Originally, EPA believed that areas without approved attainment demonstrations lacked adequate safeguards to ensure that shutdown/ curtailment credits would be consistent with RFP. We thus subjected those areas to more restrictive requirements to ensure a link between the new source and the source being shutdown/ curtailed ( that is, shutdown/

curtailment must occur after application for a new or modified major source is filed).

The 1990 CAA Amendments changed the considerations involved. As discussed above, for areas subject to subpart 2, Congress emphasized the emission inventory requirement in section 172( c)( 3) as a fundamental tool in air quality planning. Congress also added new provisions keyed to the inventory requirement, including specific reduction PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 380 strategies and " milestones" that measure progress toward attainment from the base year emissions inventory or subsequent revised inventories. Where the emission reduction credits pre date the base year, State and local agencies must include the credits from the shutdown/ curtailment in the projected emissions inventory used to develop the attainment demonstration. Subpart 4 sets forth specific reduction strategies and milestones for attainment of the PM10 standards. Additionally, there are now several adverse consequences where States fail to meet the planning or emissions reductions requirements of the CAA. For example, the CAA contains mandatory increased new source offset sanctions at a 2: 1 ratio where the Administrator finds that a State failed to submit a required attainment demonstration. In areas that are subject to subpart 2 and subpart 4, failure to attain the air quality standard by the attainment deadline results in the area being bumped up to a higher classification. Additional regulatory requirements are imposed as a result of the higher classification. These statutory changes justify shifting the focus of the current regulations from individual offset transactions between a specific new source and shutdown source and towards a systemic approach. PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 381 Considering the changes to the 1990 CAA Amendments, we now believe that continuing the prohibition on the use of shutdown/ curtailment credits generated where there is no approved attainment demonstration is not warranted. We believe that use of emission reduction credits from shutdowns/ curtailments will be consistent with RFP towards attainment under CAA section 173, even in the absence of an approved attainment demonstration, if they occur after the last day of the base year for the SIP planning process or are included in the projected emissions inventory used to develop the attainment demonstration. From an air quality planning perspective, emissions from the shutdown source actually impacted the measurements of air quality used in determining the nonattainment status of an area.

Subsequently, emissions reductions from such source shutdowns/ curtailments are actual emissions reductions, and their use as emission offsets at a ratio of 1: 1 or greater is consistent with RFP towards improved air quality as set forth in CAA section 173( a)( 1)( A).

3. Final action and legal basis for changes to the construction ban provisions a. Final action for changes to the construction ban provisions PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 101 We note that we are changing the cross reference in § 52.24( f) to " § 51.165" instead of the definitions section at § 51.165( a), to ensure that all of the provisions of § 51.165 apply in interpreting the terms of § 52.24.

382 We are promulgating final changes to § 52.24 to implement the construction ban provisions and other changes,

as proposed in 1996 and 2003.101 We believe these changes are beneficial to conform the regulatory text with the requirements that apply under the 1990 CAA Amendments.

As noted in our June 2003 proposal, we are retaining the provision in § 52.24( k) that specifies that appendix S governs permits to construct and operate applied for during the SIP development period. Although the regulatory text proposed in 1996 omitted § 52.24( k), the 1996 preamble also explained that the changes to § 52.24 were intended only to update and clarify the regulation with regard to the changes to the construction ban made by the 1990 CAA Amendments. ( 61 FR 38250, 38305). The preamble did not in any manner indicate that EPA believed that NSR permits complying with appendix S were not required during the SIP development period where necessary. Additionally, it did not contemplate nonattainment major NSR permitting in light of the situation that today's final action addresses, which is the need to permit nonattainment area sources during a PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 383 transition period in which a substantial number of new nonattainment areas are being created. Therefore, we are retaining § 52.24( k).

As we proposed in the 8 hour ozone NAAQS implementation rule ( 68 FR 32846), we made one change to the regulatory language in § 52.24( k). The previous language at § 52.24( k)

only allowed States to issue permits under appendix S for a maximum period of 18 months after designation. This language was consistent with the previous SIP development period and construction ban under the 1977 CAA, which no longer apply under the 1990 CAA Amendments. We have revised § 52.24( k) to allow States to issue permits under appendix S from designation until the SIP is approved, even if this exceeds 18 months. As we noted in our proposal, this change implements the removal of the construction ban from the 1990 CAA Amendments and is consistent with our 1991 policy memo,

" New Source Review ( NSR) Program Transitional Guidance,"

John S. Seitz, March 11, 1991.

b. Legal basis for changes to the construction ban provisions Section 110( a)( 2)( c) of the CAA establishes a general duty on States to include a program in their SIP that regulates the modification and construction of any PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 384 stationary source as necessary to assure that the NAAQS are achieved. This general duty, often referred to as " minor NSR," exists during all periods, including before a State has an approved part D NSR permit program.

Section 110( a)( 2)( c) of the CAA does not define specific requirements States must follow for issuing major source permits during the interim period between nonattainment designation and EPA approval of a part D nonattainment NSR SIP (" interim period"). However, EPA's regulations at § 52.24( k) require States to follow EPA's Emission Offset Interpretative Ruling, 40 CFR part 51,

appendix S, during this time.

This approach is consistent with Congressional intent,

as indicated in the 1977 CAA Amendments providing for major NSR permitting during the SIP development period in accordance with appendix S. [ See Public Law No. 95 95,

section 129( a), 91 Statute 685 ( 1977)]. Specifically,

Congress enacted a moratorium on construction in any area lacking an approved part D NSR SIP, with a delayed effective date of July 1, 1979. Congress also provided that appendix S, as modified by rule of the Administrator, govern permitting of sources constructing in such areas before that date, subject to a limited waiver by the Administrator. Id. PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 102Appendix S was originally promulgated in 1976 to address whether, and to what extent, new and modified sources would be allowed to construct in nonattainment areas whose attainment deadlines had already passed, in light of the regulatory requirement that new or modified sources be disapproved where the source would interfere with attainment of the NAAQS ( 41 FR 55524; December 21, 1976). It required, inter alia, compliance with the LAER and offsetting 385 108( b), 129( a). We subsequently codified the use of appendix S as the interim major NSR program in 40 CFR § 52.24( k), reasoning ( in the context of implementing a delay in the construction ban for then recently designated nonattainment areas) that Congress had provided that appendix S should remain in effect to protect air quality while State plans were being designed ( 45 FR 65209). When Congress removed the construction ban [( except as provided in section 110( n)( 3)), it left in place 40 CFR § 52.24( k)],

implementing the interim major NSR program under appendix S.

Accordingly, we have historically recognized that the SIP development period provided for in section 172( b) leaves a gap in part D major NSR permitting and have determined that this gap is to be filled with an interim major NSR program that is substantially similar to the requirements of part D. This includes the LAER and offset requirements from part D ( 57 FR 18070, 18076). Appendix S has been used by EPA and the States as this interim major NSR program. 102 PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 emissions reductions in excess of the new source's emissions. At that time, part D NSR was not part of the CAA. When the part D NSR provisions were added in the 1977 CAA Amendments, Congress added the requirement that SIPs contain nonattainment NSR provisions as set forth in CAA section 173, including LAER and the requirement to either offset the increase in new source emissions or ensure that emissions fell within a growth allowance. ( The growth allowance provision was repealed in 1990). Additionally, Congress provided that appendix S, as modified by rule of the Administrator, would govern preconstruction permitting in areas lacking approved part D SIPs before a construction ban went into effect, as discussed in more detail above.

103 See Alabama Power Co. v. Costle, 636 F. 3d 323, 346 047 ( D. C. Circuit, 1980) ( discussing Sierra Club v. Ruckelshaus, 344 F. Supp. 253 ( D. D. C. 1972), aff'd per curiam 4 ERC 1815 ( D. C. Circuit, 1972), aff'd by an equally divided court, sub nom Fri v. Sierra Club, 412 U. S. 541 386 Our regulations at 40 CFR § 52.24( k) require permits issued during this period to be consistent with the requirements in appendix S. The continued application of appendix S through § 52.24( k) is also supported by the purpose of the CAA, specifically, section 101( b)( 1), " to protect and enhance the quality of the Nation's air resources so as to promote the public health and welfare and the productive capacity of its population." This provision was the basis for the original judicial finding that the CAA imposed an obligation to prevent significant deterioration in areas that meet the NAAQS, prior to Congress' enactment of the PSD program at part C of the CAA. 103 This policy of PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 ( 1973).

387 non degradation applies with even greater force in areas that fail to meet the NAAQS. Thus, we believe that an interim major NSR program for the SIP development period

as codified at appendix S and updated to reflect CAA amendments   is supported by section 110( a)( 2)( C), section 101( b)( 1), Congressional intent, and our gapfilling authority under section 301( a).

4. Final action and legal basis for changes on applicability of appendix S and the transitional NSR program a. Final changes on applicability of appendix S and the transitional NSR program We are not finalizing the transitional NSR program under section VI of appendix S as proposed, which would have established limited criteria for determining in which nonattainment areas section VI could apply. Upon consideration of public comments, we decided to retain the original eligibility conditions, but added a procedural requirement that the Administrator determine whether section VI applies for a specific situation.

As we noted at 68 FR 32848, on its surface section VI could apply in any nonattainment area where the dates for PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 388 attainment have not passed if the source meets all applicable SIP emission limitations and would not interfere with the area's ability to meet its attainment date, without providing any specific safeguards for such noninterference.

We noted at proposal, however, that States generally would not be able to show that a nonattainment area would continue to meet its attainment date if it does not apply LAER or offsets to major new sources and major modifications in the absence of safeguards ( 68 FR 32848).

We continue to believe, as stated in the proposal, that States should not interpret section VI as allowing a blanket exemption from LAER and offsets for all major new sources and major modifications in a given area before attainment dates have passed for that area. However, based on public comment, we now believe that the program as proposed at 69 FR 32846 is not implementable. As many commenters noted,

the April 15, 2004 deadline for submission of attainment plans and December 31, 2004 deadline for implementation of all necessary attainment controls were impracticable. We agree with the many commenters who supported flexible NSR requirements under section VI for some areas and maintained that attainment would not be in jeopardy due to such programs. While we do not identify any such particular PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 389 instances in today's final rule, we believe that participation in programs such as the NOx SIP Call and the CAIR ( 70 FR 25162, May 12, 2005) will achieve significant emissions reductions across broad geographical areas.

Certainly, we want to encourage development of programs that address transported air pollution. We recognize that these and other programs may prove to be more effective and practical in assuring that there is no interference with an area's ability to meet its attainment deadline than relying on offsets from a single source.

For these reasons, we have retained the original eligibility conditions for determining when section VI applies, but added a procedural requirement that the Administrator provide public notice that section VI applies for a specific situation. This requirement will achieve the proposal's purpose of assuring that States do not interpret section VI to provide a broad exemption to all major new sources and major modifications in any nonattainment area for which the attainment date has not passed.

We also are taking final action to remove the 50 tpy exemption from appendix S. As discussed in section V. A. 2. f of this preamble, we proposed this change in 1979 and finalized it in most respects in 1980. However, we PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 390 inadvertently did not remove the exemption in all the places in appendix S where it was located, specifically footnotes 5 and 8 to IV. D. We are now finalizing the 1979 proposal to the extent it remained incomplete, by removing these last two references to the 50 tpy exemption in appendix S.

b. Legal basis for changes to applicability of appendix S and the transitional NSR program The legal basis for appendix S itself, including section VI, is discussed in detail in section V. B. 3. b. of this preamble. We have historically recognized that the SIP development period provided for in section 172( b) leaves a gap in part D major NSR permitting and have determined that this gap is to be filled with an interim major NSR program that is substantially similar to the requirements of part D,

including the LAER and offset requirements from part D,

subject to a limited exemption where the attainment deadline will be met ( 57 FR 18070, 18076). This interim NSR program has been implemented to date through appendix S.

We also believe that, contrary to objections made by some commenters, appendix S  and in particular, section VI  has not been superseded by the 1990 CAA Amendments to title I of the CAA. In short, appendix S only applies where a NSR permitting program for the new or revised NAAQS is not PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 391 otherwise in effect, and thus does not replace any part D NSR SIP provisions, as many commenters erroneously believed.

