The EPA has determined that it is appropriate to use as the formula denominator the sum of covered states' variability limits for 1.5 years. As noted above, the purpose of the variability limits is to accommodate year-to-year variability in power sector operations at the state level. In theory, a bank based on the sum of all covered states' variability limits would be sufficient to accommodate such variability for all states simultaneously  - - in other words, the maximum amount of permissible emissions consistent with the purpose and design of the variability limits  - - for one year. Because it is unlikely that normal year-to-year power sector variability would cause all states to need to exceed their emissions budgets in the same year, the EPA considers the sum of the states' variability limits for one year a reasonable maximum for the number of allowances that would ever need to be used for compliance to address potential variability in power sector operations. However, the EPA's experience with implementing market-based trading programs is that in historical practice most sources typically do not use every available allowance for compliance, but instead keep some in reserve in order to ensure compliance (e.g., to avoid penalties in the event of unforeseen emissions and/or problems with preliminary data calculations). The EPA believes that using the states' variability limits for 1.5 years instead of one year provides sources with sufficient allowances to accommodate maximum year-to-year variability in power sector operations while also addressing the manner in which allowance holdings are actually managed and used. Thus, the EPA believes that providing allowances equivalent to 1.5 years of covered states' variability limits fulfills the primary purpose we described in our proposal  - - limiting the use of banked allowances to no more than one year of states' aggregated variability limits -- while acknowledging the historical practice in market-based trading programs of sources keeping some allowances in reserve from year to year in order to provide planning and operating flexibility over multi-year periods. The EPA believes that this ratio provides an appropriate balance of these considerations, while providing a bank any larger would be inconsistent with the rule's purpose of achieving emission reductions required by CAA section 110(a)(2)(D)(i)(I).
      The numerator in the conversion formula is the number of banked allowances to be converted. At proposal, the EPA anticipated, based on 2014 emissions data, that there would be approximately 210,000 banked allowances following the 2015 and 2016 ozone seasons. As commenters correctly predicted, based on more recent data, the size of the anticipated bank is now larger. Based on 2015 emissions data, the EPA anticipates that there will be approximately 350,000 banked allowances entering the CSAPR NOX ozone season trading program by the start of the 2017 ozone season control period. As explained in more detail below, this anticipated total of banked allowances reflects the fact that the seasonal NOX emissions budgets established in CSAPR are to a significant extent not acting to constrain actual NOX emission levels during the ozone season. Affected units overall are emitting less than their budgeted levels by a substantial margin and therefore do not have to use all of their allowances to comply with the requirements of CSAPR; as a result, the bank is growing substantially, especially relative to the emissions reductions that this rule is designed to achieve.
      This amount of anticipated banked allowances is greater than the sum of all the state emission budgets established in this CSAPR Update and is roughly five times the total emission reduction potential that informs the emission budgets imposed by this rule. This number of anticipated banked allowances is also approximately five times larger than the aggregated CSAPR Update variability limits. Without imposing a limit on the transitioned vintage 2015 and 2016 banked allowances, the number of banked allowances would increase the risk of emissions exceeding the CSAPR Update emission budgets or assurance levels and would be large enough to let all affected sources emit up to the CSAPR Update assurance levels for five consecutive ozone seasons.
      In prior ozone season emissions trading programs, such as the Ozone Transport Commission's NOX Budget Program and the NOX Budget Trading Program implemented in conjunction with the NOX SIP Call, allowance deduction provisions (in some cases known as "flow control") were included in order to prevent banked allowances from being used in a single ozone season in quantities that would result in excess total emissions. Similarly under the CSAPR Update rule, the conversion ratio together with the assurance provisions will address the large size of the existing CSAPR bank with respect to the 2017 ozone season.
      Limiting the influence of the banked allowances is critical to achieving the goal of reducing ozone formation, because reduction in ozone depends on reductions in precursor emissions contemporaneous with the meteorological conditions conducive to the formation of ozone. Hence the rule is designed with ozone season-specific budgets intended to achieve emission reductions by the 2017 ozone season in order to assist downwind states with meeting the July 2018 Moderate area attainment date for the 2008 ozone NAAQS. See North Carolina, 531 F.3d at 911-12 (instructing the EPA to coordinate upwind state emission reductions with downwind attainment deadlines). Other Clean Air Act programs designed to address public health and environmental problems that result from cumulative emissions permit sources to comply by over-controlling emissions in earlier years and using the resulting banked reductions to offset emissions in later years. In contrast, states, and when acting to meet its FIP obligations, the EPA, must ensure that the goal of improved air quality will be achieved and can do so only if emissions are reduced to specified levels during each ozone season.
      This approach to limiting the influence of banked allowances also serves the goal of ensuring that emission reductions are achieved in each state. A bank of allowances that is five times the CSAPR Update variability limit would increase the risk of EGUs exceeding their states' CSAPR assurance levels, and thereby impede the ability of the assurance provisions to meaningfully limit emissions in each state.  These circumstances would undermine compliance with CAA section 110(a)(2)(D)(i)(I), which requires that "[e]ach state must eliminate its own significant contribution to downwind pollution." North Carolina, 531 F.3d at 921. The assurance provisions, as finalized in the original CSAPR rulemaking, were designed to address this requirement by imposing a penalty in the event that EGUs exceed the state assurance levels. 76 FR at 48294-98.  If EGUs' incentive to constrain emissions is compromised by the availability of a large bank of allowances, the EPA could no longer ensure that appropriate state-level emissions reductions are achieved.
      While the bank of allowances reflects actions taken by sources in CSAPR to reduce emissions, it also reflects other factors unique to the regulatory history of CSAPR. In particular, the CSAPR budgets were established based on information available in 2010 and 2011. As promulgated in 2011, CSAPR required the budgets to be implemented in 2012 (Phase 1) and 2014 (Phase 2). As a result of litigation, the emissions budgets did not take effect until 2015. Between 2011 and 2015, the power sector responded to increases in natural gas supply, declines in natural gas prices, and increasing penetration of wind and other low- or zero-emitting renewable energy resources. Consequently, by the time the CSAPR ozone season budgets were implemented in the 2015 ozone season, they were no longer binding on state emission levels, even though they were anticipated to be binding when developed in 2011. The original CSAPR emission budgets for the 2015 ozone season were about 628,000 tons in aggregate, but actual emissions were about 451,000 tons, resulting in a substantial bank of allowances after the 2015 ozone season. In addition, based on emissions data for May and June of 2016 (i.e., the first two months of the 2016 ozone season under the trading program), ozone season NOX emissions have declined 15 percent compared to the comparable period in 2015, which we anticipate will lead to a yet larger bank of allowances. In this final rule, the 2017 emission budgets plus the 21 percent variability limits total about 381,000 tons in aggregate, compared to 2015 emissions from the relevant states of about 399,000 tons. The bank of CSAPR allowances fostered in part by the unique circumstances of CSAPR's implementation is thus of a size that is so large relative to the budgets under this final CSAPR Update rule that, if all of the banked allowances were used without restriction, all states would exceed their emissions budgets for several successive ozone seasons. In that case, use of the bank would impede the achievement of the reductions needed to reduce ozone levels and assist downwind states with attainment and maintenance of the NAAQS by the 2017 ozone season. For these reasons, the implementation of the conversion ratio derived from the formula that is established in the final rule is necessary to limit the use of banked allowances and assure that reductions will actually occur and contribute to improved air quality in time to assist downwind states with meeting their attainment dates.
      Some commenters objected to any limitation on the use of banked allowances, in part noting the additional compliance flexibility that banked allowances provide. But as explained above, without limitation, the number of banked allowances could undermine the capacity of the rule to achieve the emission reductions required by the good neighbor provision of the CAA  - - timely emission reductions in upwind areas that are necessary to avoid significant contribution to nonattainment or interference with maintenance of the 2008 ozone NAAQS in downwind areas. Specifically, the CSAPR Update establishes emission budgets that represent the remaining EGU emissions after reducing those amounts of each state's emissions that significantly contribute to downwind nonattainment or interfere with maintenance of the 2008 ozone NAAQS in downwind states, as required under CAA section 110(a)(2)(D)(i)(I). In other words, the CSAPR Update establishes an emission budget for each state that is its good neighbor obligation. If made available in its entirety for compliance with the CSAPR Update, then the anticipated 350,000 banked allowances would inherently increase the risk of states exceeding their emission budget by providing a total number of allowances for compliance in 2017 that is more than double the 22 state sum of emission budgets. The CSAPR allowance trading program already provides some flexibility in the form of the CSAPR variability limits and corresponding assurance levels to allow states to meet their good neighbor obligation while respecting inherent variability in electricity generation. However, the anticipated 350,000 banked allowances, if fully available for compliance, would also increase the risk of EGUs exceeding their states' CSAPR assurance level by providing allowances for compliance greater than five times the CSAPR variability limit. These excess allowances could be used for compliance irrespective of the need to achieve the CAA good neighbor obligation while complying with typical year-to-year variability on which the assurance levels are based. The allowance bank would thereby further undermine the capacity of the rule to achieve the emission reductions required by the good neighbor provision of the CAA by increasing the risk that emissions would exceed not only the emission budgets, but also the assurance levels.
      The EPA believes that allowing for banking of excess emission reductions is a positive element of a trading-based program such as this one. Banking encourages early reductions, provides certainty, and creates flexibility in order to achieve the public health goal more cost-effectively and reliably. When use of banked allowances can undermine the environmental goal rather than help to achieve it, however, it is reasonable and appropriate to restructure the use of banked allowances. For these reasons, when the EPA finalized the original CSAPR provisions, the agency explicitly reserved its authority to eliminate or revise allowances issued in a given compliance year. The existing regulations for the current NOX ozone season trading program explain that an allowance is "a limited authorization to emit one ton of NOX during the control period in one year." 40 CFR 97.506(c)(6). The regulations continue by providing the Administrator the "authority to terminate or limit the use and duration of such authorization to the extent the Administrator determines is necessary or appropriate to implement any provision of the Clean Air Act." Id. 97.506(c)(6)(ii). The regulations also clearly state that such allowances do not constitute property rights. Id. 97.506(c)(7). The EPA also notes that banked allowances were accrued against 2015 and 2016 implementation of seasonal emission budgets that were established to address interstate emission transport for the 80 ppb 1997 ozone NAAQS. Banked compliance instruments with respect to the 1997 ozone NAAQS in 2015 or 2016 are not inherently interchangeable with emission reductions needed to address interstate emission transport for the 75 ppb 2008 ozone NAAQS starting in 2017.
      However, provided that it can do so without jeopardizing the good neighbor objectives of the CSAPR Update rule, the EPA believes that permitting some allowances banked under the original CSAPR to be used to meet compliance with the CSAPR Update can facilitate compliance with the requirements of the latter. As described in section VI, the EPA is establishing emission budgets that it finds to be feasible for the 2017 ozone season. As a result, the EPA believes that it is feasible to implement the final CSAPR Update rule emission budgets that the EPA is promulgating in this action, even without availability of banked allowances for compliance. However, in order to ensure implementation feasibility, the EPA is finalizing an approach that transitions a limited number of banked allowances into the CSAPR NOX ozone season Group 2 program for compliance starting with the 2017 ozone season. By providing for the use of some banked allowances for compliance with the CSAPR Update rule, the EPA provides immediate but limited compliance flexibility that will support the feasibility of meeting emission budgets for the 2017 ozone season and variation in power sector operations. The CSAPR Update assurance level reflects the upper bound variation in power sector generation that the EPA would expect in any given year. Thus, the carryover of converted banked allowances equal to 1.5 years' worth of variability limits provides the affected fleet with the ability to accommodate potential variation from the mean in its load and emission patterns in the initial year of the program and also maintain a small reserve of allowances, while balancing the need to ensure that emissions are reduced, on average, to the level of the budgets and within the assurance levels in subsequent years. For a further discussion of additional implementation feasibility provided by this approach, see section VII.C.
      Considering these factors  -  especially the EPA's obligation to achieve the NOX emission reductions needed to address transport with respect to the 2008 NAAQS  -  the EPA believes it is reasonable - -  even required -- to restrict the number of banked allowances carried over.
      To enable the use of banked 2015 and 2016 vintage allowances for compliance with the CSAPR Update, the EPA is finalizing a one-time conversion that transitions a number of allowances equivalent to a 1.5 years of the sum of states' CSAPR NOX ozone season Group 2 variability limits (the variability limits are 21 percent of the regional total emission budgets), or approximately 99,700 allowances. The one-time conversion of the 2015 and 2016 banked allowances will be made using a calculated ratio, or equation, to be applied in early 2017 once compliance reconciliation (or "true-up") for the 2016 ozone season program is completed. The EPA will use an equation to derive the ratio by dividing the number of all 2015 and 2016 post-true-up banked CSAPR NOX ozone season allowances being converted by 1.5 times the sum of the 2017 CSAPR Update variability limits quantified in Table VII.C-2 in this preamble. As soon as practicable and not later than March 1, 2018, which is the compliance deadline for the 2017 control period, and pending notification of all allowance holders, the EPA will freeze allowance accounts and convert the original CSAPR NOX ozone season 2015 and 2016 banked allowances to the 2017 vintage CSAPR Update rule NOX ozone season Group 2 allowances. These allowances may then be used in 2017 and thereafter on a 1-to-1 (one allowance to one ton of ozone season emissions) basis for compliance in Group 2 states.
      Dividing the bank by 1.5 times the collective variability limits results in the ratio that the EPA will apply to convert each source's banked 2015 and 2016 original CSAPR NOX ozone season allowances to 2017 CSAPR Update rule NOX ozone season Group 2 allowances. The resulting post-conversion bank will be equivalent to 1.5 times the sum of states' CSAPR NOX ozone season Group 2 variability limits, or approximately 99,700 allowances. Based on current data, the EPA notes that this conversion ratio would be approximately 3.5 to 1, but the ratio could be lower or higher depending on 2016 emissions. By instituting the one-time conversion of banked 2015 and 2016 allowances, the EPA is limiting the use of such allowances for purposes of assuring that emission reductions necessary to address interstate transport with respect to the 2008 ozone standard are achieved.
      As of the conversion date (see 40 CFR 97.526(c)(1)), the EPA will convert all 2015 and 2016 allowances held in any account, other than a Georgia source's compliance account, to Group 2 allowances. This includes banked 2015 and 2016 allowances held in accounts in non-CSAPR Update states (i.e., Florida, North Carolina, and South Carolina). The ratio will be determined by dividing the number of allowances held in all such accounts (i.e., every general account and every compliance account except for a compliance account for a Georgia source) by 1.5 times the sum of the variability limits for all states other than Georgia. Starting with the 2017 ozone season control period, only CSAPR NOX ozone season Group 2 allowances can be used for compliance with the CSAPR Update rule ozone season program. Any remaining CSAPR NOX ozone season 2015 and 2016 allowances that are not converted to Group 2 allowances may only be used for compliance by affected sources in states that are subject to the original CSAPR ozone season program to meet obligations for the 1997 ozone NAAQS (the only such state is Georgia).
A source in the state of Georgia that chooses to have some or all of its banked 2015 and 2016 allowances converted to Group 2 allowances may move any of its 2015 and 2016 banked allowances out of a compliance account and into a general account. These allowances in the general account will then be subject to conversion to Group 2 allowances.
The EPA proposed and took comment on a range of options for how to treat the use of banked 2015 and 2016 CSAPR NOX ozone season allowances by EGUs in the 22 CSAPR Update states. As described previously, the EPA proposed that sources in states with new or updated budgets could use all of their banked allowances, but at a ratio significantly higher than one allowance to cover each ton (e.g., at a four-for-one turn-in ratio).

