Nevada........................            2322  Clark............  GT4...................  CT...................         190,985          0.0475  ......
Nevada........................            2322  Clark............  GT5...................  CT...................       1,455,741          0.0191  ......
Nevada........................            2322  Clark............  GT6...................  CT...................       1,455,741          0.0187  ......
Nevada........................            2322  Clark............  GT7...................  CT...................       1,455,741          0.0178  ......
Nevada........................            2322  Clark............  GT8...................  CT...................       1,455,741          0.0204  ......
Nevada........................           54350  Nev. Cogen.        GTA...................  CT...................         660,100          0.0377    2, 4
                                                 Assoc. 1--Garnet
                                                 Val.

Nevada........................           54350  Nev. Cogen.        GTB...................  CT...................         660,100          0.0387    2, 4
                                                 Assoc. 1--Garnet
                                                 Val.
Nevada........................           54350  Nev. Cogen.        GTC...................  CT...................         660,100          0.0387    2, 4
                                                 Assoc. 1--Garnet
                                                 Val.
Nevada........................           54349  Nev. Cogen.        GTA...................  CT...................         749,778          0.0323    2, 4
                                                 Assoc. 2--Black
                                                 Mtn.
Nevada........................           54349  Nev. Cogen.        GTB...................  CT...................         749,778          0.0370    2, 4
                                                 Assoc. 2--Black
                                                 Mtn.
Nevada........................           54349  Nev. Cogen.        GTC...................  CT...................         749,778          0.0364    2, 4
                                                 Assoc. 2--Black
                                                 Mtn.
Nevada........................           56405  Nevada Solar One.  HI....................  Boiler...............         479,452          0.1667  ......
Nevada........................           54271  Saguaro..........  CTG1..................  CT...................       1,383,149          0.0314       2
Nevada........................           54271  Saguaro..........  CTG2..................  CT...................       1,383,149          0.0301       2
Utah..........................           50951  Sunnyside........  1.....................  Boiler...............       1,888,174          0.1715  ......
Wyoming.......................           56312  Shute Creek......  021A..................  CT...................       1,000,050          0.0081       2
Wyoming.......................           56312  Shute Creek......  021B..................  CT...................       1,000,050          0.0093       2
Wyoming.......................           56312  Shute Creek......  021C..................  CT...................       1,000,050          0.0084       2
--------------------------------------------------------------------------------------------------------------------------------------------------------
Table notes:
\1\ Unit already reports NOX emissions and heat input data to the EPA under 40 CFR part 75 to comply with SIP requirements.
\2\ Unit reports capability of producing both electricity and useful thermal energy.
\3\ Unit already reports NOX emissions and heat input data to EPA under 40 CFR part 75 for the Acid Rain Program.
\4\ Unit has reported a planned retirement date of March 2023 to the Energy Information Administration.

    The EPA requests comment on which existing units in Delaware,
Nevada, Utah, and Wyoming and Indian country within the borders of such
states would or would not meet the applicability criteria for the Group
3 trading program. In addition, with respect to each of the units
listed in Table VII.B.3-1 of this proposed rule, the EPA requests
comment, with supporting data, on whether the unit would or would not
meet all relevant criteria set forth in 40 CFR 97.1004 and the
associated definitions in 97.1002 to qualify for an exemption from the
trading program as a cogeneration unit or a solid waste incineration
unit (however, see Section VI.B.3 of this proposed rule). The EPA also
requests comment, with supporting data, on whether the estimated
historical heat input and emissions data identified for the units in
Table VII.B.3-1 of this proposed rule are representative for the
respective units.
4. New and Revised State Emissions Budgets
    The EPA is quantifying budgets or budget formulas specific to each
year to ensure that EGUs continue to be incentivized to implement the
full extent of EPA's selected control stringency for future control
periods. By doing so, the EPA is accounting for both scheduled and not-
yet-scheduled fleet turnover in future years. For instance, if State
X's budget was 5,000 tons in 2023 but there are 100 tons of emissions
from a unit scheduled to retire at the end of that year and 50 tons
expected from a new unit coming online by the following year, then the
state emissions budget for 2024 will reflect these scheduled changes by
establishing a budget of 5,000 tons-100 tons + 50 tons = 4,950 tons for
the subsequent year.
    In the Revised CSAPR Update, the EPA included announced fleet
changes in state emissions budgets. Several commenters applauded the
merit of this approach and the importance of establishing emissions
budgets that were robust to an evolving fleet while noting that ``fleet
composition is changing constantly and can be exceedingly difficult to
project'' leading to overstated emissions budgets to the extent that
future retirements were not announced at the time of rule promulgation.
Commenters added that ``to address this problem and prevent future
unknown retirements from exacerbating this issue, the final rule should
include a provision to make additional adjustments to the
NOX budgets based on newly discovered fleet changes.'' \261\
Commenters were suggesting a dynamic budget approach where the
mitigation measures and control stringencies that constituted removal
of significant contribution would be identified in a final rule, but
the future year state budgets would be dynamic as the EPA applied those
stringency assumptions to future year fleet composition data as it
became available. While the stringency (reflected by assumed emissions
rate for a mitigation technology), would be constant, the fleet
composition (reflected by unit heat input) is dynamic. Multiplying the
assumed emissions rate for each unit by the heat input for each unit
and summing the results to the state level would provide a given year's
state emissions budget, and thus under this approach the state
emissions budgets would be dynamic as well.
---------------------------------------------------------------------------

