[Federal Register: June 6, 2007 (Volume 72, Number 108)]
[Proposed Rules]
[Page 31371-31399]
[DOCID:fr06jn07-30]

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Part II

Environmental Protection Agency

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40 CFR Parts 51 and 52

 Prevention of Significant Deterioration New Source Review: Refinement
of Increment Modeling Procedures; Proposed Rule

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 51 and 52

[EPA-HQ-OAR-2006-0888; FRL-8320-7]
RIN 2060-AO02

Prevention of Significant Deterioration New Source Review:
Refinement of Increment Modeling Procedures

AGENCY: Environmental Protection Agency (EPA).

ACTION: Proposed rule.

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SUMMARY: Under the requirements of the Clean Air Act (Act), the New
Source Review (NSR) program includes Prevention of Significant
Deterioration (PSD) measures, which protect air quality in areas that
currently have clean air. For some pollutants, the PSD program protects
clean air through a system of ``increments.'' These increments specify
the maximum extent to which the ambient concentration of these
pollutants may be allowed to increase above the legally defined
baseline concentration in an area with clean air. In this rulemaking,
we propose to refine several aspects of the method that may be used to
calculate an increase in concentration for increment purposes. These
refinements are intended to clarify how States and regulated sources
may calculate increases in concentrations for the purposes of
determining compliance with the PSD increments.

DATES: Comments. Written comments must be received on or before August
6, 2007.
    Public Hearing. If anyone contacts EPA requesting to speak at a
public hearing by June 26, 2007, we will hold a public hearing
approximately 30 days after publication in the Federal Register.
Additional information about the hearing would be published in a
subsequent Federal Register notice.

ADDRESSES: Comments. Submit your comments, identified by Docket ID No.
EPA-HQ-OAR-2006-0888, by one of the following methods:
     http://www.regulations.gov: Follow the online instructions

for submitting comments.
     E-mail<EMAIL_ADDRESS>     Fax:<PHONE_NUMBER>.
     Mail: Environmental Protection Agency, EPA Docket Center
(EPA/DC), Air and Radiation Docket, Mail Code 6102T, 1200 Pennsylvania
Avenue, NW., Washington, DC 20460. Please include 2 copies.
     Hand Delivery: EPA Docket Center, (Air Docket), EPA/DC,
EPA West, Room 3334, 1301 Constitution Ave., NW., Washington, DC. Such
deliveries are only accepted during the Docket's normal hours of
operation, and special arrangements should be made for deliveries of
boxed information.
    Instructions. Direct your comments to Docket ID No. EPA-HQ-OAR-
2006-0888. EPA's policy is that all comments received will be included
in the public docket without change and may be made available online at
http://www.regulations.gov, including any personal information

provided, unless the comment includes information claimed to be
Confidential Business Information (CBI) or other information whose
disclosure is restricted by statute. Do not submit information that you
consider to be CBI or otherwise protected through http://www.regulations.gov or e-mail. The http://www.regulations.gov Web site

is an ``anonymous access'' system, which means EPA will not know your
identity or contact information unless you provide it in the body of
your comment. If you send an e-mail comment directly to EPA without
going through http://www.regulations.gov, your e-mail address will be

automatically captured and included as part of the comment that is
placed in the public docket and made available on the Internet. If you
submit an electronic comment, EPA recommends that you include your name
and other contact information in the body of your comment and with any
disk or CD-ROM you submit. If EPA cannot read your comment due to
technical difficulties and cannot contact you for clarification, EPA
may not be able to consider your comment. Electronic files should avoid
the use of special characters, any form of encryption, and be free of
any defects or viruses. For additional instructions on submitting
comments, go to section I.B of the SUPPLEMENTARY INFORMATION section of
this document.
    Docket. All documents in the docket are listed in the http://www.regulations.gov
 index. 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 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>, and the telephone number for the Air
Docket is<PHONE_NUMBER>.

FOR FURTHER INFORMATION CONTACT: Ms. Jessica Montanez, New Source
Review Group, Air Quality Policy Division (C504-03), U.S. Environmental
Protection Agency, Research Triangle Park, NC 27711, telephone number:
(919) 541-3407; fax number:<PHONE_NUMBER>, or electronic mail e-mail
address<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: The information presented in this preamble
is organized as follows:

I. General Information
    A. Does this action apply to me?
    B. What should I consider as I prepare my comments for EPA?
    C. Where can I get a copy of this document and other related
information?
    D. How can I find information about a possible hearing?
II. Background
    A. What is the PSD program?
    B. What are PSD increment analyses?
    C. Why do we need to clarify the method for analyzing increment
consumption?
    D. What are the Clean Air Act requirements related to
increments?
III. Summary of This Proposed Action
IV. Proposed Clarifications Regarding the Effect of the Draft New
Source Review Workshop Manual
V. Proposed Clarifications and Changes to Increment Modeling
Procedures
    A. What kind of emissions consume or expand the PSD increment?
    B. How are emissions estimated for sources that consume
increment?
    C. What meteorological models and data should be used in
increment consumption modeling?
    D. What are my documentation and data and software availability
requirements?
VI. Implementation Issues
    A. Is there a need for States to make revisions to their SIPs?
    B. When would these policies be put into effect?
VII. Statutory and Executive Order Reviews
    A. Executive Order 12866--Regulatory Planning and Review
    B. Paperwork Reduction Act
    C. Regulatory Flexibility Analysis
    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 and Safety Risks
    H. Executive Order 13211--Actions That Significantly Affect
Energy Supply, Distribution, or Use
    I. Executive Order 12898--Federal Actions To Address
Environmental Justice in Minority Populations and Low-Income
Populations
    J. National Technology Transfer and Advancement Act
VIII. Statutory Authority

I. General Information

A. Does this action apply to me?

    Entities potentially affected by this proposed action include
owners and operators of emission sources in all industry groups, as
well as the EPA and State, local, and tribal governments that are
delegated authority to implement these regulations. The majority of
sources potentially affected are expected to be in the following
groups:

------------------------------------------------------------------------
          Category                  NAICS\a\           Industry group
------------------------------------------------------------------------
Industry....................  221111, 221112,       Electric services.
                               221113, 221119,
                               221121, 221122.
                              32411...............  Petroleum refining.
                              325181, 32512,        Industrial inorganic
                               325131, 325182,       chemicals.
                               211112, 325998,
                               331311, 325188.
                              32511, 325132,        Industrial organic
                               325192, 325188,       chemicals.
                               325193, 32512,
                               325199.
                              32552, 32592, 32591,  Miscellaneous
                               325182, 32551.        chemical products.
                              211112..............  Natural gas liquids.
                              48621, 22121........  Natural gas
                                                     transport.
                              32211, 322121,        Pulp and paper
                               322122, 32213.        mills.
                              322121, 322122......  Paper mills.
                              336111, 336112,       Automobile
                               336712, 336211,       manufacturing.
                               336992, 336322,
                               336312, 33633,
                               33634, 33635,
                               336399, 336212,
                               336213.
                              325411, 325412,       Pharmaceuticals.
                               325413, 325414.
Federal government..........  924110..............  Administration of
                                                     Air and Water
                                                     Resources and Solid
                                                     Waste Management
                                                     Programs.
State/local/tribal            924110..............  Administration of
 Government.                                         Air and Water
                                                     Resources and Solid
                                                     Waste Management
                                                     Programs.
------------------------------------------------------------------------
\a\ North American Industry Classification System.

    This table is not intended to be exhaustive, but rather provides a
guide for readers regarding entities likely to be affected by this
action. If you have any questions regarding the applicability of this
action to a particular entity, contact the person listed in the
preceding FOR FURTHER INFORMATION CONTACT section.

B. What should I consider as I prepare my comments for EPA?

1. Submitting Confidential Business Information (CBI)
    Do not submit Confidential Business Information to EPA through
http://www.regulations.gov or e-mail. Clearly mark the part or all of

the information that you claim to be CBI. For CBI information in a disk
or CD ROM that you mail to EPA, mark the outside of the disk or CD ROM
as CBI and then identify electronically within the disk or CD ROM the
specific information claimed as CBI, a copy of the comment that does
not contain the information claimed as CBI must be submitted for
inclusion in the public docket. Information so marked will not be
disclosed except in accordance with procedures set forth in 40 Code of
Federal Regulations (CFR) part 2.
2. Suggestions for Preparing Your Comments
    When submitting comments, remember to:
     Identify the rulemaking by docket number and other
identifying information (subject heading, Federal Register date and
page number).
     Follow directions. The agency may ask you to respond to
specific questions or organize comments by referencing a CFR part or
section number.
     Explain why you agree or disagree; suggest alternatives
and substitute language for your requested changes.
     Describe any assumptions and provide any technical
information and/or data that you used.
     If you estimate potential costs or burdens, explain how
you arrived at your estimate in sufficient detail to allow for it to be
reproduced.
     Provide specific examples to illustrate your concerns, and
suggest alternatives.
     Explain your views as clearly as possible, avoiding the
use of profanity or personal threats.
     Make sure to submit your comments by the comment period
deadline identified.

C. Where can I get a copy of this document and other related
information?

    In addition to being available in the docket, an electronic copy of
this proposal will also be available on the World Wide Web. Following
signature by the EPA Administrator, a copy of this notice will be
posted in the regulations and standards section of our NSR (New Source
Review) home page located at http://www.epa.gov/nsr.

D. How can I find information about a possible hearing?

    Persons interested in presenting oral testimony should contact Ms.
Pam Long, New Source Review Group, Air Quality Policy Division (C504-
03), U.S. EPA, Research Triangle Park, NC 27711, telephone number (919)
541-0641 or e-mail<EMAIL_ADDRESS>at least 2 days in advance of the
public hearing. Persons interested in attending the public hearing
should also contact Ms. Long to verify the time, date, and location of
the hearing. The public hearing will provide interested parties the
opportunity to present data, views, or arguments concerning this
action.

II. Background

A. What is the PSD program?

    Part C of title I of the Act contains the requirements for a
component of the major NSR program known as the PSD program. This
program sets forth procedures for the preconstruction review and
permitting of new and modified major stationary sources of air
pollution locating in areas meeting the National Ambient Air Quality
Standards or ``NAAQS'' (``attainment'' areas) and areas for which there
is insufficient information to classify an area as either attainment or
nonattainment (``unclassifiable'' areas).
    The NSR provisions of the Act are a combination of air quality
planning and air pollution control technology program requirements for
new and modified stationary sources of air

pollution. In brief, section 109 of the Act requires us to promulgate
primary NAAQS to protect public health and secondary NAAQS to protect
public welfare. Once we have set these standards, States must develop,
adopt, and submit to us for approval a State Implementation Plan (SIP)
that contains emission limitations and other control measures to attain
and maintain the NAAQS and to meet the requirements of section 110(a)
of the Act. Each SIP is required to contain a preconstruction review
program for the construction and modification of any stationary source
of air pollution to assure that the NAAQS are achieved and maintained;
to protect areas of clean air; to protect Air Quality Related Values
(including visibility) in certain national parks, wilderness areas, and
other natural areas of special concern; to assure that appropriate
emissions controls are applied; to maximize opportunities for economic
development consistent with the preservation of clean air resources;
and to ensure that any decision to increase air pollution is made only
after full public consideration of all the consequences of such a
decision. Most States have SIP-approved major NSR programs; however
there are some States that instead implement the Federal PSD program at
40 CFR 52.21 through delegation.\1\
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    \1\ Where a State does not have a SIP-approved program and
chooses not to accept delegation of the Federal PSD program, EPA
implements the PSD requirements as the reviewing authority within
that jurisdiction. In addition, we implement the PSD program in
Indian country until such time as a Tribe elects to adopt, and we
approve, a Tribal Implementation Plan (TIP) that contains a PSD
program that meets the requirements of the Act.
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    The applicability of the PSD program to a particular source must be
determined in advance of construction and is pollutant specific. Once a
source is determined to be subject to PSD, among other requirements, it
must undertake a series of analyses to demonstrate that it will use the
best available control technology (BACT) and will not cause or
contribute to a violation of any NAAQS or any maximum allowable ambient
pollutant concentration increase (increment). In cases where the
source's emissions may adversely affect an area classified as Class I,
additional review is conducted to protect the increments and special
attributes of such an area defined as ``air quality related values''
(AQRVs).
    When the reviewing authority reaches a preliminary decision to
authorize construction of a proposed new major source or major
modification, it must provide notice of the preliminary decision and an
opportunity for comment by the general public, industry, and other
persons that may be affected by the major source or major modification.
After considering and responding to the comments, the reviewing
authority may issue a final determination on the construction permit in
accordance with the PSD regulations.

