[Federal Register: April 28, 2006 (Volume 71, Number 82)]
[Rules and Regulations]
[Page 25327-25469]
[DOCID:fr28ap06-15]

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Part IV

Environmental Protection Agency

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40 CFR Parts 51, 52 et al.

Air Pollution Control--Transport of Emissions of Nitrogen Oxides
(NOX) and Sulfur Dioxide (SO2); Final Rule

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Parts 51, 52, 72, 73, 74, 78, 96, and 97

[EPA-HQ-OAR-2004-0076; FRL-8047-5]
RIN 2060-AM99

Rulemaking on Section 126 Petition From North Carolina To Reduce
Interstate Transport of Fine Particulate Matter and Ozone; Federal
Implementation Plans To Reduce Interstate Transport of Fine Particulate
Matter and Ozone; Revisions to the Clean Air Interstate Rule; Revisions
to the Acid Rain Program

AGENCY: Environmental Protection Agency (EPA).

ACTION: Notice of final rulemaking (NFR).

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SUMMARY: Today, EPA is taking actions to address the interstate
transport of emissions of nitrogen oxides (NOX) and sulfur
dioxide (SO2) that contribute significantly to nonattainment
and maintenance problems with respect to the national ambient air
quality standards (NAAQS) for fine particulate matter
(PM2.5) and 8-hour ozone. As one part of today's action, EPA
is providing its final response to a petition submitted to EPA by the
State of North Carolina under section 126 of the Clean Air Act (CAA).
The petition requests that EPA find that SO2 and/or
NOX emissions from electric generating units (EGUs) in 13
States are significantly contributing to PM2.5 and/or 8-hour
ozone nonattainment and maintenance problems in North Carolina, and
requested that EPA establish control requirements to prohibit such
significant contribution. The EPA is denying the petition because, in
today's action, EPA is promulgating Federal implementation plans (FIPs)
for all jurisdictions covered by the Clean Air Interstate Rule (CAIR)
to address interstate transport.
    The FIPs will regulate EGUs in the affected States and achieve the
emissions reductions requirements established by the CAIR until States
have approved State implementation plans (SIPs) to achieve the
reductions. As the control requirement for the FIPs, EPA is adopting
the model trading rules that EPA provided in CAIR as a control option
for States, with minor changes to account for Federal rather than State
implementation.
    Today's action also revises CAIR SIP model trading rules in order
to address the interaction between the EPA-administered CAIR FIP
trading programs being promulgated today and the EPA-administered CAIR
State trading programs that will be created by any State that elects to
submit a SIP establishing such a trading program to meet the
requirements of the CAIR. In addition, EPA is taking final action on
our reconsideration of the definition of ``EGU'' as it relates to solid
waste incinerators.
    Today's action also makes revisions to the Acid Rain Program in
order to make the administrative appeals procedures, which currently
apply to final determinations by the Administrator under the EPA-
administered CAIR State trading programs, also apply to the EPA-
administered trading programs under the FIP action. In addition, we are
making certain minor revisions to the Acid Rain Program that will apply
to all affected units.

DATES: This action is effective on June 27, 2006.

ADDRESSES: The EPA has established a docket for this action under
Docket ID No. EPA-HQ-OAR-2004-0076. All documents in the docket are
listed on the http://www.regulations.gov Web site. Although listed in

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

Docket), EPA/DC, EPA West, Room B102, 1301 Constitution Ave., NW.,
Washington, DC. The Public Reading Room is open from 8:30 a.m. to 4:30
p.m., Monday through Friday, excluding legal holidays. The telephone
number for the Public Reading Room is<PHONE_NUMBER> and the telephone
number for the Air Docket is<PHONE_NUMBER>.

FOR FURTHER INFORMATION CONTACT: For general questions concerning
today's section 126 action, please contact Carla Oldham, U.S. EPA,
Office of Air Quality Planning and Standards, Air Quality Policy
Division, C504-05, Research Triangle Park, NC 27711, telephone (919)
541-3347, e-mail at<EMAIL_ADDRESS>For general questions
concerning today's FIP action, please contact Tom Coda, U.S. EPA,
Office of Air Quality Planning and Standards, Air Quality Policy
Division, C539-01, Research Triangle Park, NC 27711, telephone (919)
541-3037, e-mail at<EMAIL_ADDRESS>For legal questions concerning
the section 126 action, please contact Steven Silverman, U.S. EPA,
Office of General Counsel, Mail Code 2344A, 1200 Pennsylvania Avenue,
NW., Washington, DC 20460, telephone<PHONE_NUMBER>, e-mail at
<EMAIL_ADDRESS>For legal questions concerning the FIP

action, please contact Sonja Rodman, U.S. EPA, Office of General
Counsel, Mail Code 2344A, 1200 Pennsylvania Avenue, NW., Washington, DC
20460, telephone<PHONE_NUMBER>, e-mail at<EMAIL_ADDRESS>For
questions regarding the cap-and-trade programs and emissions budgets,
please contact Meg Victor, U.S. EPA, Office of Atmospheric Programs,
Clean Air Markets Division, Mail Code 6204J, 1200 Pennsylvania Avenue,
NW., Washington, DC 20460, telephone<PHONE_NUMBER>, e-mail at
<EMAIL_ADDRESS>For questions regarding the revisions to the CAIR

and Acid Rain Programs, please contact Dwight Alpern, U.S. EPA, Office
of Atmospheric Programs, Clean Air Markets Division, Mail Code 6204J,
1200 Pennsylvania Avenue, NW., Washington, DC 20460, telephone (202)
343-9151, e-mail at<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

I. Does This Action Apply to Me?

    Categories and entities potentially regulated by this action
include the following:

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                                      NAICS     Examples of potentially
             Category                code \1\     regulated  entities
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Industry..........................     221112  Fossil fuel-fired
                                                electric utility steam
                                                generating units.
Federal government................        \2\  Fossil fuel-fired
                                       221122   electric utility steam
                                                generating units owned
                                                by the Federal
                                                government.
State/local/Tribal government.....        \2\  Fossil fuel-fired
                                       221122   electric utility steam
                                                generating units owned
                                                by municipalities.

                                       921150  Fossil fuel-fired
                                                electric utility steam
                                                generating units in
                                                Indian Country.
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\1\ North American Industry Classification System.
\2\ Federal, State, or local government-owned and operated
  establishments are classified according to the activity in which they
  are engaged.

    This table is not intended to be exhaustive, but rather provides a
guide for readers regarding entities likely to be regulated by this
action. To determine whether your facility is affected by this action,
you should examine the definitions and applicability criteria in
Sec. Sec.  72.2, 72.6, 72.7, 72.8, and 74.2 for purposes of the Acid
Rain Program revisions and Sec. Sec.  97.102, 97.104, 97.105, 97.202,
97.204, 97.205, 97.302, 97.304, and 97.305 for purposes of the FIP
action. If you have any questions regarding the applicability of this
action to a particular entity, consult the person listed in the
preceding section under FOR FURTHER INFORMATION CONTACT.

II. Availability of Related Information

    The EPA has conducted separate rulemakings that contain actions and
information related to today's action. The final ``Rule to Reduce
Interstate Transport of Fine Particulate Matter and Ozone (Clean Air
Interstate Rule)'' was published on May 12, 2005 (70 FR 25162) (see
also proposal at 69 FR 4566, January 30, 2004; supplemental proposal at
69 FR 32684, June 10, 2004; and notice of data availability at 69 FR
47828, August 6, 2004). The EPA subsequently reconsidered several
aspects of the final CAIR (see 70 FR 72268; December 2, 2005 and 70 FR
77101; December 29, 2005) and is taking final action on reconsideration
in a separate action today. In addition, the EPA issued a proposal to
include Delaware and New Jersey in CAIR for PM2.5 (70 FR
25408, May 12, 2005) and is finalizing that rulemaking today, also in a
separate action. Documents related to the CAIR, including the actions
on reconsideration and to include Delaware and New Jersey in CAIR for
PM2.5, are available for inspection in docket EPA-HQ-OAR-
2003-0053 at the address and times given above. The EPA has established
a website for the CAIR at http://www.epa.gov/cleanairinterstaterule or more simply http://www.epa.gov/cair/ which also includes information on
ormation on
the section 126 rulemaking. The rulemaking docket for the CAIR contains
information and analyses that are relied upon in today's actions.
Therefore, EPA is including by reference the entire CAIR record for
purposes of the section 126 and FIP rulemakings.

III. Judicial Review

    Under CAA section 307(b), judicial review of this final action is
available only by filing a petition for review in the U.S. Court of
Appeals for the District of Columbia Circuit on or before June 27,
2006. Under CAA section 307(d)(7)(B), only those objections to the
final rule that were raised with specificity during the period for
public comment may be raised during judicial review. Moreover, under
CAA section 307(b)(2), the requirements established by today's final
rule may not be challenged separately in any civil or criminal
proceedings brought by EPA to enforce these requirements.
    Section 307(d)(7)(B)also provides a mechanism for the EPA to
convene a proceeding for reconsideration if the petitioner demonstrates
that it was impracticable to raise an objection during the public
comment period or if the grounds for such objection arose after the
comment period (but within the time for judicial review) and if the
objection is of central relevance to the rule. Any person seeking to
make such a demonstration to EPA should submit a Petition for
Reconsideration, clearly labeled as such, to the Office of the
Administrator, U.S. EPA, Room 3000, Ariel Rios Building, 1200
Pennsylvania Ave., Washington, DC 20460, with a copy to the Associate
General Counsel for the Air and Radiation Law Office, Office of General
Counsel, Mail Code 2344A, U.S. EPA, 1200 Pennsylvania Ave., NW.,
Washington, DC 20460.

Outline

I. Background and Summary of Rule
    A. Summary of Rule
    B. General Background on PM2.5 and Ozone
    1. The PM2.5 Problem
    2. The 8-Hour Ozone Problem
    3. Other Environmental Effects Associated With SO2
and NOX Emissions
    C. What Is the Statutory and Regulatory Background for Today's
Action?
    1. What Is the ``Good Neighbor'' Provision?
    2. What Is the CAA Section 126 Provision?
    3. What Is EPA's Previous Section 126 Rulemaking?
    4. What Is the Clean Air Interstate Rule?
    5. What Are the Findings of Failure to Submit for the Section
110(a)(2)(D) Plans?
    6. What Are the Petitions for Reconsideration of the CAIR?
    D. Summary of North Carolina's Section 126 Petition
    1. What Sources Does the Petition Target?
    2. What Control Remedy Does the Petition Request?
    3. What Is the Technical Support for the Petition?
    E. What Is the Consent Decree on the Section 126 Rulemaking
Schedule?
II. What Is EPA's Legal and Analytical Approach for the Section 126
Petition?
III. What Is EPA's Final Action on the Section 126 Petition?
    A. What Is EPA's Final Action With Respect to the 8-Hour Ozone
NAAQS?
    B. What Is EPA's Final Action With Respect to the
PM2.5 NAAQS?
IV. What Is the Federal Implementation Plan for the CAIR?
    A. What Is the Legal Framework for the FIPs?
    B. What Is the Timing and Scope of the CAIR FIP Actions?
    C. What Are the FIP Control Measures?
    D. When and How Will EPA Remove the FIP Requirements if EPA
Approves a SIP to Meet the CAIR?
V. Emission Reduction Requirements for the CAIR FIP
    A. Introduction
    B. Regionwide SO2 and NOX Caps
    C. State SO2 Emission Budgets
    D. State NOX Annual and NOX Ozone Season
Emission Budgets
    E. State NOX Annual Compliance Supplement Pool
VI. CAIR FIP NOX and SO2 Cap-and-trade
Programs for EGUs
    A. Purpose of CAIR FIP NOX and SO2 Cap-
and-trade Programs and Relationship to the CAIR
    B. Relationship of Emissions Trading Programs to Section 126
Relief
    C. Abbreviated SIP Revisions Covering Elements of the CAIR FIP
Cap-and-trade Programs
    D. Overall Structure of the CAIR FIP Cap-and-trade Programs
    1. SO2 Annual Program
    2. NOX Annual Program
    3. NOX Ozone Season Program
    E. Sources Subject to the CAIR FIP Cap-and-trade Programs
    F. Allocation of NOX Emission Allowances to Sources
    1. Schedule for Determining and Recording NOX
Allocations
    2. Method for Allocating NOX Allowances
    G. Allocation of SO2 Allowances to Sources
    H. Allowance Banking
    I. Incentives for Early Reductions
    1. SO2 Annual Program
    2. NOX Annual Program
    3. NOX Ozone Season Program
    J. Monitoring and Reporting Requirements
    K. Interactions with Other CAA Programs

VII. What are the Revisions of the CAIR SIP Rule, Including the CAIR
Model Cap-and-trade Rules?
VIII. What Are the Revisions of the Acid Rain Program Regulations?
IX. Statutory and Executive Order Reviews
    A. Executive Order 12866: Regulatory Planning and Review
    B. Paperwork Reduction Act
    C. Regulatory Flexibility Act
    D. Unfunded Mandates Reform Act
    E. Executive Order 13132: Federalism
    F. Executive Order 13175: Consultation and Coordination With
Indian Tribal Governments
    G. Executive Order 13045: Protection of Children From
Environmental Health and Safety Risks
    H. Executive Order 13211: Actions That Significantly Affect
Energy Supply, Distribution, or Use
    I. National Technology Transfer Advancement Act
    J. Executive Order 12898: Federal Actions to Address
Environmental Justice in Minority Populations and Low-Income
Populations
    K. Congressional Review Act