That is, it applies only in newly designated or redesignated nonattainment areas lacking approved part D programs for a new or revised NAAQS, such as the 8 hour ozone NAAQS. Thus,

the evasion of subpart 2 requirements posited by commenters and the anti backsliding concerns they raise are not triggered, as nothing in the SIP is replaced. Our detailed response to those comments is set forth in section V. C. 4. of this preamble.

The section VI exemption, as limited by this final rule, is consistent with the section 110( a)( 2)( C)

requirement that the preconstruction permitting is implemented " as necessary to assure that the [ NAAQS] are achieved." We are not adopting the eligibility criteria that were proposed to ensure satisfaction of the original section VI conditions. However, we have added a requirement that the Administrator determine that sources exempted from LAER and offsets under section VI will meet those conditions, in particular, noninterference with the attainment deadline. Section VI also is consistent with the exercise of our gapfilling authority under section 301, as informed by the legislative history. That is, appendix S PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 392 reflects Congressional intent that standards equivalent to part D govern the issuance of NSR permits, subject to a limited degree of flexibility under conditions where attainment of the NAAQS by the attainment deadline is assured.

The removal of the 50 tpy exemption from appendix S is based on Alabama Power Co. v. Costle, 636 F. 3d 323, 356 57 ( D. C. Circuit, 1980), in which the court held that EPA had exceeded its authority to establish the exemption, as discussed in more detail in section V. A. 2. f. above.

5. Final action and legal basis for changes to identify NOx as an ozone precursor in attainment and unclassifiable areas a. Final changes to identify NOx as an ozone precursor in attainment and unclassifiable areas Our existing PSD regulations in § 51.166 and § 52.21 define regulated NSR pollutants, which includes any pollutant for which we promulgate a NAAQS and any constituents or precursors for such pollutants as identified by the Administrator. [ See § 51.166( b)( 49)( i) and § 52.21( b)( 50)( i)]. Today, the Administrator is identifying NOx as an ozone precursor in attainment and unclassifiable areas. Accordingly, as proposed, we amended our PSD regulations in § 51.166 and § 52.21 to expressly include NOx PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 393 as an ozone precursor. Specifically, we have amended the definitions of major stationary source, major modification,

significant, and regulated NSR pollutant to include NOx as an ozone precursor. [ See § 51.166( b)( 1)( ii), ( b)( 2)( ii),

( b)( 23), and ( b)( 49). See also § 52.21( b)( 1)( ii),

( b)( 2)( ii),( b)( 23), and ( b)( 50)]. We have also amended the footnote to § 51.166( i)( 5)( i)( e) and § 52.21( i)( 5)( i) to require sources with a net increase of 100 tpy or more of NOx to perform an ambient impact analysis.

b. Legal basis to identify NOx as an ozone precursor in attainment and unclassifiable areas The nonattainment provisions of the CAA, as amended in 1990, recognize NOx as an ozone precursor; section 182( f) of the CAA established nonattainment requirements for NOx. The definition of air pollutant under section 302( g) of the CAA includes, "... any precursors to the formation of any air pollutant..." Also, the definition of regulated NSR pollutant in § 51.166 and § 52.21 specifically recognizes that a regulated NSR pollutant is " any pollutant for which a national ambient air quality standard has been promulgated and any constituents or precursors for such pollutant identified by the Administrator ( e. g., volatile organic compounds are precursors for ozone)." PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 104 See 68 FR 32805 06, 32840, footnote 58 ( discussing national rules for controlling VOC and NOx emissions); and 68 FR 32840 footnote 57.

394 The EPA has recognized NOx as an ozone precursor in several national rules because of its contribution to ozone transport and the ozone nonattainment problem. The EPA's recognition of NOx as an ozone precursor is supported by scientific studies, which have long recognized the role of NOx in ozone formation and transport. 104 Such formation and transport is not limited to nonattainment areas. Therefore,

we believe NOx should be treated consistently as an ozone precursor in both our PSD and nonattainment NSR regulations.

For these reasons we have promulgated final regulations providing that NOx is an ozone precursor in attainment areas.

6. Final changes and legal basis for changes to emission offset provisions of appendix S a. Final changes to emission offset provisions of appendix S We are revising certain provisions in appendix S to reflect requirements of the 1990 CAA Amendments concerning offsets and RFP. Specifically, we have conformed appendix S at IV. D. to the 1990 CAA Amendments by replacing the interim policy on offsetting emissions with the statutory language PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 105 See Emission Offset Exemptions for Resource Recovery Facilities from Gerald A. Emison, Director, Office 395 at section 173( c)( 1). We also have removed the language concerning reasonable progress in section IV. E. of appendix S and replaced it with the statutory requirements at 173( a)( 1)( A).

Also, we note that the definition of net emissions increase at § 51.165( a)( 1)( vi)( E) requires that a decrease in actual emissions is creditable only to the extent that the State has not relied on it in demonstrating attainment or RFP. This requirement has never been codified in appendix S. However, the 1990 CAA Amendments at sections 172( b)( 1)

and 182 codifies the requirements concerning RFP. State and local agencies should consider the effect of creditable decreases from permitting under appendix S in their planning for demonstrating attainment and RFP.

We are also restating our policy on offsets from resource recovery facilities under appendix S. Appendix S at IV. B.( i) exempts resource recovery facilities from permitting under certain circumstances. Our 1988 policy memo indicates that as a matter of policy, EPA no longer adheres to the offset exemption for resource recovery facilities in appendix S. 105 As we did not propose to change PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 of Air Quality Planning and Standards, December 28, 1988.

396 this provision, we are not revising the final rules today regarding resource recovery facilities. However, we plan to remove this exemption in a future rulemaking.

b. Legal basis for changes to emission offset provisions of appendix S Because we have not revised the regulatory text in appendix S since the latest revision to the statute, the 1990 CAA Amendments provisions limiting the use of offsets are not explicitly included in appendix S. Nonetheless,

these requirements apply to sources permitted using appendix S because appendix S is intended to reflect the same offset requirements contained in part D of the CAA. These provisions relate to offsets and RFP.

We are revising appendix S to incorporate the statutory restrictions on offsets and remove the existing regulatory text that is outdated. The 1977 CAA is silent concerning the location of offsetting emissions. As we noted in footnote 9 to section IV. D. of appendix S, in the absence of specific statutory language, we developed an interim policy on offset locations. The 1990 CAA Amendments at section 173( c)( 1), however, placed specific limits on the location PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 397 of offsets and therefore superceded the interim policy in appendix S. Accordingly, we conformed appendix S at IV. D.

to the 1990 CAA Amendments by replacing the interim policy on offsetting emissions with the statutory language at section 173( c)( 1).

Appendix S at section IV. E. contains provisions regarding the relationship between offsets, reasonable progress towards attainment, and RFP. Under the 1990 CAA Amendments, section 173( a)( 1)( A) was revised to set forth the extent to which offsets must represent RFP, as defined in section 171. Therefore, we removed the language concerning reasonable progress in section IV. E. of appendix S and replaced it with the statutory requirements at 173( a)( 1)( A).

C. Comments and responses 1. Comments on proposed changes to incorporate the 1990 CAA Amendments In today's final action, we have revised § 51.165 and appendix S to incorporate the major stationary source thresholds, significant emission rates, and offset ratios pursuant to part D of title I of the 1990 CAA Amendments for major stationary sources of ozone precursors. As we noted in section V. A. 2. a. of this preamble, now that the PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 398 designations and classifications have been made, the provisions of subpart 1 and subpart 2 determine the NSR program requirements. Those requirements are codified in this rulemaking. For a summary of comments and responses related to when subpart 1 or subpart 2 applies, please see the preamble to those final rules at 69 FR 23961.

Commenters on both the 1996 and 2003 proposals generally supported applying the nonattainment major NSR requirements applicable to major stationary sources of VOC ( including provisions regarding major modifications,

significant emission rates, and offsets) to NOx emissions,

except where the Administrator determines pursuant to section 182( f) that NOx requirements for major stationary sources, including NSR requirements, would not apply or would be limited (" NOx waiver"). A few commenters opposed waivers under section 182( f) for exemptions from NOx requirements, due to their effect on NOx emissions in downwind States.

We agree with the commenters supporting NOx as an ozone precursor for nonattainment major NSR applicability, and have retained it in the final rule. We note that whether a NOx waiver applies in a particular area and the effects of NOx waivers on RACT are discussed in section IV. H. of this PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 399 preamble.

2. Comments on proposed revisions to criteria for emission reduction credits from shutdown and curtailments Many commenters generally supported EPA's conclusion that emission reduction credits from shutdowns and curtailments can be used for NSR offsets. These commenters believed the safeguards in the 1990 CAA Amendments justified removing the previous requirement for an approved attainment plan before such credits can be used as offsets. One commenter opposed lifting the restrictions, believing that the cited 1990 CAA Amendment provisions, including submittal of SIP attainment demonstrations, have not been implemented.

While no commenters supported the adoption of Alternative 1 exclusively, a few commenters supported both proposed Alternatives. However, many commenters strongly supported Alternative 2. These commenters asserted that the safeguards in the 1990 CAA Amendments address progress in nonattainment areas and that an approved attainment demonstration is no longer necessary to ensure shutdown/ curtailment credits are accounted for in the attainment demonstration. These commenters also believed Alternative 2 was more flexible and would encourage stable banking programs. Many commenters believed that State PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 400 agencies would be unable to meet the deadlines in Alternative 1. They also believed that Alternative 1 was unnecessarily restrictive, and would cause confusion.

We agree with the commenters who supported Alternative 2. We have promulgated final regulations that allow emission reduction credits to be used as offsets in the absence of an approved attainment demonstration, provided that these emission reduction credits were generated from shutdowns or curtailments that are included in the base year emission inventory as current actual emissions.

One commenter stated that the regulatory language concerning the " most recent emissions inventory" is confusing. The commenter believed this language could be mistaken to mean that the base year would continue to shift.

The commenter noted that it would be more accurate to state that the base year emissions inventory is the starting point and all creditable emissions reductions must have been reported in the base year inventory or a subsequent emissions inventory. We agree with the commenter that the terminology " most recent emissions inventory" is confusing and have revised § 51.165( a)( 3)( C)( 1) accordingly, specifying the cutoff date as " the last day of the base year if the projected emissions inventory used to develop the attainment PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 106 Of the 135 areas designated as nonattainment for the 1 hour ozone NAAQS in 1991, 69 have been redesignated as attainment. See http:// www. epa. gov/ oar/ oaqps/ greenbk/ onsum2. html. Of the 55 nonattainment areas with classifications of moderate and higher that were required to submit SIPs and attainment demonstrations, all but 4 have an approved SIP or have requested redesignation to attainment.

401 demonstration explicitly includes the emissions from such previously shutdown or curtailed emission units." As we discussed in section V. B. 2. a. of this preamble, this regulatory language is consistent with our previous guidance on how emission reduction credits from shutdowns and curtailments are used in attainment planning. Most importantly, it assures that emissions from shutdown and curtailed units are accounted for in attainment planning.

We disagree with the commenter who opposed the revisions. Since the submission of this comment in 1997,

States have made substantial progress in implementing the 1990 CAA Amendments. This progress includes submitting the required inventories to which attainment planning is keyed,

along with the required attainment demonstrations. 106 We believe that implementation of the 1990 CAA Amendments to date supports the conclusion that emission inventories have been effective in attainment planning, and will continue to be effective in implementing the 8 hour standard. PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 402 Therefore, we disagree with the commenter that the 1990 CAA Amendments do not justify the revisions due to inadequate implementation.

3. Comments on construction ban provisions We received comments on the following procedural issue.

In the proposal, we stated our intent to issue determinations of inadequate SIP implementation under section 173( a)( 4) by letter, followed by publication in the Federal Register, and explained that such determinations would result in a prohibition on construction in the area pursuant to that provision ( 61 FR 38305). We also solicited comment on whether an opportunity for public notice and comment should be provided. A few State commenters believed that EPA should provide such notice and comment, but did not state a basis for their position.