B. What are PSD increment analyses?

1. Framework for Increment Analyses
    Under section 165(a)(3) of the Act, a PSD permit applicant must
demonstrate that emissions from the proposed construction and operation
of a facility ``will not cause, or contribute to, air pollution in
excess of any * * * maximum allowable increase or maximum allowable
concentration for any pollutant* * *.'' The ``maximum allowable
increase'' of an air pollutant that is allowed to occur above the
applicable baseline concentration for that pollutant is known as the
PSD increment. The maximum allowable concentration is the ceiling
established by adding the PSD increment to the baseline concentration.
By establishing the maximum allowable increase in a particular area, an
increment defines ``significant deterioration.''
    Increments have been established for three pollutants--Sulfur
Dioxide (SO2), Particulate Matter (PM), and Nitrogen Dioxide
(NO2)--and for a variety of averaging periods, which
correspond to the averaging periods for the NAAQS for those pollutants.
In addition, all attainment and unclassifiable areas are classified as
Class I, Class II, or Class III, and different increment levels apply
in each type of area. Class I areas include certain national parks,
wilderness areas, and other natural areas of special concern; the
smallest increments are specified for these areas. Nearly all other
areas in the United States are currently classified as Class II, where
higher increments are specified. States and Tribes have the authority
to redesignate Class II areas to Class III (with still higher
increments) to promote development, but, to date, none have chosen to
do so. States and Tribes also may redesignate Class II areas to Class I
to provide additional protection; some Tribes have done so. The
increments are codified at 40 CFR 51.166(c) and 52.21(c). The current
increment values are shown below in Table 1.

                    Table 1. Current Increment Values
------------------------------------------------------------------------
                                                              Maximum
                                                             allowable
                                                             increase
                        Pollutant                           (micrograms
                                                             per cubic
                                                              meter)
------------------------------------------------------------------------
                                 Class I
------------------------------------------------------------------------
Particulate matter:
    PM-10, annual arithmetic mean.......................               4
    PM-10, 24-hr. maximum...............................               8
Sulfur dioxide:
    Annual arithmetic mean..............................               2
    24-hr. maximum......................................               5
    3-hr. maximum.......................................              25
Nitrogen dioxide:
    Annual arithmetic mean..............................             2.5
------------------------------------------------------------------------
                                Class II
------------------------------------------------------------------------
Particulate matter:
    PM-10, annual arithmetic mean.......................              17
    PM-10, 24-hr. maximum...............................              30

Sulfur dioxide:
    Annual arithmetic mean..............................              20
    24-hr. maximum......................................              91
    3-hr. maximum.......................................             512
Nitrogen dioxide:
    Annual arithmetic mean..............................              25
------------------------------------------------------------------------
                                Class III
------------------------------------------------------------------------
Particulate matter:
    PM-10, annual arithmetic mean.......................              34
    PM-10, 24-hr. maximum...............................              60
Sulfur dioxide:
    Annual arithmetic mean..............................              40
    24-hr. maximum......................................             182
    3-hr. maximum.......................................             700
Nitrogen dioxide:
    Annual arithmetic mean..............................              50
------------------------------------------------------------------------

    For PSD baseline purposes, a baseline area for a particular
pollutant emitted from a source includes the attainment or
unclassifiable area in which the source is located as well as any other
attainment or unclassifiable area in which the source's emissions of
that pollutant are projected (by air quality modeling) to result in an
ambient concentration increase of at least 1 [mu]g/m3
(annual average). See, e.g., 40 CFR 52.21(b)(15)(i). Once the baseline
area is established, subsequent major sources undergoing PSD review in
that area must address the fact that a portion of the available
increment may already have been consumed by previous emissions
increases.
    Three dates related to the PSD baseline concept are important in
calculating the amount of increment consumed by pollutant emissions
from the major source undergoing PSD review and other applicable
emissions increases and decreases in a particular baseline area. In
general, the submittal date of the first complete PSD permit
application in a particular area is the operative ``baseline date.''
\2\ On or before the date of the first complete PSD application, most
emissions are considered to be part of the baseline concentration. Most
emissions increases that occur after the baseline date will be counted
toward the amount of increment consumed. Similarly, emissions decreases
after the baseline date expand the amount of increment that is
available.
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    \2\ Baseline dates are pollutant specific. That is, a complete
PSD application establishes the baseline date only for those
regulated NSR pollutants that are projected to be emitted in
significant amounts (as defined in the regulations) by the
applicant's new source or modification. Thus, an area may have
different baseline dates for different pollutants.
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    In actuality, there are two baseline dates that are related to the
determination of how much increment is being consumed in a particular
baseline area. These two dates, described below, are necessary to
properly account for the emissions that are to be counted toward
increment consumed in accordance with the statutory definition of
``baseline concentration'' in section 169(4) of the Act. The statutory
definition provides that the baseline concentration of a pollutant for
a particular baseline area is generally the air quality at the time of
the first application for a PSD permit in the area. Consequently, any
increases in actual emissions occurring after that date (with some
possible exceptions that we will discuss later) would be considered to
consume the applicable PSD increment. However, the statutory definition
also provides that ``[E]missions * * * from any major emitting facility
on which construction commenced after January 6, 1975 shall not be
included in the baseline and shall be counted in pollutant
concentrations established under this part.''
    To make this distinction between the date when emissions changes in
general (i.e., from both major and minor sources) count in the
increment and the date when emissions resulting from the construction
at a major stationary source count in the increment, we established the
terms ``minor source baseline date'' and ``major source baseline
date,'' respectively. See 40 CFR 51.166(b)(14) and 52.21(b)(14).
Accordingly, the ``minor source baseline date'' is the date on which
the first complete application for a PSD permit is filed in a
particular area. Any change in actual emissions after that date counts
in the PSD increment for that area. The ``major source baseline date''
is thus named because it is the date after which actual emissions
associated with construction at a major stationary source affect the
available PSD increment. In accordance with the statutory definition of
``baseline concentration,'' the PSD regulations define a fixed date to
represent the major source baseline date for each pollutant for which
an increment exists. Congress defined the major source baseline date
for the statutory increments for PM and SO2 as January 6,
1975. For the NO2 increments, which we promulgated in 1988
under our authority to establish an increment system under section
166(a) of the Act, the major source baseline date was selected as
February 8, 1988--the date on which we proposed increments for
NO2.
    Finally, the PSD regulations set out the third date that is
relevant to the PSD baseline concept. These regulations provide that
the earliest date on which the minor source baseline date can be
established is the date immediately following the ``trigger date'' for
the pollutant-specific increment. See, e.g., 40 CFR 52.21(b)(14)(ii).
For PM and SO2, Congress defined the applicable trigger date
as August 7, 1977--the date of the 1977 amendments to the Act

when the original statutory increments were established by Congress.
For NO2, we selected the trigger date as February 8, 1988--
the date on which we proposed increments for NO2. See 53 FR
40656, 40658; October 17, 1988.
    Under this approach, the baseline concentration is not actually
established for a PSD baseline area until after the ``minor source
baseline date'' is established by the submission of the first PSD
permit application for a source whose emissions would affect a given
baseline area. Although major source emissions may consume increment
prior to this date, they are not factored into the calculation until
the minor source baseline date is triggered.
    Once the minor source baseline date associated with the first
proposed new major stationary source or major modification in an area
is established, the new emissions from that source consume a portion of
the increment in that area, as do any subsequent emissions increases
that occur from any source in the area. When the maximum pollutant
concentration increase defined by the increment has been reached,
additional PSD permits cannot be issued until sufficient amounts of the
increment are ``freed up'' via emissions reductions that may occur
voluntarily, e.g., via source shutdowns, or via control requirements
imposed by the reviewing authority. Moreover, the air quality in a
region cannot deteriorate to a level in excess of the applicable NAAQS,
even if all the increment has not been consumed. Therefore, new or
modified sources located in areas where the air pollutant concentration
is near the level allowed by the NAAQS may not have full use of the
amount of pollutant concentration increase allowed by the increment.
2. General Approach to Increment Analyses
    The EPA and the States have generally used an emissions inventory
and modeling approach to identify the degree to which an increment has
been consumed or will be consumed by major source construction. Ambient
monitoring has not been used to establish baseline concentrations or to
evaluate increment consumption because ambient measurements reflect
emissions from all sources, including those that should be excluded
from the measurements. We have not necessarily required the
identification of a specific baseline concentration but rather have
focused on measuring the change in concentration from the legally
established baseline date to the time of the analysis. For example, in
the preamble to the 1978 PSD regulation (43 FR 26388, 26400; June 19,
1978), we stated the following:

    The regulations promulgated today no longer suggest that the
baseline concentration be formally established. The Administrator
feels that increment consumption can be best tracked by tallying
changes in emissions levels of sources contributing to the baseline
concentration and increases in emissions due to new sources. Data to
establish baseline air quality in an absolute sense would be needed
only if increment consumption were to be tracked using ambient
measurements. Thus, to implement the air quality increment approach,
the reviewing authority needs to verify that all changes from
baseline emissions rates (decreases or increases as appropriate) in
conjunction with the increased emissions associated with approved
new source construction will not violate an applicable increment * *
*.

This method has made it easier to comply with the statutory provisions
(discussed below in section II.D of this preamble) excluding certain
increases in emissions at major sources from the baseline concentration
and allowing other emissions to be excluded from increment consumption.
    Even with that said, we believe that it would also be acceptable
and consistent with the Act for a State to use an approach of
establishing an actual baseline concentration using an initial baseline
emissions inventory. The State could then calculate the consumed
increment by revising the inventory to include the relevant emissions
increases and decreases as discussed above.
3. Agency Guidance and Specific Approaches Used in Practice
    Over time, the Agency developed some recommended approaches that
reviewing authorities could use to determine whether changes in
emissions rates and increases in emission associated with new
construction since the baseline date have or have not increased
concentrations above the increments. Our recommendations have generally
been described in modeling guidelines and guidance documents, while the
PSD regulations in 40 CFR 51.166 and 52.21 contained only a few basic
requirements for the increment analysis.
    Some of our recommendations for the increment analysis have been
included in the ``Guideline on Air Quality Models,'' which is located
in appendix W to 40 CFR part 51. Appendix W provides modeling
guidelines for sources and reviewing authorities under a variety of
Clean Air Act programs. The PSD regulations cite appendix W and state
that all PSD air quality modeling should be based on the ``applicable
models, data bases, and other requirements'' specified there. See 40
CFR 51.166(l) and 52.21(l). Although appendix W is incorporated by
reference in the PSD regulations, we have continued to refer to this as
a ``guideline'' and used language in the guideline to indicate that it
does not mandate specific procedures in all cases. See, In re: Prairie
State Generating Company, PSD Permit Appeal No. 05-05, slip. op. at 132
(EAB August 24, 2006) (``Appendix W is replete with references to
`recommendations,' `guidelines,' and reviewing authority discretion.'')
It is also important to keep in mind that appendix W provides
guidelines for other types of regulatory applications, not just PSD
increment analyses. As a result, not all the recommendations included
in appendix W are applicable to an analysis of increment consumption
under the PSD program. Care must be taken to evaluate whether certain
recommendations are appropriate for the particular circumstances of
each increment analysis.
    We also included some suggestions for the increment analysis in the
1990 draft ``New Source Review Workshop Manual'' (draft NSR Manual).\3\
This draft document addressed many aspects of PSD permitting, including
the increment analyses. However, we made clear on the very first page
that this manual was not intended to establish binding regulatory
requirements. Draft NSR Manual at 1 (Preface). In addition, we never
finalized the 1990 draft of the NSR Manual and accordingly never
intended for the manual itself to establish final EPA policies or
interpretations of our NSR regulations. Nevertheless, many people have
looked to this document for guidance and have sometimes improperly
construed the draft NSR Manual to contain requirements that must be
followed.
---------------------------------------------------------------------------