I. Background and Summary of Rule

A. Summary of Rule

    In this rule, EPA is taking two final actions related to the
interstate transport of emissions of NOX and SO2
that contribute significantly to nonattainment and maintenance problems
with respect to the NAAQS for PM2.5 and 8-hour ozone. First,
EPA is providing its final response to the petition submitted to EPA by
the State of North Carolina under section 126 of the CAA. Second, EPA
is promulgating FIPs for all jurisdictions covered by the CAIR. The EPA
is also making revisions to the final CAIR to clarify certain
provisions, to correct minor errors, and to take final action on
reconsideration of the definition of ``EGU'' as it relates to solid
waste incinerators. Finally, EPA is making minor revisions to the Title
IV Acid Rain Program.
    The North Carolina petition requests that EPA establish control
requirements for EGUs in 13 States based on findings that these sources
are significantly contributing to PM2.5 and/or 8-hour ozone
nonattainment and maintenance problems in North Carolina. (See
Petition, Docket No. EPA-HQ-OAR-2004-0076-0002.)
    The EPA's response (as well as the petition itself) is based on
extensive analyses conducted for the CAIR (70 FR 25162; May 12, 2005).
The EPA is denying the petition in full. For sources in States not
shown in the final CAIR to be linked to (that is, to significantly
contribute to) nonattainment and maintenance problems in North
Carolina, the lack of significant contribution to North Carolina is the
basis for this denial. For sources in States that are linked to North
Carolina under the CAIR for the PM2.5 NAAQS, EPA is denying
the petition because, concurrently with the section 126 response, EPA
is promulgating FIPs that require elimination of the significant
contribution. The FIPs will control the significant transport from
sources in States named in the petition as well as from sources in the
other CAIR States, in the event that the States do not have timely,
approved SIPs meeting the CAIR requirements. The States named in the
petition with respect to the PM2.5 NAAQS are: Alabama,
Georgia, Illinois, Indiana, Kentucky, Michigan, Ohio, Pennsylvania,
South Carolina, Tennessee, Virginia, and West Virginia. Of these,
Illinois and Michigan are not linked to North Carolina in the final
CAIR.
    The States named in the petition with respect to the 8-hour ozone
NAAQS are: Georgia, Maryland, South Carolina, Tennessee, and Virginia.
There are no States linked to North Carolina under the CAIR for the 8-
hour ozone NAAQS because North Carolina is projected to be in
attainment in the 2010 baseline for the analyses.
    As mentioned above, in today's action, EPA is also promulgating
FIPs to address interstate transport of NOX and
SO2 under section 110(a)(2)(D) for all jurisdictions that
are covered by the CAIR. In the CAIR, EPA determined that 28 States and
the District of Columbia contribute significantly to nonattainment of
the NAAQS for PM2.5 and/or 8-hour ozone in downwind States.
The CAIR explains EPA's basis for determining significant contribution
to downwind nonattainment and maintenance problems. In that rule, the
EPA required the affected upwind States to revise their SIPs to include
control measures to reduce emissions of SO2 and/or
NOX. Sulfur dioxide is a precursor to PM2.5
formation, and NOX is a precursor to both ozone and
PM2.5 formation.
    In an action published on the same day as the final CAIR, EPA
proposed to find that Delaware and New Jersey contribute significantly
to PM2.5 nonattainment and maintenance problems in downwind
States considering these States as a single entity (70 FR 25408; May
12, 2005). These States were included in the final CAIR only with
respect to their impacts on downwind 8-hour ozone nonattainment and
maintenance problems. Today, in a separate action, EPA is issuing the
final rule to include Delaware and New Jersey in the CAIR region for
PM2.5. Therefore, today's FIP rule includes emissions
reductions requirements for Delaware and New Jersey to address their
significant contribution to nonattainment or maintenance problems for
the PM2.5 NAAQS.
    The FIPs will regulate EGUs in the affected States and achieve the
emissions reductions required by the CAIR until States have approved
SIPs to achieve the reductions. The CAIR emissions budgets were based
on control requirements that are highly cost effective for EGUs.
    The EPA intends the CAIR FIPs to address the requirements of
section 110(a)(2)(D)(i) to prevent interstate transport that
contributes significantly to nonattainment or interferes with
maintenance in downwind areas and to provide a Federal backstop for
CAIR. In no way should the FIPs for CAIR be viewed as a sign of any
concern about States meeting their SIP responsibilities under CAIR.
There are no sanctions associated with these FIPs and EPA does not
intend for CAIR FIPs to have any negative consequences for the affected
States. The EPA is providing FIP approaches that are flexible and
intended to provide States options for getting their SIPs in place.
    As the control requirement for the FIPs, EPA is adopting the model
trading rules that EPA provided in CAIR as a control option for States,
with minor changes to account for Federal rather than State
implementation. The CAIR FIP NOX and SO2 trading
programs provide emissions reductions equal to those required under the
CAIR in affected States.
    These trading programs provide emissions reductions equal to those
required under CAIR in the affected States. The CAIR FIP trading
programs are integrated with the EPA-administered State CAIR trading
programs that are based on the model rules so that sources can trade
with one another under the respective emissions caps. The EPA
emphasizes that the FIPs do not limit the options available to States
to meet the requirements of the CAIR. We do not intend to record
NOX allocations in sources' allowance accounts (or take any
other steps to implement FIP requirements that could impact a State's
ability to regulate their sources in a different manner) until a year
after the CAIR SIP submission deadline.\1\ This will allow EPA time to

take rulemaking action to approve timely SIPs before implementation of
FIP requirements occurs. In addition, States could replace the FIP
requirements at a later time.
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    \1\ The CAIR requires affected sources to begin monitoring 1
year before the initial control periods (i.e., sources begin
monitoring in 2008 for the NOX programs and begin
monitoring in 2009 for the SO2 program). Note that EPA
will take any necessary actions to implement the monitoring
provisions of the FIP trading rules in time for monitoring to begin
in 2008. To the extent that a State chooses to control EGUs to meet
its CAIR obligations, the monitoring requirements will be identical
whether EPA regulations EGUs through the Federal trading programs or
the State regulates EGUs through its SIP.
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    In today's action, EPA is also making revisions to the CAIR in
order to address the interaction of EPA-administered NOX and
SO2 trading programs under the CAIR and under the FIP
action. In addition, EPA is making revisions to the CAIR in order to
clarify certain provisions and to correct certain minor errors and
taking final action on reconsideration of the definition of ``EGU'' as
it relates to solid waste incinerators.
    The EPA is also revising the Title IV Acid Rain Program in order to
make the administrative appeals procedures (in 40 CFR part 78), which
currently apply to final determinations by the Administrator under the
EPA-administered State CAIR trading programs, also apply to the EPA-
administered trading programs under the FIPs. In addition, EPA is
making minor revisions that would apply to all affected units under the
Acid Rain Program.

B. General Background on PM2.5 and Ozone

1. The PM2.5 Problem
    In an action published on July 18, 1997, we revised the NAAQS for
particulate matter (PM) to add new standards for fine particles, using
as the indicator particles with aerodynamic diameters smaller than a
nominal 2.5 micrometers, termed PM2.5 (62 FR 38652). We
established health- and welfare-based (primary and secondary) annual
and 24-hour standards for PM2.5. The annual standard is 15
micrograms per cubic meter, based on the 3-year average of annual mean
PM2.5 concentrations. The 24-hour standard is 65 micrograms
per cubic meter, based on the 3-year average of the annual 98th
percentile of 24-hour concentrations. The annual standard is generally
considered the more limiting value.\2\
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    \2\ The EPA recently proposed to amend the NAAQS for
PM2.5 (71 FR 2620; Jan. 17, 2006). The EPA is scheduled
to take final action on this proposal by September 27, 2006. These
actions are not relevant to this rulemaking because all of the
actions herein concern the existing NAAQS.
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    Fine particles are associated with a number of serious health
effects including premature mortality, aggravation of respiratory and
cardiovascular disease (as indicated by increased hospital admissions,
emergency room visits, absences from school or work, and restricted
activity days), lung disease, decreased lung function, asthma attacks,
and certain cardiovascular problems. (See EPA, Air Quality Criteria for
Particulate Matter (EPA/600/P-99/002bF, October 2004) at <IP_ADDRESS>).) The
EPA has estimated that attainment of the current PM2.5
standards would prolong tens of thousands of lives and would prevent,
each year, tens of thousands of hospital admissions as well as hundreds
of thousands of doctor visits, absences from work and school, and
respiratory illnesses in children.
    Individuals particularly sensitive to fine particle exposure
include older adults, people with heart and lung disease, and children.
More detailed information on health effects of fine particles can be
found on EPA's Web site at: http://www.epa.gov/ttn/naaqs/standards/pm/s_pm_index.html
.

    The secondary or welfare-based PM2.5 standards are
designed to protect against major environmental effects caused by PM
such as visibility impairment, soiling, and materials damage.
    As discussed in other sections of this preamble, SO2 and
NOX emissions both contribute to fine particle
concentrations. In addition, NOX emissions contribute to
ozone concentrations, described in the next section.
    The PM2.5 ambient air quality monitoring for the 2001-
2003 period shows that areas violating the standards are located across
much of the eastern half of the United States and in parts of
California and Montana. The EPA published the PM2.5
attainment and nonattainment designations on January 5, 2005 (70 FR
944) and issued supplemental amendments on April 14, 2005 (70 FR
19844).
2. The 8-Hour Ozone Problem
    In an action published on July 18, 1997, we promulgated identical
revised primary and secondary ozone standards that specified an 8-hour
ozone standard of 0.08 parts per million (ppm). Specifically, under the
standards, the 3-year average of the fourth highest daily maximum 8-
hour average ozone concentration may not exceed 0.08 ppm. In general,
the revised 8-hour standards are more protective of public health and
the environment and more stringent than the pre-existing 1-hour ozone
standards.
    Short-term (1- to 3-hour) and prolonged (6-to 8-hour) exposures to
ambient ozone have been linked to a number of adverse health effects.
At sufficient concentrations, short-term exposure to ozone can irritate
the respiratory system, causing coughing, throat irritation, and chest
pain. Ozone can reduce lung function and make it more difficult to
breathe deeply. Breathing may become more rapid and shallow than
normal, thereby limiting a person's normal activity. Ozone also can
aggravate asthma, leading to more asthma attacks that may require a
doctor's attention and the use of additional medication. Increased
hospital admissions and emergency room visits for respiratory problems
have been associated with ambient ozone exposures. Longer-term ozone
exposure can inflame and damage the lining of the lungs, which may lead
to permanent changes in lung tissue and irreversible reductions in lung
function. A lower quality of life may result if the inflammation occurs
repeatedly over a long time period (such as months, years, or a
lifetime). There is also recent epidemiological evidence suggesting
that there may be a correlation between short-term ozone exposure and
premature mortality.
    People who are particularly susceptible to the effects of ozone
include people with respiratory diseases, such as asthma. Those who are
exposed to higher levels of ozone include adults and children who are
active outdoors.
    In addition to causing adverse health effects, ozone affects
vegetation and ecosystems, leading to reductions in agricultural crop
and commercial forest yields; reduced growth and survivability of tree
seedlings; and increased plant susceptibility to disease, pests, and
other environmental stresses (e.g., harsh weather). In long-lived
species, these effects may become evident only after several years or
even decades and have the potential for long-term adverse impacts on
forest ecosystems. Ozone damage to the foliage of trees and other
plants can also decrease the aesthetic value of ornamental species used
in residential landscaping, as well as the natural beauty of our
national parks and recreation areas. More detailed information on
health effects of ozone can be found at the following EPA Web site:
http://www.epa.gov/ttn/naaqs/standards/ozone/s_o3_index.html.

    Presently, wide geographic areas, including most of the nation's
major population centers, experience ozone levels that violate the
NAAQS for 8-hour ozone. These areas include much of the eastern part of
the United States and large areas of California. The EPA published the
8-hour ozone attainment and nonattainment designations in the Federal
Register on April 30, 2004 (69 FR 23858).

3. Other Environmental Effects Associated With SO2 and
NOX Emissions
    In addition to the enumerated human health and welfare benefits
resulting from reductions in ambient levels of PM2.5 and
ozone, reductions in NOX and SO2 will contribute
to substantial visibility improvements in many parts of the eastern
United States. Reductions in these pollutants will also reduce
acidification and eutrophication of water bodies in the region. In
addition, reducing emissions of NOX and SO2 from
EGUs can be expected to reduce emissions of mercury. Reduced mercury
emissions in turn may reduce mercury loadings in lakes and thereby
potentially decrease both human and wildlife exposure to fish
containing mercury.

