory.'' We
agreed with a commenter on the 1996 proposal who found the phase ``most
recent emissions inventory'' confusing. In particular, that prior
commenter believed this language could be read as meaning that the base
year for the purpose of determining emissions that may be used as
creditable offsets would continue to shift. The prior commenter noted
that it would be more accurate to state that the base year emissions
inventory is the starting point and all creditable emissions reductions
must result from the shutdown or curtailment of emissions that have
been reported in the base year inventory or a subsequent emissions
inventory. (For the 8-hour ozone NAAQS, the base year is 2002.\17\) We
agreed with the prior commenter that the terminology ``most recent
emissions inventory'' was not desirable and revised Sec.
51.165(a)(3)(C)(1) and Appendix S paragraph IV.C.3. Accordingly,
specifying the cutoff date after which the shutdown or curtailment of
emissions must occur as ``the last day of the base year for the SIP
planning process.''
---------------------------------------------------------------------------

    \17\ 68 FR 32833, See also ``2002 Base Year Emission Inventory
SIP Planning: 8-hr Ozone, PM2.5 and Regional Haze
Programs,'' U.S. EPA, pg. 1 (November 18, 2002).
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    Eight commenters voiced support for the ERC language as promulgated
on November 29, 2005, and offered further comment on our December 19,
2006 proposal. In general, the commenters noted the important role
assigned by Congress to the usage of emissions inventories for air
quality planning. The commenters were supportive of the availability of
ERC as a tool for factoring managed growth into the planning process.
As a whole, these commenters supported the change from the language
``most recent emissions inventory'' as proposed July 23, 1996 to the
final ``the last day of the base year for the SIP planning process.''
Speaking directly to the language that was the subject of the December
19, 2006 proposal, several commenters remarked that ERC should not be
lost every time an inventory is updated. One observed that losing ERC
due to a moving target cannot be directly tied to attainment planning.
Another commenter found EPA's rationale to be reasonable and saw no
merit to the petition. This opinion was echoed by yet another commenter
who found no new information in the petition for reconsideration to
support changing the promulgated ERC rule.

Several of the commenters supporting the cutoff date for ERC as being
the last day of the base year for the SIP planning process went on to
express opinions about implementation of the provision. A State air
pollution control agency said that emissions included in the base year
inventory will also be included in a modeled attainment demonstration.
Their experience has been that emissions go down while ERC are
employed. We agree with the commenters regarding the important role of
emissions inventories in air quality planning and the retention of
ERCs. There is no good rationale to support the removal of ERC as a
consequence to updating of inventory. We provided a detailed rationale
for our own conclusion at 70 FR 71676-71677.
    One commenter expressed appreciation of the specific clarifications
we provided with regard to the ability to credit pre-emissions
inventory shutdowns and curtailments if those emissions were included
in the baseline SIP emission inventory. The commenter noted that this
shutdown and curtailment policy provides incentive to remove old
equipment without modern controls or to control emissions from such
units with new technology or practically enforceable permit limits. The
ban on the use of shutdowns and curtailments was counter-productive to
improving air quality as it provided an incentive to keep older and
higher emitting sources operating. The commenter opined that given the
paucity of NOX emissions reduction opportunities in certain
nonattainment areas, the new rule represents sound public policy by
providing an incentive for sources that want to build or install new
emissions equipment to purchase and or control NOX-emitting
equipment at other sources that might have little incentive to reduce
their emissions otherwise. Also, since an offset generates net
emissions reductions because greater than one-to-one offset ratios are
required for NSR permitting in these areas, such offsets do not
interfere with attainment. We strongly agree with this commenter. The
chosen approach to ERC should not encourage owner/operators to continue
operating old inefficient equipment solely for the purpose of having
those emissions available for credits at the time of a permit
application. Establishing programmatic incentives to delay emission
reductions that make good business sense (but are not otherwise
required) is detrimental to the goal of achieving attainment as
expeditiously as possible.
    Some comments were received upon the mechanics of implementing ERC
provisions. A State air pollution control agency said that since
curtailments, by definition, are temporary, the EPA also needs to
review the procedures it employs for allowing sources to use emissions
reductions from curtailments as offset credits to ensure that the
emissions reductions from the curtailments are real, federally
enforceable, quantifiable and surplus. The commenter thought emissions
might resume at a later point in time after the curtailment ends and
expressed concern about adequate tracking of both the generation and
use of these emission reductions to ensure that the use of such credits
would be discontinued as soon as the curtailment ends. According to the
commenter, EPA also needs to ensure that prior to the end of the
curtailment, other emission reductions are available to offset the
increase in emissions that occur when the source recommences operation.