Additionally, the proposed CSAPR Update solicited comment on less and more restrictive approaches to address use of the CSAPR EGU NOX ozone allowance bank. Specifically, the EPA sought comment on: (1) allowing banked 2015 and 2016 CSAPR NOX ozone allowances to be used for compliance with the CSAPR Update for the 2008 ozone NAAQS starting in 2017 at a one-for-one ratio, or (2) completely disallowing the use of banked 2015 and 2016 CSAPR NOX ozone allowances for compliance with the CSAPR Update for the 2008 ozone NAAQS starting in 2017. The EPA also solicited comment on whether and how the assurance provision penalty might be increased, in conjunction with any of the above approaches, to address the relationship of the allowance bank to emissions occurring under this revised program from 2017 onward. At this time, the EPA is not changing the assurance provision penalty or its application.
      Comment: Some commenters suggested that implementation by way of ongoing turn-in ratios would be cumbersome and complicated because it requires affected EGUs to hold allowances for compliance that are equivalent to differing ratios of tons of emissions.
      Response: The EPA agrees with the commenters who observed that an allowance trading program in which a CSAPR NOX ozone season allowance issued in 2017 and thereafter would be worth one ton of emissions while a CSAPR NOX ozone season allowance issued in 2015 or 2016 would be worth less than one ton of emissions is overly complex. These differing emission equivalents of otherwise similar compliance tools (i.e., allowances) would add a layer of complexity to ongoing compliance demonstrations. Implementing a ratio by way of a one-time conversion, instead, has the same impact on emission reductions as an ongoing turn-in ratio in that the emissions equivalent of the banked allowances will be reduced consistent with the ratio, but the implementation of the ratio through a one-time conversion simplifies implementation of the CSAPR Update rule, which supports efficient and accurate compliance planning.
      Comment: Some commenters requested that the EPA not limit the use of banked vintage 2015 and 2016 CSAPR NOX ozone season allowances in the final CSAPR Update, suggesting that the EPA had not demonstrated that use of these allowances would undermine the goals of the CSAPR Update. These commenters suggested that the assurance levels are adequately protective of the CSAPR Update emission reduction requirements.
      Response: The EPA disagrees with these comments. As discussed previously, the EPA anticipates a large number of banked allowances entering the 2017 CSAPR ozone season control period. Allowing unlimited use of this magnitude of vintage 2015 and 2016 CSAPR NOX ozone season allowances in the 2017 control period and going forward would put the emission reduction requirements of the CSAPR Update rule in jeopardy and undermine the realization of the emission reductions needed under the good neighbor provisions of the CAA to avoid significant contribution to nonattainment and interference with maintenance of the 2008 ozone NAAQS in downwind areas.
      Comment: Some commenters recommended that the EPA completely disallow the use of banked 2015 and 2016 CSAPR NOX ozone allowances for compliance with the CSAPR Update for the 2008 ozone NAAQS starting in 2017.
Response: A key feature of allowance trading programs is that they provide sources an economically efficient strategy for integrating current and future compliance. Banking of allowances for later use also creates incentives to make early emission reductions, which often result in improved air quality earlier than otherwise required. The EPA has seen early reductions and banking in implementing other trading programs over the past 20 years, such as the Acid Rain Program and the NOX SIP Call. The EPA believes such an economic incentive, and the associated environmental benefits, is conditioned on the expectation that the resulting banked allowances will have some value in the future of that program. The approach that the EPA is finalizing provides a means for the existing 2015 and 2016 CSAPR NOX ozone season allowances to retain some value, while appropriately mitigating the potential adverse impact of the allowance bank on the emission-reducing actions needed from affected EGUs in states with obligations to address interstate transport for the 2008 ozone NAAQS.
      Comment: Commenters contend that discounting allowances by a turn-in ratio essentially penalizes sources for early action.
      Response: Commenters did not provide quantitative analysis that the turn-in ratio would reduce the overall economic value of the allowance holdings nor even address the question of whether or how the diminution of the number of allowances available would affect the value of each individual allowance or that of the overall bank  -  especially in view of the fact that the NOX emissions budgets are more constraining. Because the allowance bank value is a product of both allowance quantity and allowance price, the conclusion that any reduction in quantity inherently reduces the bank value is flawed because it ignores the likely increase in price. Similarly, it merits noting the high likelihood that some portion of the banked allowance price reflects larger dynamics in the power markets, such as lower natural gas prices in recent years, as opposed to explicit early actions.
 Feasibility of Compliance
In practice, the EGU emission budgets that the EPA is finalizing in this action are achievable for each of the 22 states through operating and optimizing existing SCR controls, operating existing SNCR controls, installing state-of-the-art combustion controls, shifting generation to lower NOX - emitting or non-emitting units, using allowances that the EPA has allocated to EGUs (including banked allowances), or obtaining allowances on the allowance market. The EPA believes that this rule provides sufficient lead time to comply with the 2017 ozone season requirements.
To further examine the compliance feasibility of the state NOX ozone season budgets, the EPA performed an analysis of state-level achievable NOX ozone season emissions for 2017 that is independent of the IPM-based assessment used to establish the emission budgets. This analysis relied on the most recent ozone season data for 2015. For the covered states, these data were adjusted to account for announced retirements, announced new SCR at existing units, and announced coal-to-gas conversions at existing units. The EPA then applied certain control assumptions directly to the reported unit-level data. Specifically, this analysis applied EGU NOX reductions for turning on idled SCR, optimizing all SCR to historically demonstrated NOX emission rates, installing state-of-the-art combustion controls, and turning on idled SNCR.
      The EPA evaluated the feasibility of turning on idled SCRs for the 2017 ozone season. Based on past practice, the EPA finds that idled controls can be restored to operation in no more than a few months. This timeframe is informed by many electric utilities' previous, long-standing practice of utilizing SCRs to reduce EGU NOX emissions during the ozone season while putting the systems into protective lay-up during non-ozone season months. For example, this was the long-standing practice of many EGUs that used SCR systems for compliance with the NOX Budget Trading Program. It was quite typical for SCRs to be turned off following the September 30 end of the ozone season control period. These controls would then be put in protective lay-up for several months of non-use before being returned to operation by May 1 of the following ozone season. In the 22 state CSAPR Update region, 2005 EGU NOX emission data suggest that 125 EGUs operated SCR systems in the summer ozone season while idling these controls for the remaining seven non-ozone season months of the year. Based on EGUs' past experience and the frequency of this practice, the EPA finds that idled SCRs can be restored to operation in no more than a few months. Further, because turning on idled SCRs requires inherently more steps than fully operating existing operating SCR or turning on idled SNCR, the EPA finds that these additional EGU NOX reduction strategies are also feasible within a few months. The lead-time for compliance with this rule is longer than this timeframe. More details on these analyses can be found in the EGU NOX Mitigation Strategies Final Rule TSD.
      The EPA also finds that, generally, state-of-the-art combustion controls require a short installation time  -  typically, four weeks to install along with a scheduled outage (with order placement, fabrication, and delivery occurring beforehand). Feasibility of installing combustion controls was examined by the EPA in the original CSAPR where industry demonstrated the ability to install LNB controls on a large unit (800 MW) in under six months. More details on these analyses can be found in the EGU NOX Mitigation Strategies Final Rule TSD.
As described in section VI, to establish emission budgets, the EPA made a data-informed assumption with respect to the reasonable achievable SCR NOX rate (0.10 lbs/mmBtu) for units that are not operating SCR optimally. In order to independently evaluate whether emission budgets that rely on this assumption are achievable, the EPA used actual SCR rates for existing units that reflect demonstrated unit-level achievable SCR performance. Specifically, the EPA used the lower of 2015 NOX rates (the most recent demonstrated achievable SCR NOX rate) and each unit's third lowest historical ozone season NOX rate. This approach reflects SCR units operating in a manner consistent with demonstrated SCR performance capability at each unit. This analysis does not account for further EGU NOX reduction potential from shifting generation to lower NOX - emitting or non-emitting units. As discussed in section VI and further in the EGU NOX Mitigation Strategies Final Rule TSD, the EPA believes shifting generation to lower NOX-emitting or non-emitting units is feasible to implement for the 2017 ozone season but the agency has not developed an approach to assess generation shifting that is independent of the IPM-based assessment discussed previously.
The EPA's analysis showed that, with known fleet changes and accounting for NOX reduction potential from SCR, SNCR, and combustion controls, all CSAPR Update rule states would be at or below their 2017 CSAPR Update rule assurance level while continuing to otherwise operate consistent with 2015 behavior. The analysis showed that, with known changes occurring prior to 2017, optimizing SCR and SNCR, and installing combustion controls, the 22 states would lower their emissions to approximately 320,000 tons  -  only 2 percent above their aggregated CSAPR Update rule budgets, and each state would be below its assurance level. Moreover, this analysis does not reflect the NOX reduction potential from generation shifting that is also available for compliance planning. The state-level summary of this 2017 analysis is provided in Table VII.D-1. For further discussion of implementation feasibility, see the EGU NOX Mitigation Strategies Final Rule TSD.
Table VII.D-1. Final 2017 EGU NOX Ozone Season Emission Budgets, Assurance Level, and Compliance Feasibility Analysis (tons)
State
Final 2017* EGU NOX Emission Budgets
Final 2017 EGU NOX Assurance Level
Compliance Feasibility Analysis
Alabama
                                                                        13,211
                                                                        15,985
                                                                         13,673
Arkansas
                                                                        12,048
                                                                        14,578
                                                                          8,362
Illinois
                                                                        14,601
                                                                        17,667
                                                                         13,892
Indiana
                                                                        23,303
                                                                        28,197
                                                                         25,325
Iowa
                                                                        11,272
                                                                        13,639
                                                                         11,070
Kansas
                                                                         8,027
                                                                         9,713
                                                                          7,845
Kentucky
                                                                        21,115
                                                                        25,549
                                                                         21,269
Louisiana
                                                                        18,639
                                                                        22,553
                                                                         18,250
Maryland
                                                                         3,828
                                                                         4,632
                                                                          3,815
Michigan
                                                                        17,023
                                                                        20,598
                                                                         17,960
Mississippi
                                                                         6,315
                                                                         7,641
                                                                          6,296
Missouri
                                                                        15,780
                                                                        19,094
                                                                         16,326
New Jersey
                                                                         2,062
                                                                         2,495
                                                                          2,048
New York
                                                                         5,135
                                                                         6,213
                                                                          5,406
Ohio
                                                                        19,522
                                                                        23,622
                                                                         16,481
Oklahoma
                                                                        11,641
                                                                        14,086
                                                                         13,039
Pennsylvania
                                                                        17,952
                                                                        21,722
                                                                         17,262
Tennessee
                                                                         7,736
                                                                         9,361
                                                                          6,569
Texas
                                                                        52,301
                                                                        63,284
                                                                         52,647
Virginia
                                                                         9,223
                                                                        11,160
                                                                          8,670
West Virginia
                                                                        17,815
                                                                        21,556
                                                                         12,236
Wisconsin
                                                                         7,915
                                                                         9,577
                                                                          7,813
22 State Region
                                                                       316,464