C. What Is the Statutory and Regulatory Background for Today's Action?

1. What Is the ``Good Neighbor'' Provision?
    Following promulgation of new or revised NAAQS, the CAA requires
all areas, regardless of their designation as attainment,
nonattainment, or unclassifiable, to submit SIPs containing provisions
specified under section 110(a)(2). Among these requirements are those
specified by the so-called ``good neighbor'' provision section
110(a)(2)(D) which addresses interstate transport of air pollution.
    Section 110(a)(2)(D) requires that a SIP contain adequate
provisions--

    (i) Prohibiting, consistent with the provisions of this title,
any source or other type of emissions activity within the State from
emitting any air pollutant in amounts which will--
    (I) Contribute significantly to nonattainment in, or interfere
with maintenance by, any other State with respect to [any] national
primary or secondary ambient air quality standard, or
    (II) Interfere with measures required to be included in the
applicable implementation plan for any other State under part C to
prevent significant deterioration of air quality or to protect
visibility.
    (ii) Insuring compliance with the applicable requirements of
sections 126 and 115 (relating to interstate and international
pollution abatement);

    Section 126 is discussed in the following section and section II of
this preamble explains the relationship between CAA sections 110 and
126 with respect to our final response to the section 126 petition and
the CAIR FIPs.
2. What Is the CAA Section 126 Provision?
    Subsection (a) of section 126 requires, among other things, that
SIPs require major proposed new (or modified) stationary sources to
notify nearby States for which the air pollution levels may be affected
by the fact that such sources have been permitted to commence
construction. Subsection (b) provides:

    Any State or political subdivision may petition the
Administrator for a finding that any major source or group of
stationary sources emits or would emit any air pollutant in
violation of the prohibition of section 110(a)(2)(D)[(i)] [of] this
section* * *.
    Subsection (c) of section 126 states that--
    [I]t shall be a violation of this section and the applicable
implementation plan in such State [in which the source is located or
intends to locate]--
    (1) For any major proposed new (or modified) source with respect
to which a finding has been made under subsection (b) to be
constructed or to operate in violation of this section and the
prohibition of section 110(a)(2)(D)[(i)] \3\ [of] this section, or
---------------------------------------------------------------------------

    \3\ While the text of section 126 refers to section
110(a)(2)(D)(ii), this is a scrivener's error. Congress intended to
refer to section 110(a)(2)(D)(i). (See 64 FR 28267.) The EPA's
interpretation was upheld in Appalachian Power Co. v. EPA, 249 F. 3d
1032, 1040-44 (D.C. Cir. 2001).
---------------------------------------------------------------------------

    (2) for any major existing source to operate more than three
months after such finding has been made with respect to it.

However, subsection (c) further provides that EPA may permit the
continued operation of such major existing sources beyond the 3-month
period, if such sources comply with EPA-promulgated emissions limits
within 3 years of the date of the finding.
3. What Is EPA's Previous Section 126 Rulemaking?
    The EPA has previously taken action under section 126 to address
interstate ozone transport (64 FR 28250; May 25, 1999 and 65 FR 2674;
January 18, 2000). Because there are many parallels between that
earlier action and today's rule, we briefly discuss our earlier action
here.
    Like the present rulemaking, EPA's previous section 126 rulemaking,
dealing with interstate transport of NOX, occurred
essentially in conjunction with an EPA rulemaking dealing with
interstate transport of the same pollutants, the NOX SIP
Call (62 FR 60318; November 7, 1997). As in today's rule, EPA concluded
that section 126 and section 110(a)(2)(D)(i) are integrally connected
(due to the reference to the section 110(a)(2)(D)(i) prohibition found
in section 126 (b)). Thus, the interstate transport problem at issue
could be addressed under either provision, and once the underlying
section 110(a)(2)(D)(i) SIP deficiency is eliminated, there no longer
is a basis for EPA to make a positive finding under section 126. (See
sections II and III below for a more detailed discussion.) In the
earlier rulemaking, we therefore concluded that emissions reductions
sufficient to eliminate a section 110(a)(2)(D) SIP deficiency would
also be sufficient to satisfy section 126.
    The NOX SIP Call required SIP revisions eliminating the
amount of emissions that contribute significantly to nonattainment in
downwind States, the amount of emissions reductions corresponding to
the quantity of emissions that could be eliminated by the application
of highly cost-effective controls on specified sources in each upwind
State. The section 126 remedy consequently called for the same set of
highly cost-effective controls for the section 126 source categories,
based on the record of the NOX SIP Call. We are adopting
this same conceptual approach in today's rulemaking.
    There are also parallels between our earlier section 126 action and
this action with regard to timing of actions in the section 126
proceeding and in the closely-related interstate transport proceeding
under section 110(a)(2)(D)(i). Because a section 126 finding turns on
the existence of a section 110(a)(2)(D)(i) deficiency, in the May 1999
Section 126 Rule, we determined which petitions had technical merit,
but we stopped short of granting the findings sought by the petitions.
Instead, we stated that because we had promulgated the NOX
SIP Call, as long as an upwind State remained on track to comply with
that rule, EPA would defer making the section 126 findings (See 64 FR
28271-28272). Later judicial action staying the NOX SIP Call
rule resulted in EPA granting the section 126 petitions at issue, but
the new rule retained the basic linkage between section 126 and section
110(a)(2)(D)(i) by providing that EPA would withdraw the section 126
findings upon EPA approval of a SIP satisfying the emission reduction
requirements of the NOX SIP Call rule or upon EPA's
promulgation of a FIP that achieved the emissions reductions. [See 65
FR at 2683 and Appalachian Power v. EPA, 249 F. 3d 1032, 1039 (D.C.
Cir., 2001).] Similarly, in our proposal on the North Carolina section
126 petition, we proposed to deny the section 126 petition if we
approved SIPs which satisfied the emission reduction requirements of
the CAIR, or if we promulgated a FIP which included the emission
reduction requirements of the CAIR. (In today's final rule, we are
denying the petition because we are promulgating FIPs concurrently with
the final section 126 response, which FIPs eliminate the significant

contribution from upwind sources to North Carolina.)
    Finally, in the earlier section 126 rule, EPA adopted as a remedy
for section 126 a Federal NOX cap-and-trade program
patterned after the model NOX cap-and-trade program that EPA
developed for States as an option to meet their NOX SIP Call
requirements. See 65 FR 2686. The EPA proposed the same approach for
the North Carolina section 126 petition, in the event that EPA granted
the petition.
4. What Is the Clean Air Interstate Rule?
    The EPA developed the CAIR to address interstate pollution
transport with respect to the newly adopted PM2.5 and 8-hour
ozone NAAQS.
    In the CAIR, based on air quality modeling analyses and cost
analyses, EPA concluded that SO2 and NOX
emissions in certain States in the eastern part of the country, through
the phenomenon of air pollution transport,\4\ contribute significantly
to PM2.5 and/or 8-hour ozone nonattainment and maintenance
problems in downwind States. The CAIR establishes emission reduction
requirements for the affected upwind States under CAA section
110(a)(2)(D)(i). The affected States and the District of Columbia have
until September 11, 2006 to adopt and submit SIP revisions to achieve
these required reductions. The SIP revision must contain measures that
will assure that sources in the State reduce their SO2 and/
or NOX emissions sufficiently to eliminate the amounts of
SO2 and NOX that contribute significantly to
nonattainment downwind. Reducing upwind precursor emissions will assist
the downwind PM2.5 and 8-hour ozone areas in achieving and
maintaining the NAAQS. Moreover, attainment will be achieved in a more
equitable, cost-effective manner than if each nonattainment area
attempted to achieve attainment by implementing local emissions
reductions alone. The EPA specified that the CAIR emissions reductions
be implemented in two phases. The first phase of NOX
reductions starts in 2009 (covering 2009-2014) and the first phase of
SO2 reductions starts in 2010 (covering 2010-2014); the
second phase of reductions for both NOX and SO2
starts in 2015 (covering 2015 and thereafter). The emissions reduction
requirements are based on controls that are known to be highly cost
effective for EGUs; however, States have the flexibility to determine
what measures to adopt to achieve the necessary reductions. In the
CAIR, EPA provided model SO2 and NOX trading
programs for EGUs that States can choose to adopt to meet the emissions
reduction requirements in a flexible and highly cost-effective manner.
---------------------------------------------------------------------------

    \4\ When we use the term ``transport'' we mean to include the
transport of both fine particles (PM2.5) and their
precursor emissions and/or transport of both ozone and its precursor
emissions.
---------------------------------------------------------------------------

    With the inclusion of Delaware and New Jersey in the CAIR
PM2.5 region, EPA estimates that the CAIR will reduce
SO2 emissions by 3.6 million tons in 2010 and by 3.9 million
tons in 2015; and will reduce annual NOX emissions by 1.2
million tons in 2009 and by 1.5 million tons in 2015. (These numbers
reflect the annual SO2 and NOX requirements.) If
all these States choose to achieve these reductions through EGU
controls, then EGU SO2 emissions in the affected States
would be capped at 3.7 million tons in 2010 and 2.6 million tons in
2015; \5\ and EGU annual NOX emissions would be capped at
1.5 million tons in 2009 and 1.3 million tons in 2015.
---------------------------------------------------------------------------

    \5\ It should be noted that the SO2 trading program
provides that sources may bank pre-2010 title IV SO2
allowances to be used for compliance with CAIR. These provisions
encourage sources to make early emission reductions and ease the
transition to the CAIR SO2 program, and as a result,
emissions may not reflect the emission caps in any given year.
---------------------------------------------------------------------------

    Based on the promulgated CAIR (70 FR 25162), EPA estimates that the
required SO2 and NOX emissions reductions would,
by themselves, bring into attainment 52 of the 79 counties that are
otherwise projected to be in nonattainment for PM2.5 in
2010, and 57 of the 74 counties that are otherwise projected to be in
nonattainment for PM2.5 in 2015. The EPA further estimates
that the required NOX emissions reductions would, by
themselves, bring into attainment 3 of the 40 counties that are
otherwise projected to be in nonattainment for 8-hour ozone in 2010,
and 6 of the 22 counties that are projected to be in nonattainment for
8-hour ozone in 2015. In addition, the CAIR will improve
PM2.5 and 8-hour ozone air quality in the areas that would
remain in nonattainment for those two NAAQS after implementation of the
CAIR. Because of CAIR, the States with those remaining nonattainment
areas will find it less burdensome and less expensive to reach
attainment by adopting additional local controls. The CAIR will also
reduce PM2.5 and 8-hour ozone levels in attainment areas,
providing significant health and environmental benefits in all areas of
the eastern United States.
    For a more complete description of the CAIR and its impacts, the
reader is encouraged to review the preamble to the CAIR.
5. What Are the Findings of Failure To Submit for the Section
110(a)(2)(D) Plans?
    In a final rule published on April 25, 2005 (70 FR 21147), we made
national findings that States have failed to submit SIPs required under
section 110(a)(2)(D) to address interstate transport with respect to
the 8-hour ozone and PM2.5 NAAQS.
    The April 25, 2005 findings started a 2-year clock for EPA to
promulgate a FIP to address the requirements of section 110(a)(2)(D).
Under section 110(c)(1), EPA may issue a FIP any time after such
findings are made and must do so unless a SIP revision correcting the
deficiency is approved by EPA before the FIP is promulgated. For States
affected by CAIR, an approved SIP meeting the CAIR requirements would
satisfy the requirement and turn off the FIP clock. As discussed below
in section IV, EPA is today promulgating FIPs for States affected by
the CAIR. However, EPA intends to withdraw the FIP in a State in
coordination with approval of a SIP for the State that meets the CAIR
requirements.
    The findings do not start a sanctions clock pursuant to section 179
because the findings do not pertain to a part D plan for nonattainment
areas required under section 110(a)(2)(I) and because the action is not
a SIP Call pursuant to section 110(k)(5).
6. What Are the Petitions for Reconsideration of the CAIR?
    Following publication of the final CAIR, EPA received twelve
petitions requesting reconsideration of certain aspects of the final
rule. The EPA considered all issues raised in the petitions and decided
to reconsider six issues. In the notice of proposed rulemaking for this
rule, EPA announced its decision to reconsider one issue: the
definition of ``EGU'' as it relates to certain solid waste incineration
units. Subsequently, on December 2, 2005 (70 FR 72268), and December
29, 2005 (70 FR 77101), EPA published in the Federal Register notices
announcing its decisions to reconsider five additional aspects of CAIR
and requesting comment on those issues.
    As part of this rule, EPA is taking final action on reconsideration
of the definition of ``EGU'' as it relates to certain solid waste
incineration units. As explained in sections VI.E and VII below, EPA
has revised the definition of EGU to establish a specific exemption for
certain solid waste incineration units.
    In a separate notice signed today, EPA is taking final action on
the five

additional aspects of CAIR for which EPA granted petitions for
reconsideration. The EPA also is taking final action today to deny the
remaining issues raised in the twelve petitions for reconsideration.
These actions are discussed in greater detail in the preamble for the
notice of final action on reconsideration, titled ``Rule to Reduce
Interstate Transport of Fine Particulate Matter and Ozone (Clean Air
Interstate Rule): Reconsideration'' and all related documents are
available in the docket for the CAIR (EPA-HQ-OAR-2003-0053).