The text of § 52.24( b) as proposed tracked the language of section 173( a)( 4) and did not include a provision on the process to be used for issuing a determination of inadequate SIP implementation. We have finalized § 52.24( b) in substantially the same form as we proposed. The Agency is still considering the appropriate process to use in issuing a determination under CAA section 173( a)( 4).

4. Comments on applicability of appendix S and the PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 403 transitional program Many commenters opposed our proposed Transitional NSR Program, stating that it would not be protective of air quality. Many other commenters supported the proposed program, believing that it would provide needed flexibility and would not interfere with achieving attainment. Many commenters, including some who supported the Transitional Program, believed the schedule for submitting attainment plans and control requirements was impracticable. Some commenters opposed the Transitional NSR Program on legal grounds, arguing that section VI does not authorize any NSR flexibility or that appendix S has been superseded in its entirety by various sections of the CAA.

We agree with commenters that the schedule in the proposed rule for submitting attainment plans to be eligible for Transitional NSR was impracticable. On the other hand,

however, we do agree with the many commenters who urged us to provide flexible NSR requirements for some areas. While we have not promulgated specific criteria for when such flexibility would apply, we have promulgated final regulations specifying that section VI applies where the original conditions are met ( that is, the attainment deadline has not passed, the source would not interfere with PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 107 Designations are in 40 CFR 81.300. This citation has been corrected in today's final rule.

404 attainment by the deadline, and the source meets all applicable SIP emissions limitations) and the Administrator has determined and provided public notice that section VI applies.

Regarding the objections to our legal authority to implement flexible NSR under appendix S, some commenters argued that the section VI exemption is potentially applicable only where an attainment date for the secondary standards has not yet passed. However, this comment ignores the plain language of section VI, which references primary standards. It states: " In some cases, the dates for attainment of primary standards have not yet passed due to the delay in the promulgation of a plan under this section of the Act." It then goes on to note that the attainment deadlines for the secondary standards may also not yet have passed. It then states: " In such cases [ a reference to attainment dates that have not passed for both primary and second standards], a new source locating in an area designated in 40 CFR 81.3000 et seq. as nonattainment may be exempt from the conditions of Section IV. A" 107 where certain requirements are met. Thus, the section VI exemption is PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 405 applicable where the attainment date for the primary standard has not passed.

Other commenters argued that appendix S and 40 CFR § 52.24( k) have been superseded by or prohibited by various sections of the CAA. ( The EPA will use the term " appendix S" in this section of the preamble to refer to these collectively). Although commenters made this argument in the context of opposing the proposed revisions to section VI of appendix S, this comment applies to any use of appendix S for permitting, including the LAER and offset requirements of section IV, and the existing version of section VI.

First, the commenter contended that appendix S has been superseded by section 181( b)( 1) within subpart 2 of the CAA,

under which it believes a newly designated nonattainment area receives its nonattainment classification by operation of law and immediately becomes subject to all of the requirements  including section 110, subpart 1, and subpart 2  that apply to that classification. The EPA disagrees with the commenter. As a threshold matter, even if the commenter were correct that both subpart 1 and subpart 2 applied upon an area's nonattainment classification, the statute provides that the area may have a period of time to develop and submit a SIP or SIP revision PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 406 meeting the preconstruction permitting requirements of section 173. See CAA sections 172( b)( 5) and 182( a)( 2)( C).

For the SIP development period, part D leaves a gap as to the NSR requirements applicable to the newly designated nonattainment area ( if the State's part D NSR SIP does not automatically cover the area). This gap exists even if EPA were to accept the commenter's contention that subpart 2 applies. Pursuant to 40 CFR § 52.24( k), this gap is filled by appendix S, which requires NSR permitting that mirrors part D, subject to the section VI exemption.

Additionally, EPA disagrees with the commenter's contention that subpart 2 must apply to all newly designated nonattainment areas. As discussed in more detail in the preamble to the Phase 1 8 hour ozone implementation rule ( 69 FR 23951), EPA has determined that it has discretion in determining whether subpart 2 applies to these areas because subpart 2 does not dictate whether it applies where the 1

hour design value falls below the lowest value in the subpart 2 classification table. The EPA has described in that rule the circumstances in which subpart 2 applies.

The commenter also contends that section 193 has superseded appendix S. The EPA disagrees. The commenter relies on the following language in section 193: " No control PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 108 Although EPA did state in the proposal that States with already applicable part D NSR SIPs may choose to amend their SIPs to allow them to take advantage of the proposed revisions to section VI ( 68 FR 32844 n. 67), the decision not to go forward with the section VI revisions as proposed makes that issue moot. New source review under section VI, as finalized, will involve notification by the Administrator that it applies for new sources meeting the section VI criteria in areas lacking approved part D NSR programs, rather than replacement of a NSR program in the SIP with an alternative NSR program.

407 requirement in effect, or required to be adopted by a[] . .

. [ implementation] plan in effect before November 15, 1990,

in any area which is a nonattainment area for any air pollutant may be modified after November 15, 1990, in any manner unless the modification insures equivalent or greater emission reductions of such air pollutant." However, this part of section 193 is of no relevance to appendix S because appendix S does not replace any existing SIP requirements.

An area is only required to apply appendix S where it does not have a part D NSR SIP covering permitting for the 8 hour standard. In other words, it covers only the gap in the SIP caused by the lack of a part D NSR program for the relevant NAAQS, and is supplemental to any existing SIP requirements. 108 The commenter also believes that use of appendix S for permitting would violate section 110( l), which provides, in PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 408 relevant part, that: " The Administrator shall not approve a revision of a plan if the revision would interfere with any applicable requirement concerning attainment and reasonable further progress . . ." The commenter states that nonattainment preconstruction permitting requirements " concern[] attainment and reasonable further progress," so if a SIP is already written such that nonattainment NSR will apply in an area as soon as it is designated nonattainment under the 8 hour standard, then any revision that would thwart the automatic effectiveness of those requirements would violate section 110( l). Again, appendix S is not an amendment to a SIP, and does not replace any existing SIP requirements. Rather, it covers the gap caused by the lack of a part D NSR SIP for the newly designated nonattainment area. If a SIP applies the nonattainment NSR program to a newly designated nonattainment area, appendix S does not apply to that area. [ See 40 CFR 52.24( k) and appendix S,

section I.] For these same reasons, the commenter is incorrect that NSR permitting under appendix S violates Congressional intent not to relax pollution control requirements when the NAAQS are revised, as expressed in section 172( e). One commenter stated that any major revisions to appendix S should be subject to additional PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 409 notice and comment because such revisions could not be a logical outgrowth of the June 2, 2003 proposal. We disagree that the public lacked adequate notice and opportunity to comment. The changes to incorporate the 1990 CAA Amendments to part D of title I of the CAA ( for example, major stationary source thresholds, significant emission rates,

and offset ratios) and the revisions to the rule governing creditable emissions reductions from shutdowns and curtailments were proposed in 1996 for the major NSR program, including appendix S ( 61 FR 38252). The method for making designations and classifications specific to the 8

hour standard under subparts 1 and 2 was proposed on June 2,

2003 ( 68 FR 32802). Although rule language was not proposed specifically for appendix S, the rule language could be discerned from the rule language proposed for § 51.165, as appendix S states it is an interpretation of 40 CFR subpart I, which includes § 51.165. Additionally, the CAA does not require that the Agency provide notice of the exact rule language that will be finalized, but rather that the Agency provide a statement of basis, including, among other things,

the major legal interpretations and policy considerations underlying the proposal. These were provided by the 1996 and 2003 proposals and, in the case of the removal of the 50 PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 410 tpy exemption, in the 1979 proposal.

With regard to the changes to section VI of appendix S,

the Agency notes that because it declined to adopt the extensive revisions proposed, the changes are minimal. The additional condition regarding approval by the Administrator is a logical outgrowth of the proposed revisions to section VI, which explained that the Agency's goal was to limit the applicability of section VI to situations where the new source would comply with all of the conditions in section VI, most notably, not interfering with an area's ability to meet its attainment deadline.

5. Comments on changes to identify NOx as an ozone precursor in attainment and unclassifiable areas Commenters supported our proposal to amend our PSD regulations to expressly include NOx as an ozone precursor.

We agree with these commenters.

6. Comments on removing the 50 ton exemption For comments on removing the 50 ton exemption, see the discussion in the 1980 final rules at 45 FR 52689 90.

D. NSR implementation under the 8 hour ozone NAAQS As promulgated at 69 FR 23858, the designation and classifications for the 8 hour NAAQS became effective June 15, 2004. The transition to NSR under the 8 hour NAAQS PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 411 raises multiple implementation questions, which are discussed below. We intend to address additional issues in the future. 1. Areas that have never been nonattainment for ozone If an area has never been nonattainment for ozone and is nonattainment for the 8 hour ozone NAAQS, it became subject to nonattainment major NSR under the 8 hour standard on June 15, 2004. Permits for new or modified major stationary sources in such areas issued on or after June 15,

2004 must reflect NSR requirements under the 8 hour ozone NAAQS. Some States may already have in place a part D major source permitting program applicable to newly designated 8

hour ozone nonattainment areas. For nonattainment areas in States whose SIPs contain a generic requirement to issue part D major source NSR permits in areas designated as nonattainment, the State can continue to issue nonattainment NSR permits for new and modified major stationary sources under the part D NSR SIP on or after June 15, 2004. For a nonattainment area in a State with a SIP that specifically lists the areas in which part D NSR applies, or in an area that currently has no nonattainment plan or otherwise lacks authority to implement NSR for the 8 hour ozone NAAQS through a SIP approved permitting program, there will be an PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 412 interim period between June 15, 2004 and the date that the State amends its SIP either to list any new nonattainment area( s) or to include a part D plan. During this interim period, pursuant to § 52.24( k), permits for new and modified major stationary sources in such areas must be consistent with the requirements in appendix S. Where a State or local agency lacks authority to issue permits consistent with appendix S, EPA is the reviewing authority.

States may not issue PSD permits to address major NSR obligations arising from nonattainment classifications. As we stated at 69 FR 23992, PSD permits may not be issued after June 14, 2004, to satisfy permitting obligations under the 8 hour nonattainment designation. We clarify here that States are not precluded from issuing PSD permits based on the 1 hour attainment classifications, but such actions do not relieve States or sources from addressing nonattainment NSR obligations based on the 8 hour classification.

2. Areas that are nonattainment for the 1 hour NAAQS and the 8 hour NAAQS New source review under the 8 hour NAAQS became effective in 8 hour nonattainment areas on June 15, 2004.

Currently, the 1 hour NAAQS remains in effect. Thus, there is a period of time when major NSR requirements for both the PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 413 1 hour and 8 hour NAAQS applies in an area or parts of an area. During this period, different major stationary source thresholds and offset ratios may apply in a given nonattainment area under the 1 hour and 8 hour ozone NAAQS,

due to a change in its classification. Permits issued during this transition period will assure compliance with both programs if the permit requirements are based on the highest classification that applies to the area. If the area's 1 hour classification is higher than its 8 hour classification, the NSR SIP program under the 1 hour NAAQS will satisfy the requirements of both programs. If the 8

hour classification is higher, then the NSR program under the 8 hour classification will determine the NSR requirements. For example, suppose a source is locating in an area that is now classified as moderate nonattainment under the 8 hour ozone NAAQS but was previously classified as a serious ozone nonattainment area under the 1 hour NAAQS. Any permit the State issues during the transition would be based on the 50 tpy major stationary source threshold and at least 1.2: 1 offset ratio that apply to serious ozone nonattainment areas under the 1 hour ozone NAAQS.

Pursuant to 40 CFR 50.9( b), EPA revoked the 1 hour PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 414 NAAQS effective June 15, 2005 for areas designated for the 8 hour ozone standard effective June 15, 2004. We anticipate that, upon revocation of the 1 hour ozone NAAQS,

States will submit requests for approval of SIP revisions removing NSR requirements based on the 1 hour classifications, where such SIP revisions are necessary to achieve this result. At 69 FR 23985, we stated that upon revocation of the 1 hour ozone NAAQS, for any area that was designated nonattainment for the 1 hour ozone NAAQS, the area's implementation plan provisions satisfying sections 172( c)( 5) and 173 ( including provisions satisfying section 182) based on the area's previous 1 hour ozone NAAQS classification are no longer required elements of an approvable implementation plan. We also indicated that a State may request approval of a SIP revision to remove its 1 hour nonattainment NSR program from its SIP. We further stated that we will approve such changes to a State's SIP because we have determined based on 110( l) of the CAA that such changes will not interfere with any State's ability to reach attainment of the 8 hour standard and will be consistent with RFP.