                                                                        306,252
*The EPA is finalizing CSAPR EGU NOX ozone season emission budgets for Arkansas of 12,048 tons for 2017 and 9,210 tons for 2018 and subsequent control periods.

The allowance trading program used to implement the emission reductions in this rulemaking further promotes compliance feasibility. With this approach, an individual source has the flexibility to forgo any physical changes to its combustion or post-combustion process and simply acquire allowances from another source for compliance. Therefore, any unit-specific limitations in regard to permitting, installing, and/or modifying controls or other elements of plant operation do not jeopardize compliance, as the sources have alternative compliance options. Allowance markets are well established, liquid, and will carry a number of already available banked allowances. Regarding market liquidity, the EPA observes that as of August 15, 2016 (part way through the second CSAPR NOX ozone season compliance period) more than 1,200 private transfers have taken place involving more than 260,000 CSAPR NOX ozone season allowances. In particular, the combined flexibility of a bank and a liquid market ensures that any unit with unique circumstances regarding its control configuration can continue to operate in its current fashion. Trading flexibility further enhances system reliability because affected units may cover emissions from any reliability-relevant operations with allowances available in the marketplace.
Stakeholders have a history and familiarity with trading programs. Congress has enacted, and the EPA has promulgated, many rules that allow EGUs and other sources to meet their emission limits by trading allowances with other sources. In a trading program, the EPA authorizes a source to meet its emission limit by purchasing emission allowances generated from other sources, typically ones that implement or enhance their pollution control devices to reduce emissions to the point where they are able to sell allowances. As a result, the availability of trading reduces overall costs to the industry by using the marketplace to incentivize particular sources that have the lowest control costs to implement and operate pollution controls.
The combination of control optimization feasibility, recent trends in emission reductions, on-the-way emission reductions, allowance trading, a pre-existing bank, and assurance levels support the feasibility of the CSAPR Update rule 2017 emission budgets finalized in this action.
Further supporting the feasibility of this rule's compliance obligation is the trend in recent emission reductions. While 2014 ozone season NOX emissions for the 22 covered states were approximately 466,000 tons, they dropped by 14 percent in 2015 to 400,000. Moreover, the 2016 ozone season emissions are anticipated to be approximately 380,000 tons. This pace of reduction illustrates the speed and adaptability in the fleet's response to market conditions. It shows a trend in emission reductions that is consistent with the level of reductions anticipated by the CSAPR Update rule budgets.
Comment: The EPA received comment highlighting the significant drop in the CSAPR Update rule budgets for 2017 relative to the CSAPR phase 1 and phase 2 budgets finalized in the original CSAPR rulemaking to address the 1997 ozone standard. Some commenters asserted this significant percent difference between the two illustrated a feasibility concern.
Response: The EPA views a comparison of the original CSAPR phase 1 and 2 budgets as a poor metric for assessing feasibility of sources' compliance with the budgets being finalized in the CSAPR Update rule. As noted previously, states are already well below their current CSAPR budgets: reported 2015 emissions for the 21 states subject to the NOX ozone season trading program pursuant to both the original CSAPR rulemaking and the CSAPR Update rule total 390,000 tons in aggregate. For these 21 states, CSAPR phase 1 budgets aggregate to 535,000 tons and phase 2 budgets aggregate to 502,000 tons. Thus, aggregate 2015 emissions from these states are already more than 100,000 tons below the original CSAPR budgets. Based upon the first two quarters of emissions data, 2016 emissions are anticipated to be even lower. These actual emissions make a more appropriate assessment of what emission reductions are feasible for the 2017 ozone season. Moreover, CSAPR Update rule states have limited flexibility to exceed the emission budgets if needed for compliance feasibility by using banked allowances.
 FIP Requirements and Key Elements of the CSAPR Trading Programs
      The original CSAPR established a NOX ozone season allowance trading program that allows affected sources within each state to use allowances from other sources within the same trading group for compliance, pursuant to certain monitoring requirements as codified in 40 CFR part 75. In the CSAPR NOX ozone season trading program, sources are required to hold one CSAPR ozone season allowance for each ton of NOX emitted during the ozone season. The EPA is utilizing that same regional trading approach, with updated emission budgets, trading groups, and certain additional revisions described later on, as the compliance remedy implemented through the FIPs to address interstate transport for the 2008 ozone NAAQS. The EPA is using the existing NOX ozone season allowance trading system that was established under CSAPR in 40 CFR Part 97, Subpart BBBBB for Group 1, and as promulgated in Subpart EEEEE for Group 2, to implement the emission reductions identified and quantified in the FIPs for this action.
 Applicability
      In this rule, the EPA is finalizing the same applicability provisions as the original CSAPR, without change. Under the general CSAPR applicability provisions, a covered unit is any stationary fossil-fuel-fired boiler or combustion turbine serving at any time on or after January 1, 2005, a generator with nameplate capacity exceeding 25 MW, which is producing electricity for sale, with the exception of certain cogeneration units and solid waste incineration units. See 76 FR 48273 (August 8, 2011), for a discussion on applicability in the final CSAPR rule. The EPA is finalizing the same applicability provisions as the original CSAPR for the CSAPR Update rule NOX ozone season trading program Groups 1 and 2. See 40 CFR 97.504 and 40 CFR 97.804. The EPA is codifying these provisions as described in section IX.
 State Budgets
The EPA is promulgating CSAPR NOX ozone season emission budgets, as provided in table VII.E-1 in this preamble and in 40 CFR section 97.810, for the 22 states in this final rule. This includes the NOX ozone season emission budgets, new unit set-asides, and Indian country new unit set-asides for 2017 and beyond.
The EPA is establishing new or revised CSAPR NOX ozone season emission budgets for the 22 eastern states subject to FIPs in this final rule to address interstate transport for the 2008 ozone NAAQS. For the 21 of these 22 states that are currently covered by the original CSAPR ozone season program, the requirement to comply with the budgets established to address the 2008 ozone NAAQS will replace the current requirement to comply with the budgets established to address the 1997 ozone NAAQS. For Kansas, which is newly brought into the CSAPR NOX ozone season program, the EPA is finalizing a new EGU NOX ozone season emission budget designed to address interstate transport for the 2008 ozone standard.
The EPA is implementing the emission budgets finalized in this rule by allocating allowances to sources in those states equal to the budgets for compliance starting in 2017. The EPA is finalizing allowance allocations for existing units for CSAPR NOX ozone season Group 2 states through this rulemaking. Portions of the state budgets will be set aside for new units, and the EPA will use the processes set forth in the CSAPR regulations to annually allocate allowances to the new units in each state from the new unit set-asides.
 Allocations of Emission Allowances
For states participating in the CSAPR NOX ozone season Group 2 program, the EPA will issue CSAPR NOX ozone season Group 2 allowances to be used for compliance starting with the 2017 ozone season. This section explains that, for most states, the EPA is allocating these allowances up to each state's budget to existing units and new units in that state by applying the same allocation methodology finalized in the original CSAPR. This methodology considers both a unit's historical heat input and its maximum historical emissions. See 76 FR 48284, August 8, 2011. A different approach is taken for Alabama, Missouri, and New York, as described later on. This section also describes allocation to the new unit set-asides and Indian country new unit set-asides in each state; allocation to units that are not operating; and the recordation of allowance allocations in source compliance accounts.
a. Allocations to existing units. The EPA will implement each state's EGU NOX ozone season emission budget in the CSAPR NOX ozone season Group 2 trading program by allocating the number of emission allowances to covered units within that state equal to the tonnage of that specific state's budget, as calculated in section VI. See Table VI.E-2. The portion of a state budget allocated to existing units in that state is the state budget minus the state's new unit set-aside and minus the state's Indian country new unit set-aside. The new unit set-asides are portions of each budget reserved for new units that might locate in each state or in Indian country in the future. For the existing source level allocations, see the TSD called, "Unit Level Allocations and Underlying Data for the CSAPR for the 2008 Ozone NAAQS," in the docket for this rulemaking. The only allowance allocations that are being updated in this final rule are allocations of NOX ozone season allowances under the CSAPR NOX ozone season Group 2 program. This final rule does not change allowance allocations for the CSAPR NOX ozone season Group 1 trading program or allocations of CSAPR SO2 or NOX annual allowances.
      For the purpose of allocations, the original CSAPR regulations defined an "existing unit" as one that commenced commercial operation prior to January 1, 2010. For the 22 states subject to FIPs in this rulemaking, the EPA is modifying the definition of an "existing unit" for purposes of the NOX ozone season Group 2 program to include those units that commenced commercial operation prior to January 1, 2015. This change will allow these units to be directly allocated allowances from each state's budget as existing units and will allow the new unit set-asides to be fully reserved for any future new units locating in covered states or Indian country. The EPA did not propose, and is not finalizing, any change in the definition of "existing units" for sources located in states subject to the original CSAPR regulations (i.e., sources located in Georgia with respect to allocation of the CSAPR NOX ozone season Group 1 allowances, and sources located in all covered states with respect to allocations of CSAPR SO2 or NOX annual allowances).
      The EPA proposed to apply the methodology finalized in the original CSAPR for allocating emission allowances to existing units. This methodology allocates allowances to each unit based on the unit's share of the state's heat input, limited by the unit's maximum historical emissions. As discussed in the original CSAPR final rule (See 76 FR 48288-9, August 8, 2011), the EPA finds this allowance allocation approach to be fuel-neutral, control-neutral, transparent, based on reliable data, and similar to allocation methodologies previously used in the NOX SIP Call and Acid Rain Program. The EPA is therefore finalizing the continued application of this methodology for allocating allowances to existing sources in this final rule (except as otherwise noted later on with respect to existing sources in Alabama, Missouri, and New York).
      This final rule uses the average of the three highest years of heat input data out of a consecutive five-year period to establish the heat input baseline for each unit. These heat input data are used to calculate each unit's proportion of state-level heat input (the unit's three year average heat input divided by the state's average heat input). As a first step, the EPA applies this proportion to the total amount of existing unit allowances to be allocated to quantify unit-level allocations. However, the EPA constrains the unit-level allocations so as not to exceed the maximum historical baseline emissions, calculated as the highest year of emissions out of a consecutive eight-year period. The proposal evaluated 2010-2014 heat input data and 2007-2014 emissions data, which was the most recent data available at that time. The final rule relies on 2011-2015 heat input data and 2008-2015 emission data, which is currently the most recent complete dataset.
For the states of Alabama, Missouri, and New York, the EPA is not applying the methodology described previously. Instead, for these states only, the EPA is allocating allowances to existing units in the state according to methodologies for allocating ozone season NOX allowances under the current CSAPR NOX Ozone Season Trading Program that have been adopted into state regulations and submitted to the EPA for approval as SIP revisions, but with the states' methodologies applied to the final budgets established in this rule. This approach is consistent with the proposal, in which the EPA indicated that where a state had adopted state regulations to govern the allocation of allowances under the current CSAPR NOX ozone season program and had included those regulations in an approved SIP revision, if the state regulations by their terms would govern allocations under a revised budget, or if it was clear how the state's approved methodology could be used by the EPA to compute allocations using the revised budget, the state's regulations or methodology would be used to govern the allowance allocations under the final rule. These three states have adopted state regulations regarding the allocation of CSAPR allowances for ozone season NOX emissions and have made SIP submittals seeking incorporation of the regulations into their SIPs. Although the EPA has not acted on those SIP submittals (because they concern the current NOX ozone season trading program to which the sources in these three states will no longer be subject after 2016), the EPA has determined that it is clear how the allocation methodologies reflected in the state-adopted regulations can be used to compute allocations under the final budgets for this rule. The EPA took comment in the proposal on this topic. As explained in the proposal, these possible approaches could avert the need for a state to submit another SIP revision to implement the same allocation provisions under this rule that the state has already implemented or sought to implement under CSAPR before adoption of this rule. Since the agency received no adverse comments on using this modified allocation approach for states with an EPA-approved SIP revision under the current rule, the EPA is finalizing this approach for these three states. Further discussion of how these three states' methodologies were used to determine the allocations of allowances to existing units in the states is included in the CSAPR Allowance Allocations Final Rule TSD.
As discussed later on, states have several options under CSAPR to submit SIP revisions which, if approved, may result in the replacement of the EPA's default allocations with state-determined allocations for control periods in 2018 or later years. The provisions described previously will not preclude any state from submitting an alternative allocation methodology for later compliance years through a SIP revision. See section VII.F for further details on the development of approvable SIP submissions.
b. Allocations to new units. Consistent with the revision to the definition of "existing unit" described earlier, for purposes of the final rule a "new unit" that is eligible to receive allocations from the "new unit set-aside" for a state includes any covered unit that commences commercial operation on or after January 1, 2015, as well as a unit that becomes covered by meeting applicability criteria subsequent to January 1, 2015; a unit that relocates to a different state covered by a FIP promulgated by this final rule; and an "existing" covered unit that stops operating for two consecutive years but resumes commercial operation at some point thereafter. To the extent that states seek approval of SIPs with different allocation provisions than those provided by CSAPR, these SIPs may also define new units differently.
      The EPA is also finalizing allocations to a new unit set-aside (NUSA) for each state equal to a minimum of 2 percent of the total state budget, plus the projected amount of emissions from planned units in that state. For instance, if planned units in a state are projected to emit 3 percent of the state's NOX ozone season emission budget, then the new unit set-aside for the state would be set at 5 percent, the sum of the minimum 2 percent set-aside plus an additional 3 percent for planned units. This is the same approach currently used to implement the NUSA for all CSAPR trading programs. See 76 FR 48292. Pursuant to the CSAPR regulations, new units may receive allocations starting with the first year they are subject to the allowance-holding requirements of the rule. If the allowances in the NUSA remain unallocated to new units, the allowances from the set-asides are redistributed to existing units before each compliance deadline. For more detail on the CSAPR new unit set-aside provisions, see 40 CFR 97.811(b) and 97.812.
Table VII.E-1. Final EGU NOX Ozone Season New unit Set-aside Amounts, Reflecting Final EGU Emission Budgets (tons)
State
Final 2017* EGU NOX Emission Budgets (tons)
New unit set-aside amount (percent)
New unit set-aside amount (tons)[1]
Indian country new unit set-aside amount (tons)
Alabama
                                                                         13,211
                                                                              2
                                                                            255
                                                                             13
Arkansas*
                                                                 12,048 / 9,210
                                                                            2/2
                                                                        240/185

Illinois
                                                                         14,601
                                                                              2
                                                                            302

Indiana
                                                                         23,303
                                                                              2
                                                                            468

Iowa
                                                                         11,272
                                                                              3
                                                                            324
                                                                             11
Kansas
                                                                          8,027
                                                                              2
                                                                            148
                                                                              8
Kentucky
                                                                         21,115
                                                                              2
                                                                            426

Louisiana
                                                                         18,639
                                                                              2
                                                                            352
                                                                             19
Maryland
                                                                          3,828
                                                                              4
                                                                            152

Michigan
                                                                         17,023
                                                                              4
                                                                            665
                                                                             17
Mississippi
                                                                          6,315
                                                                              2
                                                                            120
                                                                              6
Missouri
                                                                         15,780
                                                                              2
                                                                            324

New Jersey
                                                                          2,062
                                                                              9
                                                                            192

New York
                                                                          5,135
                                                                              5
                                                                            252
                                                                              5
Ohio
                                                                         19,522
                                                                              2
                                                                            401

Oklahoma
                                                                         11,641
                                                                              2
                                                                            221
                                                                             12
Pennsylvania
                                                                         17,952
                                                                              3
                                                                            541

Tennessee
                                                                          7,736
                                                                              2
                                                                            156

Texas
                                                                         52,301
                                                                              2
                                                                            998
                                                                             52
Virginia
                                                                          9,223
                                                                              6
                                                                            562

West Virginia
                                                                         17,815
                                                                              2
                                                                            356

Wisconsin
                                                                          7,915
                                                                              2
                                                                            151
                                                                              8
22 State Region
                                                              316,464 / 313,626

[1] New-unit set-aside amount (tons) does not include the Indian country new unit set-aside amount (tons).
*The EPA is finalizing CSAPR EGU NOX ozone season emission budgets for Arkansas of 12,048 tons for 2017 and 9,210 tons for 2018 and subsequent control periods.