    \261\ EPA-HQ-OAR-2020-0272-0094.
---------------------------------------------------------------------------

    The EPA is proposing a dynamic budget approach in this rule, where
emissions budgets starting in the 2025 control period and beyond will
be determined through ministerial actions subsequent to this rule's
promulgation and based upon the formula described in this rule. This
rule will determine the mitigation strategies, respective emissions
rates, and formulas and methodologies to be applied to future year
data, with which the EPA will perform ministerial actions to calculate
emissions budgets for control periods in 2025 and each year thereafter.
(Such actions will be publicly announced through notices of data
availability (NODAs), similar to how other periodic ministerial actions
to implement the trading programs are currently handled. And as with
such other actions, interested parties will have the opportunity to
seek corrections or administrative adjudication under 40 CFR part 78 if
they believe any data used in making these calculations, or the
calculations themselves, are in error.) In this manner, the state
emissions budgets ultimately implemented for each such future control
period will be a product of the data and formula promulgated in this

action applied to future year reported data that is closer to that
future control period and therefore more representative of the fleet
for that future control period. As such, the budgets will more
accurately reflect power sector composition in that future year and
will therefore better achieve the desired environmental outcome over
time.
    For instance, 2025 budgets will be identified by May 1, 2024, using
the latest available reported operational data at that time (2023 heat
input data and fleet inventory) along with the formulas and emissions
rates quantified in this rule. Therefore, if a unit retires in early
2023 but had not announced its upcoming retirement at the time of rule
finalization, the dynamic budget approach would ensure that the budgets
for future control periods starting in 2025 would reflect the
identified control stringency applied to a fleet that reflects that
retirement. If the EPA took an alternative approach of computing the
2025 budget with available data at the time final rule analysis was
being conducted, this retirement would likely not be captured in the
2025 state emissions budget, which would lead to a budget that did not
fully reflect the application of the identified control stringency.
This approach has the advantage of mitigating uncertainty regarding
future retirements, new builds, and existing fleet operational/dispatch
changes in response to EGU inventory changes.
    The example below illustrates the effectiveness of the dynamic
budget. In the preset budget approach for 2026, the 2026 heat input is
estimated based on the latest available heat input data at the time of
rule promulgation (e.g., 2021), which cannot reflect a subsequent fleet
change in heat input values (column 2) due to an unanticipated
retirement of one of the state's coal-fired units in late 2023.
However, the dynamic budget would use 2024 heat input values as opposed
to the 2021 heat input values as the latest representative values to
inform the 2026 state emissions budget. Therefore, the heat input
values in column 2 under the dynamic scenario reflect the change in
fleet composition, and when multiplied by the relevant identified
control stringency (to be identified when this rule is finalized), the
corresponding tonnage (15,000 tons) summed in column 4 constitutes a
state budget that better reflects the identified control stringency
applied to the fleet composition for that year as opposed to the 17,000
tons in summed in the first table. As illustrated in the example, the
dynamic variable is the heat input variable which changes over time to
reflect the most representative EGU fleet.
[GRAPHIC] [TIFF OMITTED] TP06AP22.001

    The EPA requests comment on this dynamic budget approach, including
the methodology, the start year, and the impacts.
    With regard to the state emissions budgets for the 2023 and 2024
control periods promulgated in this rule, the EPA is using the best
available data at the time of the proposed rule regarding retirements
and new builds. The EPA relies on a compilation of data from DOE EIA
Form 860 (where facilities report their future retirement plans) and
information included in the Agency's NEEDS database. This information
is considered to be highly reliable, real-world information that
provides the EPA with high confidence that such retirements will in
fact occur. EPA plans to update this data on retirements and new builds
at final rule using the latest information available from these sources
at that time as well as input provided by commenter.
    EPA's emissions budget methodology and formula for establishing
Group 3 budgets are described in detail in the Ozone Transport Policy
Analysis Proposed Rule TSD and summarized below.
a. Methodology for Determining Preset State Emissions Budgets for the
2023 and 2024 Control Periods
    For determining state emissions budgets, the EPA generally uses
historical ozone season data from the 2021 ozone season, the most
recent data and therefore the most representative of near-term fleet
conditions. This is similar to the approach taken in the CSAPR Update
where the EPA began with 2015 data (the most recent year at the time).
As in the CSAPR Update, the EPA combined historical data with IPM data
to determine emissions budgets as follows:

    (1) Determine a future year baseline--Start with the latest
reported historical unit-level data (e.g., 2021), and adjust any
unit data where a retirement, a new build, a coal-to-gas conversion,
or a SCR retrofit is known to occur by the baseline year. This
results in a future year (e.g., 2023) baseline for emissions budget
purposes.
    (2) Factor in additional emissions controls for the selected
control stringency for the given state in the given year--For the
unit-level emissions control technologies identified in this control
stringency, adjust the baseline unit-level emissions and emissions
rates. For example, if an SCR-controlled coal unit had a baseline
emissions rate greater than 0.08 lb/mmBtu, its emissions rate and
corresponding emissions would be adjusted down to levels reflecting
its operation at 0.08 lb/mmBtu.
    (3) Incorporate generation shifting--Use IPM in a relative way
to capture the reductions expected from generation shifting
(constrained to within each state) at the representative dollar per
ton level corresponding to the selected control stringency.