On June 29, 2004, we received a Petition for Reconsideration from Earthjustice concerning these PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 415 statements on removing the 1 hour NSR SIP and on the 110( l)

determination related to removing the 1 hour NSR SIP. You can find a copy of this Petition for Reconsideration at http:// www. epa. gov/ ttn/ naaqs/ ozone/ o3imp8hr/ materials. html.

We have granted reconsideration on these two narrow NSR issues in the Phase 1 Ozone Implementation Rule. We published a proposed rule on these issues on April 4, 2005 ( 70 FR 17018). We published a final rule on these two issues on July 8, 2005 ( 70 FR 39413).

As we stated at 69 FR 23986 ( Column 1), emission limitations and other requirements in major NSR permits issued under 1 hour NSR programs will continue to be in force when the 1 hour NAAQS is revoked. For example,

suppose an existing source is located in an area classified as serious nonattainment under the 1 hour ozone NAAQS and has a nonattainment major NSR permit based on its potential to emit 75 tpy VOC. That major NSR permit ( including emission limitations and other requirements) remains in force on and after June 15, 2005 even if the area that the source is located in is now classified moderate nonattainment ( with a major stationary source threshold of 100 tpy) under the 8 hour ozone NAAQS.

3. Part D NSR SIP submittals PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 109 As noted in section V. D. 2 of this preamble, we will complete our reconsideration on issues related to NSR SIP submittals and announce our final action by May 20, 2005.

416 Today's final action on the regulations at § 51.165 establishes the minimum requirements for part D SIPs implementing major NSR under the 8 hour NAAQS. Some States may find it unnecessary to revise their SIPs to implement NSR under the 8 hour NAAQS. This can happen when the approved part D NSR and ozone classification scheme SIP applies to any areas designated as nonattainment under section 107 of the CAA or listed in 40 CFR 81.300 et seq.

In States that do not have authority to implement a part D program for the 8 hour NAAQS, a SIP revision for major NSR under the 8 hour NAAQS must be submitted. 109 The revised implementation plan must include requirements to implement the provisions of sections 172( c)( 5) and 173 of the CAA based on the area's 8 hour ozone NAAQS classification under 40 CFR part 81, and the provisions of § 51.165 as amended in today's final action.

States must submit SIP provisions incorporating today's final rules at § 51.165 no later than June 15, 2007, which is 3 years after designation. This schedule is consistent with the schedule set forth in CAA sections 172( b) and PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 110 CAA Section 182( a)( 2)( C)( i) requires NSR SIPs to meet the 1 hour ozone NAAQS to be submitted within 2 years after the date of the enactment of the 1990 CAA Amendments. This requirement has been met by the submission of NSR SIPs due on November 15, 1992, which EPA requested on April 16, 1992 at 57 FR 13499. We have interpreted the 2 year schedule not to apply for the NSR SIPs implementing the 8 hour ozone NAAQS.

417 110( a)( 1). 110 This date facilitates coordination of NSR program changes with the submission of the attainment plan,

which is also due within 3 years. Part D NSR SIPs to implement the 8 hour NAAQS should reflect the requirements of today's final action, as well as the requirements in subpart X of part 51 promulgated on April 30, 2004 at 69 FR 23951. Before EPA can approve a program into the SIP to implement a nonattainment major NSR program for the 8 hour ozone NAAQS, State and local agency programs implementing part D ( nonattainment NSR permit program in § 51.165) must include today's changes as minimum program elements. States must also submit SIP provisions incorporating today's final rules at § 51.166 no later than June 15, 2007.

4. Effective date for today's requirements All of these changes will take effect in the NSR permitting programs for nonattainment areas codified at appendix S of part 51 and § 52.24 on [ INSERT DATE 60 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER]. This PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 418 means that appendix S as amended in today's final action will apply on [ INSERT DATE 60 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER] in any nonattainment area without an approved part D NSR SIP that applies to major sources in the nonattainment area for the nonattainment pollutant.

These changes will take effect in the Federal PSD program ( codified at 40 CFR 52.21) on [ insert date 60 days after date of publication in the Federal Register] in any area without an approved PSD program, for which we are the reviewing authority, or for which we have delegated our authority to issue permits to a State or local reviewing authority. The provisions of § 51.165 and § 52.24, as amended in today's final action, also apply on [ INSERT DATE 60 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER]. State and local agency programs implementing part C ( PSD permit program in § 51.166) and part D ( nonattainment NSR permit program in § 51.165) are effective when they are approved by us.

5. Requirements for offsets Offsets under CAA section 173 are typically based on emissions reductions achieved through installation of control technology, shutdown of a source, or curtailment of production or operating hours below baseline levels. PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 419 Offsets must meet several requirements set forth in section 173 of the CAA, including the following:

° Offsets must be obtained by the time the source is to commence operation [ CAA section 173( a)( 1)( A)].

° Offsets must be consistent with RFP [ CAA section 173( a)( 1)( A)].

° Offsets must be federally enforceable before permit issuance [ CAA section 173( a)].

° Offsets must be in effect and enforceable by the time a new or modified source commences operation [ CAA section 173( c)( 1)( B)].

° Emissions reductions that are otherwise required under the CAA cannot be creditable as offsets [ CAA section 173( c)( 2)].

° Offsets must come from a source in the same nonattainment area, unless it comes from an area that has an equal or higher nonattainment classification and the emissions from such other area contribute to a violation of the national in the nonattainment area in which the source is located [ CAA section 173( c)( 1)].

If an emission reduction credit ( including an emission reduction credit generated from a shutdown or curtailment)

has been used to meet ROP or RFP milestones, it is not PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 420 available for use as an offset or in netting. This is because section 173( c)( 2) of the CAA prohibits use of emissions reductions as offsets where the reductions are " otherwise required by the Act." Thus, reductions that are used to meet Federal requirements, including SIP approved ROP and RFP obligations under CAA section 182, are not creditable. Where emissions reductions pre dating 2002 have not been used to meet ROP and RFP obligations, or other Federal requirements, CAA section 173( c)( 2) does not prohibit their use. Thus, EPA believes that such credits may be used as offsets consistent with the CAA. The EPA encourages States to allow sources to use pre 2002 banked emissions reductions credits ( that is, those that were generated before January 1, 2002, which is the first day of the emissions inventory base year for the base year inventory used to develop the attainment demonstration) for offsetting purposes. States may do so as long as the banked credits meet all other offset creditability criteria and such credits are included by States as growth in developing the attainment demonstration as discussed elsewhere in this preamble. See also 57 FR 13508 09. The credits must be certified and approved for such purposes.

Additional requirements apply to credits generated from PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 421 shutdowns or curtailments. Pursuant to today's final rule,

States may revise their SIPs to remove the requirement for an approved attainment demonstration as a condition of using shutdown/ curtailment credits pre dating the new source application. Under the revised rule, emissions from the shutdown/ curtailed source can be creditable if they are included in the projected emissions inventory used to develop the attainment demonstration. For emissions reductions from shutdowns or curtailments to be creditable for offset purposes, the State must also certify that emissions from the shutdown or curtailed source have not been used and are not necessary to meet any other requirement under the CAA, including RFP or ROP.

Use of emission reduction credits banked before the base year ( that is, those generated before January 1, 2002)

for netting continues to be available to the extent allowed under State rules. However, because these emission reduction credits represent emissions that are not included in the 2002 base year inventory, States should consider net emission increases occurring on or after January 1, 2002 as growth even though, for applicability purposes, the source does not have a significant net emissions increase.

VI. Final Rule for RFG PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 422 A. Introduction This portion of the rule addresses what effect the transition to the 8 hour NAAQS will have on certain aspects of the federal RFG program. Under the CAA, the RFG requirements apply in certain areas of the country. First,

there are nine areas that Congress identified pursuant to section 211( k)( 10)( D) of the CAA as mandatory RFG areas.

Second, there are five RFG areas that are mandatory areas based on their reclassification to a severe ozone classification. These areas are typically called " bump up"

areas. See CAA section 211( k)( 10)( D), 211( k)( 6), and 211( k)( 5). Finally, there are a number of areas that have voluntarily opted in to the RFG program. The purpose of the RFG program is to improve air quality through the use in certain areas of gasoline that is reformulated to reduce motor vehicle emissions of tropospheric ozone forming compounds and toxics, as set forth in section 211( k)( 1) of the CAA.

B. Background In the Phase 1 Rule, EPA addressed two key issues regarding the transition from the 1 hour NAAQS to the 8 hour NAAQS. First, when will the 1 hour NAAQS no longer apply ( i. e., be " revoked")? Second, what protections are in place PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 111 In the Phase 1 Rule, EPA defined applicable requirements as those control measures in place as of the date of signature of the Phase 1 Rule, ( i. e., April 15, 2004). The EPA recently reconsidered this issue and changed this date to the effective date of the 8 hour designations  for most areas this would be June 15, 2004 ( 70 FR 30596).

423 to ensure that, once the 1 hour NAAQS is revoked, air quality will not degrade and that progress toward attainment will continue as areas transition from implementing the 1 hour NAAQS to implementing the 8 hour NAAQS?

On the first issue, EPA decided that the 1 hour NAAQS will be revoked in full, including the associated designations and classifications, 1 year following the effective date of the designations for the 8 hour NAAQS.

Most areas were designated effective June 15, 2004, and for those areas the 1 hour NAAQS and the related designation and classification will no longer apply as of June 15, 2005.

On the second issue, the anti backsliding portion of the Phase 1 rule established that all areas designated nonattainment for the 8 hour ozone NAAQS, that were designated nonattainment for the 1 hour NAAQS at the time of designation for the 8 hour NAAQS, remain subject to mandatory control measures that applied by virtue of the area's classification for the 1 hour NAAQS. These control measures are called " applicable requirements." 111 Also, EPA PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 112 While the Phase 1 Rule also addressed the transition to the 8 hour NAAQS for areas recently designated as attainment for the 8 hour NAAQS, all relevant RFG areas are designated as 8 hour nonattainment areas ( 69 FR 23858).

424 decided that areas designated nonattainment for the 8 hour NAAQS, that were designated attainment subject to a section 175A maintenance for the 1 hour NAAQS at the time of designation for the 8 hour NAAQS, must continue to implement all applicable requirements that have been approved into the SIP. 112 In the June 2003 proposal, EPA identified Federal RFG as an applicable requirement ( 68 FR 32867). In the final rule, however, EPA did not include RFG in the list of applicable requirements. The EPA instead clarified that RFG is required under a Federal program, and thus differs significantly from the other programs on the list of applicable requirements, which are developed and adopted by States for inclusion in the SIP. The EPA recognized that various issues exist regarding the scope and applicability of the RFG program during and after implementation of the 8

hour NAAQS that need further clarification. The EPA stated that we were still considering how to treat RFG and that we would address these issues in an action separate from the PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 425 Phase 1 Rule ( 69 FR 23973). Thus, EPA did not include RFG in the list of applicable requirements in the Phase 1 Rule,

and EPA made no decision at that time concerning RFG treatment in the transition to the 8 hour NAAQS.

C. What action is EPA taking?

As discussed in more detail below, EPA is clarifying today that the nine original mandatory RFG areas, as well as most other areas that have become mandatory RFG areas by being " bumped up" to a severe classification, will continue to be required to use RFG at least until they are redesignated to attainment for the 8 hour NAAQS. The EPA is not deciding at this time what will happen when the original nine areas and the bump up areas covered by this rule are redesignated to attainment for the 8 hour NAAQS. The EPA is also not deciding at this time what RFG requirements apply for any bump up areas that are redesignated to attainment for the 1 hour NAAQS before the 1 hour NAAQS is revoked.

The only such area that was redesignated to attainment prior to revocation of the 1 hour NAAQS is Atlanta, Georgia. That issue will be addressed in an action separate from this final rule.