      c. Allocations to new units in Indian Country. Clean Air Act programs on Indian reservations and other areas of Indian country over which a tribe or the EPA has demonstrated that a tribe has jurisdiction are implemented either by a tribe through an EPA-approved tribal implementation plan (TIP) or the EPA through a FIP. Tribes may, but are not required to, submit TIPs. Under the EPA's Tribal Authority Rule (TAR), 40 CFR 49.1  -  49.11, the EPA is authorized to promulgate FIPs for Indian country as necessary or appropriate to protect air quality if a tribe does not submit and get EPA approval of a TIP. See 40 CFR 49.11(a); see also 42 U.S.C. 7601(d)(4). To date, no tribes have sought approval of a TIP implementing the good neighbor provision at CAA section 110(a)(2)(D)(i)(I) with respect to the 2008 ozone NAAQS. The EPA has therefore determined that it is necessary and appropriate for EPA to implement the FIPs in any affected Indian reservations or other areas of Indian country over which a tribe has jurisdiction. There are no existing units that would qualify as "covered units" under the final CSAPR Update in Indian country located in the states covered by this rule.
      The EPA is finalizing its proposal to apply the CSAPR approach for allocating allowances to any new units locating in Indian country. Under the CSAPR approach, allowances to possible future new units locating in Indian country are allocated by the EPA from an Indian country new unit set-aside established for each state with Indian country. See 40 CFR 97.811(b)(2) and 97.812(b). The EPA reserves 0.1 percent of the total state budget for new units in Indian country within that state (5 percent of the minimum 2 percent new unit set-aside, without considering any increase in a state's new unit set-aside amount for planned units). Because states generally have no SIP authority in these areas, the EPA will continue to allocate such allowances to sources locating in such areas of Indian country within a state over which a tribe or EPA has demonstrated that a tribe has jurisdiction, even if the state submits a SIP to replace the applicable FIP. 40 CFR 52.38(b)(9)(vi) and (vii) and 52.38(b)(10). Unallocated allowances from a state's Indian country new unit set-aside are returned to the state's new unit set-aside and allocated according to the methodology described previously.
d. Allocations to units that do not operate and the new unit set-aside. The EPA is finalizing its proposal to apply the CSAPR approach for allocating to units that do not operate and to the new unit set-aside. The EPA is codifying the existing CSAPR provision under which a covered unit that does not operate for a period of two consecutive years will receive allowance allocations for a total of up to five years of non-operation. 40 CFR 97.811(a)(2). This approach mitigates concerns that loss of allowance allocations could be an economic consideration that would cause a unit, which would otherwise retire, to continue operations in order to retain ongoing allowance allocations. Pursuant to this provision, starting in the fifth year after the first year of non-operation, allowances allocated to such units will instead be allocated to the new unit set-aside for the state in which the non-operating unit is located. This approach allows the balance of allowance allocations to shift over time from existing units to new units, aligned with transition of the EGU fleet from older generating resources to newer ones. Allowances in the new unit set-aside that are not used by new units are reallocated to existing units in the state. The EPA proposed to retain this timeline for allowance allocation for non-operating units and it is finalizing that proposal.
 Variability Limits, Assurance Levels, and Penalties
      In the original CSAPR, the EPA developed assurance provisions, including variability limits and assurance levels (with associated compliance penalties), to ensure that each state will meet its pollution control obligations and to accommodate inherent year-to-year variability in state-level EGU operations.
      The original CSAPR budgets, and the updated CSAPR emission budgets finalized in this notice, reflect EGU operations in an "average year." However, year-to-year variability in EGU operations occurs due to the interconnected nature of the power sector and from changing weather patterns, changes in electricity demand, or disruptions in electricity supply from other units or from the transmission grid. Recognizing this, the trading program provisions finalized in the original CSAPR rulemaking include variability limits, which define the amount by which an individual state's emissions may exceed the level of its budget in a given year to account for this variability in EGU operations. A state's budget plus its variability limit equals a state's assurance level, which acts as a cap on each state's NOX emissions during a control period (that is, during the May-September ozone season in the case of this rule). The new NOX ozone season trading program provisions established for affected sources in the 22 states subject to this rule contain equivalent assurance provisions.
      These variability limits ensure that the trading program can accommodate the inherent variability in the power sector while also ensuring that each state eliminates the amount of emissions within the state, in a given year, that must be eliminated to meet the statutory mandate of section 110(a)(2)(D)(i)(I). Moreover, the structure of the program, which achieves required emission reductions through limits on the total number of allowances allocated, assurance provisions, and penalty mechanisms, ensures that the variability limits only allow the amount of temporal and geographic shifting of emissions that is likely to result from the inherent variability in power generation, and not from decisions to avoid or delay the installation of necessary controls.
      To establish the variability limits in the original CSAPR, the EPA analyzed historical state-level heat input variability as a proxy for emissions variability, assuming constant emission rates. See 76 FR 48265, August 8, 2011. The variability limits for ozone season NOX in the original CSAPR were calculated as 21 percent of each state's budget, and these variability limits for the NOX ozone season trading program were then codified in 40 CFR 97.510 along with the state budgets. The EPA performed an updated analysis to ensure the 21 percent variability limits used in the original CSAPR rule were also valid for purposes of implementing the new and revised budgets finalized in this rule. The EPA's updated analysis demonstrates that variability considering recent data remains consistent (i.e., within 1 percent) with the assessment conducted for the original CSAPR rulemaking. This analysis may be found in the TSD called, Power Sector Variability Final CSAPR Update TSD, in the docket for this rulemaking. The EPA is therefore setting variability limits for the 22 states covered by this rule calculated as 21 percent of each state's new or revised budget and codifying these variability limits in 40 CFR 97.810.
      Table VII.E-2 shows the final EGU NOX ozone season Group 2 emission budgets, variability limits, and assurance levels for each state.
Table VII.E-2. Final EGU NOX Ozone Season Emission Budgets Reflecting EGU NOX Mitigation Available for 2017 at $1,400 per ton, Variability Limits, and Assurance Levels (Tons)
State
EGU 2017* NOX Ozone Season Group 2 Emission Budgets
EGU NOX Ozone Season Group 2 Variability Limits
EGU NOX Ozone Season Group 2 Assurance Levels
Alabama
                                                                         13,211
                                                                         2,774
                                                                        15,985
Arkansas
                                                                 12,048 / 9,210
                                                                 2,530 / 1,934
                                                               14,578 / 11,144
Illinois
                                                                         14,601
                                                                         3,066
                                                                        17,667
Indiana
                                                                         23,303
                                                                         4,894
                                                                        28,197
Iowa
                                                                         11,272
                                                                         2,367
                                                                        13,639
Kansas
                                                                          8,027
                                                                         1,686
                                                                         9,713
Kentucky
                                                                         21,115
                                                                         4,434
                                                                        25,549
Louisiana
                                                                         18,639
                                                                         3,914
                                                                        22,553
Maryland
                                                                          3,828
                                                                           804
                                                                         4,632
Michigan
                                                                         17,023
                                                                         3,575
                                                                        20,598
Mississippi
                                                                          6,315
                                                                         1,326
                                                                         7,641
Missouri
                                                                         15,780
                                                                         3,314
                                                                        19,094
New Jersey
                                                                          2,062
                                                                           433
                                                                         2,495
New York
                                                                          5,135
                                                                         1,078
                                                                         6,213
Ohio
                                                                         19,522
                                                                         4,100
                                                                        23,622
Oklahoma
                                                                         11,641
                                                                         2,445
                                                                        14,086
Pennsylvania
                                                                         17,952
                                                                         3,770
                                                                        21,722
Tennessee
                                                                          7,736
                                                                         1,625
                                                                         9,361
Texas
                                                                         52,301
                                                                        10,983
                                                                        63,284
Virginia
                                                                          9,223
                                                                         1,937
                                                                        11,160
West Virginia
                                                                         17,815
                                                                         3,741
                                                                        21,556
Wisconsin
                                                                          7,915
                                                                         1,662
                                                                         9,577
22 State Region
                                                              316,464 / 313,626

 *The EPA is finalizing CSAPR EGU NOX ozone season emission budgets for Arkansas of 12,048 tons for 2017 and 9,210 tons for 2018 and subsequent control periods.