The commenter recommends that in order to ensure consistency on a
regional and national basis, EPA should perform a detailed evaluation
of the current procedures used by its regional offices for reviewing
and approving the use of emissions reductions from curtailments as
emissions offsets. Another State air pollution control agency thought
the term ``explicit'' should be clarified. The second agency opined
that it may be appropriate to explicitly include a line item in the
projected emissions inventory on expected use of pre base year shutdown
and curtailment emission reduction credits. They thought it should not
be necessary to list separately each company that shutdown or curtailed
operations in the projected emissions inventory. The second commenter
went on to note that not all ERC in its inventory were actually used
and that they have a schedule for retiring unused credits. This
commenter expressed the opinion that we should avoid basing
requirements of the permitting program on an inventory, which is
designed for planning purposes.
    Our interpretation of the two sets of comments referenced in the
preceding paragraph is that they generally argue for opposite outcomes.
We believe that emission inventories should be sufficiently detailed
that the contributions of individual sources, particularly major
sources, might be ascertained. The depth of detail yielded by periodic
inventory updates is beyond the scope of this action. We do think the
second commenter's concerns as to the status of particular credits
should be addressed in the course of permitting. Applicants should be
able to guarantee the continued existence of any credits upon which
their permits might be based. Concerning the final point made by the
second commenter regarding use of inventories, we disagree. The
requirements of the NSR program provide growth management tools and are
an integral part of the overall air quality attainment program. The ERC
provisions which are the subject of this discussion are a tool to be
used by States when tailoring programs to meet their individual needs.
In the case just cited, the State has chosen to retire ERC according to
a schedule. Used in this manner, ERC are available to encourage owner/
operators to close aging facilities more quickly than they might should
they see a need to internally ``bank'' their emissions for anticipated
future permit applications. At the same time, the State has flexibly
implemented the availability of ERC to suit its planning needs.
    As noted above, the Earthjustice/NRDC petition for reconsideration
and comments on the December 19, 2006 notice raised a discrete issue
with respect to the phrase ``the last day of the base year for the SIP
planning process.'' Earthjustice objected to the change from the
proposed language because, in their view, the final language ``would
allow use of such pre-application offsets before the state even knows
the degree of emission reductions needed to assure RFP, and before the
state has even developed a baseline emission inventory.'' We disagree
with the commenter's suggestion that ERC may be employed with no
consideration of consequences to air quality planning. In particular,
the regulatory language in question from Sec.  51.165(a)(3)(C)(1)(ii)
specifically conditions usage of ERC for shutdowns and curtailments
that occur prior to the cutoff date on identification of the underlying
emissions in the inventory being used to develop a particular
attainment demonstration. Shutdowns or curtailments based on emissions
that were ``in the air'' during the baseline year are based on
emissions that would automatically form part of the inventory. All
emissions whose reduction would be creditable as offsets must be at
some point incorporated into inventories employed for demonstrations of
attainment. Any ERC, whether eventually used for offsetting or not,
must be accounted for within either the baseline inventory or within
periodic inventory updates. Any ERC employed as offsets may be readily
taken into account during attainment planning.
    The Earthjustice comments also contain the argument that the second
sentence of Sec.  51.165(a)(3)(C)(1)(ii)

``violates the Act to the extent that it allows the source to claim
offsets from reductions that occurred prior to the baseline year for
the attainment demonstration.'' The complete second sentence provides
that ``a reviewing authority may choose to consider a prior shutdown or
curtailment to have occurred after the last day of the base year if the
projected emissions inventory used to develop the attainment
demonstration explicitly includes the emissions from such previously
shutdown or curtailed emission units.'' In this argument the commenter
cites to CAA Sec.  173(c)(1) as containing language precluding the
offsets in question. As discussed below, this exception to the baseline
provision predated the Phase 2 rule. The only change we made in the
Phase 2 rule was to allow its use in a greater range of circumstances.
This change was consistent with our overarching action in expanding the
circumstances in which pre-application shutdowns and curtailments could
be used to generate ERCs. We did not intend to revisit the exception as
promulgated prior to the Phase 2 rule. We note that this exception is
consistent with the policy on allowing pre-enactment banked emissions
to be credited as set forth in the 1992 General Preamble (57 FR 13553).
In that notice, we stated: ``For purposes of equity, EPA encourages
States to allow sources to use pre-enactment banked emissions
reductions credits for offsetting purposes. States may do so as long as
the restored credits meet all other offset creditability criteria and
such credits are considered by States as part of the attainment
emissions inventory when developing their post-enactment attainment
demonstration.'' We discuss CAA Sec.  173(c)(1) further below in
conjunction with our discussion of CAA Sec.  173(a)(1)(A) and RFP.
    As previously noted, portions of Earthjustice's comments relate to
aspects of the ERC provisions that pre-dated the Phase II rule. While
we view these issues as outside the scope of the reconsideration, we
provide background on these broader issues in order to put the Phase 2
changes into context. We note, however, that Earthjustice had an
opportunity to comment on these longstanding provisions at the time
they were promulgated.