D. Summary of North Carolina's Section 126 Petition

1. What Sources Does the Petition Target?
    The North Carolina petition requests reductions of certain
emissions from large EGUs located in 13 States. With respect to the
PM2.5 NAAQS, the petition requests that EPA find that
NOX and SO2 emissions from large EGUs in 12
States (Alabama, Georgia, Illinois, Indiana, Kentucky, Michigan, Ohio,
Pennsylvania, South Carolina, Tennessee, Virginia, and West Virginia)
are significantly contributing to nonattainment in, or interfering with
maintenance by, North Carolina. With respect to the 8-hour ozone NAAQS,
the petition requests that EPA find that NOX emissions from
large EGUs in 5 States (Georgia, Maryland, South Carolina, Tennessee,
and Virginia) are significantly contributing to nonattainment in, or
interfering with maintenance by, North Carolina (Petition, p.1).
    The petition defines the term ``EGUs'' as all facilities meeting
the criteria described in the proposal for the CAIR. (See 69 FR 4566,
4610; January 30, 2004.) In the proposal for the CAIR, we defined EGUs
as ``fossil-fuel fired boilers and turbines serving an electric
generator with a nameplate capacity of greater than 25 megawatts (MW)
producing electricity for sale.'' (Id.) (See sections VI.E. and VII of
today's preamble for clarification of the EGU definition.)
2. What Control Remedy Does the Petition Request?
    In its petition, North Carolina states that compliance with the
NOX and SO2 emissions budgets in the proposal for
the CAIR would satisfy the requirements of the petition. These
emissions budgets were based on controls that are highly cost effective
for EGUs [the highly cost effective control metric being a component of
determining which emissions contribute significantly (see State of
Michigan v. EPA, 213 F.3d 663, 674-80 (D.C. Cir., 2000) (upholding
consideration of cost as an aspect of significant contribution)]. North
Carolina also states that it does not oppose the flexibility discussed
by EPA (69 FR at 4622) to allow equivalent reductions from other source
categories in given States, so long as those reductions are real and
enforceable (Petition, p. 24).
    In the CAIR, EPA provided model NOX and SO2
cap-and-trade programs for EGUs as control options for States to choose
to meet the CAIR emissions reductions requirements. The trading
programs allow interstate trading among sources in all States subject
to the CAIR that adopt the programs. In its petition, North Carolina
said it recognizes the value of allowing sources flexibility to reduce
their emissions in the most cost-effective manner consistent with the
statute. However, North Carolina expressed concerns about a regional
trading program (Petition, pp. 25-28). We address this issue below in
sections II and VI.
3. What Is the Technical Support for the Petition?
    To support its claim that EGUs outside North Carolina are
contributing significantly to nonattainment and maintenance problems in
the State, North Carolina relies largely on EPA's technical analyses
for the proposed CAIR. Therefore, as discussed above, the petition
targets sources in the same States that EPA linked to North Carolina in
the proposed CAIR. As corroborative support, North Carolina cites
analyses conducted by the Southern Appalachian Mountains Initiative
(SAMI) on PM2.5 transport, North Carolina's further
evaluation of the SAMI's analyses, as well as back trajectory analyses
performed by the North Carolina Division of Air Quality from
PM2.5 monitors in two counties. (See Petition, pp. 13-17.)

E. What Is the Consent Decree on the Section 126 Rulemaking Schedule?

    On March 19, 2004, EPA received a petition from the State of North
Carolina filed under CAA section 126. Section 126(b) requires EPA to
make the requested finding, or to deny the petition, within 60 days of
receipt. It also requires EPA to provide a public hearing before acting
on the petition. In addition, EPA's action under section 126 is subject
to the procedural requirements of section 307(d) of the CAA. [See
section 307(d)(2)-(5).] One of these requirements is that EPA conduct
notice-and-comment rulemaking. Section 307(d)(10) provides for a time
extension, under certain circumstances, for rulemakings subject to that
provision. Specifically, it allows statutory deadlines that require
promulgation in less than 6 months from proposal to be extended to not
more than 6 months from proposal to afford the public and the Agency
adequate opportunity to carry out the purposes of section 307(d). In an
action published on May 26, 2004 (69 FR 30038), EPA extended the
deadline for EPA to take action on the North Carolina petition by the
full 6 months, to November 18, 2004.
    On February 17, 2005, the State of North Carolina and the citizen's
group Environmental Defense filed complaints against EPA seeking to
compel EPA to take action on the State's section 126 petition: State of
North Carolina v. Johnson, No. 5:05-CV-112 (E.D. N.C.) and
Environmental Defense v. Johnson, No. 5:05-CV-113 (E.D. N.C.). The EPA,
North Carolina, and Environmental Defense filed a proposed consent
decree that would establish a schedule for EPA to act on the petitions.
Pursuant to CAA section 113(g), the EPA solicited comments on the
proposed consent decree, by notice dated March 2, 2005 (70 FR 10089).
The comment period closed April 1, 2005 without EPA receiving negative
comment. On May 9, 2005, the court entered a slightly modified version
of the consent decree.
    The schedule in the consent decree required EPA to sign a proposal
to grant or deny the petition by August 1, 2005, a date EPA met. (See
70 FR 49746.) The consent decree also required EPA to hold a public
hearing on the proposal during the week of September 12 in North
Carolina, and EPA held hearings in Research Triangle Park, North
Carolina and Washington, DC during that week. The EPA must also take
final action to grant or deny the petition by March 15, 2006, and is
doing so in this rule. With the signature of today's final response to
the petition, EPA has thus fulfilled all the deadlines and provisions
of the consent decree.

II. What Is EPA's Legal and Analytical Approach for the Section 126
Petition?

    For the PM2.5 NAAQS, EPA proposed to deny the petition
with respect to sources in any State having an approved SIP meeting the
CAIR emissions reductions requirements, and with respect to sources in
any State for which EPA promulgated a FIP with those same emission
reductions requirements. In either case, there would no longer be a
violation of the prohibition in section 110(a)(2)(D)(i). Since a
violation of that prohibition is a condition precedent for granting a
section 126 petition, EPA

necessarily would deny the petition. (See 70 FR at 49716-49717.)
    A number of commenters disagreed with EPA's approach. In their
view, section 126 guarantees a particular result: reductions of
emissions from designated upwind sources linked to North Carolina
nonattainment or maintenance problems, which reductions are to occur
within three years.
    In the commenters' view, if an approved SIP or a FIP does not
provide this result within the three year time frame stated in section
126(c), then EPA must grant the petition. Thus, the argument goes, EPA
must find that certain sources significantly contribute to
nonattainment problems in North Carolina regardless of whether there is
a current violation of the section 110(a)(2)(D)(i) prohibition. The
commenters maintain that the statute, case-law, and past EPA practice
all compel their interpretation.
    EPA disagrees. In our view, section 126 provides a mechanism
forcing EPA to act, but does not force adoption of controls beyond
those necessary to remove the underlying SIP deficiency which violates
the prohibition of section 110(a)(2)(D)(i). In essence, section 126
provides States a means to force EPA to take action to reduce specific
emissions when EPA has not taken the actions required by section
110(a)(2)(D)(i) to address significant contribution to downwind
receptors, but does not force further action. It follows, therefore,
that once EPA has taken action to eliminate the SIP deficiencies by
approving SIPs which implement CAIR (i.e., which eliminate the
significant contribution), or itself promulgates a CAIR FIP for states
with SIP deficiencies, there is no longer a cause of action under
section 126.\6\
---------------------------------------------------------------------------

    \6\ This analysis assumes that the facts underlying CAIR remain
unchanged. If a Petition were to present new information showing,
for example, that there is a different level of contribution than
EPA analyzed in CAIR, compliance with CAIR would not automatically
be determinative regarding whether upwind sources are emitting in
violation of the section 110 (a)(2)(D)(i) prohibition. See 64 FR at
28274 n. 15 and Appalachian Power, 249 F.3d at 1067 (later
developments can be the basis for another section 126 petition).
---------------------------------------------------------------------------

    This interpretation is consistent with the text of the statute,
which links action under section 126 inextricably with the existence of
an underlying section 110(a)(2)(D)(i) SIP deficiency: ``[a]ny State * *
* may petition the Administrator for a finding that any major source or
group of stationary sources emits * * * any air pollutant in violation
of the prohibition of section 110(a)(2)(D)[(i)] 7 o[f] this
section'' (emphasis added). Case law likewise makes clear that EPA's
determination of whether or not to grant a section 126 petition turns
on whether SIPs are in violation of section 110(a)(2)(D)(i).
Appalachian Power v. EPA, 249 F.3d 1032, 1045-46 (D.C. Cir. 2001).
Similarly, in the rulemaking dealing with a section 126 petition in
circumstances most analogous to those here (EPA's response to the
Northeastern states' petition regarding interstate transport of ozone
precursors, issued roughly contemporaneously with the NOX
SIP Call), EPA stated that it ``interprets section 126 to provide that
a source is emitting in violation of the prohibition of section
110(a)(2)(D)(i) where the applicable SIP fails to prohibit (and EPA has
not remedied this failure through a FIP) a quantity of emissions from
that source that EPA has determined contributes significantly to
nonattainment or interferes with maintenance in a downwind [S]tate''
(64 FR at 28272; May 25, 1999). Thus, ``[a]n upwind State and EPA may
remedy this excessive interstate transport of air pollutants through
adoption and approval of a SIP revision barring the emission of such
pollutants. Alternatively, a downwind State and EPA may remedy this
excessive interstate transport of air pollutants through the State
petitioning EPA under section 126 and EPA regulating the sources
directly'' (65 FR 2680; January 18, 2000).
---------------------------------------------------------------------------

    \7\ As noted earlier, the statutory text refers to subsection
(ii) of section 110(a)(2)(D), but this is a scrivener's error.
Appalachian Power, 249 F.3d 1032, 1040-44.
---------------------------------------------------------------------------

    Commenters argued, however, that the reference in section 126(b)
and (c) to ``the prohibition of section 110(a)(2)(D) [(i)]'' must be to
the functional prohibition in section 110(a)(2)(D)(i), by which they
mean a cessation of emissions that contribute significantly to
nonattainment in a downwind state. Under this reading, a remedy under
section 126 must entail emission reductions, not merely SIP revisions.
EPA agrees that the prohibition referred to is the functional
prohibition on significant contribution to downwind states, and
therefore, for example, EPA cannot defer granting a section 126
petition merely because a state is under a legal obligation to revise
its SIP. Appalachian Power, 249 F.3d at 1044. However, adoption of a
SIP implementing CAIR (or EPA enacting a CAIR FIP) addresses the
functional prohibition of section 110(a)(2)(D)(i) by eliminating the
SIP deficiency triggering the prohibition through requirements on
sources to eliminate the significant contribution to downwind
receptors. Moreover, to the extent the commenters are maintaining that
the `functional prohibition in section 110(a)(2)(D)(i)' refers to some
specific environmental result, such as North Carolina coming into
attainment (see Comments of North Carolina Attorney General at 17), we
disagree. EPA interprets ``significant contribution'' in the CAIR and
in this proceeding to include both an emission component and a
feasibility/cost-effectiveness component, so that what is prohibited
are specific levels of emissions which can feasibly be reduced in a
highly cost-effective manner. See also 65 FR at 2677 (applying cost
effectiveness component of the significant contribution standard in
granting a section 126 petition). Adoption of a CAIR SIP (or EPA
adopting a CAIR FIP) fully addresses this prohibition.
    In the same vein, other commenters argued that sections
110(a)(2)(D) and 126 are independent provisions, and that EPA is
vitiating that independence by substituting a section 110 remedy for
the section 126 remedy, the implication again being that section 126
commands an environmental result which must be effectuated once the
section 110(a)(2)(D) prohibition is violated. EPA disagrees with the
premise of the comment. Although the two provisions unquestionably may
be applied independently, they are also closely linked in that a
violation of the prohibition in section 110(a)(2)(D)(i) is a condition
precedent for action under section 126 and, critically, that
significant contribution is construed identically for purposes of both
provisions (since the identical term naturally is interpreted as
meaning the same thing in the two linked provisions). See Appalachian
Power, 249 F. 3d at 1049-50. If EPA or a State has adopted provisions
that eliminate the significant contribution to downwind states, then
there simply is no violation of the section 110(a)(2)(D) prohibition.
Moreover, since we interpret significant contribution to mean the same
thing under both provisions, relief under section 126 to eliminate
significant contribution must in any case mean eliminating those
emissions which can feasibly be controlled in a highly cost-effective
manner as defined in the CAIR. Put another way, requiring additional
reductions would result in eliminating emissions which do not
contribute significantly, an action beyond the scope of section 126.
    Commenters further argued that relief under section 126 must occur
within 3 years and therefore that the CAIR emission reductions do not
satisfy

section 126 because although those reductions commence within 3 years
they are phased in over a longer time. These comments assume that EPA
must make the section 126 findings, however, in which case sources
covered by the petition would indeed have to eliminate significant
contribution within 3 years. But as just explained, a condition
precedent to making section 126 findings is the existence of an
underlying SIP deficiency, which EPA has chosen to address directly
through action under section 110(a)(2)(D). Moreover, this choice is
appropriate. As a result of today's action, not only will there be an
approved SIP or a CAIR FIP in place requiring emission reductions which
eliminate the significant contribution to North Carolina, but these
reductions occur within 3 years, commencing in 2009 when NOX
controls (a PM2.5 precursor) are required (70 FR at 49718).
This is similar to EPA's decisions in the parallel NOX SIP
Call/section 126 rulemakings where EPA initially deferred making
section 126 findings because there would be approved SIPs in place
requiring elimination of significant contribution to downwind States
with emission reductions to commence (although not be concluded) within
the 3-year period (64 FR at 28275).\8\ When the NOX SIP Call
rule was judicially stayed, it was no longer appropriate to defer
making the section 126 findings because there were no longer ``explicit
and expeditious deadlines for compliance with the NOX SIP
Call'' (65 FR 2680). Here, the certainty of SIP submissions (or action
under a CAIR FIP) coupled with explicit and certain compliance
deadlines calling for emissions reductions commencing in the same
timeframe as the section 126 3-year window make it appropriate for EPA
to utilize the section 110(a)(2)(D) remedy.
---------------------------------------------------------------------------