    \3\ This document is often referred to as the ``Puzzle Book''
due to the depiction of jigsaw puzzle pieces on its cover.
---------------------------------------------------------------------------

    The EPA's Environmental Appeals Board (``Board'') has sometimes
referenced the draft NSR Manual as a reflection of our thinking on
certain PSD issues, but the Board has been clear that the draft NSR
Manual is not a binding Agency regulation. See, In re: Indeck-Elwood,
LLC, PSD Permit Appeal No. 03-04, slip. op. at 10 n. 13 (EAB Sept. 27,
2006); In re: Prairie State Generating Company, PSD Permit Appeal No.
05-05, slip. op. at 7 n. 7 (EAB Aug 24, 2006). In these and other
cases, the Board also considered briefs filed on behalf of the Office
of Air and Radiation that provided more current information on the
thinking of the EPA headquarters program office on specific PSD issues

arising in particular cases. Thus, the Board has looked to the draft
NSR Manual as one resource to consider in developing Agency positions
through case-by-case adjudications, while recognizing that the draft
NSR Manual does not itself contain binding requirements.
    Other non-binding EPA guidance letters or memoranda that have
addressed increment consumption analyses are discussed in more detail
below in the context of discussion on specific issues.
    Based largely on prior EPA guidance, the approach that has
generally been used in States and EPA Regional Offices for increment
analyses has involved the following four steps:
    1. Determine the 1 [mu]g/m3 ``significant impact area''
for the particular pollutant for which the new major source or major
modification is undergoing PSD review. (If the source is subject to an
increment analysis for more than one pollutant, each analysis is
carried out independently).
    2. Identify the other sources in the vicinity of the new or
modified source whose emissions affect the significant impact area.
    3. Estimate the emissions from those sources that consume
increment.
    4. Model the change in emissions to get a concentration change, and
compare that concentration change to the applicable increment.

    The actual increment analysis that a proposed new or modified
source undergoing PSD review must complete will depend on the area
impacted by the source's new emissions.
    We have provided approved air quality models and guidelines for
sources to use to project the air quality impact of each pollutant
(over each averaging period) for which an increment analysis must be
done. In addition, we established significant impact levels for each
pollutant under the nonattainment major NSR program that have also been
used under the PSD program to identify levels below which the source's
modeled impact is regarded as de minimis. See 40 CFR 51.165(b) and part
51, appendix S, section III.A.\4\ In the event that a source's modeled
impacts of a particular pollutant are below the applicable significant
impact level at all ambient air locations modeled, i.e., de minimis
everywhere, EPA policy provides that no further modeling analysis is
required for that pollutant. Our policy has been that when a
preliminary screening analysis based on the significant impact level is
sufficient to demonstrate that the source's emissions will not cause or
contribute to a violation of the increment, there is no need for a full
impacts analysis involving a cumulative evaluation of the emissions
from the proposed source and other sources affecting the area.
---------------------------------------------------------------------------

    \4\ The cited regulations actually apply to sources located in a
PSD area, which must demonstrate that they will not cause or
contribute to a violation of the NAAQS in an adjacent nonattainment
area. This demonstration may be made by showing that the emissions
from the PSD source alone are below the significant impact levels
set forth in 40 CFR 51.165(b)(2). Based on EPA interpretations and
guidance, these significant impact levels have also been widely used
in the PSD program to define the extent of the impact area where an
increment analysis must be performed. We proposed to codify these
significant impact levels for use in the PSD program in 1996 as part
of a comprehensive proposal to revise the major NSR regulations. See
61 FR 38250, 38325, July 23, 1996. We have not yet taken final
action on this proposal.
---------------------------------------------------------------------------

    Within the impact area of a source that does have a significant
impact, increment consumption is calculated using the source's proposed
emissions increase, along with other emissions increases or decreases
of the particular pollutant from other sources that would consume
increment and which have occurred since the minor source baseline date
established for that area. (For major sources, emissions increases or
decreases resulting from construction as defined at 40 CFR 51.166(b)(8)
and 40 CFR 52.21(b)(8) that have occurred since the major source
baseline date consume or expand increment). Thus, an emissions
inventory of sources whose emissions consume or expand the available
increment in the area must be compiled. The inventory includes not only
sources located directly in the impact area, but sources outside the
impact area that affect the air quality within the impact area. Section
IV.A.1 of this preamble discusses the types of sources that are to be
included in the emissions inventory for increment analyses.
    The inventory of emissions includes emissions from increment-
affecting sources at two separate time periods--the baseline date and
the current period of time. For each source that was in existence on
the relevant baseline date (major source or minor source), the
inventory includes the source's actual emissions on the baseline date
and its current actual emissions. The change in emissions over these
time periods represents the emissions that consume increment (or, if
emissions have gone down, expand the available increment). For sources
constructed since the relevant baseline date, all their current actual
emissions consume increment and are included in the inventory.
    An emissions inventory must be prepared for each averaging period
for which an increment has been specified for the pollutant under
review. In many cases, direct emissions data are not available for some
or all averaging periods, and actual emissions must be estimated. This
can be particularly challenging for existing sources where the baseline
emissions must be determined and the baseline date is well in the past.
The approach generally used per EPA guidance has been to base the
annual emissions inventory on the actual measured emissions or actual
hours of operation, fuel usage, raw materials used, etc., while basing
the emissions inventory for shorter averaging periods on the maximum
emissions over each averaging period as determined from available data
(again, emission measurements, operating hours, fuel or materials
consumption, etc.).
    When the inventory of emissions has been compiled, computer
modeling is used to determine the change in ambient concentration that
will result from these emissions when combined with the proposed
emissions increase from the new major source or major modification that
is undergoing PSD review. The modeling has generally been guided by the
``Guideline on Air Quality Models'' (40 CFR part 51, appendix W), which
includes provisions on air quality models and the meteorological data
input into these models.
    Two possible approaches have been used to predict the change in air
pollutant concentration using models. One approach is to make a single
model run after calculating the difference in emissions from the
baseline date to the current period of time. An alternative approach is
to make two model runs (one based on an inventory of baseline emissions
and the second based on an inventory of current actual emissions) and
calculate the difference between them.
    The model output (expressed as a change in concentration) for each
relevant averaging period is then compared to the corresponding
allowable PSD increment. If the model results indicate that the
increment(s) will not be exceeded, the reviewing authority may issue a
PSD permit to the source. Except as discussed below, if the modeling
shows that the source would cause or contribute to a violation of a PSD
increment,\5\ the reviewing authority

may not issue the permit. The source may revise its permit application
to reduce its proposed emissions, or it may mitigate the impact of its
emissions through obtaining offsetting emission reductions from other
sources in the emissions inventory.
---------------------------------------------------------------------------

    \5\ The proposed source is deemed to ``cause or contribute to''
an increment violation if the modeling shows that the impact
attributable to the source at the time and place of the violation is
greater than the relevant significant impact level.
---------------------------------------------------------------------------

    If the modeling shows only an increment violation in a Class I
area, the source has the opportunity to apply for a ``variance'' from
the Federal Land Manager (FLM) that has responsibility for that Class I
area. If the source successfully demonstrates to the FLM that emissions
from the source will not have an adverse effect on the AQRVs of the
Class I area, and to the reviewing authority that the emissions will
not violate a set of higher increment levels specified in the Act
(generally equal to the Class II increments), the reviewing authority
may issue a PSD permit to the source. The source may further appeal to
the Governor and the President in certain situations. These variances
are discussed in greater detail in section IV.A.2 of this preamble.

C. Why do we need to refine the method for analyzing increment
consumption?

    We have never adopted detailed regulations establishing a specific
methodology that sources and reviewing authorities must use to
calculate an increase in concentrations for purposes of determining
compliance with the PSD increments. Instead, increment analyses have
been conducted by States and EPA Regional Offices based on the
guidelines and guidance discussed in the previous section. In the
absence of definitive requirements, sources and reviewing authorities
have attempted to apply the available guidance to a wide range of
situations. Differing interpretations and approaches have resulted,
along with controversy over how binding the guidelines and guidance are
on reviewing authorities and who (EPA or the reviewing authorities) has
the ultimate discretion to determine which approaches are reasonable
for a specific increment analysis. With this proposal, we intend to
provide greater clarity on several issues.
    One push for greater clarity has come from the Western States Air
Resources Council (WESTAR) PSD Reform Workgroup, with participants from
Western States, the U.S. National Park Service, U.S. Fish and Wildlife
Service, U.S. Forest Service, and the U.S. Bureau of Land Management
and consultation by EPA. The workgroup was formed in early 2004 to
develop recommendations to improve the effectiveness of the PSD
program. The goal of the WESTAR effort was to propose changes to the
PSD program that would result in a more practical program,
significantly reducing constraints in the current program that they
viewed as limiting State and local agencies' abilities to address
cumulative incremental consumption and Class I AQRV analysis and
protection, some of which were identified in a letter to EPA.\6\ While
the purpose of today's notice is focused on refining increment analysis
procedures, we are considering broader changes to the program as a
separate rulemaking to address additional concerns that WESTAR and
others have raised.\7\
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    \6\ ``Recommendations for Improving the Prevention of
Significant Deterioration Program.'' Stuart A. Clark, President,
Western States Air Resources Council, May 19, 2005.
    \7\ In addition to WESTAR's recommendations, we received
comments from the Northeast States for Coordinated Air Use
Management (NESCAUM) on the WESTAR recommendations in a letter and
attachment from Arthur N. Marin, Executive Director of NESCAUM,
October 18, 2005.
---------------------------------------------------------------------------

    A major point raised by WESTAR is that States need to consult early
and often in order to agree in advance on modeling protocols to enable
consistency between the States in performing the analyses and to ensure
equity in application of the analysis. WESTAR further recommended that
we take steps to ensure that EPA Regional Offices, in partnership with
States and FLMs, operate consistently among themselves in inter-
jurisdictional contexts and develop data and methods that will better
enable inter-jurisdictional analysis. WESTAR stressed that a balance is
needed between providing States with case-by-case, cross-jurisdictional
PSD increment analysis flexibility and providing the national or
regional standardization necessary to ensure equity among States,
simplify cross-jurisdictional analysis, and facilitate coordination
with FLMs. The WESTAR report also noted a lack of clarity and sometimes
narrow interpretations of the definition of actual emissions used for
purposes of calculating point source emissions for inclusion in
emissions inventories for PSD analyses. All of the WESTAR workgroup
representatives agreed that it is desirable to bring greater clarity
and consistency to approaches for conducting refined analyses,
particularly related to approaches for calculating point source
emissions. Today's notice is a step toward achieving that balance
between case-by-case flexibility and inter-jurisdictional consistency.