    The concept of generating credits for later use has been a
fundamental part of the NSR program for decades. See, for example, the
``General Preamble for Proposed Rulemaking on Approval of State
Implementation Plan Revisions for Nonattainment Areas,'' 44 FR 20372
(April 4, 1979), indicating that ``the state may allow emission
reductions to be banked for later use under the [Emission Offset
Interpretive] Ruling and under the state's preconstruction review
program under Part D.''
    In 1989, EPA promulgated changes to the provisions that existed at
that time regarding the extent to which source shutdowns and
curtailments were creditable as emission offsets in nonattainment areas
(54 FR 27286, June 28, 1989). In that notice, EPA pointed out that
``the Act does not expressly mandate any particular treatment of
shutdowns for offset crediting purposes. Rather, this question is a
matter within the administrative discretion delegated to EPA under the
Act.* * * Thus, although it is true, as noted in the proposed
regulations, that section 173 requires EPA to allow the construction of
new sources in nonattainment areas where such construction will be
consistent with RFP toward attainment, EPA retains broad discretion to
establish criteria for determining when RFP has been assured'' (54 FR
27292). The version of 5.165(a)(3)(ii)(C)(1) & (2) promulgated in that
1989 rule was the version that remained current up until the Phase 2
revisions. In other words, as far back as 1989, EPA approved the
concept of pre-application shutdown credits in certain circumstances
(primarily where areas had EPA-approved attainment plans).
    In the 1989 final rule, EPA also adopted, for purposes of areas
with approved attainment plans, a provision allowing permitting
authorities ``to consider a prior shutdown or curtailment to have
occurred after the date of its most recent emission inventory, if the
inventory explicitly includes as current ``existing'' emissions the
emissions from such previously shutdown or curtailed sources'' (54 FR
27295). We explained that absent such explicit treatment, ``emissions
from a new source whose construction is premised upon such shutdowns
cannot reliably be said to be consistent with RFP.'' Our stated concern
was that if the emissions were not included in the inventory, ``[i]t
would constitute `double counting' of these emissions reductions to
allow their unrestricted use as shutdown offset credits by potential
new sources.'' With the inclusion of the emissions in the inventory,
however, the concern about possible double counting was eliminated.
    Thus, our November 29, 2005 amendment to the ERC provisions
introduced neither the concept of credits for pre-application shutdowns
and curtailments nor the exception to the cutoff date for emissions
explicitly included in the emissions inventory. What our November 29,
2005 amendment accomplished was to broaden the scope of these
provisions to acknowledge 1990 CAA changes that enhanced the role of
inventories in attainment planning. In its comments Earthjustice called
our attention to CAA Sec.  173(a)(1)(A), which they noted as requiring
offsets to ensure that total allowable emissions will be sufficiently
less than total emissions ``prior to the [NSR permit] application'' to
ensure RFP. They also invoked CAA Sec.  173(c)(1) as requiring that
increased emissions from a new or modified major source ``shall be
offset'' by an equal or greater reduction in actual emissions.
Earthjustice, however, failed to note the final language of
173(a)(1)(A), which states that the difference between the pre-
application emissions and the post-application emissions is to be
considered together with the plan provisions required under section 172
in determining whether the difference represents reasonable further
progress. In particular, we note that Sec.  172(c)(3) presents the
framework for non-attainment planning and includes use of inventories
in the development of non-attainment plan provisions, into which NSR
factors as a management tool. The inventories under Sec.  172(c)(3) are
to account for actual emissions from all sources. We consider the
inclusion of emissions associated with pre-application shutdowns and
curtailments in the inventory as ``actual emissions'' to be reasonable
in that they represent emissions that would be ``in the air'' absent
incentives to close or curtail sources. Reductions in these emissions
thus fulfill the requirement for reductions in actual emissions as set
forth in Sec.  173(c)(1).
    In light of the overall goal of RFP towards attainment, we have
used our discretion to provide an incentive for sources to retire or
curtail emissions sources early rather than continue operation of
higher emission sources until such time as permit applications might be
filed for replacement facilities. This construction is reinforced by
Sec.  172(c)(6) which says that plans shall include necessary and
appropriate ``measures, means, or techniques,'' including economic
incentives such as marketable permits. ERCs are one such economic
incentive. Should ERC be lost every three years when inventories are
updated, their marketability would be greatly diminished.
    In Sec.  172(c)(6) we see direction to construct a coordinated and
cohesive air quality management program to accomplish the goal of RFP.