    \8\ Commenters asserted that all emissions reductions under the
SIP Call would have occurred within the three-year period, but this
is not the case. The date for achieving the budgets provided by the
SIP Call (i.e., the full panoply of annual emission reductions) was
2007, six years from the rule's promulgation date. See 63 FR at
57450.
---------------------------------------------------------------------------

    We note further that in arguing that EPA must order all emissions
reductions from designated sources which contribute to North Carolina
PM2.5 nonattainment to occur within 3 years, commenters
again ignore the feasibility/cost-effectiveness prong of the
significant contribution test. EPA has found that the CAIR emissions
reductions are highly cost effective based on the compliance schedule
established in that rule, and further found that that compliance
schedule is needed for reasons of technical feasibility (70 FR at
25195-25229). Requiring those reductions to occur on a more rapid
timeframe would thus require considerably more than merely eliminating
significant contribution, and so would exceed the scope of section 126.
Moreover, commenters presented no independent analysis showing that
emission reductions from the designated sources could be obtained cost-
effectively (or even feasibly) within 3 years.\9\
---------------------------------------------------------------------------

    \9\ The petitioner (in its comments on the proposal) stated that
``[c]ontrols for sources contributing to nonattainment in North
Carolina would be cost effective. EPA concluded as much in the
Proposed CAIR Rule * * *. There is nothing in the Final CAIR Rule
that indicates that adding North Carolina to the list of downwind
states would `break the bank' on cost effectiveness.' '' Comments of
North Carolina Attorney General at p. 30 n. 16. This statement does
not address whether controls on upwind souces would be cost
effective (or feasible) in timeframes more rapid than those found to
be cost effective and feasible in the CAIR.
---------------------------------------------------------------------------

    Commenters also argued that because a SIP (or the CAIR FIP) could
(or in the case of the FIP, would) reflect a trading component, such a
scheme would not satisfy section 126. The legal argument is that
section 126 requires emission reductions to come from designated
sources, a result not possible to guarantee under a trading regime.
More basically, commenters stated that under a trading regime there was
no certainty that there would be reduction of emissions to North
Carolina, so that at the least, trading should be limited to sources
designated in the petition as contributing significantly to
nonattainment in North Carolina. These arguments again assume that EPA
must grant the petition, which is not our view so long as the
underlying SIP deficiencies are rectified, as explained above. The
arguments also do not address the critical point that availability of
trading options are part of the basis for EPA's findings that
reductions are highly cost effective, and hence are an element of the
finding that emissions contribute significantly to nonattainment.\10\
The approach here is also consistent with the one EPA adopted initially
in the NOX SIP Call/section 126 rulemaking, where EPA
deferred granting section 126 petitions based on the existence of the
NOX SIP Call remedy, which included a trading scheme across
the entire region. 63 FR at 56309-320; see generally 64 FR at 28307-309
(appropriateness of trading as a section 126 remedy). Indeed, as noted
earlier, EPA adopted a trading scheme when granting that earlier
section 126 petition. See 65 FR at 2686; see also Appalachian Power,
249 F. 3d at 1039 noting that EPA's section 126 rule included a cap-
and-trade program. Further discussion of issues relating to the trading
regime are found in section VI.B of this preamble.
---------------------------------------------------------------------------

    \10\ Indeed, the Petition relies on EPA's analysis of what
constitutes significant contribution, which, as just noted, includes
an assumption that sources participate in a trading scheme to
achieve highly cost-effective emission reductions. The Petition
presents no independent analysis of what would constitute a
significant contribution in the absence of a trading program. It is
thus illogical for the Petition to argue that sources must eliminate
all significant contribution (of which trading is a necessary
element) but must do so without a trading program.
---------------------------------------------------------------------------

    Some commenters also challenged EPA's basis for proposing to deny
the petition with respect to ozone. EPA did so because no area in North
Carolina is projected to be in nonattainment with the ozone 8-hour
NAAQS in the CAIR base case and therefore upwind states would (by
definition) not be contributing significantly to North Carolina
nonattainment (70 FR at 25162). Commenters argued that EPA is obligated
to consider current conditions, and not base findings on future
conditions, because some areas in North Carolina are presently in
nonattainment. They base this argument on the use of the present tense
in section 126(b) (``emits or would emit any air pollutant in violation
of the prohibition of section 110(a)(2)(D)[(i)]''), plus equitable
consideration of the need to address existing pollution problems.
    EPA disagrees. With respect to the statutory language, both section
126(b) and 110(a)(2)(D)(i) do not specify the time by which EPA must
evaluate significance of contribution. Indeed, section 110(a)(2)(D)(i)
is written exclusively in the future tense, and the reference to
``emits or would emit'' in section 126(b) is naturally read as making
clear that controls can apply to both existing and new sources. See
Appalachian Power, 249 F. 3d at 1056-57. Moreover, it makes sense for
significant contribution determinations to be based on conditions at
the time at which potential controls are contemplated. Suppose, for
example, that due to future rules (a clutch of effective mobile source
controls, for example) it can reliably be predicted that an area will
be in attainment although it is not so presently. We do not believe
that the statute mandates immediate assessment of interstate
contribution to address a nonattainment problem that will no longer
exist at the time controls on the interstate emissions would be
implemented. EPA thus has consistently adopted this future-looking
approach when assessing interstate transport, and believes it
reasonable to continue doing so here. See 63 FR at 57375 (adopting this
approach in NOX SIP Call).

    Finally, commenters argued that EPA had ignored the statutory
requirement in section 110(a)(2)(D)(i) (incorporated within section
126(b) and (c)) to prohibit interstate transport that ``interefere[s]
with maintenance'' by North Carolina of the 8-hour ozone NAAQS. They
further stated that a number of North Carolina counties projected to
attain the ozone NAAQS are modeled to do so by narrow margins that
should be deemed to fall within the interfere with maintenance test
based on modeling uncertainties and historic ozone variability patterns
in the counties in question.
    EPA stated in the CAIR rule that it would apply the interfere with
maintenance provision in section 110(a)(2)(D) in conjunction with the
significant contribution to nonattainment provision and so did not use
the maintenance prong to separately identify upwind States subject to
CAIR (70 FR at 25193). EPA did this so as not to give the interfere
with maintenance requirement greater weight than the significant
contribution requirement, thus avoiding giving greater weight to the
potentially lesser environmental effect. (See CAIR Response to Comments
Response at p. 63.) EPA's reading also promotes a reasonable balance
between controls on upwind states and in-state controls, an important
objective in applying the section 110 and 126 interstate transport
provisions. (See 70 FR at 25193.) Suppose, for example, that a downwind
area is projected to attain by the effective date of potential section
110(a)(2)(D) (or section 126(b)) controls, so that those controls are
unnecessary to prevent significant contribution to nonattainment.
Applying controls on upwind sources in these circumstances not only
could be environmentally unnecessary, but could even create a perverse
incentive for downwind states to increase local emissions.\11\
---------------------------------------------------------------------------

    \11\ In this case, the three North Carolina counties mentioned
in comments as warranting upwind reductions to maintain attainment
status, are not only projected to be in attainment in 2010 in both
the base case and the CAIR case (considering emission reductions
occurring under CAIR to prevent significant contribution) and the
2015 base case and CAIR case. In fact, in 2015, these counties
(Mecklenburg, Rowan, and Wake) are projected to be attaining by
comfortable margins. CAIR Modeling TSD App. E Table E-1 (projected
levels of 75.0 ppb, 74.1 ppb, and 70.8 ppb respectively in the 2015
CAIR case, which are all below the levels (3-5 ppb) EPA considered
to raise maintenance concerns in the CAIR. These projections do not
consider the effect of local controls other than those already
enacted. Projected levels in the 2015 base case, i.e. without CAIR
and without further local controls, are likewise comfortably below
the levels which could raise likely possibility of returning to
nonattainment. (It is reasonable to defer consideration of
maintenance issues until 2015 in this anlaysis because the CAIR
remedy is in two parts. There thus will be further emission controls
of NOX between 2010 and 2015 as a result of CAIR which
could subsume any controls adopted for maintenance reasons.) EPA
thus in any case does not beleive that further reductions from
upwind sources is needed to maintain the 8-hour ozone standard in
these counties, and that such emission reductions would not
reasonably balance upwind and local controls. See also Response to
Comment Document addressing these factual issues.
---------------------------------------------------------------------------

    We note further that even if (against our view) the interference
with maintenance standard were to be applied in cases where there is no
evidence of significant contribution to nonattainment, EPA would still
interpret the standard as requiring consideration of cost and technical
feasibility since EPA already considers these factors as aspects of
significant contribution, and it would make little sense to interpret
the interfere with maintenance language (the lesser environmental
effect) as allowing reductions without considering those same factors.
See also 63 FR 57370 (interfere with maintenance must also reflect
significant contribution to be cognizable under section 110 remedies
for interstate transport. Moreover, given that maintenance addresses
the less significant environmental effect, EPA would likely require
that emission reductions be no less highly cost effective than those
which significantly contribute to nonattainment, and might require that
reductions be even more highly cost effective. It is thus difficult to
see that further emission reductions than those already required under
CAIR would be warranted.

III. What Is EPA's Final Action on the Section 126 Petition?

    In determining whether emissions from EGUs in the States named in
the North Carolina section 126 petition contribute significantly to 8-
hour ozone and/or PM2.5 nonattainment and maintenance
problems in North Carolina, EPA is relying on the conclusions drawn in
the final CAIR. As discussed in section I above, North Carolina based
its petition in large part on the analyses for the proposed CAIR--
identifying EGUs in the same upwind States that EPA proposed to link to
North Carolina. The EPA conducted new modeling analyses using updated
emissions inventories for the final CAIR. The EPA also applied a
different value for the threshold contribution level for the air
quality portion of the significant contribution determination for
PM2.5 in the final CAIR. Therefore, the upwind State-to-
downwind State linkages differed in the final CAIR from the proposal.

A. What Is EPA's Final Action With Respect to the 8-Hour Ozone NAAQS?

    In its petition, North Carolina requested that EPA make findings
that large EGUs in Georgia, Maryland, South Carolina, Tennessee, and
Virginia contribute significantly to nonattainment in, or interfere
with maintenance by, North Carolina with respect to the 8-hour ozone
NAAQS. In the proposed CAIR, EPA linked these States to 8-hour ozone
air quality problems in Mecklenburg County, North Carolina. In the
final CAIR, EPA's updated analyses project all of North Carolina to be
in attainment for 8-hour ozone in the CAIR 2010 base case. Therefore,
EPA did not link any upwind States to North Carolina with respect to
the 8-hour ozone NAAQS in the final CAIR (See CAIR preamble, Table VI-9
at 70 FR at 25249). Consequently, EPA is denying the section 126
petition with respect to the 8-hour ozone NAAQS.

B. What Is EPA's Final Action With Respect to the PM2.5 NAAQS?

    In its petition, North Carolina also requested that EPA make
findings that large EGUs in Alabama, Georgia, Illinois, Indiana,
Kentucky, Michigan, Ohio, Pennsylvania, South Carolina, Tennessee,
Virginia and West Virginia contribute significantly to nonattainment
in, or interfere with maintenance by, North Carolina with respect to
the PM2.5 NAAQS. In the proposed CAIR, these 12 States were
linked to PM2.5 nonattainment problems in North Carolina. In
the final CAIR, as noted, EPA used different, updated modeling and also
applied a 0.2 ([mu]/m3 contribution threshold level rather
than the proposed 0.15 ([mu]/m3 for the air quality portion
of the significant contribution determination (70 FR 25190-25191).
Based on the updated modeling and the 0.2 ([mu]/m3
contribution threshold level, EPA determined in CAIR that only the
following 10 States are significantly contributing to PM2.5
air quality problems in North Carolina: Alabama, Georgia, Indiana,
Kentucky, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia, and
West Virginia (see preamble Table VI-8; 70 FR at 25248-25249). This
means for purposes of section 126(b) that sources within these States
for which EPA determined highly cost-effective controls are available
are also contributing significantly to PM2.5 nonattainment
problems in North Carolina.
    In determining what action to take in response to the
PM2.5 portion of the section 126 petition, EPA is taking
into consideration the CAIR FIPs that are being promulgated today in
conjunction

with the section 126 action (see section IV below). The FIP action
establishes control requirements for each of the States affected by the
CAIR in order to achieve the emissions reductions required to address
interstate transport.
    In the proposal for the section 126 action, for EGUs in States
linked to North Carolina in CAIR (and therefore, for which EPA proposed
a FIP), EPA proposed in the alternative (1) to deny the petition if EPA
issued the final FIPs to address the interstate transport no later than
the final section 126 response or (2) to grant the petition and make
section 126 findings if EPA did not promulgate the FIPs prior to or
concurrently with the final section 126 response. Because the FIPs
would fully address the PM2.5-related interstate transport
problem identified in CAIR and thus eliminate the section 110(a)(2)(D)
violation, there would no longer be a basis for the section 126
findings. In today's action, EPA is finalizing the CAIR FIPs.
Therefore, EPA is denying the section 126 petition for EGUs in States
linked to North Carolina for PM2.5.
    For EGUs located in Illinois and Michigan, which are not linked to
North Carolina in the final CAIR with respect to the PM2.5
NAAQS (70 FR 25247-25248), EPA is also denying the petition.