      The assurance provisions include penalties that are triggered when the state emissions as a whole exceed the state's assurance level. The original CSAPR provided that, when the EGUs in a state exceed that state's assurance level in a given year, some of those sources will be assessed a 3-to-1 allowance surrender on the excess tons, as described later on. Each excess ton above the assurance level must be met with one allowance for normal compliance plus two additional allowances to satisfy the penalty. The penalty is designed to deter state-level emissions from exceeding assurance levels. This was described in the original CSAPR as air quality-assured trading that accounts for variability in the electricity sector but also ensures that the necessary emission reductions occur within each covered state. If the EGU emissions in a state do not exceed the state's assurance level, no penalties are incurred by any source. Establishing assurance levels with compliance penalties therefore responds to the court's holding in North Carolina requiring the EPA to ensure that sources in each state are required to eliminate emissions that significantly contribute to nonattainment or interfere with maintenance of the NAAQS in another state.
       To assess the penalty under the assurance provisions, the EPA evaluates whether any state's total EGU emissions in a control period exceeded the state's assurance level, and if so, the EPA then determines which owners and operators of units in the state exceeded the common designated representative's (DR) share of the state assurance level and, therefore, will be subject to an allowance surrender requirement. Since a DR often represents multiple sources, the EPA evaluates which groups of units at the common DR level had emissions exceeding the respective common DR's share of the state assurance level. This provision is triggered only if two criteria are met: (1) the group of sources and units with a common DR are located in a state where the total state EGU emissions for a control period exceed the state assurance level; and (2) that group with the common DR had emissions exceeding the respective DR's share of the state assurance level. The EPA is finalizing equivalent assurance provisions, modified only as necessary to allow the provisions to work in the same way despite the presence of factors that could otherwise alter their operation, such as converted banked allowances, the possible election by Georgia to bring its sources into the Group 2 program through a SIP revision, and the possible election by other states to bring non-EGUs and additional allowances into the program through SIP revisions. These differences are discussed in section IX in this preamble. For more information on the CSAPR assurance provisions generally, see 76 FR 48294 (August 8, 2011).
 Compliance Deadlines
      As discussed in sections II.A., III.B., and IV.A., the rule requires sources to comply with the new and revised NOX emission budgets for the 2017 ozone season (May 1 through September 30) in order to ensure that necessary NOX emissions reductions are made as expeditiously as practicable to assist downwind states' attainment and maintenance of the 2008 ozone NAAQS. The compliance deadline is coordinated with the attainment deadline for that standard and the rule includes provisions to ensure that all necessary reductions occur at sources within each individual state. Thus, under the new CSAPR NOX Ozone Season Group 2 Trading Program established by this rule at subpart EEEEE of 40 CFR part 97, the first control period is the 2017 ozone season (i.e., May 1, 2017 through September 30, 2017).
      The deadline by which sources must hold Group 2 allowances in their compliance accounts at least equal to their emissions during the control period is March 1 of the year following the control period, which is the same as the deadline for holding allowances under the CSAPR annual trading programs. This is a change from the current CSAPR NOX Ozone Season Trading Program provisions, which set a deadline of December 1 of the year of the control period, and is intended to simplify compliance and program administration and thereby reduce costs for both regulated parties and the EPA. Under these coordinated deadlines, the date by which Group 2 sources will be required to hold Group 2 allowances for compliance for purposes of the 2017 control period is March 1, 2018.
 Monitoring and Reporting and the Allowance Management System
      Monitoring and reporting in accordance with the provisions of 40 CFR part 75 are required for all units subject to the CSAPR NOX ozone season trading programs and for all units covered under this final rule for the 2008 ozone NAAQS requirements. The EPA finalizes that the monitoring system certification deadline by which monitors are installed and certified for compliance use generally will be May 1, 2017, the beginning of the first control period in this rule, with potentially later deadlines for units that commence commercial operation less than 180 days before that date. Similarly, the EPA is finalizing that the first period in which emission reporting is required would be the quarter that includes May 1, 2017 (the second quarter of the year that covers April, May, and June). These monitoring and reporting deadlines are analogous to the current deadlines under the original CSAPR.
      Under part 75, a unit has several options for monitoring and reporting, including the use of a CEMS; an excepted monitoring methodology based in part on fuel-flow metering for certain gas- or oil-fired peaking units; low-mass emissions monitoring for certain non-coal-fired, low emitting units; or an alternative monitoring system approved by the Administrator through a petition process. In addition, sources can submit petitions to the Administrator for alternatives to specific CSAPR and part 75 monitoring, recordkeeping, and reporting requirements. Each CEMS must undergo rigorous initial certification testing and periodic quality assurance testing thereafter, including the use of relative accuracy test audits (RATAs) and 24-hour calibrations. In addition, when a monitoring system is not operating properly, standard substitute data procedures are applied and result in a conservative estimate of emissions for the period involved.
      Further, part 75 requires electronic submission of a quarterly emissions report to the Administrator, in a format prescribed by the Administrator. The report will contain all of the data required concerning ozone season NOX emissions.
      Units currently subject to CSAPR NOX ozone season or CSAPR NOX annual trading program requirements monitor and report NOX emissions in accordance with part 75, so most sources will not have to make any changes to monitoring and reporting practices. In fact, only units in Kansas, which are currently subject to the CSAPR NOX annual trading program but not the CSAPR NOX ozone season trading program, will need to start newly reporting ozone season NOX mass emissions. These emissions are already measured under the annual program, so the change will be a minor reporting modification and the sources will not be required to install new monitoring systems. Units in the following states monitor and report NOX emissions under the CSAPR NOX ozone season trading program and will continue to do so without change under the CSAPR ozone update for the 2008 NAAQS: Alabama, Arkansas, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Michigan, Mississippi, Missouri, New Jersey, New York, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, Virginia, West Virginia, and Wisconsin.
 Recordation of Allowances
The EPA is establishing deadlines for recording allocations of ozone season NOX allowances to sources affected under this rule that generally parallel the recordation deadlines under the existing CSAPR trading programs, but with later deadlines reflecting the fact that this program is starting two years later than the existing CSAPR trading programs. Specifically, allocations to existing units for the first two control periods under the new program (2017 and 2018) will be recorded by January 3, 2017. This recordation deadline is four months before the start of the first control period for the new program (May 1, 2017) and 14 months before the date by which sources are required to hold allowances sufficient to cover their emissions for that first control period (March 1, 2018, as discussed previously), giving sources ample time to engage in allowance trading activities consistent with their preferred compliance strategies. Allowance allocations for 2019 and 2020 will be recorded by July 1, 2018; allocations for 2021 and 2022 will be recorded by July 1, 2019; and allocations for 2023 and 2024 will be recorded by July 1, 2020. Allowances for each succeeding control period will be recorded by July 1 of the fourth year before the year of the control period, matching the recordation schedule for the existing CSAPR trading programs. These deadlines apply to recordation of both allocations based on the default allocation provisions under 40 CFR 97.811 and 97.812 and allocations provided by states pursuant to approved SIP revisions. As under the CSAPR annual programs, allocations to new units from the NUSAs and Indian country NUSAs are made in two rounds, with first-round allocations recorded by August 1 of the year of the control period and second-round allocations recorded by February 15 of the year after the year of the control period. (In a change from the current CSAPR NOX Ozone Season Trading Program provisions, the second-round recordation deadline is now coordinated with the analogous deadline for the CSAPR annual programs.) The recordation provisions for the new program are codified in 40 CFR 97.821.
Consistent with the first recordation deadline described previously for allocations to existing units under the new trading program, the EPA is also delaying the deadline in 40 CFR 97.521(c) for recordation of allowances for the 2017 and 2018 control periods under the existing NOX ozone season trading program (i.e., allocations for sources in Georgia) to January 3, 2017. As explained in the proposal, the reason for extending this deadline was to avoid the possible need to take back allowances recorded under the existing NOX ozone season trading program in cases where state budgets might have been reduced under that program by this final rule. For 2018 allocations, the EPA will defer recordation if a states submits a timely letter indicating an intent to submit a SIP revision that if approved would substitute state-determined allocations for the default allocations determined by the EPA.
 Submitting a SIP
Any state may replace the FIP finalized in this rule with a SIP at any time if approved by the EPA. "Abbreviated" and "full" SIP options finalized in the original CSAPR rulemaking continue to be available. An abbreviated SIP allows a state to submit a SIP that would provide for state-based allocation provisions in the CSAPR NOX ozone season trading program that are then incorporated into the FIP the EPA has established for that state. A second approach, referred to as a full SIP, allows a state to adopt state provisions that would require sources in the state to continue to use the EPA-administered CSAPR trading program through an approved SIP, rather than a FIP. In addition to the abbreviated and full SIP options, as under the original CSAPR rulemaking, the EPA provides states with an opportunity to adopt state-determined allowance allocations for existing units for the second control period under this rule  -  in this case, the 2018 control period  -  through streamlined SIP revisions. See 76 FR 48208 at 48326-48332 (August 8, 2011) for additional discussion on full and abbreviated SIP options and 40 CFR 52.38(b). Once the state has made a SIP submission, the EPA will evaluate the submission(s) for completeness. The EPA's criteria for determining completeness of a SIP submission are codified at 40 CFR part 51, appendix V.
 2018 SIP Option
       The EPA will allow a state to submit a SIP revision establishing allowance allocations for existing units for the second compliance year (2018) for the new and revised budgets in order to replace the FIP-based allocations finalized in this rule. The process will be the same as under the original CSAPR rulemaking with deadlines shifted roughly 2 years: a state that wishes to take advantage of this option must submit a letter to EPA by December 15, 2016, indicating its intent to submit a complete SIP revision by April 1, 2017. The SIP must provide in an EPA-prescribed format a list of existing units and their allocations for the 2018 control period. If a state does not submit a letter of intent to submit a SIP revision, FIP allocations will be recorded by January 3, 2017. If a state submits a timely letter of intent but fails to submit a SIP revision, FIP allocations will be recorded by April 15, 2017. If a state submits a timely letter of intent followed by a timely SIP revision that is approved, the approved SIP allocations will be recorded by October 1, 2017.
     2019 and beyond SIP Option
      For the 2019 control period and later, the EPA is finalizing revisions to the regulations at 40 CFR 52.38(b) that provide additional options to submit abbreviated or full SIP revisions to modify or replace the FIP allowance allocations in 2019 or later years. The deadline for SIP submittals to modify or replace the FIP allocations for 2019 and 2020 is December 1, 2017. The deadline for the state to then submit state allocations for 2019 and 2020 is June 1, 2018 and the deadline for the EPA to record those allocations is July 1, 2018. A state may submit by December 1, 2018, a SIP revision applicable to control periods starting in 2021 or 2022, with state allocations due June 1, 2019, and allocation recordation by July 1, 2019. See section IV of this preamble and 76 FR 48208 at 48326-48332 (August 8, 2011) for additional discussion on full and abbreviated SIP options and 40 CFR 52.38(b).