D. What are the Clean Air Act requirements related to increments?

    The PSD increments are established under sections 163 and 166 of
the Act. In section 163 of the Act, Congress adopted specific numerical
increments for particulate matter and sulfur dioxide in each of the
three classes of PSD baseline areas (i.e., Class I, II, and III, as
described above in section II.B.1). In 1990, Congress created section
166(f) of the Act which authorized us to substitute increments based on
the PM10 indicator for the original particulate matter
increments contained in section 163. Consistent with this provision, we
substituted PM10 increments for the increments based on
total suspended particulate matter in a 1993 rulemaking (58 FR 51622,
June 3, 1993). In section 166(a) of the Act, Congress directed and
authorized EPA to promulgate additional increments for nitrogen oxides
and other pollutants. We promulgated increments for NO2 in
1988 and reaffirmed those increments in a 2005 rulemaking (53 FR 40656,
Oct. 17, 1988; 70 FR 59582, Oct. 12, 2005).
    The Act does not directly specify how to determine an increase in
concentrations for purposes of determining compliance with the PSD
increments. Section 163(b) of the Act provides that ``the maximum
allowable increase in concentrations of sulfur dioxide and particulate
matter over baseline concentration of such pollutants shall not
exceed'' specified amounts for each pollutant. See CAA sections
163(b)(1)-(3). The Act does not define an ``increase in
concentrations'' for purposes of section 163. Likewise, section
165(a)(3) prohibits permitting a source that causes or contributes to
``air pollution in excess of any maximum allowable increase or maximum
allowable concentrations,'' but does not specify how EPA is to
determine that air pollution would exceed the allowable increase or
concentration. Section 166 of the Act directs EPA to promulgate
pollutant-specific PSD regulations which contain ``specific numerical
measures against which permit applications may be evaluated'' and
indicates that such measures ``may contain air quality increments.''
See CAA sections 166(a), (c), (d). However, there is no further
guidance in section 166 concerning the method to be used to measure an
increase in air pollutant concentrations for purposes of evaluation
against the PSD increments.
    We have found some guidance in the Act in the definition of
``baseline concentration,'' which we interpret to support our view that
an increase in concentration for increment purposes

should be determined on the basis of actual emissions. Section 169(4)
of the Act defines ``baseline concentration'' as ``the ambient
concentration levels which exist at the time of the permit
application.'' The opinion of the United States Court of Appeals for
the District of Columbia Circuit in Alabama Power v. Costle interpreted
section 169(4) in a manner that supports establishing the PSD baseline
concentration using actual emissions. 636 F.2d 323, 375-381 (D.C. Cir.
1980). Since emissions that consume increment are not included in the
baseline, we have long recognized that an increase in concentration
(the consumption of increment) is directly related to baseline
concentration (45 FR 52676, 52718, Aug. 7, 1980). In light of these
considerations, we reached the following conclusion:

    Since the Alabama Power decision and the statute both provide
that actual air quality be used to determine baseline
concentrations, but provide no guidance on increment consumption
calculations, EPA has concluded that the most reasonable approach,
consistent with the statute, is to use actual source emissions, to
the extent possible, to calculate increment consumption or
expansion.

See 45 FR 52676, 52718 (Aug. 7, 1980). We expressly incorporated the
definition of ``actual emissions'' into the regulatory definition of
``baseline concentration'' (40 CFR 51.166(b)(13) and 52.21(b)(13)). In
this definition of ``baseline concentration,'' the term ``actual
emissions'' is referenced both in the provision describing how to
determine the baseline concentration and in the provision identifying
emissions that affect the maximum allowable increases (the increment).
See, e.g., 40 CFR 51.166(b)(13)(ii). The term ``actual emissions'' is
itself defined in 40 CFR 51.166(b)(21) and 52.21(b)(21).
    The Act also provides some direction concerning the increment
consumption analysis by identifying particular sources whose emissions
are counted against the maximum allowable increases and listing
categories of sources whose emissions may be excluded from the
increment consumption analysis. In the statutory definition of
``baseline concentration,'' section 169(4) of the Act specifies that
``[e]missions of sulfur oxides and particulate matter from any major
emitting facility on which construction commenced after January 6,
1975, shall not be included in the baseline and shall be counted
against the maximum allowable increases in pollutant concentrations
established under this part.'' This provision makes clear that
emissions of these pollutants from new or modified major sources that
commence construction between 1975 and the baseline date for a given
area shall be counted against the increments and thus are considered to
``consume'' increment. In addition, section 163(c) authorizes States to
exclude certain pollution concentrations from the increment consumption
analysis. This provision authorizes States to ``promulgate rules
providing that for purposes of determining compliance with the maximum
allowable increases in ambient concentrations of an air pollutant, the
following concentrations of such pollutants shall not be taken into
account.'' The concentrations identified are those attributable to (1)
fuel switches required under other laws (15 U.S.C. 792 or 16 U.S.C.
791a); (2) construction or other temporary emission-related activities;
and (3) new sources outside the United States. The PSD regulations
reflect these provisions of sections 163(c) and 169(4) of the Act.
    The existing PSD regulations reflect these specific requirements of
the Act. As discussed earlier, we implemented the last sentence of
section 169(4) by establishing two separate baseline dates--the major
source baseline date and the minor source baseline date. See 40 CFR
51.166(b)(14) and 52.21(b)(14). We implemented section 163(c) of the
Act by promulgating 40 CFR 51.166(f), which is discussed further below.
    Within the boundaries described above, we read the Act to provide
EPA with fairly broad discretion to establish regulations concerning
the approach to be used to measure an increase in concentration for
purposes of assessing consumption of PSD increments. Since the Act does
not define ``increase in concentration'' for increment purposes, we
interpret the Act to grant EPA discretion to develop a method for
measuring this increase, so long as that method is reasonable and
consistent with the limited requirements described above. The absence
of specific direction in the Act concerning how to calculate an
increase in concentration for increment purposes is similar to the gap
in the Act concerning how to calculate an increase in emissions for
purposes of identifying a major modification. With respect to the
latter issue, the DC Circuit has recently observed that ``In enacting
the NSR program, Congress did not specify how to calculate `increases'
in emission, leaving EPA to fill that gap while balancing the economic
and environmental goals of the statute.'' New York v. EPA, 413 F.3d 3,
27 (Jan. 25, 2005). We believe Congress intended a similar result with
respect to ``increases'' in concentration under the increment
provisions of the PSD side of the NSR program. As observed by the court
in Alabama Power, ``Congress expected EPA to use `administrative good
sense' in establishing the baseline and calculating exceedances.'' See
Alabama Power, 636 F.2d at 380. In this rulemaking, we propose to
exercise our rulemaking discretion on this topic and provide additional
guidance to States and regulated sources on how to calculate increases
in concentrations for purposes of determining compliance with the PSD
increments.

III. Summary of This Proposed Action

    This action proposes clarifications in eight areas related to
increment analyses. They are summarized below:
     Effect of the 1990 draft ``New Source Review Workshop
Manual.'' Discussed in detail in section IV; no regulatory revisions.
     Treatment of sources that have previously received a Class
I area FLM variance in subsequent increment consumption modeling.
Discussed in detail in section V.A; regulatory revisions in 40 CFR
51.166(f)(2) and 52.21(f)(2).
     Data used to estimate emissions. Discussed in detail in
section V.B.1; regulatory revisions in 40 CFR 51.166(f)(1) and
52.21(f)(1).
     Time period of emissions used to model pollutant
concentrations. Discussed in detail in section V.B.2; regulatory
revisions in 40 CFR 51.166(f)(1) and 52.21(f)(1).
     Actual emissions rates used to model short-term increment
compliance. Discussed in detail in section V.B.3; regulatory revisions
in 40 CFR 51.166(f)(1) and 52.21(f)(1).
     Meteorological data and processing. Discussed in detail in
section V.C.1; no regulatory revisions.
     Years of meteorological data. Discussed in detail in
section V.C.2; no regulatory revisions.
     Documentation and data and software availability.
Discussed in detail in section V.D; no regulatory revisions.

IV. Proposed Clarifications Regarding the Effect of the Draft New
Source Review Workshop Manual

    To avoid future misunderstandings concerning the effect of the
draft 1990 New Source Review Workshop Manual (draft NSR Manual), we
propose in this action to make clear that the draft NSR Manual is not a
binding regulation and does not by itself establish final EPA policy or
authoritative interpretations of EPA regulations under the New Source
Review Program. As discussed above, because this document was never
finalized, we never intended for the manual to establish final agency
policy

or authoritative interpretations of EPA's NSR regulations. Furthermore,
in many areas the positions reflected in the document have become
outdated and superseded by statutory amendments, rulemakings,
additional guidance memoranda, and adjudications by the Administrator
and the EPA Environmental Appeals Board.
    Notwithstanding this proposed clarification concerning the effect
of the draft NSR Manual, we recognize that some of the views expressed
in the draft NSR Manual may have been promulgated in EPA regulations or
adopted by the Agency as final policy statements or interpretations in
other actions taken before or after the release of the draft NSR Manual
in 1990. On some topics, the draft NSR Manual compiled pre-existing EPA
policy and interpretations, but on other matters the document expressed
proposed policies or interpretations that were never finalized by the
Agency. To the extent EPA subsequently or previously adopted a view
expressed in the draft NSR Manual through other action that was clearly
final, those positions may have achieved the status of final policies
or interpretations, but positions that are only expressed in the draft
NSR Manual should not be considered to be a final EPA policy or
interpretation.
    With respect to the increment analysis that is the subject of this
rulemaking action, we are proposing to establish regulations that
supersede many of the recommended approaches for conducting the
increments analysis set forth in the draft NSR Manual and other EPA
guidance documents, as discussed in more detail below. However, we are
not proposing in this action to supersede or change specific policies
or interpretations not discussed in this notice that EPA may have
adopted in final form prior to or after the development of the draft
NSR Manual.
    With respect to the draft NSR Manual as a whole, we are only
proposing to clarify that the 1990 draft of the NSR Manual does not by
itself establish final policies or interpretations of the EPA. To the
extent such policies or interpretations are reflected in other action
or documents that were issued in a final form (such as rulemakings,
guidance memorandum, or adjudications by the Administrator or the
Environmental Appeals Board), EPA will continue to follow them unless
the Agency has otherwise indicated that it no longer adheres to such
policies or interpretations. For example, it remains EPA's policy to
use the five-step, top-down process to satisfy the Best Available
Control Technology (``BACT'') requirements when PSD permits are issued
by EPA and delegated permitting authorities, and we continue to
interpret the BACT requirement in the Clean Air Act and EPA regulations
to be satisfied when BACT is established using this process, as it has
been described in decisions of the Environmental Appeals Board.
However, notwithstanding this policy and the interpretations of the
BACT requirement reflected in EPA adjudications, EPA has not
established the top-down BACT process as a binding requirement through
regulation.
    We request comment on this proposal to clarify that the draft NSR
Manual is not a binding regulation and does not independently reflect
or establish a final statement of EPA policy or an authoritative
interpretation of EPA regulations.

V. Proposed Refinements to Increment Modeling Procedures

A. What kind of emissions consume or expand the PSD increment?

1. What types of sources are included in increment consumption
modeling?
    In defining ``baseline concentration,'' the PSD regulations also
spell out the emissions sources that must be included in an increment
analysis. Specifically, in 40 CFR 51.166(b)(13)(ii) and
52.21(b)(13)(ii), the regulations indicate that the following emissions
are not included in the baseline concentration, but instead affect the
available increment:
     Actual emissions from any major stationary source on which
construction commenced after the major source baseline date.
     Actual emissions increases and decreases at any stationary
source occurring after the minor source baseline date.

Thus, the sources that affect available increment, and therefore must
be included in an increment analysis are: (1) Major sources that have
increased or decreased actual emissions after the major source baseline
date as a result of construction of a new source, a physical or
operational change to an existing source, or shutdown of an existing
source; and (2) any source that has had an increase or decrease in
actual emissions since the minor source baseline date. The latter
includes major sources, minor sources, and area sources that have been
constructed since the minor source baseline date (i.e., new sources) or
have experienced a change in actual emissions since the minor source
baseline date (i.e., existing sources that have been modified or have
changed their capacity utilization or hours of operation).
    For many years, we have interpreted the PSD regulations to require
increases and decreases in mobile source emissions to be included in
the increment consumption analysis. See, e.g., 53 FR 40656, 40662
(October 17, 1988). However, we understand that many States have not
consistently accounted for mobile source emissions in their increment
analyses. To make clear that mobile source emissions need to be
included in an analysis of increment consumption, we are proposing to
amend the reference to ``any stationary source'' in 40 CFR
51.166(b)(13)(ii)(b) and 52.21(b)(13)(ii)(b) of our regulations to make
explicit that actual emissions increases or decreases that consume or
expand increment are not limited solely to stationary source emissions.
    Despite prior inconsistencies, EPA has generally not second-guessed
state increment assessments after they are completed or PSD permits
have been issued. Thus, to the extent a state has neglected to account
for mobile source emissions in prior increment analysis, EPA does not
intend for this technical amendment to require those states to revisit
those increment assessments or previously-issued permits. These states
should simply include mobile source emissions in their next permit
review or periodic review of increment consumption and factor those
results into future permitting decisions or planning strategies.
    The existing regulations also specify that ``secondary emissions''
are to be included in an increment analysis. See 40 CFR 51.166(k) and
52.21(k). Secondary emissions are defined as emissions which occur as a
result of the construction or operation of a major source or
modification, but do not come from the major source itself. They
include emissions from any offsite support facility which would not be
constructed or increase emissions except as a result of the
construction of the major source or modification that is undergoing PSD
review. Secondary emissions must be specific, well defined,
quantifiable, and impact the same general area as the major source or
modification that is under review. See 40 CFR 51.166(b)(18) and
52.21(b)(18).
    We have also codified an exemption to these general principles in
40 CFR 51.166(f) of the PSD regulations. This provision authorizes SIPs
to exclude from increment consumption those sources in the four
categories listed in section 163(c) of the Act. The regulations also
allow States to exclude concentrations attributable to temporary
increases in emissions from sources affected by SIP revisions approved
by