IV. What Is the Federal Implementation Plan for the CAIR?

A. What Is the Legal Framework for the FIPs?

    Section 110(c)(1) of the CAA requires the Administrator to
promulgate a FIP within 2 years of: (1) Finding that a State has failed
to make a required submittal, (2) finding that a submittal received
does not satisfy the minimum completeness criteria established under
section 110(k)(1)(A), or (3) disapproving a SIP submittal in whole or
in part. The EPA may issue a FIP any time after making one of these
findings or the Agency may issue a SIP disapproval. However, EPA is
relieved of the obligation to promulgate the FIP if a SIP revision
correcting the deficiency identified is approved by EPA before such a
FIP is promulgated.
    As discussed in paragraph I.D.5, in a final rule signed the same
day as CAIR, EPA found that States have failed to submit SIPs to
satisfy the interstate transport requirement under section
110(a)(2)(D)(i) of the CAA for the PM2.5 and 8-hour ozone
NAAQS (70 FR 21147). These findings started the 2-year clock for the
promulgation of a FIP. They did not start a ``sanctions clock'' as
there are no mandatory sanctions associated with the FIP or the finding
of State failure to submit SIPs to satisfy 110(a)(2)(D)(i).
    The EPA's authority to act when it has identified deficiencies in
SIPs is derived from multiple sources. First, EPA may promulgate any
measure which it is permitted to issue pursuant to pre-existing
independent statutory authority--for example, the provisions of title
II. That is, EPA may promulgate any measure which it has authority to
issue in a non-FIP context, without reliance on section 110(c). Second,
EPA may invoke section 110(c)'s general FIP authority and act in
accordance with this provision, and the CAA more broadly, to cure a SIP
deficiency. Third, under section 110(c), the courts have held that EPA
may exercise all authority that the State may exercise under the CAA.
    The first type of authority, EPA's general authority, is
independent of section 110(c). It is not dependent on or altered by
finding a deficiency in a SIP.
    The second type of authority, EPA's general authority under section
110(c), is essentially remedial. The EPA has broad power under that
section to cure a defective State plan. Thus, in promulgating a FIP,
EPA may exercise its own, independent regulatory authority in
accordance with section 110(c), and the CAA more broadly. When EPA has
promulgated a FIP, courts have not required explicit authority for
specific measures: ``We are inclined to construe Congress' broad grant
of power to the EPA as including all enforcement devices reasonably
necessary to the achievement and maintenance of the goals established
by the legislation.'' (South Terminal Corp. v. EPA, 504 F.2d 646, 669.
(1st Cir., 1974)).
    Third, the same authority that is exercised by the States under the
CAA in connection with the adoption, implementation, and enforcement of
a SIP may be assumed to be available to the EPA when the agency issues
a FIP, after determining that a State has not adopted a satisfactory
SIP. As the Ninth Circuit has held, when EPA acts in place of the State
pursuant to a FIP under section 110(c), EPA ``stands in the shoes of
the defaulting State, and all of the rights and duties that would
otherwise fall to the State accrue instead to EPA,'' (Central Arizona
Water Conservation District v. EPA, 990 F.2d 1531, at 1541 9th Cir.,
1993). The First Circuit, in an early FIP case, agreed:

    * * * the Administrator must promulgate promptly regulations
setting forth an implementation plan for a State should the State
itself fail to propose a satisfactory one. The statutory scheme
would be unworkable were it read as giving to EPA when promulgating
an implementation plan for a State, less than those necessary
measures allowed by Congress to a State to accomplish Federal clean
air goals. We do not adopt any such crippling interpretation.
    South Terminal Corporation v. EPA, 504 F.2d 668 (1st Cir.,
1974).

    In the case of Federally-recognized Indian Tribes, as we explained
in the CAIR, (70 FR 25167-25168) Tribes are subject to section
110(a)(2)(D), but are not required to submit implementation plans. The
EPA is required to promulgate FIPs for Indian country as necessary or
appropriate to protect air quality. See 40 CFR 49.11(a). Presently,
there are no emissions sources in Indian country within the region
affected by CAIR which would make a FIP necessary or appropriate. In
the event of the planned construction of such a source within Indian
country in the 28-State region subject to CAIR, EPA will work with the
relevant Tribal government to regulate the source through a Tribal or
Federal implementation plan. In the case of an EGU, the EPA anticipates
that the Tribal implementation plan (TIP) or FIP would involve the
participation of the EGU in the EPA administered cap-and-trade program.
The EPA will also work with the Tribe and affected States to determine
how allowances allocated to the Indian country source will affect State
allowance allocations. Because any FIPs for Indian country will
necessarily be tailored to the specific circumstances, today's action
contains no such FIP. The reader is referred to the CAIR for a more
detailed discussion of the potential impact of the CAIR in Indian
country (70 FR 25167-25168, 25315).

B. What Is the Timing and Scope of the CAIR FIP Actions?

    As described in the CAIR, EPA views seriously its responsibility to
address the issue of regional transport. Decreases in NOX
and SO2 emissions are needed in the States identified in the
CAIR to enable downwind States to develop and implement plans to
achieve and maintain the PM2.5 and 8-hour ozone NAAQS. The
CAIR identified the amount of emissions reductions necessary for each
State identified in the CAIR to meet their section 110(a)(2)(D)
interstate transport obligations. Implementation of these reductions is
necessary to help downwind States to achieve the NAAQS in order to
provide clean air for their residents.
    Therefore, EPA is promulgating FIPs today in conjunction with the
action responding to North Carolina's section 126 petition concerning
transport of

PM2.5 and 8-hour ozone. The EPA is promulgating these FIPs
at the same time as its response to North Carolina's section 126
petition, which is required to be finalized no later than March 15,
2006 in accordance with a judicially-enforceable consent decree. The
EPA believes it is appropriate to coordinate these two actions because
they both address interstate transport, both apply to EGUs, and because
the States of concern in the section 126 petition are a geographical
subset of the States covered by CAIR. Promulgating the CAIR FIPs at
this time provides a backstop of Federal controls for all States
covered by CAIR for PM2.5 and/or 8-hour ozone, not just
those States that significantly contribute to North Carolina for
PM2.5. This provides a level playing field, giving assurance
to all the affected downwind States that the upwind emissions
reductions required under CAIR will be achieved on time. Further, EPA
believes that the CAIR reductions are best implemented as a unified
program. The EPA believes that States will submit SIP revisions
implementing the CAIR reductions in their States in a unified manner,
and that this reduces workload for the States and provides sources with
more certainty. Finally, promulgating the 8-hour ozone FIP as well as
the PM2.5 FIP as early as possible gives States more
flexibility to take advantage of the abbreviated SIP option discussed
below and in section VI.C. This could further reduce workload for
States to meet the requirements of CAIR. In today's action, EPA is not
promulgating FIPs for any States not covered by CAIR.
    The Agency is taking this action to provide a Federal backstop for
CAIR where all States may not be able to develop and submit timely,
approvable SIP revisions. In no way should the FIP for CAIR be viewed
as a sign of any concern about States ultimately making the emission
reductions required under CAIR. There are no sanctions associated with
today's rule, and EPA does not intend CAIR FIPs to have any negative
consequences for the affected States. To the contrary, EPA is
finalizing FIP approaches that are flexible and allow States a full
opportunity to get their SIP revisions in place, with minimal
disruption in transitioning from Federal to State implementation.
    Moving quickly to promulgate a FIP is consistent with Congress'
intent that attaining the standard occurs in these downwind
nonattainment areas ``as expeditiously as practicable'' (sections
181(a) and 172(a)(2)(B)). The FIP will help ensure that all emissions
reductions required by CAIR, and the associated environmental benefits,
will be achieved by the CAIR deadlines. In addition, the FIP will
ensure that sources in all States covered by CAIR, regardless of
whether they were included in the North Carolina section 126 petition,
will be required to achieve emissions reductions at the same time.
    By finalizing the FIP well before the deadline for States to submit
their CAIR SIPs, EPA is providing States an additional option for
complying with the requirements of CAIR. States planning to adopt the
model trading programs contained in the CAIR rule, can accept the FIP
and significantly reduce the State resources needed to establish a
program to implement the CAIR. Since there are no punitive consequences
for States associated with the FIP or the finding of failure to submit
SIPs to satisfy section 110(a)(2)(D)(i), some States could avoid much
of the time and expense of revising their SIPs to comply with CAIR.
Some States, particularly those subject to the NOX SIP Call,
may need to prepare minor SIP revisions regardless of whether they
accept the FIP implementing the requirements of CAIR; yet the time and
expense involved would be significantly reduced.
    The EPA is finalizing, with certain changes described in section
VI.C, the approach that a State can choose to modify the application of
the CAIR FIP through abbreviated SIP revisions. The abbreviated SIP
revisions approach covers specific elements of the FIP trading programs
without submitting full SIP revisions to meet the requirements of CAIR.
By accepting such abbreviated SIP revisions, EPA is providing
additional options for States to comply with CAIR. A State can choose
to retain control of these specific elements of the trading programs,
without submitting a full SIP revision to meet the requirements of
CAIR. As there are no sanctions associated with the FIP, EPA
anticipates that some States will prefer to avoid spending the time and
money necessary to submit a full SIP revision.
    The Agency will accept abbreviated SIP revisions for any or all of
the following four specific elements of the FIP trading programs: (1)
Provisions for otherwise unaffected units to opt-in to the FIP trading
programs, (2) allocating annual and/or ozone season NOX, (3)
allocating allowances from the annual NOX Compliance
Supplement Pool (CSP), and (4) including NOX SIP Call
trading sources that are not EGUs under CAIR in the Federal CAIR ozone
season NOX cap-and-trade program. Upon approval of any such
SIP revisions, EPA anticipates that the corresponding portions of the
FIP for that State would be replaced or their application to sources
would be modified.
    In offering a framework for abbreviated SIP revisions, the Agency
anticipates that many States will wish to retain control over the
allocation of allowances. Additionally, the Agency recognizes that
States may wish to meet their NOX SIP Call obligations by
allowing NOX budget units (that is, units in the
NOX SIP Call trading program) that are not EGUs under CAIR
to participate in the CAIR ozone season trading program.
    In its proposal, the EPA invited comment on the option for States
to submit abbreviated SIPs covering specific elements of the Federal
trading programs. A more complete discussion of the proposed
abbreviated SIP provisions and the comments received is found in
section VI of today's preamble.
    Thus, the FIP will increase the options available for a State to
comply with CAIR. Through the CAIR rulemaking actions, EPA has provided
States with a great deal of data and analyses concerning air quality
and control costs, as well as a determination whether upwind sources
contribute significantly to downwind nonattainment under section
110(a)(2)(D). The EPA recognizes that States would face great
difficulties in developing transport SIPs to meet the requirements of
section 110(a)(2)(D) without these data and policies. Indeed, EPA
acknowledged in the CAIR that the Agency's extensive analyses and data,
including the multi-year operation of a federally-funded monitoring
system (and the considerable information generated through that system)
was a necessary element in the Agency's conclusion that it was
appropriate to impose such requirements on States (70 FR 25267).
    States have 18 months from the signature date of the CAIR, or until
September 11, 2006, to develop, adopt, and submit revisions to their
SIPs that meet the requirements of CAIR. The EPA will withdraw the FIP
once EPA approves a SIP that meets the CAIR requirements in that State.
    Having the FIP in place early provides for a transition to a CAIR
trading program with the greatest continuity, administrative ease, and
cost savings for States that would otherwise develop a program
identical to the model trading programs. The EPA's goal is to have
approvable programs in place that meet the requirements of the CAIR
whether they are in the form of a SIP or a FIP. By finalizing a FIP
today, EPA in no way precludes a State from developing its own SIP to
either adopt the trading

rules with any discretionary elements allowed by the CAIR or from
meeting the State emissions budget through different measures of the
State's choosing. The EPA has considered the timing of each element of
the FIP process to make sure to preserve each State's freedom to
develop and implement SIPs. In this way, EPA has enhanced each State's
options for complying with the requirements of the CAIR while ensuring
that all the emissions reductions and environmental benefits of the
CAIR are realized.