The inclusion of ERC as now allowed in the NSR component of the program
is a

viable measure entirely consistent with Congress' direction that
implementation of Sec.  173(a)(1)(A) be accomplished in conjunction
with the overarching requirements of Sec.  172. The ERC in question
herein are properly tracked through required inventories built into
demonstrations of attainment. They provide incentives for sources to
reduce emissions in advance of planned future permit applications and
thereby enhance RFP. The credits for ERC are marketable. To the extent
they are included as offsets in NSR permits, they lock down reductions
of emissions that might otherwise be legitimately discharged into the
atmosphere as actual emissions up to the time of the permit
application. We consider this to be entirely consistent with the spirit
and requirements of the CAA.
b. Comments on Impact of DC Circuit Court of Appeals Decision on Phase
2 Rule
    One commenter believes that the recent DC Circuit Court of Appeals
decision in South Coast Air Quality Management District v.
Environmental Protection Agency (2006 U.S. App. LEXIS 31451 (D.C. Cir.
2006)) has a direct impact on the Phase 2 Rule and the issues under
review in this reconsideration notice, particularly with respect to
specific control measures such as the NSR program. The commenter opined
that NSR program elements included in the Phase 2 Rule are in direct
conflict with this DC Circuit Court opinion. Another commenter drew an
opposite conclusion and said there is no need for further delay as a
result of that same decision. The second commenter submits that the
issues that are subject to the proposed EPA action are not affected by
the Court of Appeals' recent ruling in SQAQMD v. EPA, and that it is
critical for the Agency to take final action on the issues raised in
the December 19, 2006 notice. The commenter's opinion is that the Phase
2 rule addresses new source review requirements during the transition
period until SIP revisions for the 8-hour ozone rule are adopted by
jurisdictions and approved by EPA. This commenter said that in view of
the Court of Appeals' opinion that many features of the Phase 1 ozone
rule are not consistent with the Act, it is unlikely that States and
regional air pollution control agencies will be able to adopt
approvable SIP revisions for some time. Thus, transitional rules
affecting new source review pursuant to the federal transitional
requirements are essential.
    As discussed below, we do not believe that the issues under review
in this reconsideration are in conflict with the South Coast decision.
The first commenter gave no specifics. Earthjustice did provide a
specific argument concerning the impact of the Court's decision.
    According to Earthjustice, the ERC provisions in the Phase 2 rule
constitute a weakening of offset requirements and are contrary to CAA
protections limiting EPA's discretion to provide flexibility to states
in complying with the Act's mandates. They cite South Coast. They argue
that the 1990 Amendments' more explicit rate of progress targets do not
somehow relax the offset requirements for new major sources. Further
they argue that, to the contrary, the 1990 Act sets out even more
explicit offset requirements than before, making crystal clear that
such minimum offsets are required regardless of whether the Act's rate
of progress requirements in the Act are being met. See, e.g., CAA
Sec. Sec.  182(a)(4), (b)(5), (c)(10), (d)(2), (e)(1). Thus, according
to Earthjustice, the offset requirements are not mere subsets of the
rate of progress requirements, but distinct mandates to ensure a net
cut in emissions after the application for a new source permit. They
maintain that EPA has attempted to weaken these mandates and that such
action violates the Act's anti-backsliding provisions, by relaxing the
level of pollution control required prior to revision of the ozone
NAAQS.
    In response, EPA first notes that the South Coast decision relates
to a different context. The anti-backsliding discussion in that
decision revolved about Sec.  172(e) requirements that controls not be
made less stringent in conjunction with relaxation of national ambient
air quality standards. The ERC changes challenged by Earthjustice are
not tied to any particular national ambient air quality standard or its
revision. Rather, they are broader programmatic changes, as noted by
some of the commenters. Earthjustice does not identify which anti-
backsliding provisions other than section 172(e) might be implicated by
this action. The changes to 40 CFR 51.165 do not in and of themselves
modify any requirements applicable to nonattainment areas. Thus, even
assuming section 193, for example, is potentially applicable, this is
not the appropriate time to determine its application. We believe the
appropriate time to determine the applicability of and compliance with
Section 193 is when a control requirement in a nonattainment area is
changed. For States that undertake a SIP revision, we will address the
applicability of Section 193 in our future actions to approve the SIP
revisions. Similarly, the applicability of section 110(l) would only
become an issue upon submission of a SIP revision to EPA. We disagree
with the commenter who stated that the NSR changes are limited to the
transitional period. The ERC changes are broader in nature, given that
they amend section 51.165 as well as Appendix S. The extent to which
the changes to Appendix S would affect areas that were nonattainment
for the 1-hour standard is currently unclear. In the South Coast
decision, the DC Circuit vacated certain aspects of EPA's phase 1 rule
implementing the 8-hour ozone NAAQS. One possible effect of the court's
vacatur of that rule is that it could require Federal, state, and local
agencies to issue NSR permits in accordance with the area's 1-hour
ozone nonattainment classification. Were that to occur, areas that were
nonattainment for the 1-hour standard would presumably implement their