The RFG areas that opted into the program will continue to be RFG areas unless they opt out pursuant to EPA's opt PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 426 out regulations. The transition to the 8 hour NAAQS does not change the terms and conditions that apply to opting out of the RFG program. Likewise, EPA's current rules on opting in to RFG will apply in the same manner under the 8

hour NAAQS as under the 1 hour NAAQS  i. e., 8 hour nonattainment areas that are classified as marginal or above under subpart 2 will be able to opt in to the RFG program.

D. Why is EPA taking this action?

1. RFG mandatory areas Under section 211( k)( 5), RFG is required in any " covered area." The term " covered area" is defined in section 211( k)( 10)( D) as:

[ t] he 9 ozone nonattainment areas having a 1980 population in excess of 250,000 and having the highest ozone design value during the period 1987 through 1989 shall be " covered areas" for purposes of this subsection. Effective one year after the reclassification of any ozone nonattainment area as a severe ozone nonattainment area under section 181( b) of this title, such severe area shall also be a " covered area" for purposes of this subsection.

In the June 2003 proposed Phase 1 Rule, EPA proposed that RFG be considered an applicable requirement and treated PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 427 like the various mandatory control obligations that States remained obligated to adopt and implement after revocation of the 1 hour NAAQS. Under that proposal, the nine original mandatory areas and all bump up areas would have continued to be covered areas after revocation of the 1 hour NAAQS.

For the reasons discussed below, EPA is adopting this basic approach for the nine original mandatory areas as well as those bump up areas covered by this final rule.

a. Nine original mandatory areas The first sentence of section 211( k)( 10)( D) identifies certain covered areas by reference to their 1980 population and their 1987 1989 ozone design value. The nine areas that meet these criteria are Los Angeles, San Diego, Hartford,

New York, Philadelphia, Chicago, Baltimore, Houston, and Milwaukee. It is clear that transition to the 8 hour NAAQS does not change the historical facts that define these areas. In addition, all of these areas are designated as nonattainment areas under the 8 hour NAAQS. Thus, they will continue to be " ozone nonattainment areas" until they are redesignated to attainment for the 8 hour NAAQS. Revocation of the 1 hour NAAQS and transition to the 8 hour NAAQS does not change the fact that each of these nine mandatory areas will continue to meet the definition of covered area at PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 428 least until it is redesignated to attainment for the 8 hour NAAQS. As discussed below, EPA is not deciding at this time whether these areas will continue to be covered areas upon redesignation to attainment for the 8 hour NAAQS. The EPA reserves any determination on that issue for a future action.

The EPA believes that this is a straightforward and clear application of the plain language of the statute.

However, even if the statutory terms were considered ambiguous on this issue, EPA believes that the same statutory interpretation and policy considerations described below for the " bump up" areas covered by this final rule apply to the nine mandatory areas and would lead EPA to require continued use of RFG in the nine areas at least until they are redesignated to attainment for the 8 hour NAAQS.

Since EPA regulations at 40 CFR § 80.70 currently define the term " covered area" to include the original nine mandated areas, no change in EPA regulations is needed at this time. The EPA will address in a future action what RFG requirements, if any, apply to the original nine RFG covered areas when they are redesignated to attainment for the 8

hour NAAQS. PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 429 b. Bump up areas The second sentence of section 211( k)( 10)( D) identifies areas that become covered areas because they have been reclassified as a severe area under CAA section 181( b).

These are called " bump up" areas. To date, five areas have been reclassified to severe for the 1 hour NAAQS. They became RFG covered areas 1 year after their reclassification  Baton Rouge, Atlanta, Sacramento, San Joaquin Valley, and Washington, D. C.  which was already an opt in area.

The areas that are RFG covered areas based on the bumpup provision were designated as ozone nonattainment areas and classified by operation of law at the time of the 1990 CAA Amendments, and their bump up to severe occurred by operation of law based on EPA's determination under section 181( b) that the areas failed to attain the 1 hour NAAQS by the applicable attainment date. Thus, their reclassification to severe was not based on a determination that their air quality met the severe area design value.

Instead, reclassification was based on their failure to meet the applicable attainment date. The bump up to severe has two effects  a later attainment date is set for the area,

and a variety of additional control measures become mandatory for the area. The Federal RFG program becomes a PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 430 mandatory control measure in an area 1 year after it is bumped up to a severe classification.

There are two ways that a bump up area classified as severe could lose its severe classification. First, it could do so through redesignation to attainment for the 1

hour NAAQS. ( This is no longer an option for areas where the 1 hour NAAQS was revoked on June 15, 2005.) Second,

since the 1 hour NAAQS is revoked, a bump up area will no longer be classified as severe under the 1 hour NAAQS and may have a lower classification ( i. e., subpart 1, marginal,

moderate or serious) for the 8 hour NAAQS. This rule only addresses the second situation.

The bump up areas in this second situation are all designated as 8 hour ozone nonattainment areas, with classifications under the 8 hour NAAQS that are a lower classification than severe. This raises the issue of whether the bump up areas that lose their severe classification through revocation of the 1 hour NAAQS should continue to be covered areas once the 1 hour NAAQS and the areas' related severe classifications are revoked.

The EPA believes that section 211( k)( 10)( D) is ambiguous on the issue of whether a bump up area continues to be a covered area when it is no longer classified as PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 113 While this final rule only addresses bump up areas that lose their severe classification based upon revocation of the 1 hour NAAQS, the ambiguity in section 211( k)( 10)( D) extends to all bump up areas, including those not covered by this final rule. As noted above, EPA intends to address and resolve this ambiguity for any bump up areas not covered by this rule in an action separate from this final rule.

431 severe. The text of the provision could be read to set the defining criteria as the occurrence of reclassification to severe, a historical fact that does not change based on subsequent changes in classification. It could also be read as identifying areas that are reclassified to severe, but as leaving unresolved what happens when they are no longer so classified. Given this ambiguity, EPA has discretion to determine whether section 211( k)( 10)( D) authorizes removal of a bump up area from the RFG program when it is no longer classified as severe, and to set appropriate criteria for such removal. 113 For a bump up area covered by this rule, it is instructive to consider what would happen if EPA had never revised the 1 hour NAAQS. In that case, the area would continue to be a covered area at least until it was redesignated to attainment for the 1 hour NAAQS. While section 211( k)( 10)( D) does not directly address whether a bump up area would continue to be a covered area after PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 432 redesignation, it is clear that if EPA had never revised the 1 hour NAAQS, the area would continue to be a covered area at least as long as it was a severe area, and it would be a severe area as long as it was still designated as an ozone nonattainment area.

The EPA does not believe that Congress would have intended that removal of the severe classification based solely on revocation of the less protective 1 hour NAAQS should result in backsliding of the RFG requirement. For example, as noted above, if EPA had not adopted a more protective 8 hour NAAQS, with the related revocation of the 1 hour NAAQS and removal of the severe classification, then the bump up areas covered by this rule would remain covered areas at least until they were redesignated to 1 hour attainment, at which point they would no longer be designated as ozone nonattainment areas. Here, the removal of the severe classification is through revocation of the 1

hour NAAQS, not through redesignation to 1 hour attainment.

These bump up areas are still designated as ozone nonattainment areas. The EPA believes the removal of the severe classification for these areas as a result of revocation of the 1 hour standard should not lead to removal of the RFG requirement. The EPA believes the RFG PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 433 requirement should continue beyond revocation of the 1 hour NAAQS, and it should continue at least until the areas are redesignated to attainment for the 8 hour NAAQS. This does not change or affect any discretion EPA may otherwise have under the RFG provisions to modify or remove RFG requirements.

This is consistent with the approach taken in the Phase 1 Rule for the mandatory obligations that EPA identified there as " applicable requirements." In that rule, EPA determined that a number of provisions of the CAA evidence Congress' intent that certain obligations that applied to an area by virtue of the area's classification for the 1 hour NAAQS should continue to apply despite EPA's determination the 1 hour NAAQS is no longer necessary to protect public health. While some of these various statutory provisions do not have direct bearing on Federal RFG and section 211( k),

the issues are closely analogous. For example, the inclusion of a bump up area in the RFG program is integrally tied to the subpart 2 provisions that establish the original classification and attainment date for an area and its later reclassification as severe under section 181( b). The Supreme Court cautioned in Whitman v. American Trucking Assn., 531 U. S. 457 ( 2001), against EPA making subpart 2 PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 114May 26, 2005 ( 70 FR 30596).

434 " abruptly obsolete." Although the RFG requirement itself is not set forth in subpart 2, the requirement to use it in severe bump up areas is tied directly to the classifications that arise by operation of subpart 2. Thus, it would appear that the Supreme Court's caution should be as relevant for RFG bump up areas as it is for the subpart 2 control obligations. For further discussion of the reasoning behind anti backsliding provisions in the Phase 1 Rule, see 69 FR 23951, 23972. The reasoning presented there also supports EPA's interpretation of section 211( k)( 10)( D) regarding RFG requirements for bump up areas covered by today's rule.

One issue addressed in the Phase 1 Rule involved setting the trigger date for determining what 1 hour SIPrelated requirements would continue as mandatory " applicable requirements" after revocation of the 1 hour NAAQS. The EPA considered three possible trigger dates for the Phase 1 Rule  the date of signature of the Phase 1 Rule, the effective date of the 8 hour nonattainment designation, and the date of revocation of the 1 hour NAAQS. 114 For purposes of this final rule, it is not necessary to decide on a similar date for determining the continued applicability of RFG for these PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 435 bump up areas. Under all potential trigger date options,

RFG would be a requirement on the trigger date for the bumpup areas covered by this rule, as they would all be classified as severe areas on any of the trigger dates that were considered.

Based on the above, EPA has determined that bump up areas that lose their severe classification based solely on revocation of the 1 hour NAAQS should remain RFG covered areas at least until they are redesignated to attainment for the 8 hour NAAQS. As indicated above, this does not change or affect any discretion EPA may otherwise have under the RFG provisions to modify or remove RFG requirements.

2. RFG opt in areas Under section 211( k)( 6) of the CAA, certain ozone nonattainment areas may opt in to the RFG program. That provision limits opt ins to areas " classified under subpart 2 of part D of title I as a marginal, moderate, serious, or severe Area." The EPA's regulation implementing this provision is at 40 CFR 80.70( j), which states that "[ a] ny ... area classified under 40 CFR part 81, subpart C as a marginal, moderate, serious, or severe ozone nonattainment area may be included as a covered area on petition of the Governor of the State in which the area is located." PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 436 Some areas designated nonattainment for the 8 hour NAAQS are subject only to the planning requirements of subpart 1, while others are also subject to the planning requirements of subpart 2 of part D of title I. The 8 hour nonattainment areas subject to the planning requirements of subpart 2 were all classified as marginal, moderate,

serious, or severe ( 69 FR 23951, 23954; April 30, 2004).

The 8 hour nonattainment areas subject only to subpart 1 are not subject to those classifications. Thus the only 8 hour nonattainment areas that would be able to opt in under the terms of section 80.70( j) are areas classified under subpart 2 as marginal, moderate, serious, or severe, consistent with the terms of section 211( k)( 6).

In a prior rulemaking, EPA initially expanded the scope of this opt in provision, interpreting section 211( k)( 6) as authorizing opt in for any current or prior 1 hour ozone nonattainment area, including areas that were not classified marginal or above. In that rulemaking, EPA reserved judgment on whether it would apply the same expanded interpretation to areas designated as nonattainment for the then recently adopted 8 hour NAAQS ( 63 FR 52094, 52101;

September 29, 1998). The EPA's expanded view of the scope of section 211( k)( 6) was subject to judicial review and was PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 437 rejected as inconsistent with the terms of section 211( k)( 6), as " Congress provided for opt in only for areas classified as marginal, moderate, serious, or severe." API and NPRA v. EPA, 198 F. 3d 275, 281 ( D. C. Cir. 2000).

The text of EPA's current opt in regulation is limited as a result, is consistent with the limitation in section 211( k)( 6), and only allows opt in for areas classified under subpart 2 as marginal or above. The EPA interprets the current opt in regulation as allowing opt in for those 8

hour nonattainment areas that are classified as marginal or above under subpart 2. The EPA believes this is consistent with section 211( k)( 6) and with the API and NPRA case, and therefore sees no need to revise the current regulation.