 SIP Revisions that Do Not Use the CSAPR Trading Program
Each state has the authority under the CAA to replace the FIP finalized in this rule by submitting a transport SIP revision that does not use the CSAPR NOX ozone season trading program. The EPA will evaluate such SIPs to determine whether they include adequate and enforceable provisions ensuring that the emission reductions will be achieved based on the particular control strategies selected by each state. The SIP revision could include the following general elements: (1) a comprehensive baseline statewide NOX emission inventory (which includes growth and existing control requirements); (2) a list and description of control measures to satisfy the state emission reduction obligation and a demonstration showing when each measure will be in place by the time the SIP is approved and replaces the CSAPR FIP; (3) fully-adopted state rules providing for such NOX controls during the ozone season; (4) for EGUs greater than 25 MWe and large boilers and combustion turbines with a rated heat input capacity of 250 mmBtu per hour or greater, Part 75 monitoring, and for other units, monitoring and reporting procedures sufficient to demonstrate that sources are complying with the SIP; and (5) a projected inventory demonstrating that state measures along with federal measures will achieve the necessary emission reductions in a timely manner considering ozone NAAQS attainment dates. The SIPs must meet the requirements for public hearing, be adopted by the appropriate board or authority, and establish by a practically enforceable regulation a permit schedule and date for each affected source or source category to achieve compliance. For further information on replacing a FIP with a SIP, see the discussion in the final CSAPR rulemaking (76 FR 48326, August 8, 2011).
 Submitting a SIP to Participate in CSAPR for States Not Included in this Rule
There could be circumstances where a state that is not obligated to reduce NOX emissions in order to address interstate transport requirements (such as Florida, North Carolina, or South Carolina for purposes of this final rule) may wish to participate in the CSAPR NOX ozone season trading program in order to serve a different regulatory purpose. For example, the state may have a pending request for redesignation of an area to attainment that relies on participation in the trading program as part of the state's demonstration that emissions will not exceed certain levels; or the state may wish to rely on participation in the trading program for purposes of a SIP revision to satisfy certain obligations under the Regional Haze Rule. Further, as discussed previously, Georgia may wish to join the CSAPR NOX ozone season Group 2 trading program in order to trade with other Group 2 states.
The EPA took comment on whether the EPA should revise the CSAPR regulations to allow the EPA to approve a SIP revision in which a state seeks to participate in the NOX ozone season trading program for a purpose other than addressing ozone transport obligations.
The EPA is finalizing revisions to CSAPR regulations to allow Georgia to opt-in to the CSAPR NOX ozone season Group 2 trading group if it adopts, as part of a SIP revision, a NOX ozone season emission budget no higher than the emission budget that reflects EGU NOX mitigation strategies represented by a uniform cost of $1,400 per ton for EGUs in Georgia. Such an emission budget is provided by this final rule. As discussed previously, Georgia submitted comments indicating an interest in allowing its sources to trade with other states, although without any change to its budget. The EPA has already discussed the reasons for rejecting the specific option most favored by Georgia in comments. By providing Georgia with the option to bring the state's sources into the Group 2 program through a SIP revision, the EPA is allowing Georgia to implement its expressed preference for broader trading if that preference continues to apply even when conditioned on adoption of a more stringent budget.
The EPA also took comment on whether the EPA should revise the CSAPR regulations to allow the EPA to approve a SIP revision in which a state seeks to participate in the NOX ozone season trading program for a purpose other than addressing ozone transport obligations. The EPA received no comments indicating that states had an interest in this option at this time, and the EPA is therefore not finalizing this option at this time.
 Title V Permitting
      This rule, like CSAPR, does not establish any permitting requirements independent of those under title V of the CAA and the regulations implementing title V, 40 CFR parts 70 and 71. All major stationary sources of air pollution and certain other sources are required to apply for title V operating permits that include emission limitations and other conditions as necessary to assure compliance with the applicable requirements of the CAA, including the requirements of the applicable State Implementation Plan. CAA sections 502(a) and 504(a), 42 U.S.C. 7661a(a) and 7661c(a). The "applicable requirements" that must be addressed in title V permits are defined in the title V regulations (40 CFR 70.2 and 71.2 (definition of "applicable requirement")).
      The EPA anticipates that, given the nature of the units subject to this transport rule and given that many of the units covered here are already subject to CSAPR, most of the sources at which the units are located are already subject to title V permitting requirements. For sources subject to title V, the interstate transport requirements for the 2008 ozone NAAQS that are applicable to them under the final FIPs are "applicable requirements" under title V and therefore must be addressed in the title V permits. For example, requirements concerning designated representatives, monitoring, reporting, and recordkeeping, the requirement to hold allowances covering emissions, the assurance provisions, and liability are "applicable requirements" that must be addressed in the permits.
      Title V of the CAA establishes the basic requirements for state title V permitting programs, including, among other things, provisions governing permit applications, permit content, and permit revisions that address applicable requirements under final FIPs in a manner that provides the flexibility necessary to implement market-based programs such as the trading programs established by CSAPR and updated by this ozone interstate transport rule. 42 U.S.C. 7661a(b).
      In CSAPR, the EPA established standard requirements governing how sources covered by the rule would comply with title V and its regulations. 40 CFR 97.506(d). Under this rule, those same requirements would continue to apply to sources already in the CSAPR NOX ozone season trading program and to any newly affected sources that have been added to address interstate transport of the 2008 ozone NAAQS. For example, the title V regulations provide that a permit issued under title V must include "[a] provision stating that no permit revision shall be required under any approved . . . emissions trading and other similar programs or processes for changes that are provided for in the permit." 40 CFR 70.6(a)(8) and 71.6(a)(8). Consistent with these provisions in the title V regulations, in CSAPR, the EPA included a provision stating that no permit revision is necessary for the allocation, holding, deduction, or transfer of allowances. 40 CFR 97.806(d)(1). This provision is also included in each title V permit for an affected source. This final rule maintains the approach taken under CSAPR that allows allowances to be traded (or allocated, held, or deducted) without a revision to the title V permit of any of the sources involved.
      Similarly, this final rule also continues to support the means by which sources in the CSAPR NOX ozone season trading program can use the title V minor modification procedure to change their approach for monitoring and reporting emissions, in certain circumstances. Specifically, sources may use the minor modification procedure so long as the new monitoring and reporting approach is one of the prior-approved approaches under CSAPR (i.e., approaches using a continuous emission monitoring system, an excepted monitoring system under appendices D and E to part 75, a low mass emissions excepted monitoring methodology under 40 CFR 75.19, or an alternative monitoring system under subpart E of part 75), and the permit already includes a description of the new monitoring and reporting approach to be used. See 40 CFR 97.806(d)(2); 40 CFR 70.7(e)(2)(i)(B) and 40 CFR 71.7(e)(1)(i)(B). As described in the EPA's 2015 guidance, the agency suggests in its template that sources may comply with this requirement by including a table of all of the approved monitoring and reporting approaches under the rule, and the applicable requirements governing each of those approaches. Inclusion of the table in a source's title V permit therefore allows a covered unit that seeks to change or add to their chosen monitoring and recordkeeping approach to easily comply with the regulations governing the use of the title V minor modification procedure.
      Under CSAPR, in order to employ a monitoring or reporting approach different from the prior-approved approaches discussed previously, unit owners and operators must submit monitoring system certification applications to the EPA establishing the monitoring and reporting approach actually to be used by the unit, or, if the owners and operators choose to employ an alternative monitoring system, to submit petitions for that alternative to the EPA. These applications and petitions are subject to EPA review and approval to ensure consistency in monitoring and reporting among all trading program participants. The EPA's responses to any petitions for alternative monitoring systems or for alternatives to specific monitoring or reporting requirements are posted on the EPA's website. The EPA maintains the same approach in this final rule.
      Consistent with the EPA's approach under CSAPR, the applicable requirements resulting from these FIPs must be incorporated into affected sources' existing title V permits either pursuant to the provisions for reopening for cause (40 CFR 70.7(f) and 40 CFR 71.7(f)) or the standard permit renewal provisions (40 CFR 70.7(c) and 71.7(c)). For sources newly subject to title V that are affected sources under the final FIPs, the initial title V permit issued pursuant to 40 CFR 70.7(a) should address the final FIP requirements.
      As in CSAPR, the approach to title V permitting under the FIPs imposes no independent permitting requirements and should reduce the burden on sources already required to be permitted under title V and on permitting authorities.
H. Relationship to Other Emission Trading and Ozone Transport Programs
1. Interactions with Existing CSAPR Annual Programs, Title IV Acid Rain Program, NOX SIP Call, section 176A Petition, and Other State Implementation Plans
a. CSAPR Annual Programs. Nothing in this rule affects any CSAPR NOX annual or CSAPR SO2 Group 1 or CSAPR SO2 Group 2 requirements. The CSAPR annual program requirements were premised on the 1997 and 2006 PM2.5 NAAQS that are not being addressed in this rulemaking. The CSAPR NOX annual trading program and the CSAPR SO2 Group 1 and Group 2 trading programs remain in place and will continue to be administered by the EPA.
      The EPA acknowledges that, in addition to the ozone budgets discussed previously, the D.C. Circuit has remanded for reconsideration the CSAPR SO2 budgets for Alabama, Georgia, South Carolina, and Texas. EME Homer City II, 795 F.3d at 138.  This rule does not address the remand of these CSAPR phase 2 SO2 emission budgets. On June 27, 2016, the EPA released a memorandum outlining the agency's approach for responding to the D.C. Circuit's July 2015 remand of the CSAPR phase 2 SO2 annual emission budgets for Alabama, Georgia, South Carolina and Texas. The memorandum can be found at https://www3.epa.gov/airtransport/CSAPR/pdfs/CSAPR_SO2_Remand_Memo.pdf.
b. Title IV Interactions. This rule will not affect any Acid Rain Program requirements. Acid Rain Program SO2 and NOX requirements are established in Title IV of the Clean Air Act, and will continue to apply independently of this rule's provisions. Any Title IV sources that are subject to provisions of this rule are still required to comply with Title IV requirements, including the requirement to hold Title IV allowances to cover SO2 emissions at the end of a compliance year.
c. NOX SIP Call Interactions. States subject to both the NOX SIP Call and the final CSAPR Update will be required to comply with the requirements of both rules. The final CSAPR Update rule requires NOX ozone season emission reductions from EGUs greater than 25 MW in most NOX SIP Call states and at levels greater than required by the NOX SIP Call. Therefore, compliance with the budgets established under the CSAPR Update would satisfy the requirements of the NOX SIP Call for these large EGU units.