    By using historical unit and state-level NOX emissions
rates, heat input, and emissions data in the first stage of budget
setting process outlined above, the EPA is grounding its budgets in the
most recent representative historical operation for the covered
units.\262\ This dataset is a reasonable starting point for

the budget-setting process as it reflects the latest data reported by
affected facilities under 40 CFR part 75. The reporting requirements
include quality control measures, verification measures, and
instrumentation to best record and report the data. In addition, the
designated representatives of EGU sources are required to attest to the
accuracy and completeness of the data. The EPA adjusted the 2021 ozone-
season data to reflect committed fleet changes under a baseline
scenario (i.e., announced and confirmed retirements, new builds, and
retrofits that have already occurred). For example, if a unit emitted
in 2021, but retired in 2022, its 2021 emissions would not be included
in the 2023 baseline estimate. For units that had no known changes, the
2023 baseline emissions assumption was the actual reported data from
2021. The EPA also included known new units and scheduled retrofits in
this manner. Using this method, the EPA arrived at a baseline emission,
heat input, and emissions rate estimate for each unit for a future year
(e.g., 2023), and then was able to aggregate those unit-level estimates
to state-level totals. These state-level totals constituted the state's
baseline from an engineering analytics perspective. The ozone-season
state-level emissions, heat input, and emissions rates for covered
sources under a baseline scenario were determined for each future year
examined that receives a preset budget under this proposed rule (2023
and 2024).
---------------------------------------------------------------------------

    \262\ The EPA notes that historical state-level ozone season EGU
NOX emissions rates are publicly available and quality
assured data. They are monitored using CEMS or other methodologies
allowed for use by qualifying units under 40 CFR part 75 and are
reported to the EPA directly by power sector sources.
---------------------------------------------------------------------------

    The EPA then examined how the baseline emissions and emissions
rates would change under different control stringencies for EGUs. For
instance, under the SCR optimization scenario, if a unit was not
operating its SCR at 0.08 lb/mmBtu or lower in the baseline, the EPA
lowered that unit's assumed emissions rate to 0.08 lb/mmBtu and
calculated the impact on the unit's and state's emissions rate and
emissions. Note that the heat input is held constant for the unit in
the process, reflecting the same level of unit operation compared to
historical 2021 data. An improved emissions rate is then applied to
this heat input, reflecting control optimization. In this manner, the
state-level baseline totals reflecting known changes were adjusted to
reflect the additional application of the assumed control technology at
a given control stringency.
    Finally, the EPA used IPM to capture any generation shifting at a
given control stringency necessary for the majority of the respective
emissions control technology to operate. The EPA explains how it
accounts for generation shifting in more detail in Section VI.B of this
proposed rule and in the Ozone Transport Policy Analysis Proposed Rule
TSD. In this rule, as a proxy for the near-term reductions required in
2023 and 2024, the EPA has constrained generation shifting to occur
only within-state. The EPA also estimates emissions reductions
associated with generation shifting in 2025 and 2026 for purposes of
the illustrative state budgets, but as explained below, the dynamic
budget process to determine budgets for those years will incorporate
emissions reductions attributable to generation shifting through the
inclusion of newly reported unit-level data from the future compliance
periods.
b. Methodology for Determining Dynamic State Emissions Budgets for
Control Periods in 2025 Onwards
    The methodology for determining state emissions budgets for later
control periods (2025 and beyond) is nearly identical to the process
for quantifying preset budgets in 2023 and 2024 described earlier; it
is just applied at a later date and applied to the most recent
representative operational available at that time. The EPA will issue
by ministerial action these dynamic budget quantifications
approximately 1 year before the relevant control period. For instance,
starting in early 2024, the EPA would take the most recent 2023 ozone
season data, calculate 2025 state emissions budgets using the
methodology below and update its unit-level and state-level state
emissions budget files that will be released when this rule is
finalized (and for which the EPA has included in this proposed rule
current examples for public comment). By March 1 of 2024, and each year
thereafter, the EPA would make publicly available (in manner similar to
data and preliminary computations for allocations from new unit set-
asides) the preliminary state emissions budgets and unit-level
allocations for the subsequent control period (e.g., 2025) and would
provide stakeholders with a 30-day opportunity to submit any objections
to the updated data and computations. By May 1 of 2024, and each year
thereafter, the EPA would issue the final budgets and allowance
allocations for the next control period (e.g., 2025).
    The differences to each of the formula steps to calculate dynamic
budgets for control periods in 2025 and beyond, relative to the
calculation of preset budgets for the 2023 and 2024 control periods,
are described later:

    (1) Determine a future year baseline--At this step, the EPA
would start with the latest reported historical unit-level heat
input data available at that time (e.g., for 2025 state emissions
budgets, the EPA would use the newly available 2023 heat input data
rather than 2021 heat input data). Doing so would capture the latest
operational data reflecting new builds and retirements. This would
yield a future year (e.g., 2025) baseline for emissions budget
purposes.
    (2) Factor in additional emissions controls for the selected
control stringency for the given state in the given year--For the
unit-level emissions reduction measures identified in the selected
control stringency, adjust the baseline unit-level emissions and
emissions rates. This step would be nearly the same for control
periods in 2025 and beyond as for the 2023 and 2024 control periods,
the only difference being that as described in Section VI.D of this
proposed rule, for each control period from 2026 onward, the unit-
specific emissions rates assumed for all affected states except
Alabama, Delaware, and Tennessee will reflect the selected control
stringency that incorporates post-combustion control retrofit
opportunities for the relevant units identified in the state
emissions budgets and calculations appendix to the Ozone Transport
Policy Analysis Proposed Rule TSD. These rates would be defined in
this rule and would not change subsequently. They would not be
applied until 2026, based on the time necessary to install these
mitigation technologies as discussed in Sections VI.B, VI.C, and
VII.A of this proposed rule.
    (3) Incorporate generation shifting--This step would be
automatically captured in dynamic budget calculations as generation
shifting in a compliance scenario would no longer have to be
projected by IPM and incorporated into the state budgets through an
additional calculation. Instead, it would be embodied in the newly
reported heat input data described above and that is used to
determine the dynamic budgets.

    Additional details, corresponding data and formulas, and examples
for the dynamic budget are described in the Ozone Transport Policy
Analysis Proposed Rule TSD.
c. Proposed and Illustrative State Emissions Budgets
    For each covered state (and Indian country within the state's
borders), preset budgets are established for the two individual control
periods 2023 and 2024. For 2025 and beyond, the dynamic budget formula
promulgated in this proposed rule would be applied to future year data
to quantify state emissions budgets for those control periods. The
proposed default procedures for allocating the allowances from each
state budget among the units in each state (and Indian country within
the state's borders) are described in Section VII.B.9 of this proposed
rule. The amounts of the proposed state emissions budgets for the 2023
and 2024 control periods are shown in Table VII.B.4.c-1. Table
VII.B.4.c-2 shows illustrative state emissions budgets for

the 2025 and 2026 control periods derived by applying the identified
control stringency to the most recent historical data, but these
budgets are only illustrative because, under the proposal, the
implemented state emissions budgets for these years will be determined
at a future date through application of the proposed budget-setting
methodology to data that reflect the emissions control stringencies
finalized in the rulemaking combined with the latest available data on
the composition and utilization of the EGU fleet.

    Table VII.B.4.c-1--Proposed CSAPR NOX Ozone Season Group 3 State
     Emissions Budgets for the 2023 and 2024 Control Periods \a\ \b\
------------------------------------------------------------------------
                                 Proposed emissions   Proposed emissions
                                  budgets for 2023     budgets for 2024
             State                 control period       control period
                                       (tons)               (tons)
------------------------------------------------------------------------
Alabama.......................                6,364                6,306
Arkansas......................                8,889                8,889
Delaware......................                  384                  434
Illinois......................                7,364                7,463
Indiana.......................               11,151                9,391
Kentucky......................               11,640               11,640
Louisiana.....................                9,312                9,312
Maryland......................                1,187                1,187
Michigan......................               10,718               10,718
Minnesota.....................                3,921                3,921
Mississippi...................                5,024                4,400
Missouri......................               11,857               11,857
Nevada........................                2,280                2,372
New Jersey....................                  799                  799
New York......................                3,763                3,763
Ohio..........................                8,369                8,369
Oklahoma......................               10,265                9,573
Pennsylvania..................                8,855                8,855
Tennessee.....................                4,234                4,234
Texas.........................               38,284               38,284
Utah..........................               14,981               15,146
Virginia......................                3,090                2,814
West Virginia.................               12,478               12,478
Wisconsin.....................                5,963                5,057
Wyoming.......................                9,125                8,573
------------------------------------------------------------------------
Table Notes:
\a\ The state emissions budget calculations pertaining to Tables
  VII.B.4.c-1 and VII.B.4.c-2 are described in greater detail in the
  Ozone Transport Policy Analysis Proposed Rule TSD. Budget calculations
  and underlying data are also available in Appendix A of that TSD.
\b\ In the event a final rule in this rulemaking becomes effective after
  May 1, 2023, the emissions budgets and assurance levels for the 2023
  control period would be adjusted under the rule's proposed
  transitional provisions to ensure that the increased stringency of the
  new budgets would apply only after the rule's effective date, even
  though the revised Group 3 trading program would be implemented for
  most sources as of the start of the 2023 ozone season on May 1, 2023.
  The 2023 budget amounts shown in Table VII.B.4.c-1 do not reflect
  these possible adjustments. The transitional provisions are discussed
  in Section VII.B.11 of this proposed rule.

  Table VII.B.4.c-2--Illustrative CSAPR NOX Ozone Season Group 3 State
         Emissions Budgets for the 2025 and 2026 Control Periods
------------------------------------------------------------------------
                                    Illustrative         Illustrative
                                 emissions budgets    emissions budgets
             State                for 2025 control     for 2026 control
                                   period (tons)        period (tons)
------------------------------------------------------------------------
Alabama.......................                6,306                6,306
Arkansas......................                8,889                3,923
Delaware......................                  434                  434
Illinois......................                7,463                6,115
Indiana.......................                8,714                7,791
Kentucky......................               11,134                7,573
Louisiana.....................                9,179                3,752
Maryland......................                1,187                1,189
Michigan......................               10,759                6,114
Minnesota.....................                3,910                2,536
Mississippi...................                4,400                1,914
Missouri......................               10,456                7,246
Nevada........................                2,372                1,211
New Jersey....................                  799                  799
New York......................                3,763                3,238
Ohio..........................                8,369                8,586
Oklahoma......................                9,393                4,275
Pennsylvania..................                8,855                6,819
Tennessee.....................                4,008                4,008