E. Future proceedings Today, EPA is reserving for future consideration what RFG requirements, if any, should apply to the nine mandatory areas and the bump up areas covered by this final rule when they are redesignated to attainment for the 8 hour NAAQS.

The Phase 1 Rule provides that upon redesignation to attainment for the 8 hour NAAQS, SIP measures may be moved to the contingency measure portion of the SIP if the State demonstrates in accordance with section 110( l) that doing so will not interfere with maintenance of the 8 hour NAAQS or PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 438 any other applicable requirement of the CAA ( 69 FR 23951,

23998; April 30, 1994)( 40 CFR § 51.905( b)). This SIP process does not apply to RFG, since it is not a SIP measure.

However, EPA will need in the future to consider whether it should develop a similar scheme for RFG. Specifically, EPA will consider the following issues. Should a State be allowed to drop the RFG requirement when a covered area is redesignated to attainment for the ozone NAAQS, or should the requirement remain in place? If it can be dropped,

under what conditions? Once dropped, would the requirement to use it spring back if a State backslides into nonattainment? If it springs back, what lead time should be provided? If it does not spring back automatically, should EPA nevertheless reserve the discretion to require a former covered area to use RFG if it slips back into nonattainment?

The EPA anticipates considering these and related issues in a future notice and comment proceeding. The EPA is not soliciting comment on these issues at this time.

As noted above, EPA is not deciding at this time what RFG requirements apply for any bump up areas that are redesignated to attainment for the 1 hour NAAQS before the 1 hour NAAQS is revoked. The only such area that was redesignated to attainment prior to revocation of the 1 hour PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 439 NAAQS is Atlanta, Georgia. That issue will be addressed in an action separate from this final rule.

F. Miscellaneous administrative changes to the RFG regulations Today, EPA is making a non substantive formatting change to its RFG regulations. The regulations are currently structured to envision a complete list of all bump up areas required to use RFG. However, EPA has not made timely amendments to these regulations to keep the list of bump up areas up to date, so the regulations may appear to be misleading. Although EPA could take the opportunity to revise the list at this time to include all current bumpup areas, EPA believes that it would be best to amend the regulations to omit the list. The EPA will maintain a list of bump up areas on its RFG web site:

http:// www. epa. gov/ otaq/ rfg/ whereyoulive. htm. This list can more quickly and easily be amended in the future to be kept up to date.

G. Comments and responses Comment: One commenter noted EPA has proposed that all areas designated 8 hour nonattainment remain subject to control measures that apply by virtue of the area's classification for the 1 hour standard. For control PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 440 measures that the State has not adopted, the State remains obligated to adopt and submit such controls. The commenter believes that such a policy may have unintended negative consequences for the few areas that recently bumped up as the result of EPA's failed transport policy. Specifically,

most of these areas will bump up to either the serious or severe subpart 2 classification triggering higher classification controls. Some of these controls, and in particular VOC controls and RFG, may not benefit and/ or may even be counterproductive to attaining the 8 hour standard.

The commenter believes that for these few areas that recently bumped up as the result of the failed transport policy, EPA should allow those States to evaluate the relative ozone reduction benefits of the higher classification controls and, where appropriate, substitute for more effective ozone controls. The commenter believes this is important to ensure continued progress towards attainment in the most cost effective manner.

Response: Congress specified use of RFG for areas bumped up to severe nonattainment status without providing an opportunity for such areas to substitute other controls that may be more effective. Specifying mandated controls for areas that have failed to achieve timely attainment is PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 441 one of the specific provisions added by Congress in the 1990 CAA Amendments. The EPA does not believe that the transition to a more protective 8 hour standard should result in less restrictive requirements for RFG, such as allowing substitution of other control measures for RFG,

than would apply if EPA had never revised the 1 hour standard. Substitution was not allowed under the 1 hour standard.

However, EPA notes that Congress established a mechanism to address adverse impacts of the RFG program on attainment of the NAAQS by authorizing EPA to waive the RFG oxygen content requirement where it is clearly demonstrated that the oxygen content requirement prevents or interferes with NAAQS attainment [ section 211( k)( 2)( B)]. This provides additional support for the view that the transition to the 8 hour standard should not establish a right to substitute other measures for RFG as the statute provides a different way to address potential concerns over the effectiveness of RFG in addressing ozone attainment.

Comment: The local experts have estimated that RFG will cost consumers in the 5 parish nonattainment area an additional $ 48 to $ 72 million annually. The Department of Environmental Quality, using MOBILE6 modeling has projected PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 442 that RFG will provide no measurable benefits for NOx and less than 2 tons per day of VOC reductions. Recent UAM V modeling for the Baton Rouge area shows an ozone benefit for RFG of around 0.26 ppb. Earlier UAM V sensitivity modeling showed only a 1 ppb reduction in ozone with a 30 percent reduction in local anthropogenic VOC emissions from all sources. Thus, for an expenditure of up to $ 72 million annually, we can expect a negligible ozone benefit.

Employing the usual cost benefit analysis for cost per ton of pollutant removed, we arrive at a cost of around $ 36 million per daily ton removed or around $ 100,000 per annual ton removed. Since the reduction would be expected to produce no measurable ozone benefit anyway, wouldn't this qualify as an " absurd result" and be subject to consideration for waiver as discussed in the proposed 8 hour implementation rules? ( p. 3 4).

Response: Baton Rouge has submitted requests for a RFG waiver and for a waiver of the RFG oxygen content requirement, which are currently before the Agency. With respect to EPA's authority to grant a waiver of the entire RFG requirement for bump up areas on the basis of claims of " absurd results" allegedly caused by the oxygen content requirement of RFG, please see EPA's September 30, 2004, PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 443 response to Georgia's request for a RFG waiver, which is available at: www. epa. gov/ otaq/ regs/ fuels/ rfg/ 420s04006. pdf.

As noted above, EPA does not believe that the transition to the more protective 8 hour standard should result in less restrictive requirements for RFG than would apply if EPA had never revised the 1 hour standard. The appropriate mechanism to address Baton Rouge's concerns is therefore in the context of Baton Rouge's petitions for relief under the RFG program, and not by establishing different, less restrictive RFG requirements as part of the transition to the 8 hour standard.

Comment: Several commenters oppose any attempts to liberalize procedures allowing for voluntary opt ins to the Federal RFG program. Simply stated, further fuels restrictions are not an appropriate local control strategy.

There is little justification for automatic proliferation of RFG. The industry is currently working hard to implement far reaching fuels regulations that will result in significant environmental improvement. It does not need additional fuel reformulation requirements while this implementation work is going forward.

The commenter notes under section 211( k)( 6)( A) of the CAA, only areas classified under subpart 2 of Part D of PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 444 Title I as a marginal, moderate, serious or severe area ( without regard to whether or not the 1980 population of the area exceeds 250,000) can opt in to RFG. Therefore, " Gap"

Areas   those attaining the 1 hour, but not the 8 hour standard would be subject to implementation under subpart 1 of the CAA. Those areas not attaining the 1 hour standard and reclassified as 8 hour nonattainment areas would be subject to implementation procedures under subpart 2.

Response: Section 211( k)( 6)( A) specifies which ozone nonattainment areas may opt in to the RFG program. The EPA's implementation plan for the 8 hour standard does not change or liberalize this statutory provision or EPA's regulations implementing it, but rather provides for continued availability of opt ins consistent with the statutory scheme. After revocation of the 1 hour standard,

opt ins will be possible for areas classified under subpart 2 as marginal, moderate, serious or severe ozone nonattainment areas under the 8 hour standard. The EPA will continue after transition to the 8 hour standard to use its existing regulations at 40 CFR 80.70( j) and 80.72 regarding procedures for opt ins and opt outs.

Comment: The American Road and Transportation Builders Association ( ARTBA) believes States should be able to choose PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 445 their own devices for improving air quality. As a result,

ARTBA would like EPA to liberalize its procedures for allowing a voluntary opt in for the Federal RFG program.

While ARTBA understands new national fuel standards are in the developmental process, the transportation conformity requirement often mandates short term solutions with a limited number of options. We believe the RFG opt in should be one of the tools available for States.

Response: Section 211( k)( 6) of the CAA specifies which ozone nonattainment areas are eligible to opt in to the RFG program and the procedures ( petition by governor of the State) for opting in. Opt in is limited to areas classified under subpart 2 as marginal, moderate, serious or severe ozone nonattainment areas. The EPA does not have the authority to " liberalize" these provisions in a manner inconsistent with the statute. See American Petroleum Institute v. EPA, 198 F. 3d 275 ( D. C. Cir. 2000)( RFG opt ins limited to areas classified under subpart 2 as marginal,

moderate, serious or severe nonattainment areas).

Comment: One commenter believes EPA's proposed incentive feature undercuts controls aimed at reducing ozone precursor emissions from mobile sources. For example, areas that are bumped down from severe to serious will no longer PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 446 need to sell less polluting reformulated gas.

Response: The EPA's final rule does not provide for areas to be " bumped down" after final designation and thereby drop the requirement to use RFG. On the contrary,

the original nine mandated RFG covered areas, and any other nonattainment area bumped up to a severe classification,

will be required to use RFG at least until redesignated to attainment of the 8 hour ozone NAAQS.

Comment: One commenter notes that, in the proposed rule, EPA includes the requirement for RFG in severe areas in its list of applicable requirements that will remain in effect after full revocation of the 1 hour standard ( 68 FR 32802, appendix B). This commenter requests that EPA remove the RFG requirement from appendix B before promulgation of the final implementation plan.

The commenter notes that within 1 year of reclassification as a " severe" nonattainment area under the 1 hour standard, gasoline distributors in the 13 county Metro Atlanta nonattainment area will be required to distribute reformulated gasoline. [ 42 U. S. C.

§ 7545( k)( 10)( D)]. Reformulated gasoline, however, will not be as beneficial to the air quality in Atlanta as other types of fuel. After significant study, the Georgia PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 447 Environmental Protection Division ( EPD) has implemented a fuel program tailored to the atmospheric conditions and air quality problems in the metro area that are primarily related to NOx emissions and not VOC emissions. House Hearing ( July 22, 2003). Reformulated gasoline, however, is designed to reduce VOC emissions rather than NOx emissions.

Therefore, EPD's fuel program that requires the distribution of fuel that is specifically designed to reduce NOx will do more to clean the air in Atlanta than RFG. If Atlanta is " bumped up" to a " severe" nonattainment area, it will lose the benefits of its beneficial fuel program in place of the less effective RFG.

The commenter requests EPA to remove RFG as an applicable requirement that will remain in effect after implementation of the 8 hour standard. The requirement for RFG under the 1 hour standard is flawed in that it does not address the specific ozone nonattainment issues of areas such as Atlanta in which NOx rather than VOCs is the pollutant of concern. Therefore, the commenter urges EPA to allow the revocation of the RFG requirement associated with areas classified as severe and higher under the 1 hour standard to allow areas that will be classified as a lower designation under the new, more stringent 8 hour standard PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 448 the flexibility to utilize a gasoline formulated specifically to address the air quality issues in those particular areas.

Response: The final rule adopted today specifies that areas bumped up to a severe classification under the 1 hour standard that are designated nonattainment for the 8 hour standard must continue to use RFG at least until redesignated as attainment for the 8 hour standard. The reasons for this approach are described in the preamble and do not change or affect any discretion EPA may otherwise have under the RFG provisions to modify or remove RFG requirements. The EPA did remove RFG from the list of applicable requirements identified in the Phase 1 Rule,

because the applicable requirements provision in the Phase 1 Rule addresses State controls and SIP requirements. The final rule adopted today treats RFG, a Federal control, in basically the same manner as applicable requirements are treated in the Phase 1 Rule.

With respect to the specific comments regarding the impact of using RFG in the Atlanta area, please see EPA's analysis of these issues in its September 30, 2004, response to Georgia's request for a RFG waiver for Atlanta.

VII. Other Considerations PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 449 A. How will EPA's implementation of the 8 hour ozone NAAQS affect funding under the Congestion Mitigation and Air Quality Improvement ( CMAQ) Program?