EPA. See 40 CFR 51.166(f)(1)(v). When we promulgated increments for
NO2, 40 CFR 51.166(f) became applicable to the increments
for that pollutant as well. Thus, emissions attributable to sources or
actions listed in 40 CFR 51.166(f) may not consume increment if a State
has promulgated regulations approved by EPA that exclude such emissions
from the increment consumption analysis. We have not included a
companion provision in 40 CFR 52.21 because we read section 163(c) of
the Act to apply only to States with approved PSD programs in their
State implementation plans.
2. How is a source with a Class I area Federal Land Manager variance
treated in subsequent increment consumption modeling?
    We propose to add a category of sources that may be excluded from
the increment consumption analysis in a specialized circumstance
described in the Clean Air Act. We propose to establish that sources
that have been permitted based in part on a variance issued by a
Federal Land Manager (FLM) for a Class I area may be excluded from the
increment consumption analysis for the Class I increment in the area
for which the variance was issued.
    Background. Under section 165(d) of the Act, when a proposed source
subject to permitting has the potential to adversely impact a Class I
area, an additional review is required to assess whether the source
will adversely impact Air Quality Related Values (AQRVs) in the Class I
area. The AQRV review provisions of section 165(d) provide another
layer of protection against significant deterioration in Class I areas
on top of the protection provided by increments.\8\ Although any area
may be designated to be a Class I area, such areas are generally
national parks and wilderness areas of a certain size that are required
to be Class I areas under the Act. See section 162(a) of the Act.
---------------------------------------------------------------------------

    \8\ ``A second test of protection is provided in specified
Federal land areas (Class I areas), such as national parks and
wilderness areas; these areas are also subjected to a review process
based on the effect of pollution on the area's air quality related
values.'' S. Rep. 95-127, at 17, 4 LH at 1401.
---------------------------------------------------------------------------

    The Act does not define AQRVs or identify specific AQRVs other than
visibility. See section 165(d)(2)(B) of the Act. However, AQRVs are
generally understood to encompass the purposes for which lands have
been preserved, to the extent those purposes may be affected by air
quality. In legislative history to the Act, AQRVs are described as
follows:

    The term ``air quality related values'' of Federal lands
designated as class I includes the fundamental purposes for which
such lands have been established and preserved by the Congress and
the responsible Federal agency. For example, under the 1916 Organic
Act to establish the National Park Service (16 U.S.C. 1), the
purpose of such national park lands ``is to conserve the scenery and
the natural and historic objects and the wildlife therein and to
provide for the enjoyment of the same in such manner and by such
means as will leave them unimpaired for the enjoyment of future
generations.''

See S. Rep. 95-127 at 36, reprinted at 3 LH at 1410. In 1996, we
proposed to adopt the following definition of AQRV:

    Air quality related values means visibility or a scenic,
cultural, physical, biological, ecological, or recreational resource
that may be affected by a change in air quality, as defined by the
Federal Land Manager for Federal lands, or by the applicable State
or Indian Governing Body for nonfederal lands.

See 61 FR 38250, 38332, July 23, 1996. We have not yet taken final
action to adopt this definition.
    The Act provides that the FLM charged with responsibility for
managing a Class I area has an ``affirmative responsibility'' to
protect the AQRVs in the area. See section 165(d)(2)(B) of the Act.
Section 165(d) establishes a procedure under which the FLM may object
to or concur in the issuance of a PSD permit based on the impact, or
lack thereof, that new emissions may have on any affected AQRV that the
FLM has identified. If the proposed source's emissions do not cause or
contribute to a violation of a Class I increment (satisfying the
requirement in section 165(a)(3) of the Act), the FLM may nevertheless
prevent issuance of the permit by demonstrating to the satisfaction of
the reviewing authority that the source or modification will have an
adverse impact on AQRVs. See section 165(d)(2)(C)(ii) of the Act.
Conversely, if the proposed source will cause or contribute to a
violation of a Class I increment, the reviewing authority may not issue
the permit unless the owner or operator demonstrates to the
satisfaction of the FLM that the emissions from the proposed facility
will have no adverse impact on the AQRVs of the Class I area. See
section 165(d)(2)(C)(iii) of the Act. Under this procedure, the
compliance status of the increment determines whether the FLM or the
permit applicant has the burden of satisfactorily demonstrating whether
or not the proposed source's emissions would have an adverse impact on
AQRVs.\9\ The FLM has the burden of demonstrating an adverse impact
when the Class I increment is not exceeded. However, if the proposed
source causes or contributes to a violation of the Class I increment,
the permit applicant must convince the FLM to certify that the proposed
source will not have an adverse impact on AQRVs.
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    \9\ ``The class I increment is a test for determining where the
burden of proof lies and is an index of changes in air quality. It
is not the final determinant for approval or disapproval of a permit
application.'' S. Rep. 95-127 at 35.
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    This certification by the FLM is known as a ``variance'' under 40
CFR 51.166(p) and 52.21(p) of the PSD regulations. The process for
issuance of a variance was originally applied only in the context of
the statutory increments for PM and SO2 based on section
165(d) of the Act, but we have, by rulemaking, extended the AQRV review
procedures set forth in Sec. Sec.  51.166(p) and 52.21(p) to cover
NO2. See 70 FR 59583, October 12, 2005; 53 FR 40656, October
17, 1988.
    In the case of the 24-hour and 3-hour increments for
SO2, the Act provides an additional process through which
the permit applicant may request that the Governor of a State issue a
variance or appeal to the President to issue the variance if the FLM
does not concur with the Governor's conclusion. See section
165(d)(2)(D) of the Act. If the FLM does not initially issue a variance
under section 165(d)(2)(C), the Governor may issue a variance subject
to the concurrence of the FLM, if the Governor finds, after public
notice and hearing, that a facility cannot be constructed because of a
short-term increment for SO2 and that the variance will not
adversely affect AQRVs. See section 165(d)(2)(D)(i) of the Act; 40 CFR
51.166(p)(5) and 52.21(p)(6). If the FLM does not concur with the
Governor's decision to issue the variance, the dispute is submitted to
the President for resolution. The President may grant the variance if
he finds that a variance is in the national interest. See section
165(d)(2)(D)(ii) of the Act; 40 CFR 51.166(p)(6) and 52.21(p)(7).
    Under both of these variance provisions, the variance cannot issue
unless the permit contains emissions limitations sufficient to prevent
violations of alternative increments that are established for the
specific permitting action due to the variance. In the case of an FLM
variance issued under section 165(d)(2)(C), the alternative increments
are equal to the Class II increments in most instances. In the unique
case of the 3-hour increment for SO2, the Act requires use
of an increment of 325 [mu]g/m\3\ (a level between the Class I and
Class II increments) for SO2 for the 3-hour averaging
period. See section 165(d)(2)(C)(iv) of the Act; 40

CFR 51.166(p)(4) and 52.21(p)(5). We also applied this approach to
NO2 by adding a cap of 25 [mu]g/m\3\ (equal to the
NO2 Class II increment) to the regulations. See 53 FR 3704;
see 40 CFR 51.166(p)(4) and 52.21(p)(5). Although the short-term Class
II increments may ordinarily be violated one time per year, the Act
suggests that when the Class II increment applies under the Class I
variance provisions in section 165(d)(2)(C), no violations of the Class
II increment are permissible. See section 163(a) of the Act.
    In the case of a gubernatorial or presidential variance for the
short term SO2 increments, the Act establishes another set
of alternative increments at a level between the Class I and Class II
increments for the 24-hour and 3-hour averaging periods. See section
165(d)(2)(D)(iii) of the Act. This provision includes separate
alternative increments for permitting actions receiving a variance in
low and high terrain areas. Id. In addition to requiring emissions
limitations sufficient to assure these alternative increments are not
exceeded, this portion of the Act also specifies that the permit must
``assure that such emissions will not cause or contribute to
concentrations which exceed the otherwise applicable maximum allowable
increases for periods of exposure of 24 hours or less on more than 18
days during any annual period.'' Id. We interpret the ``otherwise
applicable maximum allowable increases'' to describe the Class I
increments and thus understand this provision to allow 18 exceedances
of the Class I increment per year after a variance has been issued
under section 165(d)(2)(D).
    In contrast to section 165(d)(2)(D)(iii), the FLM variance
provisions in section 165(d)(C)(iv) that refers primarily to the Class
II increments does not discuss an ``otherwise applicable maximum
allowable increase'' or identify an allowable number of days on which
such an increment might be exceeded. This omission leaves some
ambiguity concerning whether the Class I increment should continue to
apply in the Class I area for which a variance has been issued by the
FLM under section 165(d)(2)(C) based upon a certification that the
emissions from a proposed facility will not have an adverse impact on
AQRVs. Since Congress has not directly spoken to this issue, we propose
to add provisions to the PSD regulations to clarify how a reviewing
authority should account for these variances when evaluating compliance
with the Class I increment when a source has previously been issued a
variance.
    Proposed Action. To address this issue, we propose to add a new
provision in 40 CFR 51.166(f) stating that the emissions of any source
that were permitted after receiving a Class I increment variance from
an FLM need not be included in the consumption analysis for the Class I
increment for the area for which the variance was issued under section
165(d)(2)(C) of the Act. However, we propose that the emissions of such
source continue to be accounted for in the analysis of compliance with
the alternative Class II increments that are applied in the Class I
area after the issuance of a variance. As noted above, in the case of
SO2, the alternative increment is not the Class II increment
but a level between the Class I and Class II increments.
    We interpret section 165(d)(2)(C) of the Act to allow this
additional exclusion, not contained in section 163(c) of the Act, from
the increment consumption analysis for emissions that an FLM has
considered and certified to not have an adverse impact on AQRVs.
However, this is a narrow exclusion that applies only with respect to
the Class I increment in those areas for which a variance has been
issued. We do not read section 165(d)(2)(C) to authorize such emissions
to be excluded from an analysis of compliance with the Class II
increments (or the alternative 3-hour SO2 increment).
    In Class I areas, the key criterion for determining whether a
permit may issue is the effect of a project on AQRVs. The Class I
increment is important, but the terms of sections 165(d)(2)(C)(ii) and
165(d)(2)(C)(iii) make clear that AQRVs actually control whether a
permit should be issued or not. As discussed above, the increment
determines who has the burden of demonstrating the degree of impact on
AQRVs, but ultimately the degree of impact on AQRVs is the controlling
standard in such areas. Exceedances of the increment are allowed so
long as the source can demonstrate to the satisfaction of the FLM that
a source will not have an adverse impact on AQRVs. An exceedance of
Class I increment creates a presumption that AQRVs within the affected
impact area will also be adversely affected, but that presumption may
be rebutted. Likewise, the absence of an increment exceedance creates a
presumption that there is no adverse impact on AQRVs within the
affected impact area, but that presumption may also be rebutted if the
FLM provides evidence sufficient to convince the reviewing authority
that emissions from a proposed source will have an adverse impact on
AQRVs. Thus, based on the interplay of sections 165(d)(2)(C)(ii) and
165(d)(2)(C)(iii), we interpret the Act to establish AQRVs, rather than
the Class I increment, as the controlling standard in Class I areas.
AQRVs are always applicable in Class I areas, regardless of the status
of the Class I increment.
    However, AQRVs are the controlling benchmark only to the extent
that AQRVs provide more protection than the Class II increments (or a
lower figure in the case of the 3-hour averaging time for
SO2). Section 165(d)(2)(C)(iv) indicates that, although a
permit may be issued where AQRVs are not adversely impacted, such
permit must ensure that the Class II increments are not exceeded. We
interpret this provision to mean that the Class II increment cannot
ever be exceeded in a Class I area, notwithstanding the degree of
impact on AQRVs. So, reading sections 165(d)(2)(C)(ii)-(iv) together,
we interpret the Act to establish AQRVs and the Class II increments to
be the air quality standards that ultimately determine whether a permit
may be issued for a source potentially affecting a Class I area. The
Class I increment serves to establish a presumption of harm or the
absence of harm to AQRVs, but does not ultimately control whether a
permit may be issued.
    While it is clear that AQRVs and the Class II increments ultimately
control whether a particular permit may be issued, the Act does not
specify what role the Class I increment has to play on an ongoing basis
after a variance has been issued. To obtain a variance, the applicant
must rebut the presumption that AQRVs will be adversely impacted by an
increase in concentrations in excess of the Class I increment. Once
that presumption has been rebutted for a particular area, the Class I
increment may no longer be representative of the degree of impact on
AQRVs for that area. If the Class I increment has been exceeded but
there is no adverse impact on AQRVs, this indicates that the Class I
increment is not a reliable predictor of adverse impacts on AQRVs in a
particular area.
    Thus, the question arises as to whether the Class I increment
should remain applicable in a Class I area after the issuance of a
variance. Section 165(d)(2)(C) does not address this issue. Although
section 165(d)(2)(D)(iii) says that the ``otherwise applicable''
increment may not be exceeded more than 18 days per year in the case of
a gubernatorial or presidential variance, section 165(d)(2)(C)(iv) does
not refer to any ``otherwise applicable'' increment in the context of
an FLM variance. The other parts of section 165(d)(2)(C) also fail to
address this issue.