Texas.........................               36,619               21,946
Utah..........................               15,146                2,620
Virginia......................                2,948                2,567
West Virginia.................               12,478               10,597
Wisconsin.....................                4,198                3,473
Wyoming.......................                8,573                4,490
------------------------------------------------------------------------

5. Variability Limits and Assurance Levels
    Like each of the other CSAPR trading programs, the Group 3 trading
program currently includes assurance provisions designed to limit the
total emissions from the sources in each state (and Indian country
within the state's borders) in each control period to an amount close
to the state's emissions budget for the control period, consistent with
the good neighbor provision's requirement that required emissions
reductions must be achieved within the state, while allowing some
flexibility beyond the emissions budget to accommodate year-to-year
operational variability beyond sources' reasonable ability to control.
For each state, the assurance provisions establish an assurance level
for each control period, defined as the sum of the state's emissions
budget for the control period plus a variability limit, which under the
existing Group 3 trading program regulations is 21 percent of the
relevant state emissions budget. The purpose of the variability limit
is to account for year-to-year variability in EGU operations, which can
occur for a variety of reasons including changes in weather patterns,
changes in electricity demand, and disruptions in electricity supply
from other units or from the transmission grid. Because of the need to
account for such variability in operations of each state's EGUs, the
fact that emissions from the state's EGUs may exceed the state's
emissions budget for a given control period is not treated as
inconsistent with satisfaction of the state's good neighbor obligations
as long as the total emissions from the EGUs remain below the state's
assurance level. Emissions from a state's EGUs above the state's
emissions budget but below the state's assurance level are treated in
the same manner as emissions below the state's emissions budget in that
such emissions are subject to the same requirement to surrender
allowances at a ratio of one allowance per ton of emissions. In
contrast, emissions above the state's assurance level for a given
control period are strongly discouraged as inconsistent with the
state's good neighbor obligations and are subject to an overall 3-for-1
allowance surrender ratio. The establishment of assurance levels with
associated extra allowance surrender requirements was intended to
respond to the D.C. Circuit's holding in North Carolina requiring the
EPA to ensure within the context of an interstate trading program that
sources in each state are required to address their good neighbor
obligations within the state and may not simply shift those obligations
to other states by failing to reduce their own emissions and instead
surrendering surplus allowances purchased from sources in other
states.\263\
---------------------------------------------------------------------------

    \263\ 531 F.3d at 908.
---------------------------------------------------------------------------

    In this rulemaking, the EPA is not proposing to alter the basic
structure of the Group 3 trading program's assurance provisions, which
would continue to set an assurance level for each control period equal
to the state's emissions budget for the control period plus a
variability limit and would continue to apply a 3-for-1 surrender ratio
to emissions exceeding the state's assurance level.\264\ Each assurance
level also would continue to apply to the collective emissions of all
units within the state and Indian country within the state's
borders.\265\ For the 2023 and 2024 control periods, the EPA proposes
to retain the Revised CSAPR Update's methodology for determining each
state's variability limit as 21 percent of the state's emissions budget
for the control period, except that because the EPA is proposing to
revise the state emissions budgets for these control periods, the EPA
proposes to determine the corresponding variability limits as 21
percent of the revised budgets. However, for control periods after
2024, the EPA is proposing a change to the methodology for determining
the variability limits. Specifically, the EPA proposes to determine
each state's variability limit for the control periods in 2025 or a
later year so that, instead of always multiplying the state's emissions
budget for the control period by a value of 21 percent, the percentage
value used would be the higher of 21 percent or the percentage (if any)
by which the total reported heat input of the state's affected EGUs in
the control period exceeds the total reported heat input of the state's
affected EGUs as reflected in the state's emissions budget for the
control period. For example, if the total reported heat input of the
state's covered sources for the 2025 control period was 90 percent or
110 percent of the total reported heat input of the state's covered
sources for the 2023 control period (i.e., the heat input the EPA would
have used in computing the state's 2025 emissions budget), then the
state's variability limit for the 2025 control period would be 21
percent of the state's emissions budget, while if the total reported
heat input of the state's covered sources for the 2025 control period
was 130 percent of the total reported heat input of the state's covered
sources for the 2023 control period, then the state's variability limit
for the 2025 control period would be 30 percent of the state's
emissions budget. The EPA expects that the minimum 21 percent would
apply in almost all instances, and that the alternative, higher
percentage value would apply only in control periods where operational
variability caused an extreme increase relative to the earlier year
used in setting the state's emissions budget, which would be a
situation

meriting a temporarily higher variability limit and assurance level.
---------------------------------------------------------------------------

    \264\ As discussed in Section VII.B.8 of this proposed rule, the
EPA is also proposing to establish a new secondary emissions
limitation for individual units that would apply in situations where
an exceedance of the relevant state's assurance level has occurred.
    \265\ See 40 CFR 97.1002 (definitions of ``common designated
representative,'' ``common designated representative's assurance
level'' and ``common designated representative's share''),
97.1006(c)(2), and 97.1025.
---------------------------------------------------------------------------