1. Background In the proposal, we noted that the Transportation Equity Act for the 21st Century ( TEA 21) established eligibility for the use of CMAQ program funds in certain nonattainment and maintenance areas, designated under section 107( d) of the CAA ( 42 U. S. C. 7407( d)), provided the area is, or was, also classified in accordance with CAA subpart 2, sections 181, 186, and 188. All areas designated nonattainment after December 31, 1997 were also eligible,

but without regard to classification.

2. Current position Since the proposal, new transportation legislation was passed by Congress and signed into law. The amount of CMAQ funds available to States is now set at levels authorized by the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users ( SAFETEA LU). The funds are still apportioned to States through the statutory formula contained in section 104( b) of title 23. The formula is still based on the designations and classifications of ozone and CO nonattainment and maintenance areas, and the PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 450 population in such areas.

The formula for determining the amount of funds apportioned to the States takes into account the areas that are designated under both subpart 1 and subpart 2 of part D of title I, of the CAA. How funding is affected for any specific area is determined by the U. S. DOT in accordance with SAFETEA LU.

3. Comments and responses Comments: The EPA received several comments expressing concern that implementation of the 8 hour ozone standard may negatively impact an area's eligibility for CMAQ Program funds and/ or the amount of CMAQ funding the State would receive. The comments indicated that projects and programs to reduce air pollution in their area was supported through CMAQ funding. Some stated that their area was attaining the 8 hour ozone standard, and thus would become ineligible for CMAQ funding when the 1 hour ozone standard is revoked.

Others expressed concern that any increases to the number of nonattainment areas or changes to classifications of nonattainment areas could reduce the amount of CMAQ funds available to the area.

Response: The impact of the implementation of the 8

hour standard and enactment of SAFETEA LU result in the PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 451 geographic eligibility and apportionment of funds for the CMAQ programs as follows:

CMAQ eligible areas 1. Designated 8 hour nonattainment and maintenance areas.

2. Former 1 hour ozone nonattainment and maintenance areas, that are attaining the 8 hour standard, but must submit a section 110( a)( 1) maintenance plan in compliance with EPA's anti backsliding provisions.

3. CO, PM10 and PM 2.5 nonattainment and maintenance areas. Additionally, Nashville, TN; Greensboro, NC;

and Denver, CO are Early Action Compact areas under the 8 hour ozone standard that were excepted from the revocation of the 1 hour standard. As a result, their CMAQ eligibility and apportionment are based on their status as maintenance areas under the 1 hour ozone standard.

4. If the State does not have, and has never had, a nonattainment area designated under the CAA ( 42 U. S. C.

7401 et seq.), the State may use the funds for any project in the State that would otherwise be eligible under the CMAQ program as if the project were carried out in a nonattainment or maintenance area, or is eligible under section 133 of the surface PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 452 transportation program. This flexibility is in reference to the CMAQ Program's minimum apportionment provision.

Apportionment ( ozone based)

Nonattainment areas designated under subpart 1 receive a weighting factor of 1.0

Nonattainment areas designated and classified under subpart 2 retain the same apportionment weighting factors as under TEA 21

Maintenance areas receive a weighting factor of 1.0.

Apportionment of CMAQ funds is carried out yearly and varies according to the severity of air pollution and changes in nonattainment and maintenance area population as estimated by the U. S. Census for each affected county. The program is administered by the U. S. DOT with EPA in a consultative role. The EPA is only taking action to implement the 8 hour ozone standard and has no authority to make changes to the eligibility criteria or apportionment formula contained in SAFETEA LU. We understand the importance of CMAQ funding to States and nonattainment areas and are prepared to work with the U. S. DOT to minimize any unintended impact of the 8 hour ozone NAAQS on transportation programs in those areas. PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 115The 1 hour standard was revoked for most areas, including the associated area designations and classifications, on June 15, 2005, 1 year following June 15, 2004, the effective date of designations for the 8 hour standard.

453 B. What is the relationship between implementation of the 8 hour standard and the CAA's title V permits program?

1. Background The interrelationship between implementation of the 8

hour ozone standard and the title V permits program was not discussed in the proposed rule. However, various questions have been raised about the interface between the implementation of the 8 hour ozone standard and the title V operating permits program. The following questions and answers address these questions.

Question 1: How is title V applicability affected by the new 8 hour ozone standard and the revocation of the 1

hour ozone standard? 115 Response: Section 502( a) of the CAA and 40 CFR 70.3 and 71.3 establish specific criteria for determining whether a source is subject to the title V operating permits program. A source that meets one or more of these criteria is subject to title V: title IV affected sources, major sources, sources subject to standards or regulations under PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 11640 CFR 70.3( b) and 71.3( b) provide for certain area source deferrals and exemptions, which are not detailed here.

454 section 111 or 112,116 sources required to have a permit under part C or D of title I, or any other stationary source in a category designated by the Administrator. Although a source is required to obtain a title V permit if it meets one or more of these criteria, only sources which are brought into title V as a result of their major source status and/ or the requirement to obtain a part C or D permit may be directly affected by the transition from the 1 hour ozone standard to the 8 hour ozone standard.

For example, a source subject to title V solely because it was major for VOCs under a 1 hour ozone classification is no longer subject to title V after the revocation of the 1

hour ozone standard ( on June 15, 2005) if its actual and potential emissions of VOCs under an 8 hour ozone designation or classification are minor. However, if the same source was also subject to title V for other reasons,

the source would remain subject to title V. See question 4 for further information. In addition, the source's title V applicability could also be affected by future changes, such as becoming subject to PSD or major nonattainment NSR. PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 455 Question 2: When do the 8 hour major source thresholds apply for determining major source status under title V?

Response: For purposes of title V, section 501( 2) of the CAA defines " major source" in part as " a major stationary source as defined in section 302 or part D of title I." The part 70 and part 71 regulations incorporate this definition and the part D major source thresholds.

" Major source" for ozone nonattainment areas include sources which emit or which have the potential to emit 100 tpy or more of VOCs or oxides of nitrogen in areas classified as " marginal" or " moderate," 50 tpy or more of these ozone precursors in areas classified as " serious," 25 tpy or more of these ozone precursors in areas classified as " severe,"

and 10 tpy or more of these ozone precursors in areas classified as " extreme."

On or after June 15, 2004, until June 15, 2005, the major source thresholds for the 1 hour ozone designations and classifications and the 8 hour ozone designations and classifications were in effect under part D of title I, and therefore under title V as well. Since revocation of the 1

hour ozone standard and the corresponding area designations and classifications on June 15, 2005, only the major source thresholds for the 8 hour ozone designations and PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 456 classifications continue to determine whether a source is major for ozone precursors under title V. Our review of the 1 hour and 8 hour designations and nonattainment classifications indicates that no additional sources became subject to title V on June 15, 2004 ( the effective date of the 8 hour ozone NAAQS designations and classifications ( 40 CFR part 81, subpart C)) based solely on the 8 hour designations and classifications and corresponding major source thresholds. This is because the 8 hour designations and classifications effective on June 15, 2004 did not result in a lowering of the title V major source threshold for any area compared to the 1 hour designations and classifications. Rather, the title V major source thresholds either stayed the same or were raised to a higher threshold in all cases, e. g., 50 tpy to 100 tpy.

Question 3: Are title V permits required for sources that trigger the major source applicability cut offs for RACT in 40 CFR 51.900( f)( 3) due to the 8 hour ozone antibacksliding provisions in 40 CFR part 51, subpart X?

Example: An area is classified as extreme under the 1

hour ozone standard. In an extreme area, the major source threshold for ozone precursors is 10 tpy. Under the 8 hour standard in this example, this same area is classified as a PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 457 severe 17 area. In a severe 17 area, the major source threshold for ozone precursors is 25 tpy. Under the antibacksliding provisions, this area would be required to continue its application of RACT to sources with potential emissions of 10 or more tpy of ozone precursors. However,

is the title V major source threshold for ozone precursors in this area 10 tpy or 25 tpy since June 15, 2005?

Response: Since revocation of the 1 hour ozone standard on June 15, 2005, the title V major source thresholds for ozone are now based solely on the 8 hour designations and classifications and thus in the above example will be 25 tpy for ozone precursors. As discussed in Question 1 above, section 502( a) and 40 CFR § § 70.3 and 71.3 include criteria for determining title V applicability.

These criteria do not specifically include sources subject to RACT, but do include major sources. As discussed in Question 2 above, section 501( 2) defines a title V " major source" in part as " a major stationary source as defined in section 302 or part D of title I" and 40 CFR 70.2 and 71.2 incorporate this definition.

In terms of the language in 40 CFR 51.900( f)( 3)

regarding " major source applicability cut offs for purposes of RACT," this provision does not apply for purposes of PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 458 defining a " major source" under title V ( nor could it, since major source is statutorily defined and cannot be revised by regulation). Rather, the cut offs referenced in this antibacksliding provision apply in determining which 1 hour nonattainment requirements are " applicable requirements" for an area  requirements which will be continued in implementing the 8 hour standard. Additionally, 40 CFR 51.900 specifies that the definition of " applicable requirements" and other definitions in this section only " apply for purposes of this subpart [ subpart X]." Thus, in short, the major source applicability cut offs for purposes of RACT referenced in 40 CFR 51.900( f)( 3) are not relevant in determining whether a source is a major source under title V.

Question 4: In many nonattainment areas, the major stationary source threshold under the 8 hour ozone standard is currently higher than the major stationary source threshold for the same area under the 1 hour ozone standard.

Example: Under the 1 hour ozone standard, an area is classified as serious with a 50 tpy major stationary source threshold for ozone precursors. Under the 8 hour standard,

this same area is classified as moderate with a 100 tpy major stationary source threshold for ozone precursors. If PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 117 A source with a part D permit obtained under the 1 hour standard must retain its part D permit under the 8 hour standard even though it is now in an area with a higher major stationary source threshold.

459 a source in this area has a potential to emit VOCs at 75 tpy, but also has a part D permit obtained under the 1 hour standard, is this source subject to title V since revocation of the 1 hour ozone standard on June 15, 2005? 117 Response: Yes. Under the 1 hour standard, this source was subject to title V both because it was a major source and also because it was required to have a part D permit.

Under the 8 hour standard, this source remains subject to title V because it was required to have a part D permit under the 1 hour standard even though it is no longer subject to title V due to its major source status.

Sources that are, at any time, required to have a permit under part C or D of title I must obtain a title V permit. This interpretation is consistent with the CAA and EPA's implementation policy history. See the Vastar letter discussed below. Section 502( a) states in part that " any other source required to have a permit under part C or D of title I" is required to have a title V permit. We interpret the phrase " required to have a permit under part C or D of title I" to include any source required to obtain a permit PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 460 under part C or D of title I regardless of whether the permit was actually obtained by the source. This interpretation is consistent with the legislative history which indicates Congress intended that sources " subject to .

. . requirements" from PSD and NSR be required to have a title V permit. H. R. Rep. No. 101 490, 101st Congress, 2nd Session, at 344 ( May 17, 1990); see also S. Rep. 101 228,

101st Congress, 1st Session, at 349 ( December 20, 1989).

Note that the exemption in 40 CFR 70.3( b)( 1) and 71.3( b)( 1) for nonmajor sources does not apply to sources required to have a part C or D permit. As EPA has previously stated: "... section 70.3( b)( 1) cannot be appropriately interpreted as allowing title V permitting authorities to exempt nonmajor part C or D sources from title V, especially in light of the explicit requirement in sections 71.5( a)( 1)( ii) and 70.5( a)( 1)( ii) that these sources obtain title V permits." See letter from R. Long,

EPA Region 8, to M. Tarrillion, Vastar Resources, Inc.,

September 10, 1999. See also 66 FR 59161, 59163; November 27, 2001 (" A source required to have a part C or D permit but considered nonmajor for part 70 would be subject to part 70 . . .")

Title V permit content may be affected for sources in PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 461 the above noted situation because, pursuant to 40 CFR 70.3( c)( 2) and 71.3( c)( 2), for any nonmajor source subject to title V, the permit is required at a minimum to include the applicable requirements for the emissions units that cause the source to be subject to the part 70 or part 71 programs. If an emissions unit at the nonmajor source did not trigger the requirement to apply for a title V permit,

then none of that unit's applicable requirements are required to be included in the source's title V permit. See 66 FR 59163 and footnote 2. However, nothing in 40 CFR 70.3( c)( 2) or 71.3( c)( 2) precludes States from including Federal applicable requirements for other emissions units at a nonmajor source in the source's title V permit if States require it.