	The NOX SIP Call states used the NOX Budget Trading Program (NBP) model rule to comply with the NOX SIP Call requirements for EGUs serving a generator with a nameplate capacity greater than 25 MW and large non-EGUs with a maximum rated heat input capacity greater than 250 MMBTU/hr. (In some states, EGUs smaller than 25 MW were also part of the NBP as a carryover from the Ozone Transport Commission NOX Budget Trading Program.) When the EPA promulgated CAIR and the CAIR FIPs, it allowed states, via SIP, to adopt SIP revisions modifying the applicability provisions of the CAIR NOX Ozone Season Trading Program to include all NOX Budget Trading Program units in that program as a way to continue to meet the requirements of the NOX SIP Call for these sources.
      In CSAPR, however, the EPA allowed states, via SIP, to expand applicability of the trading program to EGUs smaller than 25 MW but did not allow the expansion of applicability to include large non-EGU sources. The EPA explained that the reason for excluding large non-EGU sources was based on a concern that emissions from these sources were generally much lower than portion of each state's NOX SIP Call budget amount attributable to these large non-EGUs, and we were therefore concerned that surplus allowances created as a result of an overestimation of baseline emissions (the main basis for the non-EGU portion of the NOX Budget Trading Program budget) and subsequent shutdowns of these large non-EGUs(since 1999 when the NOX SIP Call was promulgated) would prevent needed reductions by the EGUs to address significant contribution to downwind air quality impacts. See 76 FR 48323 (August 8, 2011).
	Since then, states have had to find appropriate ways to ensure that their rules continue to show compliance with emissions reduction obligations of the NOX SIP Call, particularly for large non-EGUs. Most states that used the CAIR NOX Ozone Season Trading Program as a means of complying with the NOX SIP Call obligations for large non-EGUs are still working to find suitable solutions now that CSAPR has replaced CAIR.
      Therefore, the EPA is finalizing provisions to allow any NOX SIP Call state subject to a FIP promulgated by this rule to voluntarily submit a SIP revision with a revised budget level that is environmentally neutral to address the state's NOX SIP Call requirement for ozone season NOX reductions. The SIP revision could include a provision to expand the applicability of the CSAPR NOX ozone season trading program in that state to include all NOX Budget Trading Program units, including large non-EGUs. Analysis shows that these units (mainly large non-EGU boilers, combustion turbines, and combined cycle units with a maximum rated heat input capacity greater than 250 mmBtu/hr) continue to emit well below their portion of the NOX SIP Call budget. In order to ensure that the necessary amount of EGU emission reductions occur for purposes of addressing interstate transport with respect to the 2008 ozone NAAQS in covered states that submit such a SIP revision, the corresponding state ozone season emission budget amount could be increased by no more than the lesser of the highest ozone season NOX emissions in the last 3 years from those units or the portion of the NOX Budget Trading Program Budget attributable to large non-EGUs. The environmental impact would be neutral using this approach. This approach addresses requests by states for help in determining an appropriate way to address the continuing NOX SIP Call requirement as to non-EGU sources.
      The variability limits established for EGUs remain unchanged as a result of including these non-EGUs. The assurance provisions apply to EGUs, and emissions from non-EGUs would not affect the assurance levels. The provisions of the new Group 2 trading program exclude the emissions and allowance allocations of any non-EGUs participating in the program from any determination of whether a state exceeds its assurance level or whether any group of sources exceeds its share of the responsibility for any exceedance of a state's assurance level. Similarly, the provisions limit the total allocations that can be taken into account for such purposes by all the EGUs in the state to the state budget and thereby prevent any additional allowances issued by the state as a result of expanded program applicability from unduly influencing determinations of shares of responsibility for any exceedance of the state's assurance level. For additional discussion of the specific regulatory provisions involved, see section IX of this preamble.
      The NOX SIP Call generally requires that states choosing to rely on large EGUs and large non-EGUs for meeting NOX SIP Call emission reduction requirements must establish a NOX mass emissions cap on each source and require part 75, subpart H monitoring. As an alternative to source-by-source NOX mass emission caps, a state may impose NOX emission rate limits on each source and use maximum operating capacity for estimating NOX mass emissions or may rely on other requirements that the state demonstrates to be equivalent to either the NOX mass emission caps or the NOX emission rate limits that assume maximum operating capacity. Collectively, the caps or their alternatives cannot exceed the portion of the state budget for those sources. See 40 CFR 51.121(f)(2) and (i)(4). If a state chooses to expand the applicability of the CSAPR NOX ozone season trading program to other sources in the state through a voluntary SIP revision to include all the NOX Budget Trading Program units in the CSAPR NOX ozone season trading program, the cap requirement would be met through the new budget and the monitoring requirement would be met through the trading program provisions, which require part 75 monitoring. The EPA will work with states to ensure that NOX SIP Call obligations continue to be met.
d. Other State Implementation Plans. The EPA has not conducted any technical analysis to determine whether compliance with this rule will satisfy other requirements for EGUs in any attainment or nonattainment areas (e.g., RACT or BART). For that reason, the EPA is not making determinations nor establishing any presumptions that compliance with the final rule satisfies any other requirements for EGUs. Based on analyses that states conduct on a case-by-case basis, states may be able to conclude that compliance with the rule for certain EGUs fulfills other SIP requirements. The EPA encourages states to work with their regional office on these issues.
2. Other Federal Rulemakings
a. Clean Power Plan. On August 3, 2015, the EPA finalized the Clean Power Plan (CPP). The Clean Air Act  -  under section 111(d)  -  creates a partnership between the EPA, states, tribes and U.S. territories  -  with the EPA setting a goal and states and tribes choosing how they will meet it. The CPP follows that approach. The CPP establishes interim and final CO2 emission performance rates for certain existing power plants, under CAA section 111(d). States then develop and implement plans that ensure that the affected power plants in their state  -  either individually, together or in combination with other measures  -  achieve these rates or equivalent state rate- or mass-based goals. The CPP includes interim emission performance rates (or equivalent state goals) to be achieved over the years 2022 to 2029 and the final CO2 emission performance rates (or equivalent state goals) to be achieved in 2030 and after.
      On February 9, 2016, the Supreme Court granted applications to stay the Clean Power Plan, pending judicial review of the rule in the D.C. Circuit, including any subsequent review by the Supreme Court. The EPA firmly believes the Clean Power Plan will be upheld when the courts address its merits because the Clean Power Plan rests on strong scientific and legal foundations. The stay means that no one has to comply with the Clean Power Plan while the stay is in effect. During the pendency of the stay, states are not required to submit plans to EPA, and EPA will not take any action to impose or enforce any such obligations. The Supreme Court's orders granting the stay did not discuss the parties' differing views of whether and how the stay would affect the CPP's compliance deadlines, and they did not expressly resolve that issue. In this context, the question of whether and to what extent tolling is appropriate will need to be resolved once the validity of the CPP is finally adjudicated.
      Because mandatory emission reductions under the CPP would not begin until several years after the 2017 implementation of the CSAPR Update rule, the EPA does not anticipate significant interactions with the CPP and the near-term (i.e., starting in 2017) ozone season EGU NOX emission reduction requirements under this rule. See section V.B of the preamble for further information on this point. However the EPA notes that actions taken to reduce CO2 emissions (e.g., deployment of zero-emitting generation) may also reduce ozone season NOX emissions. The EPA is also cognizant of the potential influence of addressing interstate ozone transport on CO2 emissions. As states and utilities undertake the near- and longer-term planning to reduce emissions of these pollutants, they will have the opportunity to consider how compliance with this rule can anticipate, or be consistent with, greenhouse gas mitigation. Some EGU NOX mitigation strategies, most notably shifting generation from higher NOX-emitting coal-fired units to existing low NOX-emitting units or zero-emitting units, can potentially also reduce CO2 emissions. As the EPA has structured the interstate transport obligations that would be established by this rule as requirements to limit aggregate affected EGU emissions and the EPA is not enforcing source-specific emission reduction requirements, EGU owners have the flexibility to plan for compliance with the interstate ozone transport requirements in ways that are consistent with state and EGU strategies to reduce CO2 emissions.
b. 2015 Ozone Standard. On October 1, 2015, the EPA strengthened the ground-level ozone NAAQS to 70 ppb, based on extensive scientific evidence about ozone's effects on public health and welfare. This rule updating the CSAPR NOX ozone season trading program to address interstate emission transport with respect to the 2008 ozone NAAQS is a separate and distinct regulatory action and is not meant to address the CAA's good neighbor provision with respect to the strengthened 2015 ozone NAAQS.
      The EPA is mindful of the need to address ozone transport for the 2015 ozone NAAQS. Thhe statutory deadline for the EPA to finalize area designations is October 1, 2017. Further, good neighbor SIPs from states are due on October 1, 2018. The steps taken under this rule to reduce interstate ozone transport will help states make progress toward attaining and maintaining the 2015 ozone NAAQS. Moreover, to facilitate the implementation of the CAA good neighbor provision with respect to the 2015 ozone NAAQS, the EPA intends to provide additional information regarding steps 1 and 2 of the CSAPR framework in the fall of 2016. In particular, the EPA expects to conduct and release modeling necessary to assist states to identify projected nonattainment and maintenance receptors with respect to the 2015 ozone NAAQS and identify the upwind state emissions that contribute significantly to these receptors.
 Costs, Benefits, and Other Impacts of the Final Rule
      The EPA evaluated the costs, benefits, and impacts of compliance with the final EGU NOX ozone season emission budgets developed using uniform control stringency represented by $1,400 per ton. In addition, the EPA also assessed compliance with one more and one less stringent alternative EGU NOX ozone season emission budgets, developed using uniform control stringency represented by $3,400 per ton and $800 per ton, respectively. The EPA evaluated the impact of implementing these emission budgets to reduce interstate transport for the 2008 ozone NAAQS in 2017. More details for this assessment can be found in the Regulatory Impact Analysis (RIA) in the docket for this final rule.
      The EPA notes that its analysis of the regulatory control alternatives (i.e., the final rule and more and less stringent alternatives) is illustrative in nature, in part because the EPA will implement the EGU NOX emission budgets via a regional NOX ozone season allowance trading program. This implementation approach provides utilities with the flexibility to determine their own compliance path. The EPA's assessment develops and analyzes one possible scenario for implementing the NOX budgets finalized by this action and one possible scenario for implementing the more and less stringent alternatives. Furthermore, the emission budgets evaluated for the CSAPR Update regulatory control alternative in this benefit and cost analysis are illustrative because they differ somewhat from the budgets finalized in this rule. (The budgets for the more and less stringent alternative also differ somewhat from the budgets represented by $3,400 per ton and $800 per ton reported in Table VI.C-1). However, the RIA also reports the costs and emissions changes associated with the finalized budgets. Further details on the illustrative nature of this analysis can be found in the RIA in the docket for this rule.
      For this final rule, the EPA analyzed the costs to the electric power sector and emissions changes using IPM. The IPM is a dynamic linear programming model that can be used to examine the economic impacts of air pollution control policies throughout the contiguous United States for the entire power system. Documentation for IPM can be found in the docket for this rulemaking or at www.epa.gov/powersectormodeling.
      Table VIII.1 provides the projected 2017 EGU emissions reductions for the evaluated regulatory control alternatives.