    The purpose of the proposed revision to the variability limits is
to better align the variability limits for successive control periods
with the regularly updated heat input data that would be used in the
proposed process for dynamically setting the state emissions budgets.
Under EPA's proposed budget-setting process, each emissions budget
would be computed using the latest available reported heat input, which
for each budget set for a control period in 2025 or a later year would
be the heat input for the control period two years before the control
period whose budget is being determined (for example, the state
emissions budgets for the 2025 control period would be computed in
early 2024 using the reported heat input for the 2023 control period).
The proposed revised variability limits would be well coordinated with
the budgets established using this dynamic budgeting process, because
the percentage change in the actual heat input for the control period
relative to the earlier-year heat input used in computing the state's
emissions budget would be an appropriate measure of the degree of
operational variability actually experienced by the state`s EGUs in the
control period relative to the assumed operating conditions reflected
in the state's budget. Setting a variability limit in this manner would
be entirely consistent with the overall purpose of including
variability limits in the assurance provisions.
    The reason the EPA is proposing to use the higher of a fixed 21% or
the percentage change in heat input computed as just described is that
the EPA believes that, for operational planning purposes, it can be
useful for sources to know in advance of the control period a minimum
value for what the variability limit could turn out to be. Because a
state's actual total heat input for a control period is not known until
after the end of the control period, this proposed revision would have
the consequence that the state's final variability limit and assurance
level for the control period also would not be known until after the
control period. However, because the proposed rule provides that the
variability limit would always be at least 21 percent, the sources in a
state would be able to rely for planning purposes on the knowledge that
the assurance level would always be at least 121 percent of the state's
emissions budget for the control period. Advance knowledge of the
minimum possible amount of the assurance level can be useful to
sources, because one way a source can be confident that it will never
incur the 3-for-1 allowance surrender ratio owed for emissions
exceeding its state's assurance level is to plan its operations so as
to never allow its own emissions to exceed its own share of the state's
assurance level for the control period. Knowing that the variability
limit would always be at least 21 percent would provide sources with
values they could use for such planning purposes.
    The EPA believes that 21 percent is a reasonable value to use as
the fixed variability limit for the 2023 and 2024 control periods and
as the minimum variability limit for the control periods in 2025 and
later years. To determine appropriate variability limits for the
trading programs established in CSAPR, the EPA analyzed historical
state-level heat input variability over the period from 2000 through
2010 as a proxy for emissions variability, assuming constant emissions
rates. See 76 FR 48265. Based on that analysis, the variability limits
for ozone season NOX in both CSAPR and the CSAPR Update were
set at 21 percent of each state's budget, and these variability limits
for the NOX ozone season trading programs were then codified
in 40 CFR 97.510 and 40 CFR 97.810, along with the respective state
budgets. For the Revised CSAPR Update, the EPA performed an updated
variability analysis for the twelve states being moved into the Group 3
trading program in that rulemaking, evaluating historical state-level
heat input variability over the period from 2000 through 2019. The
updated analysis again resulted in a variability estimate of 21
percent. The EPA also considered shorter time periods for the updated
analysis and found that the resulting variability estimates were not
especially sensitive to the particular time period analyzed.\266\ A
further updated analysis for this rulemaking again results in a
variability estimate of 21 percent for most states, and although the
historical analysis indicates higher percentages for the two states
with the smallest total heat input figures in this analysis--Delaware
and New Jersey--the EPA does not consider it appropriate to raise the
variability limit percentage beyond 21 percent for all other states
based on the analytic results for these states, where small absolute
heat input figures have resulted in larger variability
percentages.\267\ Based on the consistent conclusions of these multiple
analyses, the EPA proposes to continue using 21 percent as the fixed
variability limit percentage for the 2023 and 2024 control periods and
as the minimum value in the revised approach for establishing
variability limits for the control periods in 2025 and later years.
---------------------------------------------------------------------------

    \266\ For details on the original variability analysis for 26
states over the 2000-2010 period, including a description of the
methodology, see the Power Sector Variability Final Rule TSD from
the CSAPR (EPA-HQ-OAR-2009-0491-4454). For the updated variability
analysis for twelve states for the 2000-2019 period, see the Excel
file ``Historical Variability in Heat Input 2000 to 2019.xls.'' Both
documents are available in the docket for this proposal.
    \267\ See the Excel document, ``OS Heat Input Variability 2000
to 2021.xls'' for updated data, application of the CSAPR variability
methodology, and results applied to heat input for 2000 through 2021
for all states and for the region collectively.
---------------------------------------------------------------------------