2. Summary of final rule There has been no change in the final rule as a result of the above clarifications regarding the interface between the 8 hour ozone standard and the title V operating permits program.

3. Comments and responses Comment: One commenter stated support of the antibacksliding regulations to maintain the requirements established under the 1 hour standard nonattainment area PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 462 classifications when 8 hour classification requirements would be less stringent. However, the commenter requested that EPA consider using the major source thresholds as defined by the 8 hour standard classifications for title V permitting purposes. The commenter further suggested that EPA evaluate whether a lower title V major source threshold provides sufficient protections to justify the added costs involved, especially in areas such as that of the commenter's where 75 percent of the reactive organic gases ( ROG) and NOx emissions are from mobile sources, which are not subject to control under title V.

Response: We agree that, since revocation of the 1

hour ozone standard, the title V major stationary source thresholds are only determined by the 8 hour designations and classifications. Additionally, as stated in response to question 3 in the above questions and answers, the language in 40 CFR 51.900( f)( 3) regarding " major source applicability cut offs for purposes of RACT" does not apply for purposes of defining a " major source" under title V ( nor could it,

since major source is statutorily defined and cannot be revised by regulation). Rather, the cut offs referenced in this anti backsliding provision apply in determining which 1 hour nonattainment requirements are " applicable PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 118Filed June 29, 2004 by Earthjustice on behalf of American Lung Association, Environmental Defense, Natural Resources Defense Council, Sierra Club, Clean Air Task Force, Conservation Law Foundation, and Southern Alliance for Clean Energy.

463 requirements" for an area  requirements which will be continued in implementing the 8 hour standard.

Additionally, 40 CFR 51.900 specifies that the definition of " applicable requirements" and other definitions in this section only " apply for purposes of this subpart [ subpart X]." Thus, in short, the major source applicability cutoffs for purposes of RACT referenced in 40 CFR 51.900( f)( 3)

are not relevant in determining whether a source is a major source under title V.

C. What action is EPA taking on the overwhelming transport classification for subpart 1 areas?

The Phase 1 Rule created an overwhelming transport classification that would be available to subpart 1 areas that demonstrate they are affected by overwhelming transport of ozone and its precursors and demonstrate they meet the definition of a rural transport area in section 182( h) of the CAA [ 40 CFR 51.904( a)]. We received a petition for reconsideration of the overwhelming transport classification from Earthjustice, 118 who claimed that our final rule of PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 464 April 30, 2004, relied on guidance that was not publicly available during the comment period and was still unavailable at the time of final rulemaking. In addition,

we noted in the Phase 1 Rule that we were considering the comments we received on the issue of applicable requirements for these subpart 1 areas and that we would address this issue after we issue guidance on how areas should assess whether they are subject to overwhelming transport. We granted the Earthjustice petition concerning the overwhelming transport classification on January 10, 2005.

In a separate rulemaking action, we are inviting comment on the overwhelming transport classification, the draft overwhelming transport guidance, and the requirements that would apply to such areas.

We will address any comments on the applicable control requirements for an area that receives an overwhelming transport classification in the context of the reconsideration action.

VIII. Statutory and Executive Order Reviews A. Executive Order 12866: Regulatory Planning and Review Under Executive Order 12866 ( 58 FR 51735, October 4,

1993), the Agency must determine whether the regulatory action is " significant" and, therefore, subject to the PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 465 Office of Management and Budget ( OMB) review and the requirements of the Executive Order. The Order defines " significant regulatory action" as one that is likely to result in a rule that may:

( 1) have an annual effect on the economy of $ 100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition,

jobs, the environment, public health or safety, or State,

local, or Tribal governments or communities;

( 2) create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;

( 3) materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or ( 4) raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

Pursuant to the terms of Executive Order 12866, it has been determined that this rule is a " significant regulatory action" because it raises novel legal or policy issues arising out of legal mandates. As such, this action was submitted to OMB for review. Changes made in response to OMB suggestions or recommendations are documented in the PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 466 public record.

B. Paperwork Reduction Act The information collection requirements in this rule will be submitted for approval to OMB under the Paperwork Reduction Act, 44 U. S. C. 3501 et seq. The information collection requirements are not enforceable until OMB approves them other than to the extent required by statute.

This rule provides the framework for the States to develop SIPs to achieve a new or revised NAAQS. This framework reflects the requirements prescribed in CAA sections 110 and part D, subparts 1 and 2 of title I. In that sense, the present final rule does not establish any new information collection burden on States. Had this rule not been developed, States would still have the legal obligation under law to submit nonattainment area SIPs under part D of title I of the CAA within specified periods after their nonattainment designation for the 8 hour ozone standard, and the SIPs would have to meet the requirements of part D.

A SIP contains rules and other requirements designed to achieve the NAAQS by the deadlines established under the CAA, and also contains a demonstration that the State's requirements will in fact result in attainment. The SIP PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 467 must meet the CAA requirements in subparts 1 or 2 to adopt RACM, RACT, and provide for RFP toward attainment for the period prior to the area's attainment date. After a State submits a SIP, the CAA requires EPA to approve or disapprove the SIP. If EPA approves the SIP, the rules in the SIP become federally enforceable. If EPA disapproves the SIP ( or if EPA finds that a State fails to submit a SIP), the CAA requires EPA to impose sanctions ( 2: 1 offsets for major new or modified sources and restrictions on Federal highway funding) within specified timeframes; additionally, EPA must prepare and publish a FIP within 2 years after a disapproval or finding of failure to submit. The SIP must be publicly available. States must maintain confidentiality of confidential business information, however, if used to support SIP analyses. The SIP is a one time submission,

although the CAA requires States to revise their SIPs if EPA requests a revision upon a finding that the SIP is inadequate to attain or maintain the NAAQS. The State may revise its SIP voluntarily as needed, but in doing so must demonstrate that any revision will not interfere with attainment or RFP or any other applicable requirement under the CAA ( see section 110( l)).

This rule does not establish requirements that directly PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 468 affect the general public and the public and private sectors, but, rather, interprets the statutory requirements that apply to States in preparing their SIPs. The SIPs themselves will likely establish requirements that directly affect the general public, and the public and private sectors.

The EPA has not yet projected cost and hour burden for the statutory SIP development obligation but has started that effort and will shortly prepare an Information Collection Request ( ICR) request. However, EPA did estimate administrative costs at the time of promulgation of the 8

hour ozone standard in 1997. See Chapter 10 of U. S. EPA 1997, Regulatory Impact Analyses for the Particulate Matter and Ozone National Ambient Air Quality Standards, Innovative Strategies and Economics Group, Office of Air Quality Planning and Standards, Research Triangle Park, N. C., July 16, 1997. Assessments of some of the administrative cost categories identified as a part of the SIP for an 8 hour standard are already conducted as a result of other provisions of the CAA and associated ICRs ( e. g. emission inventory preparation, air quality monitoring program,

conformity assessments, NSR, I/ M program).

The burden estimates in the ICR for this rule are PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 469 incremental to what is required under other provisions of the CAA and what would be required under a 1 hour standard.

Burden means the total time, effort, or financial resources expended by persons to generate, maintain, retain, or disclose or provide information to or for a Federal agency.

This includes the time needed to review instructions;

develop, acquire, install, and utilize technology and systems for the purposes of collecting, validating, and verifying information, processing and maintaining information, and disclosing and providing information;

adjust the existing ways to comply with any previously applicable instructions and requirements; train personnel to be able to respond to a collection of information; search data sources; complete and review the collection of information; and transmit or otherwise disclose the information.

An agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a currently valid OMB control number.

The OMB control numbers for EPA's regulations in 40 CFR are listed in 40 CFR part 9. When this ICR is approved by OMB,

the Agency will publish a technical amendment to 40 CFR part 9 in the Federal Register to display the OMB control number PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 470 for the approved information collection requirements contained in this final rule. However, the failure to have an approved ICR for this rule does not affect the statutory obligation for the States to submit SIPs as required under part D of the CAA.

The information collection requirements associated with NSR permitting for ozone are covered by EPA's request to renew the approval of the ICR for the NSR program, ICR 1230.17, which was approved by OMB on January 25, 2005. The information collection requirements associated with NSR permitting were previously covered by ICR 1230.10 and 1230.11. The OMB previously approved the information collection requirements contained in the existing NSR regulations at 40 CFR parts 51 and 52 under the provisions of the Paperwork Reduction Act, and assigned OMB control number 2060 0003. A copy of the approved ICR may be obtained from Susan Auby, Collection Strategies Division;

U. S. Environmental Protection Agency ( 2822T); 1200 Pennsylvania Ave., NW, Washington, DC 20460 or by calling ( 202) 566 1672.

For the portion of this rulemaking on RFG, this action does not add any new requirements under the provisions of the Paperwork Reduction Act. The OMB has approved the PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 471 information collection requirements contained in the final RFG/ anti dumping rulemaking ( see 59 FR 7716, February 16,

1994) and has assigned OMB control number 2060 0277 ( EPA ICR No. 1951.08).

C. Regulatory Flexibility Act The EPA has determined that it is not necessary to prepare a regulatory flexibility analysis in connection with this final rule.

For purposes of assessing the impacts of today's rule on small entities, small entity is defined as: ( 1) a small business as defined by the Small Business Administrations'

regulations at 13 CFR 121.201; ( 2) a small governmental jurisdiction that is a government of a city, county, town,

school district or special district with a population of less than 50,000; and ( 3) a small organization that is any not for profit enterprise which is independently owned and operated and is not dominant in its field.

After considering the economic impacts of today's final Phase 2 Rule for implementation of the 8 hour ozone standard on small entities, EPA has concluded that this action will not have a significant economic impact on a substantial number of small entities. This final rule will not impose any requirements on small entities. Rather, this rule PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 472 interprets the obligations established in the CAA for States to submit implementation plans in order to attain the 8 hour ozone NAAQS. The Phase 1 Rule ( published April 30, 2004)

set forth ( a) whether 8 hour ozone nonattainment areas were covered by subpart 1 or subpart 2 ( and if under subpart 2,

how they would be classified); ( b) provisions to revoke the 1 hour standard and provisions for anti backsliding from the requirements under the 1 hour standard; ( c) provisions related to attainment dates and attainment date extensions;

and ( d) timing for implementation of emissions reductions needed for attainment. This final rulemaking action, Phase 2, is issued so the States and Tribes will know how EPA interprets the statutory requirements for 8 hour nonattainment areas, including the RACT, RFP, attainment demonstrations, and NSR. By adopting a more flexible interpretation of the mandatory requirements, reduced cost and economic impacts are anticipated while still assuring that areas attain and maintain the standard as prescribed in the CAA.

I certify that a Regulatory Flexibility Act Screening Analysis ( RFASA), without the NSR portion of this rule, was developed as part of a 1994 draft Regulatory Impact Analysis ( RIA) and incorporated into the September 1995 ICR renewal. PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 11/ 03/ 05 473 This analysis showed that the changes to the NSR program due to the 1990 CAA Amendments would not have an adverse impact on small entities. This analysis encompassed the entire universe of applicable major sources that were likely to also be small businesses ( approximately 50 " small business"

major sources). Because the administrative burden of the NSR program is the primary source of the NSR program's regulatory costs, the analysis estimated a negligible " cost to sales" ( regulatory cost divided by the business category mean revenue) ratio for this source group. The incorporation of the major source thresholds and offset ratios from the 1990 CAA Amendments in § 51.165 and appendix S for the purpose of implementing NSR for the 8 hour standard does not change this conclusion. Under section 110( a)( 2)( C), all States must implement a preconstruction permitting program " as necessary to assure that the [ NAAQS]

are achieved," regardless of changes to today's regulations.

Thus, small businesses continue to be subject to regulations for construction and modification of stationary sources,

whether under State and local agency minor NSR programs,

SIPs to implement § 51.165, or appendix S, to ensure that the 8 hour standard is achieved.