    One approach we have considered is to construe the silence in
section 165(d)(2)(C) as an indication that Congress did not intend to
permit violations of the Class I increment for any additional days
beyond the one day per year allowed in the case of the 24-hour and 3-
hour increments. Under this interpretation, a variance under section
165(d)(2)(C) would be considered only to be a variance from the ``cause
or contribute'' standard in section 165(a)(3) of the Act for purposes
of an individual permit application. An applicant would be relieved of
the obligation to demonstrate that a proposed source does not cause or
contribute to a violation of the Class I increment if the applicant can
demonstrate that the source will not adversely affect AQRVs. However,
under this view, the variance would not necessarily relieve the
reviewing authority or State air quality planning agency from the
obligation to ensure that the SIP contains measures to protect the
Class I increment. The source might receive its permit based on the
variance from section 165(a)(3) for a particular Class I area, but the
State would remain obligated to comply with 40 CFR 51.166(a)(3) of the
PSD regulations and take subsequent action to amend the SIP to correct
the exceedance of the Class I increment caused by the source that
received the variance.
    The latter interpretation appears to be supported by a statement
from the DC Circuit's opinion in Alabama Power v. Costle. In this
decision, the Court upheld the language cited above (40 CFR
51.166(a)(3)) that requires a State to revise its SIP to correct a
violation of the increment.\10\ Some of the Petitioners in that case
had argued that EPA could not require a State to remedy a Class I
increment violation, because section 165(d) allowed a waiver of the
Class I increment in certain circumstances. The court reconciled the
variance provision and the language in Sec.  51.166(a)(3) as follows:

    \10\At the time of that decision, this language was contained in
Sec.  51.24(a)(3) of EPA's regulations. See 636 F.2d at 361 n. 92.

    Industry petitioners also rely on those sections of the Act that
provide for waiver provisions which, conceivably, could allow
increments to be exceeded. The waiver has vitality and recognition
in that facilities granted special consideration under these
provisions are, in effect, treated as facilities operating in
compliance with the provisions of the Act. But the totality of
facilities in compliance, as a group, may be subject to measures
necessary to cope with a condition of pollutants exceeding the PSD
---------------------------------------------------------------------------
maximum.

See 636 F.2d at 363.
    We have previously acknowledged that this may be a permissible way
to reconcile the FLM variance provision with the requirement in Sec.
51.166(a)(3) to amend SIPs to remedy an increment exceedance. In
correspondence sent to the State of North Dakota, the Director of EPA's
Office of Air Quality Planning and Standards recommended the approach
suggested by the Alabama Power opinion. The letter stated the
following:

    In the case of a Class I increment violation, a source may be
granted a variance under certain conditions. First, the source must
demonstrate to the FLM, and the FLM certify to the State, that the
source will not adversely impact any Class I AQRVs. Second, the
State must revise its SIP to correct increment violations ([Act]
Section 161 and 163, 40 CFR 51.166(a)(3)).

See Letter from John Seitz, EPA/OAQPS, to Francis Schwindt, North
Dakota Dept. of Health (December 12, 2001). EPA Region 8 followed this
recommendation in comments submitted to North Dakota in 2002. See EPA
Comments on North Dakota Department of Health's Proposed Determination
Regarding the Adequacy of the SIP to Protect PSD Increments for Sulfur
Dioxide (May 24, 2002).
    Since the time of these recommendations, we have evaluated this
issue further and now recognize that there may be more than one
permissible reading of the Act on this issue. The approach that we
suggested in 2001 (amending the SIP to eliminate the Class I increment
exceedance after the permit issues) would effectively require the
source seeking the variance to obtain offsets from other sources
affecting the Class I increment. If section 165(d)(2)(C) is read to
require that a variance source obtain offsets, there would be no need
for that proposed source to demonstrate that its emissions would not
have an adverse impact on AQRVs. This would render the AQRV provisions
in section 165(d)(2)(C) of the Act meaningless where the increment is
exceeded because one would not need to consider AQRVs and obtain the
variance in the first place if offsetting emissions reductions were
obtained. Furthermore, where a single source consumes the entire
increment but does not adversely impact AQRVs, the issuance of a
variance would have no effect because a SIP could not be tightened to
obtain reductions from any other source to remedy the increment
exceedance. In this circumstance the State would have no choice but to
tighten or revoke the permit of the variance source immediately after
the permit was issued. We do not believe Congress intended such a
result. In light of these considerations, we are proposing to refine
our interpretation of section 165(d)(2)(C) with respect to the role of
the Class I increment after a variance has been issued under section
165(d)(2)(C).
    Another possible approach would be to read section 165(d)(2)(C)(iv)
to call for the Class II increments to substitute for the Class I
increment on an ongoing basis after a variance is issued. We might
construe the absence of any discussion of an ``otherwise applicable''
increment in this section of the Act to mean that Congress did not
intend for the Class I increment to have continuing effect in the area
after the variance was issued. Since Congress did not specify the
number of days on which the ``otherwise applicable'' increment could be
exceeded per year (as it did in section 165(d)(2)(D)(iii)), one
interpretation is that this information was not needed because Congress
did not intend for the Class I increments to apply after it was
demonstrated that the Class I increment was not a reliable predictor of
the degree of impact on AQRVs in a particular Class I area. Under this
approach, the Class II increments (plus the unique 3-hour
SO2 increment) would continue to provide an upper bound on
emissions growth to protect the Class I area while AQRVs remained in
effect to protect against site-specific impacts that are not adequately
represented by the Class I increment. However, under this Class II
increment substitution approach, the Class I increment would no longer
be available as a tool to determine who has the burden of proof to
demonstrate the degree of impact on AQRVs.
    In this action, we are proposing a compromise approach that retains
the Class I increment for the purpose of establishing the burden of
proof in the AQRV analysis but does not require a SIP to be amended to
offset the contribution of sources that have received a variance
because they do not adversely affect AQRVs. We propose to accomplish
this effect by allowing States to exclude the emissions from sources
receiving an FLM variance from the Class I increment consumption
calculation. The emissions of the variance source must continue to be
considered for purposes of determining compliance with the Class II
increments, but they would no longer be considered relevant to the
Class I increment assessment after a variance has been issued. The
Class I increment would remain in effect with respect to the emissions
of other sources, and could not be exceeded on any additional days. The
emissions of sources that have

not received a variance would continue to count against the Class I
increment.
    For example, assume that an impact area for a proposed new source
contains four sources that currently consume the SO2
increment for the 3-hour averaging period--two of which have FLM
variances and two of which do not. There are no other increment
consuming or expanding sources in the impact area. For the 3-hour
averaging period for SO2, the Class I increment is 25 [mu]g/
m\3\ and the alternative increment that applies after issuance of an
FLM variance in this area is 325 [mu]g/m\3\.\11\ Assume that the two
sources with variances consume 4 [mu]g/m\3\ each, for a total of 8
[mu]g/m\3\. Assume that the two sources without variances consume 10
[mu]g/m\3\ each, for a total of 20 [mu]g/m\3\. Under this scenario, if
a new source applies for a permit, under this proposed rule the new
source must combine its emissions with the emissions from the other two
sources without variances and not exceed, for the Class I area of
impact, 25 [mu]g/m\3\. Thus, the new source can consume up to 5 [mu]g/
m\3\ (i.e., 25 [mu]g/m\3\ minus 20 [mu]g/m\3\) of the available Class I
increment for SO2 without assuming the burden of obtaining a
third variance by demonstrating to the FLM that the source will not
have an adverse impact on AQRVs in the Class I area.
---------------------------------------------------------------------------

    \11\As previously noted, the 3-hour averaging period for
SO2 is unique in that the Act specifies an increment for
purposes of the FLM variance (325 [mu]g/m\3\) that is different from
the corresponding Class II increment (512 [mu]g/m\3\).
---------------------------------------------------------------------------

    Under this hypothetical example, because two sources in the area
have previously obtained variances and shown that the Class I increment
is not necessarily a reliable indicator of impacts on AQRVs, an
alternative increment of 325 [mu]g/m\3\ now applies in the Class I area
for all sources. The proposed source must combine its emissions with
that of all 4 sources and not exceed a concentration increase of 325
[mu]g/m\3\. Since the other four sources consume 28 [mu]g/m\3\, the new
source can consume up to 297 [mu]g/m\3\ (i.e., 325 [mu]g/m\3\ minus 28
[mu]g/m\3\) of the available increment for SO2.\12\
---------------------------------------------------------------------------

    \12\ The increment consumption estimates for all existing
sources are based on modeling of their actual emissions, while the
consumption estimate for the new source is based on modeling of its
potential to emit (PTE).
---------------------------------------------------------------------------

    Furthermore, the AQRV test remains applicable to the ultimate
decision as to whether the permit may be issued for the new source.
Even though the new source, combined with the two existing sources
without variances, may not cause or contribute to an exceedance of the
Class I increment, the permit could nevertheless be denied if the FLM
convinces the reviewing authority that the new source will have an
adverse impact on AQRVs in the affected Class I area.
    Since a variance will not be issued unless the Class I area FLM
certifies that the emissions from a proposed source will not have an
adverse impact on AQRVs, it is reasonable to omit the emission of such
source from the increment consumption analysis for the Class I
increment on an ongoing basis. A source issued a variance does not
adversely impact AQRVs, which as discussed above, is the critical and
adaptable test Congress established for protecting site-specific
concerns in Class I areas. Each successive source that impacts the
Class I area would still have to show that it does not harm the AQRVs
to receive a permit. The Class I increment would remain relevant as an
indicator for assessing when other sources may have an adverse impact
on AQRVs. If sources other than the variance source cause an exceedance
of the Class I increment, the next source to apply for a permit
affecting the area will have the burden of demonstrating to the FLM
that the proposed source's emissions do not adversely affect AQRVs. If
the emissions of the proposed source and other sources that have not
received a variance do not consume the Class I increment, then the FLM
will bear the burden of convincing the reviewing authority that the
proposed source will adversely impact AQRVs. Plus, the alternative
increments (generally the Class II increments) apply to limit the
overall increase in concentrations caused by all sources affecting the
Class I area.
    This approach is a permissible reading of the Clean Air Act that
reconciles some apparent inconsistencies in the statutory scheme. Even
when a variance is issued under section 165(d)(2)(C), the Act does not
expressly allow the Class I increment to be exceeded on any additional
days. If this omission were read strictly to preclude any additional
days of violation of the increment, this would be inconsistent with
allowing a variance because the strict reading would preclude any
additional days of a Class I increment violation, even those caused by
a variance source. The issuance of a variance would appear to require
at least a temporary variance from the Class I increment, even if the
SIP still has to be amended at a later date to correct the violation,
but that would be inconsistent with a strict reading of section
165(d)(2)(C)(iv) to preclude additional violations of the Class I
increment. If section 165(d)(2)(C)(iv) is read to require that the
Class II increment permanently supersede the Class I increment, an
unlimited number of additional days of Class I increment violations
would be permitted and the burden shifting effect of the Class I
increment would be lost. Our proposed approach of excluding the
emissions of variance sources from the Class I analysis appears to be
the best way to avoid authorizing any additional days of Class I
increment violations while retaining the role of the Class I increment
as a tool to determine who has the burden in the AQRV analysis.
    Because of the differences between section 165(d)(2)(C) and
165(d)(2)(D), we do not propose to apply this same exclusion to
variances issued under section 165(d)(2)(D). Instead of allowing an
exclusion from the Class I increment consumption analysis, it appears
that Congress opted in section 165(d)(2)(D) to apply the otherwise
applicable Class I increment and instead to allow that increment to be
exceeded on 18 days per year instead of the normal limit of 1 day per
year.
    We also propose to use this rule as an opportunity to correct a
typographical error in the provisions of our rules addressing the FLM
variances. The cross references contained within 40 CFR. 51.166(p) and
52.21(p) incorrectly refer to paragraph (q) of these provisions. We
propose to amend these provisions so they reflect the correct cross-
references to portions of paragraph (p).