    The EPA requests comment on the proposed rule to set variability
limits for the 2023 and 2024 control periods as 21 percent of the
respective revised state emissions budgets, consistent with the
methodology used to determine the variability limits for these control
periods set in the Revised CSAPR Update. In addition, the EPA requests
comment on whether to set higher variability limits for Delaware and
New Jersey for 2023 and 2024 based on the results of the most recent
variability analysis. The EPA also requests comment on the proposed
rule to establish a revised methodology for setting variability limits
for all states for control periods in 2025 and later years, as
discussed in this section.
6. Annual Recalibration of Allowance Bank
    As discussed in Section VII.B.1.b of this proposed rule, in this
rulemaking, the EPA is proposing two revisions to the Group 3 trading
program designed to better maintain the control stringency selected in
the final rule in this rulemaking. The first proposed revision,
discussed Section VII.B.4 of this proposed rule, is to adopt a dynamic
budget-setting methodology that would allow state emissions budgets in
future years to reflect more accurate information about the composition
and utilization of the EGU fleet. The second, complementary, proposed
revision is to recalibrate the bank of unused allowances each control
period in order to prevent allowance surpluses in individual control
periods from accumulating and adversely impacting the ability of the
trading program in future control periods to maintain the selected
control stringency identified in the rulemaking as necessary to address
states' good neighbor obligations with respect to the 2015 ozone NAAQS.
    The EPA proposes to begin the bank recalibration process starting
with the 2024 control period, after the compliance process for the 2023
control period for all current and newly added states in the Group 3
trading program

has been completed. The recalibration process for each control period
would be carried out on or shortly after August 1 of that control
period, two months after the compliance deadline for the previous
control period, making the proposed date of the first recalibration
August 1, 2024. The recalibrations could not take place significantly
earlier than August 1 each year because compliance for the previous
control period would not be completed until after June 1. However,
because data on the amounts of allowances held are publicly available
and the total quantity of allowances needed for compliance for the
previous control period would be known shortly after the end of that
control period, sources and other market participants would be able to
ascertain with reasonable accuracy shortly after the end of each
control period what degree of recalibration to expect for the next
control period, even if the recalibration would not actually be carried
out until the following August.
    Before undertaking a recalibration process each control period, the
EPA would first determine whether the total amount of all banked Group
3 allowances from previous control periods held in all facility
accounts and general accounts in the Allowance Management System
accounts exceeds the target bank amount. (For this purpose, no
distinction would be made between banked Group 3 allowances issued from
the state emissions budgets for previous control periods and banked
Group 3 allowances issued through the conversion of previously banked
Group 2 allowances.) If the total amount of banked Group 3 allowances
does not exceed the target bank amount, the EPA would not carry out any
recalibration for that control period. If the total amount of unused
allowances does exceed the target bank amount, the EPA would determine
for each account with holdings of banked Group 3 allowances the
account-specific recalibrated amount of allowances, computed as the
target bank amount multiplied by the account's total holdings of banked
Group 3 allowances and divided by the total amount of banked Group 3
allowances in all accounts, rounded up to the nearest allowance.
Finally, the EPA would deduct from each account any banked Group 3
allowances exceeding the account's recalibrated amount of banked
allowances.
    As the target bank amount used in the recalibration process for
each control period, the EPA proposes to use an amount determined as
10.5 percent of the sum of the state emissions budgets for the control
period, or half of the sum of the states' proposed minimum variability
limits. The EPA has two reasons for proposing this amount. First, in
the transition from CSAPR to the CSAPR Update, where the EPA set a
target bank amount 1.5 times the sum of the variability limits, and in
the transition from the CSAPR Update to the Revised CSAPR Update, where
the EPA set a target bank amount of 1.0 times the sum of the
variability limits, in each case the initial bank proved larger than
necessary, as total emissions of all sources in the program were less
than the budgets. Second, an analysis of year-to-year variability of
heat input for the region covered by this proposed rule suggests that
the regional heat input for an individual year can be expected to vary
by up to 10.5 percent above or below the central trend with 95%
confidence. This variability analysis is an application to the entire
region of the variability analysis EPA has performed for individual
states to establish the variability limit of 21 percent for the states
in the trading program.\268\ When the analysis is performed at the
regional level, the data show less year-to-year variation than when the
analysis is performed at the individual state level. Within the trading
program structure, it is logical to use variability analyzed at the
level of individual states to set the variability limits, which apply
at the level of individual states, while using variability analyzed at
the level of the overall region to set a target level for a bank, which
will apply at the level of the overall program.
---------------------------------------------------------------------------

    \268\ See the Power Sector Variability Final Rule TSD from
CSAPR, available at https://www.epa.gov/csapr/power-sector-variability-final-rule-tsd for a description of the methodology.
Also see the Excel document ``OS Heat Input--Variability 2000 to
2021.xls'' for updated data, application of the CSAPR variability
methodology, and results applied to heat input for 2000 through 2021
for all states and for the region collectively.
---------------------------------------------------------------------------