Table VIII.1 - Projected 2017 Emissions Reductions of NOx and CO2 with the Final NOX Emission Budgets and More or Less Stringent Alternatives (Tons)[1][,2]

                                   Final Rule
                          More Stringent Alternative
                          Less Stringent Alternative
NOX (annual)
                                                                        -75,000
                                                                        -79,000
                                                                        -27,000
NOX (ozone season)
                                                                        -61,000
                                                                        -66,000
                                                                        -27,000
CO2 (annual)
                                                                     -1,600,000
                                                                     -2,000,000
                                                                     -1,300,000
[1] NOx emissions are reported in English (short) tons; CO2 is reported in metric tons.
2 All estimates are rounded to two significant figures.

      The EPA estimates the costs associated with compliance with the illustrative regulatory control alternative for the final CSAPR Update to be approximately $68 million annually. These costs represent the private compliance cost of reducing NOX emissions to comply with the final rule and does not include monitoring, recordkeeping, and reporting costs. Table VIII.2 provides the estimated costs for the evaluated regulatory control scenarios, including the final rule and more and less stringent alternatives. Estimates are in 2011 dollars.
Table VIII.2  -  Cost Estimates for Compliance with the Final Rule NOX Emission Budgets and More and Less Stringent Alternatives (2011$)[1][,2]

                                  Final Rule
                          More Stringent Alternative
                          Less Stringent Alternative
Costs
                                                                     68,000,000
                                                                     82,000,000
                                                                      8,000,000
[1] Costs are annualized  over the period 2017 through 2020 using the 4.77 discount rate used in IPM's objective function of minimizing the net present value of the stream of total costs of electricity generation. These costs do not include monitoring, recordkeeping, and reporting costs, which are reported separately.  See Chapter 4 of the RIA for this final rule for details and explanation.
2 All estimates are rounded to two significant figures.
      In this analysis, the EPA monetized the estimated benefits associated with reducing population exposure to ozone and PM2.5 from reductions in NOX emissions and co-benefits of decreased emissions of CO2, but was unable to quantify or monetize the potential co-benefits associated with reducing exposure to NO2 as well as ecosystem effects and reduced visibility impairment from reducing NOX emissions. Among the benefits it could quantify, the EPA estimated combinations of health benefits at discount rates of 3 percent and 7 percent (as recommended by the EPA's Guidelines for Preparing Economic Analyses [U.S. EPA, 2014] and OMB's Circular A-4 [OMB, 2003]) and climate co-benefits of CO2 reductions at discount rates of 5 percent, 3 percent, 2.5 percent, and 3 percent (95[th] percentile) (as recommended by the interagency working group). The EPA estimates the monetized ozone-related benefits of the final rule to be $370 million to $610 million (2011$) in 2017 and the PM2.5-related co-benefits of the final rule to be $93 million to $210 million (2011$) using a 3 percent discount rate and $83 million to $190 million (2011$) using a 7 percent discount rate. Further, the EPA estimates CO2-related co-benefits of $54 to $87 million (2011$). Additional details on this analysis are provided in the RIA for this final rule. Tables VIII.3 and VIII.5 summarize the quantified monetized human health and climate benefits of the rule and the more and less stringent control alternatives. Table VIII.4 summarizes the estimated avoided ozone- and PM2.5-related health incidences for the final rule and the more and less stringent control alternatives.
Table VIII.3 Estimated Health Benefits of Projected 2017 Emissions Reductions for the Final Rule, and More or Less Stringent Alternatives (millions of 2011$)[1][,2]

                                  Final Rule
                                More Stringent
                                  Alternative
                          Less Stringent Alternative
NOX (as ozone)
                                                                   $370 to $610
                                                                   $400 to $650
                                                                   $160 to $270
NOX (as PM2.5)
  3% Discount Rate
  7% Discount Rate
                                                                    $93 to $210
                                                                    $83 to $190
                                                                    $98 to $220
                                                                    $88 to $200
                                                                     $34 to $75
                                                                     $30 to $67
Total
  3% Discount Rate
  7% Discount Rate

                                                                   $460 to $810
                                                                   $450 to $790

                                                                   $500 to $870
                                                                   $490 to $850

                                                                   $200 to $340
                                                                   $190 to $330
[1] The health benefits range is based on adult mortality functions (e.g., from Krewski et al. (2009) with Smith et al. (2009) to Lepeule et al. (2012) with Zanobetti and Schwartz (2008)).
2 All estimates are rounded to two significant figures.

Table VIII.4 Summary of Estimated Avoided Ozone-Related and PM2.5-Related Health Incidences from Projected 2017 Emissions Reductions for the Final Rule and More or Less Stringent Alternatives[1]

                         Ozone-related Health Effects
Final Rule
                          More Stringent Alternative
                          Less Stringent Alternative
Avoided Premature Mortality

 Smith et al. (2009) (all ages)
                                      21
                                      23
                                       9
 Zanobetti and Schwartz (2008) (all ages)

                                      60

                                      65

                                      26
Avoided Morbidity

 Hospital admissions -- respiratory causes (ages > 65)

                                      59

                                      64

                                      26
 Emergency room visits for asthma (all ages)

                                      240

                                      250

                                      100
 Asthma exacerbation (ages 6-18)
                                    67,000
                                    73,000
                                    30,000
 Minor restricted-activity days (ages 18-65)

                                    170,000

                                    180,000

                                    75,000
 School loss days  (ages 5-17)
                                    56,000
                                    60,000
                                    25,000
                         PM2.5-related Health Effects

Avoided Premature Mortality

 Krewski et al. (2009) (adult)
                                      10
                                      11
                                      3.7
 Lepeule et al. (2012) (adult)
                                      23
                                      25
                                      8.4