B. How are emissions estimated for sources that consume increment?

    To model the expected change in concentration of pollutants above
the baseline, one needs to identify the emissions of those sources that
are included in the increment consumption analysis. As noted earlier,
the PSD regulations call for this analysis to be based on the actual
emissions of sources. The baseline concentration is generally based on
``actual emissions * * * representative of sources in existence on the
applicable minor source baseline date.'' See 40 CFR 51.166(b)(13)(i)(a)
and 52.21(b)(13)(i)(a). The concentration after the minor source
baseline date is generally based on ``actual emissions increases and
decreases * * * at any stationary source occurring after the minor
source baseline date.'' See 40 CFR 51.166(b)(13)(i)(b) and
52.21(b)(13)(ii)(b). There are certain exceptions to these general
principles for emissions of major sources, but the basic methodology
involves identifying the actual emissions of sources on the minor
baseline date and actual emissions increases and decreases after

the minor source baseline date at sources existing on the minor source
baseline date and increases attributable to the addition of new sources
since that time.
    In practice, an assessment of increment consumption in accordance
with these requirements has generally involved compiling an actual
emissions inventory for two separate time periods. The first part of
the inventory generally contains actual emissions as of the minor
source baseline. However, for major sources that experienced changes in
emissions resulting from construction (as defined at 40 CFR
51.166(b)(8) and 40 CFR 52.21(b)(8)) after the major source baseline
date, the emissions as of the major source baseline date would be used.
The second part of the inventory contains actual emissions as of the
time of a periodic review of increment compliance or the review of a
pending PSD permit. In the case of a PSD permit review, the second part
of the inventory contains the projected emissions of the proposed
source. The existing PSD regulations contain a definition of the term
``actual emissions'' in 40 CFR 51.166(b)(21) and 52.21(b)(21). This
definition is expressly incorporated into the definition of ``baseline
concentration'' which establishes the basic parameters described above
for determining the change in concentration since the baseline date.
    In this action, we are proposing to adopt a revised definition of
``actual emissions'' that will address the methodology for quantifying
emissions as of the baseline date and emissions that consume increment.
Rather than revising the existing definition of actual emissions in 40
CFR 51.166(b)(21) and 52.21(b)(21) which may continue to be used for
other purposes under the PSD program, we propose to promulgate a new
definition of ``actual emissions'' in 40 CFR 51.166(f) and 52.21(f)
that will apply only to the analysis of increment consumption and be
easier to find among other provisions pertaining to the increment
consumption analysis. We also request comment on whether we could also
repeal the existing definition of actual emissions in 40 CFR
51.166(b)(21) and 52.21(b)(21) without affecting other elements of the
PSD program.
1. Data and Calculation Methods Used to Establish Actual Emissions
    We propose to add language to the PSD regulations to clarify that a
reviewing authority has discretion to use its best professional
judgment when determining the actual emissions of sources as of the
baseline date and at subsequent periods of time, particularly where
there is limited data available from which to determine actual
emissions. We propose to establish a general standard for the
sufficiency of data and calculation methods on which actual emissions
may be based, but also request comment on WESTAR's recommendation that
EPA establish a menu of permissible data types and calculation methods
from which each reviewing authority may select.
    Background. Because direct measurement of the emissions from a
stack may not be available, the emissions of baseline and increment
consuming sources must often be derived from other data that is
available. The current regulations applicable to increment consumption
analyses specify that ``actual emissions shall be calculated using the
unit's actual operating hours, production rates, and types of materials
processed, stored, or combusted during the selected time period.'' See
40 CFR 51.166(b)(21) and 52.21(b)(21). This general requirement adopted
in the PSD regulations in 1980 presumed the availability of reliable
and consistent records on operating hours, production rates, and
materials composition.
    However, the experience of EPA and many States in implementing the
PSD program since this time has shown that the accuracy and reliability
of the available data may be questionable or may vary significantly
over the time period of the emissions estimate. For PSD baseline dates
that are many years in the past, information on actual source
operations may be sketchy or lacking altogether. Furthermore, the
composition of raw materials, such as the sulfur content of coal, may
change over time and might be reliably estimated for an annual average
value, but may be significantly higher during a shorter period of time
within that year or when a maximum value is determined.
    There may also be cause to choose among various calculation
methodologies for a given emissions estimate. For example, annual
emission rates could be calculated based on continuous operation (24
hours per day, 365 days per year). If a source does not operate
continuously, whether by design or permit limitation, the annual
emissions could be based on the limitation. Due to scheduled shutdowns
and maintenance, sources rarely operate at design or permit limits, and
in such cases actual operating hours could be used. However, there will
be situations when data on operating hours are not available and some
other estimate of operation must be determined. The choice of which
data to use in a particular circumstance, particularly where there is
more than one set of data that could be used or more than one
methodology, has generated substantial uncertainty in the context of
the PSD program. This uncertainty also extends to how gaps in the data
are handled, such as when data are unavailable or are available for
only a subset of a group of similar sources.
    Other than the language quoted above from the definition of
``actual emissions'' calling for emissions to be calculated based on
actual operating hours, production rates, and materials composition,
the PSD regulations have not included any criteria for reviewing
authorities to use to determine actual emissions. We have provided more
specific guidance for demonstrations of compliance with the NAAQS under
the PSD program in table 8-2 of appendix W, but this table was not
developed for purposes of increment consumption analysis. Section
8.1.2.i. currently recommends only that ``NAAQS compliance
demonstrations in a PSD analysis should follow the emission input data
shown in Table 8-2.'' We do not believe our recommendations in Table 8-
2 can be readily extended to increment consumption analyses because of
differences in the increment consumption analysis. Unlike the NAAQS
analysis, increment consumption assessments have generally focused on
changes in emissions, rather than absolute concentrations, and often
must account for emissions that occurred many years earlier on the
applicable baseline date.
    We do not necessarily read the Act to call for the same degree of
precision in the increment consumption analysis as a determination of
compliance with the NAAQS. Under the constraints imposed by Congress,
the increment analysis is in many ways an artificial assessment because
the actual emissions as of the date of the first PSD permit application
in an area must be adjusted. This adjustment accounts for emissions
increases resulting from construction (as defined at 40 CFR
51.166(b)(8) and 40 CFR 52.21(b)(8)) at major sources in the area that
occurred prior to that date. CAA section 169(4). In addition, the
actual emissions of some sources may be omitted from the analysis
altogether under section 163(c) of the Act. Because Congress required
or permitted these adjustments to the calculation of baseline
concentrations and concentrations after the baseline date, we believe
the method used to determine increment consumption should endeavor to
provide a representative indication of the relative magnitude by which
air quality

concentrations have changed over time, but is not necessarily required
to provide an exact prediction of the change in air quality
concentrations from one date to another.
    Proposed Action. To address the uncertainty in how to determine
actual emissions for increment consumption purposes, we propose to
codify a policy that gives the reviewing authority discretion to select
the data and emissions calculation methodologies that are reliable,
consistent, and representative of actual emissions. The cornerstone of
such a policy is that emissions estimates used to establish baseline
concentrations and increment consumption or expansion must be supported
by the available record and be rationally-based. This policy would give
reviewing authorities the discretion to use the best available
information and to make reasonable judgments as to the reliability of
that information for determining actual emissions, particularly when
estimating emissions for baseline dates in distant years for which very
little useful data may be available. In addition, this policy would
seek to ensure a reliable estimate of the change in air quality
concentrations by encouraging reviewing authorities to evaluate the
degree of change by comparing consistent data types or concentration
predictions (i.e., to conduct an ``apples'' to ``apples'' comparison of
the change in emissions or concentrations). We believe that this
flexible approach is preferable to a rigid requirement to use a
specific type of data or calculation method because of uncertainty over
the exact type and quality of data that will be available in each
instance.
    This policy is consistent with existing recommendations in appendix
W and EPA guidance. Section 8.0.a. of appendix W currently states that
``[t]he most appropriate data available should always be selected for
use in modeling analyses.'' This approach is consistently applied
throughout appendix W wherein the reviewing authority is given
discretion to approve the selection of input data for air quality
models.
    We have generally given reviewing authorities substantial leeway
within the PSD program to select data and emissions calculation
methodologies that they believe are representative of actual emissions.
We recognize that where the available data are poor, substantial
judgment must be used to estimate actual emissions. Once the reviewing
authority has selected data and emissions calculation methodologies
according to general guidelines, we typically have not second-guessed
their choices. In particular, we have not required reviewing
authorities to select data or methodologies that we might consider
``more reasonable'' or ``more representative'' than those they have
chosen.
    We propose to give each reviewing authority the responsibility to
verify and approve the data used, and to assure that it meets a basic
standard of reliability, consistency, and representativeness. In light
of the fact that many recommendations in section 8.0 of appendix W are
not necessarily applicable to the increment analysis, we propose to
make clear that this standard will control over the recommendations in
appendix W.
    We request comment on this policy, and on the regulatory language
proposed at 40 CFR 51.166(f)(1)(iv) and 52.21(f)(1)(iv) to codify this
policy. In addition, we request comment on whether additional guidance
or limitations should be articulated and codified for estimating
emissions that make up the baseline concentration or consume increment.
    Request for comment on WESTAR recommendation. In its May 2005
recommendations, WESTAR expressed the view that EPA should ``afford
reviewing authorities some flexibility to ensure that analyses
accommodate considerations such as data availability and accuracy.''
However, WESTAR also asked us ``to encourage consistency,
predictability, and regulatory certainty with regard to approaches for
preparing emissions inventories for refined PSD analyses.''
    In order to achieve these goals, WESTAR recommended a two-step
approach. The first step would be for EPA to develop a ``menu'' of
acceptable emissions calculation approaches for both short-term and
annual PSD analyses. The second step would allow the reviewing
authority to select what they believed to be the most appropriate
option from the menu based on a set of guiding principles. The
reviewing authority would be able to use calculation approaches not
included in the menu provided that they can demonstrate that the
approach is consistent with the Act and NSR regulations, as well as the
principles included in step two. According to WESTAR's report, this
two-step approach would help alleviate the current lack of clarity and
narrow interpretations of the definition of actual emissions used for
emissions inventories in PSD analyses.
    WESTAR's report identifies various types of data that might be used
in the menu. These data types are discussed in more detail below in the
context of the more specific issue of short-term emissions estimates.
    WESTAR also provided guiding principles that could be used in
selecting among the menu items. These principles are the following:
     Maximize the accuracy of the method(s) in reflecting the
actual status of air quality during each time period associated with
applicable standards;
     Conform to the Act, Federal PSD rules, and other
applicable laws and rules;
     Ensure consistency between emissions calculation methods
used for sources in the baseline emissions inventory and the current
emissions inventory;
     Ensure that selected methods are practical given the
availability of reviewing authority access to the emissions data;
     Support fairness and consistency in how emissions are
calculated for various source types across and within States; and
     Support key air quality management objectives that States
and EPA are seeking to achieve, such as encouraging sources' use of
continuous emissions monitoring systems (CEMS) and discouraging sources
from seeking more permitted air quality increment than they need.
    We request comment on WESTAR's proposed approach. For more
information, we encourage you to review the WESTAR recommendations that
can be found in the docket for this rulemaking. We also request comment
on any other aspect of selecting data and calculation methodologies for
emissions inventories for PSD analyses.
2. Time Period of Emissions Used To Model Pollutant Concentrations
    In this action, we are also proposing amendments to clarify the
time periods to be used for emissions from sources included in the
calculation of the baseline concentration and the change in
concentration after the baseline date. In general, we have called for
the modeling change in concentration to be based on the emissions rates
from increment consuming sources over the 2 years immediately preceding
a particular date. However, there are circumstances when another period
of time may be more representative of actual emissions as of a
particular date. This rulemaking is intended to clarify those
circumstances when it is permissible to use another period of time to
represent actual emissions as of a particular date for purposes of
calculating the change in concentration used to evaluate consumption of
PSD increments.