C. What Are the FIP Control Measures?

    In contrast to the SIP process--where selection and implementation
of control measures is the primary responsibility of the State--in the
case of a FIP, it is EPA's responsibility to select the control
measures for sources and assure compliance with those measures. Thus,
while the FIP is designed by EPA to achieve the same total emissions
reductions described in the CAIR, the specific control measures
assigned in the FIP may be different from what a State might choose.
    In selecting the control measures for the FIP, EPA is adopting the
same measures used in the CAIR for calculating the required emissions
reductions. In the CAIR, EPA is requiring States to achieve specified
levels of emissions reductions based on levels that are achievable
through implementation of highly cost-effective controls on EGUs. See
the discussion in section IV of the CAIR, ``What Amounts of
SO2 and NOX Emissions Did EPA Determine Should Be
Reduced?'' The EPA is including by reference the technical basis and
supporting rationale for EPA's conclusions as to the highly cost-
effective strategy developed for the CAIR.
    The SO2 and NOX cap-and-trade programs for
the FIP are discussed below in section VI. The unit NOX
allocations will be provided in a later action and will meet the State
EGU budgets that are established in the CAIR for States that choose to
meet the required emissions reductions by controlling EGUs only.

D. When and How Will EPA Remove the FIP Requirements if EPA Approves a
SIP To Meet the CAIR?

    As discussed previously, EPA is finalizing the FIP today
concurrently with EPA's response to the section 126 petition from North
Carolina. The EPA intends to withdraw the FIP in a State in
coordination with EPA's approval of a SIP for that State that meets the
CAIR requirements. It is EPA's preference that States regulate sources
to control the interstate transport; therefore, EPA will work with
States to help ensure that the FIP would not need to be implemented.
    The EPA intends to withdraw the FIP requirements as soon as
practical after receiving approvable CAIR SIP revisions. The EPA will
work with States to ensure a timely withdrawal of the FIP and recording
of State NOX allocations in source accounts (for States
choosing to allocate NOX allowances). A more detailed
discussion of the timing for recording allocations is found in section
VI.F.1 of this preamble.

V. Emission Reduction Requirements for the CAIR FIP

A. Introduction

    In the CAIR (70 FR 25162), EPA determined that SO2 and
NOX emissions from sources in the District of Columbia and
the following 23 States contribute significantly to downwind
PM2.5 nonattainment: Alabama, Florida, Georgia, Illinois,
Indiana, Iowa, Kentucky, Louisiana, Maryland, Michigan, Minnesota,
Mississippi, Missouri, New York, North Carolina, Ohio, Pennsylvania,
South Carolina, Tennessee, Texas, Virginia, West Virginia, and
Wisconsin.
    In a separate rulemaking signed the same day as this action, EPA
finds that SO2 and NOX emissions from sources in
Delaware and New Jersey also contribute significantly to downwind
PM2.5 nonattainment.
    In the CAIR, the Agency also determined that the District of
Columbia and the following 25 States contribute significantly to
downwind 8-hour ozone nonattainment: Alabama, Arkansas, Connecticut,
Delaware, Florida, Illinois, Indiana, Iowa, Kentucky, Louisiana,
Maryland, Massachusetts, Michigan, Mississippi, Missouri, New Jersey,
New York, North Carolina, Ohio, Pennsylvania, South Carolina,
Tennessee, Virginia, West Virginia, and Wisconsin.
    The EPA established CAIR annual SO2 and NOX
emission reduction requirements for States that contribute
significantly to downwind PM2.5 nonattainment and
established NOX ozone season emission-reduction requirements
for States that contribute significantly to downwind 8-hour ozone
nonattainment. The CAIR requires upwind States to revise their SIPs to
include control measures to reduce emissions of SO2 and/or
NOX to meet the requirements in CAIR (SO2 is a
precursor to PM2.5 formation, and NOX is a
precursor to both ozone and PM2.5 formation).
    The CAIR requires that the emission reductions be implemented in
two phases. The first phase of CAIR NOX reductions starts in
2009 (covering 2009-2014) and the first phase of CAIR SO2
reductions starts in 2010 (covering 2010-2014); the second phase of
CAIR reductions for both NOX and SO2 starts in
2015, covering 2015 and thereafter.
    In CAIR, EPA determined the extent of reductions required to
eliminate significant contribution (i.e., to remove the section
110(a)(2)(D) violation). EPA interprets significant contribution as a
specific level of emissions that can be feasibly reduced in a highly
cost-effective manner. The required reductions are expressed as
statewide budgets of SO2 and NOX emissions.
Regionwide emissions trading programs for large EGUs (within the
constraints of the emissions caps based on these statewide emission
budgets \12\) provide one option for eliminating significant
contribution and thus also eliminating the section 110(a)(2)(D)
violation. The violation is eliminated once a State adopts a SIP
containing the CAIR trading programs (or a SIP containing other
emission reduction options meeting the requirements specified in CAIR),
or EPA promulgates a FIP to achieve those same reductions. The CAIR
includes model rules for regionwide EGU SO2 annual,
NOX annual, and NOX ozone season emission cap-
and-trade programs. States can choose to adopt these model rules (the
CAIR SIP model trading rules) to obtain the required reductions in a
flexible and cost-effective manner.
---------------------------------------------------------------------------

    \12\ It should be noted that the SO2 trading program
provides that sources may bank pre-2010 title IV SO2
allowances to be used for compliance with CAIR. These provisions
encourage sources to make early emission reductions and ease the
transition to the CAIR SO2 program, and as a result,
emissions may not reflect the emission caps in any given year.
---------------------------------------------------------------------------

    Today, EPA is finalizing FIPs that implement the emission reduction
requirements of the CAIR in all States covered by CAIR. The Agency is
promulgating today's FIPs to provide a federal backstop for CAIR.
    EPA decided to adopt, as the FIP for each State in the CAIR region,
the SIP model trading programs in the final CAIR, modified slightly to
allow for federal instead of State implementation.\13\ The specific
requirements of the FIP trading programs are explained in greater
detail in section VI below.
---------------------------------------------------------------------------

    \13\ Today's action includes revisions to the CAIR SIP model
rules as described in section VII in this preamble. For the FIP
trading programs the Agency adopts the SIP model rules as finalized
today and modified for federal implementation.
---------------------------------------------------------------------------

    The CAIR FIPs will require SO2 annual and NOX
annual emission

reductions from EGUs in States contributing significantly to
PM2.5 nonattainment and NOX ozone season emission
reductions from EGUs in States contributing significantly to ozone
nonattainment through participation in the regionwide cap-and-trade
programs. The requirements of these trading programs were developed in
the SIP model trading rules. The SIP model trading rules provide
flexibility to the implementing organization only in certain specific
areas. In adopting these model trading programs as FIPs, the Agency
adopts the requirements of the model trading rules. As the implementing
organization, therefore, it has only the same flexibility that is
available to States that choose to implement the model trading
programs.
    The CAIR FIP trading programs will achieve the emission reductions
required by CAIR by the deadlines established in that rule, with the
same highly cost-effective EGU control measures forming the basis for
the emission budgets. The regionwide emission reduction requirements,
State emission budgets and trading rules that are the basis for today's
FIPs were established in the final CAIR rule. They were developed
through a process that involved significant public participation. In
the CAIR rulemaking, EPA determined that the CAIR emission reduction
requirements can be met in a highly cost-effective manner using
regionwide SO2 and NOX cap-and-trade programs for
large EGUs (70 FR 25195-25229). The incentives provided by such
regionwide cap-and-trade programs encourage economically efficient
compliance over the entire region.
    The applicability provisions of the FIPs promulgated in today's
final rule, which cover large EGUs, are identical to the applicability
provisions in the CAIR SIP model rules including the revisions
finalized today. See sections VI.E and VII in today's preamble for
detailed discussion of applicability. The FIPs and the CAIR SIP model
rules apply to large EGUs because EPA determined that their emissions
can be reduced through the application of highly cost-effective
controls (70 FR 25195-25229).
    During development of the CAIR, the Agency considered the
interactions between the existing title IV Acid Rain Program and the
new CAIR (see the preamble to the final CAIR for discussion, 70 FR
25290). As explained in CAIR, ``In the absence of an approach for
taking account of the title IV program, a new program (i.e., the CAIR)
that imposes a significantly tighter cap on SO2 emissions
for a region encompassing most of the sources and most of the
SO2 emissions covered by title IV would likely result in a
significant excess in the supply of title IV allowances, a collapse of
the price of title IV allowances, disruption of operation of the title
IV allowance market and the title IV SO2 cap-and-trade
system, and the potential for increased SO2 emissions.''
These impacts would undermine the efficacy of the title IV program and
could erode confidence in emissions trading programs in general. For
these same reasons, today's FIP SO2 trading program is
integrated with the title IV program (see discussion of FIP
SO2 trading program in section VI, below). EPA was
petitioned for and granted reconsideration of CAIR on claims that
inequities result from applying the SO2 allocation
methodology (which is based on title IV allocations). In the notice of
final action on reconsideration, signed the same day as this action,
EPA decided not to alter the approach taken in the final CAIR (see
further discussion of reconsideration in section VI.G, below).
    Today's FIPs implement the CAIR emission reduction requirements by
adopting the CAIR SIP model trading rules; the FIPs do not develop new
emission reduction requirements or trading programs. For these reasons,
the Agency did not re-open in the FIP rulemaking any elements of the
reduction requirements and trading programs (except for the elements
such as NOX allocations and opt-ins where States had
flexibility) that were determined in the CAIR NFR and that were not
modified by today's rule. By adopting as FIPs the CAIR SIP model
trading programs, the Agency intends to implement the requirements of
CAIR in a highly cost-effective manner and to ease the transition for
sources that might initially be covered by the FIP programs and
subsequently be covered by SIP programs that also adopt the model
trading rules.
    The Agency is promulgating these FIPs to provide a Federal backstop
for CAIR. In no way should the FIPs be viewed as a sign of any concern
about States ultimately making the emission reductions required under
CAIR. There are no sanctions associated with today's rule, and EPA does
not intend CAIR FIPs to have any negative consequences for the affected
States. To the contrary, EPA is finalizing FIP approaches that are
flexible and allow States a full opportunity to get their SIP revisions
in place, with minimal disruption in transitioning from Federal to
State implementation.

B. Regionwide SO2 and NOX Caps

    Today's final rule provides a federal backstop for achieving the
CAIR emission reduction requirements. Today's rule does not establish
those reduction requirements, which were established in the CAIR
rulemaking.
    In the preamble to the CAIR NFR, the Agency explained how it
determined regionwide SO2 and NOX emissions caps.
See section IV in the CAIR NFR preamble (70 FR 25195-25229). The EPA
also summarized the process for determining the regionwide CAIR
SO2 and NOX emissions caps in the preamble to the
proposed CAIR FIP (70 FR 49722). The CAIR FIP proposal did not reopen
for public comment EPA's determination of the CAIR regionwide caps or
the caps themselves. The EPA received a few comments on the CAIR
regionwide caps during the public comment process on the proposed FIP.
Those comments are not within the scope of today's final rule. As
discussed above, in today's FIP rule the Agency is implementing the
emission reduction requirements (including regionwide SO2
and NOX caps) that EPA developed in the CAIR rulemaking
through a process that included extensive public participation.
    The CAIR regionwide caps (including the States of Delaware and New
Jersey) are: for SO2, 3.7 million tons and 2.6 million tons
in 2010 and 2015, respectively; for NOX annual, 1.5 million
tons and 1.3 million tons in 2009 and 2015, respectively; for
NOX ozone season, 0.6 million and 0.5 million tons in 2009
and 2015, respectively.

C. State SO2 Emission Budgets

    In the preamble to the final CAIR, the EPA explained how it
determined CAIR State annual SO2 emission budgets (see
section V.A.1.a of the CAIR NFR preamble, 70 FR 25229-25230; see also
the rulemaking, signed the same day as this action, to include Delaware
and New Jersey in CAIR for PM2.5). The EPA also summarized
the process for determining CAIR State SO2 budgets in the
preamble to the proposed FIP (70 FR 49723). The CAIR FIP proposal did
not reopen for public comment EPA's determination of the CAIR State
SO2 budgets or the budgets themselves. As discussed above,
in today's FIP rule, the Agency is implementing the emission reduction
requirements (including State SO2 emission budgets) that EPA
developed in the CAIR rulemaking through a process that included
extensive public participation.
    Today's final FIP rule will achieve the required SO2
emission reductions

through a regionwide SO2 cap-and-trade program for EGUs. As
discussed further in section VI, below, the CAIR FIP SO2
cap-and-trade program will rely on title IV allowances, which sources
will retire at specified ratios generally greater than 1-to-1 for
compliance with the CAIR FIP SO2 program. Congress has
already allocated title IV SO2 allowances to sources in
perpetuity. State SO2 emissions budgets would not affect the
distribution of SO2 allowances for the CAIR FIP
SO2 trading program (because SO2 allowances are
already allocated to sources) and are not directly relevant for today's
final FIP rule.
    After EPA finalized CAIR, the Agency was petitioned for and granted
reconsideration on claims that inequities result from applying the CAIR
SIP model rule SO2 allocation methodology (which is based on
existing title IV allocations). The Agency announced its decision to
reconsider this issue in a Federal Register action dated December 2,
2005 (70 FR 72268) and is taking final action on the reconsideration in
a separate action signed the same day as this action. EPA decided not
to alter the approach taken in the final CAIR (see further discussion
of reconsideration in section VI.G, below).
    A few commenters on the proposed CAIR FIP expressed concern with
the use of title IV to establish State SO2 emission budgets.
The FIP State SO2 budgets and the FIP unit SO2
allocations are both based on existing title IV allocations. The EPA
responds to comments on the budgets and allocations for the FIP
together in section VI.G, below.
    The Agency is finalizing its proposed approach regarding
SO2 budgets for the CAIR FIP SO2 trading
programs.