    Background. Since source operations are inherently variable over
time, the NSR regulations do not require that ``actual emissions'' on a
particular date be based only on the emissions occurring on that single
date. Instead, the regulations generally require that the baseline
concentration be based on an average of the emissions observed over the
2 years prior to the baseline date (40 CFR 51.166(b)(21)(ii) and
52.21(b)(21)(ii)). However, we have long recognized an exception to
this general rule, which provides that a different period of time may
be used when another period of time is more representative of normal
source operations (40 CFR 51.166(b)(21)(ii) and 52.21(b)(21)(ii)).
    The original definition of ``actual emissions'' was used in several
different ways under the NSR program. In addition to being incorporated
in the definition of ``baseline concentration'' and thus used for
purposes of determining consumption of increment, this definition of
``actual emissions'' has also been applied for the purpose of
identifying the change in emissions attributable to the modification of
a major source. An existing major source is subject to NSR if it
engages in a major modification which is defined to mean ``any physical
change in or change in the method of operation of a major stationary
source that would result in a significant emissions increase * * * and
a significant net emissions increase of that pollutant from the major
stationary source.'' See 40 CFR 51.166(b)(2) and 52.21(b)(2). Prior to
2002, the definition of ``actual emissions'' in 40 CFR 51.166(b)(21)
and 52.21(b)(21) applied to determine the actual emissions of the
source prior to the change and after the change.
    In 2002, we adopted a new definition of ``baseline actual
emissions'' that is now used to determine actual emissions before a
change for purposes of determining whether a source is proposing a
major modification that requires a preconstruction permit. This
definition allows non-utility units to identify pre-change emissions
using any 2-year period in the 10 years preceding and requires electric
utilities to use any consecutive 2 years in the last 5 years. We
adopted this new definition to reflect the emissions levels that occur
during a normal business cycle, without requiring sources to
demonstrate to the reviewing authority that another period is more
representative of normal source operation. See 67 FR 80191-92. However,
in that rulemaking, we made clear that original ``actual emissions''
definition continues to apply for other purposes under the PSD program.
We observed that the existing definition of actual emissions
``continues to be appropriate under the pre-existing regulation and for
other NSR purposes, such as determining a source's ambient impact
against the PSD increments, and we continue to require its use for such
purposes.'' See 67 FR 80192, footnote 13; 67 FR 80196.
    Prior to 2002, when determining the baseline actual emissions at a
source experiencing a modification that might trigger NSR, we applied
the ``more representative of normal source operations'' exception in 40
CFR 51.666(b)(21) and 52.21(b)(21) in a narrow set of circumstances.
For example, in 1999, the Administrator addressed this issue in
response to a petition to object to issuance of a title V operating
permit and observed that EPA ``has applied its discretion narrowly in
assigning representative periods other than the 2 years immediately
preceding the physical or operational change.'' See Order Responding to
Petitioner's Request That Administrator Object to Issuance of State
Operating Permit, In the Matter of Monroe Electric Generating Plant
Entergy Louisiana, Petition No. 6-99-2. In a draft 1990 guidance
document, the agency observed that normal source operations ``may be
affected by strikes, retooling, major industrial accidents, and other
catastrophic occurrences.'' NSR Workshop Manual at A.39. Based on these
examples, we have sometimes looked for evidence of a ``catastrophic
occurrence'' before permitting an alternative period to be used to
establish the actual emissions of a source prior to a modification. For
example, in a 1992 memorandum, the Director of the Air Quality
Management Division (AQMD) concluded that the exception should not be
invoked for a source that had been idle for 10 years due to economic
reasons and had not demonstrated that operations of the plant were
disrupted by catastrophic occurrences or other extraordinary
circumstances. The director identified strikes and major industrial
accidents as examples of catastrophic occurrences. Memo from John
Calcagni, AQMD, to David Kee, Region V (August 11, 1992). Although we
have, in our discretion, applied the definition in 40 CFR 51.166(b)(21)
and 52.21(b)(21) narrowly, we did not amend these regulations to
restrict application of the ``normal source operation'' exception in
the definition of ``actual emissions'' to only catastrophic
occurrences. In recent years, we have moved away from this approach in
rulemaking actions.
    In the process of establishing the new definition of ``baseline
actual emissions'' for applicability purposes, we observed that the
more representative or normal source operation provision ``has been a
source of confusion and uneven implementation.'' See 61 FR 38259, July
23, 1996. This observation was based on our experience with identifying
increases in emissions for purposes of determining whether a source was
proposing to undergo a major modification and required a permit. We
were not concerned at that time about the application of this exception
in the context of the PSD increment analysis. However, we have since
discovered that the legacy of implementing the ``normal source
operation'' exception in the context of NSR applicability has had a
collateral effect of fostering confusion in those circumstances, such
as PSD increment analyses, where the ``actual emissions'' definition in
40 CFR 51.166(b)(21) and 52.21(b)(21) continues to apply. Recently, the
question has arisen as to whether the guidance we provided on the
``more representative of normal source operations'' exception in the
applicability context should also be applied in the context of
increment consumption analysis. As a result of this question, we have
been reviewing the issue, and propose to clarify our position in this
rulemaking.
    Proposed Action. In this action, we are proposing to establish a
new definition of ``actual emissions'' (applicable only to the
increment consumption analysis) which clarifies the circumstances when
it is permissible, in the context of an increment consumption analysis,
to determine actual emissions for increment consuming sources using a
period of time other than the 2 years immediately preceding the
relevant date. We propose to codify this element of the new definition
in 40 CFR 51.166(f)(1)(iv) and 52.21(f)(1)(iv) of the PSD regulations.
    This issue has arisen most recently in the context of determining
the actual emissions of sources as of the baseline date. However, we
recognize that this issue could also arise when seeking to establish
the ``present day'' inventory of emissions increases or decreases after
the baseline date. Under existing regulations, the same definition of
actual emissions applies in each instance. Our proposed definition of
``actual emissions'' for the increment consumption analysis is intended
to apply to both sides of the ledger in order to provide consistency.
We believe the same principles should apply when determining emissions
as of the baseline date and the present day.

    The proposed revisions are intended to address three primary
issues. First, we propose to clarify that one is not required to
demonstrate the occurrence of a catastrophic event in order to
determine actual emissions on the basis of a period other than the 2
years immediately preceding the date in question. Second, we seek to
clarify that there can be circumstances where emissions increases
occurring after the baseline date or due to increases in hours of
operation or capacity utilization may be more representative of normal
source operation. Third, we are clarifying that when an alternative
(more representative) time period other than the 2 years before the
particular date is used to reflect actual emissions, that alternative
time period must be representative of source emissions (within an
expected range of variability) as of the particular date and cannot be
based on emissions experienced because of a change in the normal
operations of that source after that date.
    With respect to the first issue (whether a ``catastrophic
occurrence'' must be shown), we have historically approached the
``normal source operation'' exception differently in the context of the
PSD increment analysis. The guidance in which we have looked for
evidence of ``catastrophic occurrences'' only addressed the subject of
baseline actual emissions prior to a modification and did not discuss
how to determine the emissions of sources on the PSD baseline date for
increment purposes. As discussed further below, in the context of the
PSD baseline concentration, we have not previously limited the
application of the ``normal source operation'' exception to those
circumstances where a source experienced a malfunction or catastrophic
event. In the context of increments, we have recognized that the
``normal source operation'' exception may apply in other kinds of
circumstances where it can be shown that source emissions in the 24
months preceding the baseline date are not representative of its normal
operations at the time of the baseline date.
    We do not believe it is appropriate to define ``actual emissions''
as narrowly in the context of PSD increment consumption analysis as it
had been applied in the context of PSD applicability determinations
before 2002. Although we have looked for evidence of ``catastrophic
occurrences'' to establish that another time period is more
representative of actual emissions prior to a modification, we do not
believe this fact alone justifies using a similar approach for
identifying representative periods of actual emissions in the context
of a PSD increment analysis. The modification context in which this
approach was once used is different from the increment consumption
context. The former involves the initial determination of whether a PSD
permit is required, and evaluates only an increase in emissions from a
single source resulting from a proposed change. By contrast, an
increment compliance assessment is performed after it is clearly
established that a source must obtain a PSD permit (or may be done in a
periodic review when no permit is pending) and evaluates a change in
air pollutant concentration using modeling and emissions data inputs
for multiple sources. We believe the differing nature of the increments
analysis justifies a different approach.
    As to the second issue described above, our proposal to sometimes
allow emissions after the baseline date to be used to calculate the
baseline concentration is consistent with our historic interpretation
of the ``normal source operation'' exception in the context of the
increment consumption analysis. In our original PSD regulations after
the 1977 Amendments to the Act, we considered emissions increases
attributable to increases in hours of operation or capacity utilization
to be a part of the baseline concentration (rather than increment
consuming increases) if the source was allowed to operate at that level
in 1977 and could have reasonably been expected to make those increases
at the time. See 43 FR 26400, June 19, 1978. However, in 1980, we
eliminated the automatic inclusion of these emissions in the baseline
concentration. Instead, we chose to address the issue on a case-by-case
basis when it could be demonstrated that emissions attributable to
increased utilization were more representative of normal source
operation under the definition of ``actual emissions.'' When we adopted
this change, we said that ``if a source can demonstrate that its
operation after the baseline date is more representative of normal
source operation than its operation preceding the baseline date, the
definition of actual emissions allows the reviewing authority to use
the more representative period to calculate the source's actual
emissions contribution to the baseline concentration.'' See 45 FR
52714, Aug. 7, 1980. We continue to view this to be an appropriate
policy and propose regulatory language to make this explicit in the
regulations.
    Identifying ``actual emissions'' based on representative emissions
as of the PSD baseline date is consistent with the opinion of the D.C.
Circuit in the Alabama Power case. In that decision, the court noted
the following:

    Congress did not intend a simple measurement of air quality on a
day with atypical conditions to control calculation of the baseline.
Reasonable efforts to ascertain the actual but usual concentration
levels, as of the date of the first applicable for a permit, are
required.

See Alabama Power, 636 F.2d at 380 n. 44. We believe that the proposed
definition of ``actual emissions'' for increment consumption purposes
is consistent with Congressional intent, as described by the court. It
is reasonable to allow a showing that a period other than the 24 months
prior to the baseline date are representative of the ``usual''
concentration levels at the time of the baseline date where emissions
after the baseline date can be shown to represent the ``usual'' or
``normal'' concentration levels. As observed by the court in Alabama
Power, ``Congress expected EPA to use `administrative good sense' in
establishing the baseline and calculating exceedances.'' See Alabama
Power, 636 F.2d at 380. We have considered this approach to make good
sense since 1980. Although emissions after a baseline date may
sometimes be reflected in the baseline concentration, this has
historically been a narrow exception because, in general, increases in
emissions that occur after the baseline date consume increment. See 40
CFR 51.166(b)(13) and 52.21(b)(13); see also draft NSR Manual at C.35
and C.48.
    With respect to the third issue listed above, while we propose to
clarify that emissions after the baseline date may sometimes be used to
represent actual emissions as of the baseline date, we must also