D. State NOX Annual and NOX Ozone Season Emission Budgets

    In the preamble to the final CAIR, the EPA explained how it
determined CAIR State NOX annual and NOX ozone
season emission budgets (see section V.A.1.a of the CAIR NFR preamble,
70 FR 25230-25233; see also the rulemaking, signed the same day as this
action, to include Delaware and New Jersey in CAIR for
PM2.5).
    The EPA also summarized the process for determining CAIR State
NOX annual and NOX ozone season budgets in the
preamble to the proposed FIP (70 FR 49723). The CAIR FIP proposal did
not reopen for public comment EPA's determination of the CAIR State
NOX annual and NOX ozone season budgets or the
budgets themselves. As discussed above, in today's FIP rule the Agency
is implementing the emission reduction requirements (including State
NOX annual and NOX ozone season emission budgets)
that EPA developed in the CAIR rulemaking through a process that
included extensive public participation.
    After EPA finalized CAIR, the Agency was petitioned for and granted
reconsideration on the use of fuel adjustment factors in determining
CAIR State NOX annual and NOX ozone season
emission budgets. The EPA announced its decision to reconsider this
issue in a Federal Register notice dated December 2, 2005 (70 FR 72268)
and is taking final action on the reconsideration in a separate action
signed the same day as this action. EPA decided not to alter the
approach taken in the final CAIR.
    A commenter on the proposed CAIR FIP raised concerns regarding the
use of fuel adjustment factors in determining State NOX
emission budgets. Concerns raised by the commenter with respect to
EPA's use of fuel adjustment factors in determining State emission
budgets are the same issues that the Agency is addressing in the
context of the CAIR reconsideration process. The Agency's responses to
this commenter on the use of fuel adjustment factors in setting FIP
State NOX emission budgets are addressed in the CAIR
reconsideration notice. See the December 2, 2005 Federal Register
notice announcing the reconsideration (70 FR 72268) as well the notice
of final action on reconsideration signed the same day as this action.
    Some commenters addressed the use of fuel adjustment factors in the
proposed FIP methodology for unit-by-unit NOX allocations.
The Agency's responses regarding the use of fuel adjustment factors in
the NOX allocation methodology are discussed in section VI.F
in this preamble.
    The State annual and ozone season EGU NOX budgets for
today's final CAIR FIP trading programs are the same as the budgets in
the final CAIR. For each State affected by the FIP NOX
trading programs, the State NOX budgets are the total amount
of allowances \14\ that the Agency will allocate to sources in the
State or that States will allocate using an abbreviated SIP revision.
See section VI.F, below, for EPA's methodology and schedule for
allocating NOX allowances to affected sources.
---------------------------------------------------------------------------

    \14\ As in CAIR, a NOX annual allowance will
authorize the emission of a ton of NOX during a calendar
year, and a NOX ozone season allowance will authorize the
emission of a ton of NOX during an ozone season.
---------------------------------------------------------------------------

    Table V-1 shows the State NOX emission budgets for the
final FIP NOX cap-and-trade program. These are the same
State NOX budgets as in the final CAIR (see Table V-2 in the
CAIR NFR preamble (70 FR 25231); see also the rulemaking, signed the
same day as this action, to include Delaware and New Jersey in CAIR for
PM2.5).

    Table V-1.--CAIR FIP NOX Annual Electric Generating Units Budgets
                                 [tons]
------------------------------------------------------------------------
                                                              State NOX
                                                 State NOX      annual
                     State                         annual    budget 2015
                                                budget 2009-     and
                                                    2014      thereafter
------------------------------------------------------------------------
Alabama.......................................       69,020       57,517
Delaware......................................        4,166        3,472
District of Columbia..........................          144          120
Florida.......................................       99,445       82,871
Georgia.......................................       66,321       55,268
Illinois......................................       76,230       63,525
Indiana.......................................      108,935       90,779
Iowa..........................................       32,692       27,243
Kentucky......................................       83,205       69,337
Louisiana.....................................       35,512       29,593
Maryland......................................       27,724       23,104
Michigan......................................       65,304       54,420
Minnesota.....................................       31,443       26,203
Mississippi...................................       17,807       14,839
Missouri......................................       59,871       49,892
New Jersey....................................       12,670       10,558
New York......................................       45,617       38,014
North Carolina................................       62,183       51,819
Ohio..........................................      108,667       90,556
Pennsylvania..................................       99,049       82,541
South Carolina................................       32,662       27,219
Tennessee.....................................       50,973       42,478
Texas.........................................      181,014      150,845
Virginia......................................       36,074       30,062
West Virginia.................................       74,220       61,850
Wisconsin.....................................       40,759       33,966
                                               -------------------------
  CAIR Region Total...........................    1,521,707    1,268,091
------------------------------------------------------------------------

    Table V-2 shows the State NOX ozone season emission
budgets for the final CAIR FIP NOX ozone season cap-and-
trade program. These are the same State NOX ozone season
budgets as in the final CAIR (see Table V-4 in the CAIR NFR preamble
(70 FR 25233).

    Table V-2.--CAIR FIP NOX Ozone Season Electricity Generating Unit
                                 Budgets
                                 [tons]
------------------------------------------------------------------------
                                                              State NOX
                                                 State NOX      ozone
                                                   ozone        season
                    State *                        season    budget 2015
                                                budget 2009-     and
                                                    2014      thereafter
------------------------------------------------------------------------
Alabama.......................................       32,182       26,818
Arkansas......................................       11,515        9,596
Connecticut...................................        2,559        2,559
Delaware......................................        2,226        1,855
District of Columbia..........................          112           94
Florida.......................................       47,912       39,926

Illinois......................................       30,701       28,981
Indiana.......................................       45,952       39,273
Iowa..........................................       14,263       11,886
Kentucky......................................       36,045       30,587
Louisiana.....................................       17,085       14,238
Maryland......................................       12,834       10,695
Massachusetts.................................        7,551        6,293
Michigan......................................       28,971       24,142
Mississippi...................................        8,714        7,262
Missouri......................................       26,678       22,231
New Jersey....................................        6,654        5,545
New York......................................       20,632       17,193
North Carolina................................       28,392       23,660
Ohio..........................................       45,664       39,945
Pennsylvania..................................       42,171       35,143
South Carolina................................       15,249       12,707
Tennessee.....................................       22,842       19,035
Virginia......................................       15,994       13,328
West Virginia.................................       26,859       26,525
Wisconsin.....................................       17,987       14,989
                                               -------------------------
  CAIR Region Total...........................      567,744     484,506
------------------------------------------------------------------------
* For States that have lower EGU budgets under the NOX SIP Call than
  their 2009 CAIR budget, table V-2 includes their SIP Call budget. For
  Connecticut, the NOX SIP Call budget is also used for 2015 and beyond.

E. State NOX Annual Compliance Supplement Pool

    The CAIR established State Compliance Supplement Pools (CSP) of
NOX annual allowances of vintage 2009. In the FIP NPR, the
Agency proposed to include in the CAIR FIP NOX trading
program the same State CSP amounts as were established in CAIR.
    The Agency received several comments on its proposal to include the
CAIR CSPs in the CAIR FIP NOX trading program. The EPA
responds to comments on inclusion of the CAIR CSPs in the FIP program,
as well as comments on EPA's proposed method for distributing CSP
allowances to sources, in section VI.I in today's preamble, below.
    The Agency is finalizing its proposal to include the CAIR CSPs in
the FIP trading programs. Table V-3 shows the State CSP amounts for the
final CAIR FIP NOX trading program. These are the same CSP
amounts as shown in the CAIR NFR preamble (see Table V-3 in the CAIR
NFR at 70 FR 25232; see also the rulemaking, signed the same day as
this action, to include Delaware and New Jersey in CAIR for
PM2.5).
    The CSPs provide, for each affected State, a pool of CAIR
NOX annual allowances from which EPA, or a State using an
abbreviated SIP revision, can distribute allowances for use in
complying with the CAIR FIP NOX annual trading program (see
section VI.I in today's preamble for further discussion regarding
distribution of CSP allowances).

       Table V-3.--CAIR FIP NOX Annual Compliance Supplement Pool
                                 [tons]
------------------------------------------------------------------------
                                                              Compliance
                           State                              supplement
                                                                 pool
------------------------------------------------------------------------
Alabama....................................................       10,166
Delaware...................................................          843
District Of Columbia.......................................            0
Florida....................................................        8,335
Georgia....................................................       12,397
Illinois...................................................       11,299
Indiana....................................................       20,155
Iowa.......................................................        6,978
Kentucky...................................................       14,935
Louisiana..................................................        2,251
Maryland...................................................        4,670
Michigan...................................................        8,347
Minnesota..................................................        6,528
Mississippi................................................        3,066
Missouri...................................................        9,044
New Jersey.................................................          660
New York...................................................            0
North Carolina.............................................            0
Ohio.......................................................       25,037
Pennsylvania...............................................       16,009
South Carolina.............................................        2,600
Tennessee..................................................        8,944
Texas......................................................          772
Virginia...................................................        5,134
West Virginia..............................................       16,929
Wisconsin..................................................        4,898
                                                            ------------
    Total..................................................      199,997
------------------------------------------------------------------------

VI. CAIR FIP NOX and SO2 Cap-and-Trade Programs
for EGUs

A. Purpose of CAIR FIP NOX and SO2 Cap-and-Trade Programs and
Relationship to the CAIR

    In today's action, EPA is finalizing CAIR FIP NOX and
SO2 cap-and-trade programs for EGUs as the Implementation
Plan remedy for CAIR. The Agency is finalizing 3 separate CAIR FIP cap-
and-trade programs: (1) SO2 annual; (2) NOX
annual; and (3) NOX ozone season. The EPA decided to adopt,
as the FIP for each State in the CAIR region, the model cap-and-trade
programs in the final CAIR, modified slightly to allow for Federal
instead of State implementation. \15\ Emissions cap-and-trade programs
are a proven method for achieving highly cost-effective emissions
reductions while providing regulated sources of emissions with
flexibility in adopting compliance strategies. The incentives provided
by regionwide cap-and-trade programs encourage economically efficient
compliance over the entire region. The specific elements of the 3
trading programs in the FIP were developed by EPA, with significant
public participation, during the CAIR development process.
---------------------------------------------------------------------------

    \15\ Today's action includes revisions to the CAIR SIP model
rules as described in section VII in this preamble. For the FIP
trading programs the Agency adopts the SIP model rules as finalized
today and modified for federal implementation.
---------------------------------------------------------------------------

    Participation in the new CAIR FIP NOX and SO2
cap-and-trade programs is mandatory for all sources covered by the
final CAIR FIP. See section VI.E in today's preamble for discussion of
affected sources (applicability). Regulatory text for today's new CAIR
FIP NOX and SO2 cap-and-trade programs will be
located in part 97 in title 40 of the CFR.
    The CAIR established State EGU emissions budgets that each State
will use to determine its required emissions reductions. Today's final
CAIR FIP cap-and-trade programs set specific rules for EGUs to decrease
NOX and SO2 emissions sufficiently to achieve
emission reductions that are required under CAIR. As explained above in
section IV, EPA will withdraw a State's FIP in coordination with
approval of a SIP implementing the requirements of CAIR.
    States may choose to meet their emission reduction obligations
under CAIR by adopting, as part of their SIPs, the model cap-and-trade
rules set forth in the CAIR and participating in the EPA administered
trading programs. Any such participation will be fully integrated with
the CAIR FIP NOX and SO2 cap-and-trade programs
that are finalized in today's action.
    In order to be eligible to participate in an emissions cap-and-
trade program, the Agency believes that there are two principal
criteria that sources must meet, as stated in the supplemental proposal
for the NOX SIP Call (62 FR 25923). The first criterion
requires that sources be able to account accurately and consistently
for all of their emissions to ensure the trading program goal of
maintaining emissions within a cap. Emissions monitoring must be
accurate and consistent among all sources so that each allowance turned
in, represents its assigned amount of emissions. The second criterion
for participation in a trading program is the ability to identify a
responsible party for each regulated source who would be accountable
for demonstrating and ensuring compliance with the program's
provisions. The EPA believes that today's rule meets those criteria.
The Agency also believes that, because

today's rule contains the same mandatory program elements as are in the
part 96 CAIR SIP model trading programs and is designed to meet the
same environmental goals and caps sources at the same levels as those
model trading programs, it is appropriate to integrate today's CAIR FIP
with the CAIR SIP trading programs.