    The annual bank recalibrations will help maintain the control
stringency determined to be necessary to address states' good neighbor
obligations for the 2015 ozone NAAQS. Moreover, the proposed
recalibrations are less complex than alternative approaches would be.
For example, the NOX Budget Trading Program established in
the NOX SIP Call also contained provisions designed to
prevent excessive accumulations of banked allowances on program
stringency, but those provisions--under the name ``progressive flow
control''--introduced uncertainty as to whether banked allowances would
be usable to offset one ton of emissions or less than one ton of
emissions in the current control period. The EPA considers the
recalibration mechanism proposed here to be simpler with less
associated uncertainty.
    Finally, the EPA observes that the proposed recalibration mechanism
is entirely consistent with the Agency's existing authority under 40
CFR 97.1006(c)(6) to ``terminate or limit the use and duration'' of any
Group 3 allowance ``to the extent the Administrator determines is
necessary or appropriate to implement any provision of the Clean Air
Act.'' The Administrator proposes to determine that the recalibrations
are both necessary and appropriate to ensure that the control
stringency selected in this rulemaking is maintained and states' good
neighbor obligations with respect to the 2015 ozone NAAQS are
addressed.
    The EPA requests comment on the proposed bank recalibration
provisions and the proposed use of a target bank amount computed as
10.5 percent times the sum of the state emissions budgets for each
control period.
7. Unit-Specific Backstop Daily Emissions Rates
    While the identified EGU emissions reductions in Section VI of this
proposed rule are incentivized and secured primarily through the
corresponding seasonal state emissions budgets (expressed as a seasonal
tonnage limit for all covered EGUs within a state's borders) described
earlier, the EPA is also incorporating backstop daily emissions rates
of 0.14 lb/mmBtu for coal-fired steam units serving generators with
nameplate capacity greater than or equal to 100 MW in covered states.
The backstop emissions rates will first apply in 2024 for coal-fired
steam units with existing SCR controls, and in 2027 for coal-fired
steam units currently without SCR controls. For a unit that exceeds its
applicable backstop daily emissions rate on any day, all emissions on
that day exceeding the emissions that would have occurred at the
backstop daily emissions rate will be subject to a 3-for-1 allowance
surrender ratio instead of the normal 1-for-1 allowance surrender
ratio. See Appendix A of the Ozone Transport Policy Proposed Rule TSD
for a list of coal-fired steam units serving generators larger than or
equal to 100 MW in covered states for which the identified backstop
emissions rate would apply starting in either 2024 or 2027.
    The EGU NOX Mitigation Strategies Proposed Rule TSD
describes the methodology for deriving the 0.14 lb/mmBtu daily rate
limit in more detail. The methodology is summarized as follows. First,
consistent with

stakeholders' focus on providing daily assurance of control operation,
EPA determined that daily (as opposed to hourly or monthly) was an
appropriate time metric for backstop emissions rate limits instituted
to ensure operation of controls on high ozone days. The EPA derived the
0.14 lb/mmBtu daily rate limit by determining the particular level of a
daily rate that would be comparable in stringency to the 0.08 lb/mmBtu
seasonal emissions rate that the Agency has identified as reflecting
SCR optimization at existing units.\269\ The EPA first conducted an
empirical exercise using reported daily emissions rate data from
existing, SCR-controlled coal units that were emitting at or below 0.08
lb/mmBtu on a seasonal average basis. Recognizing that this seasonal
rate reflects the average across a unit's range of varying daily rates
reflecting different operation conditions, including some occasions
when the SCR control may not be operating or may not be fully
optimized, the EPA identified the upper end of the daily emissions rate
range for these units. When the EPA examined the daily emissions rate
pattern for these units considered to be optimizing their SCRs on a
seasonal basis, the EPA observed that over 95 percent of the time,
their daily rates were below 0.14 lb/mmBtu. In addition, for these
units, less than 1 percent of their seasonal emissions would exceed
this daily rate limit.
---------------------------------------------------------------------------

    \269\ See page 24 of ``Guidance for 1-hour SO2
Nonattainment Area SIP Submission'' at https://www.epa.gov/sites/default/files/2016-06/documents/20140423guidance_nonattainment_sip.pdf. ``A limit based on the 30-
day average of emissions, for example, at a particular level is
likely to be a less stringent limit than a 1-hour limit at the same
level 1 since the control level needed to meet a 1-hour limit every
hour is likely to be greater than the control level needed to
achieve the same limit on a 30-day average basis.''
---------------------------------------------------------------------------

    The EPA conducted this analysis to be consistent with the
methodology developed in the 2014 1-hr SO2 attainment area
guidance for identifying ``comparably stringent'' emissions rates over
varying time-periods.\270\ Appendix C of that guidance describes a
series of steps that involve: (1) Compiling emissions data to reflect a
distribution of emissions rates with various averaging times, (2)
determining the 99th percentile of the average emissions values
compiled in the previous step, and then (3) applying ``adjustment
factors'' or ratios of the 99th percentile values to emissions rates to
convert them (usually from a short-term rate to a longer-term rate). In
this case, the EPA applied the methodology in reverse to convert a
longer-term limit (the seasonal rate of 0.08 lb/mmBtu which was assumed
to be equal to a 30-day rate of 0.08 lb/mmBtu) to a comparably
stringent short-term limit (a daily rate of 0.14 lb/mmBtu). The EPA
requests comment on the proposed incorporation of a backstop daily
emissions rate element into the Group 3 trading program and on the
proposed methodology for determining the daily emissions rate of 0.14
lb/mmBtu.
---------------------------------------------------------------------------

    \270\ See Guidance for 1-Hour SO2 Nonattainment Area
SIP Submissions available at https://www.epa.gov/sites/default/files/2016-06/documents/20140423guidance_nonattainment_sip.pdf.
---------------------------------------------------------------------------

    In addition, the EPA requests comment on application of the
backstop daily emissions rates in the event that an affected unit finds
it more economic to retire shortly after the start of the 2027 ozone
season in lieu of investing in new NOX post-combustion
control technology. This proposed rule's state emissions budgets would
require emissions reductions starting in 2026 commensurate with SCR
retrofits at these units regardless of when these unit-level backstop
rates are subsequently imposed. The EPA recognizes that such retrofits
in practice may be less environmentally efficient compared to imminent
retirement that would potentially yield lower cumulative emissions of
NOX and multiple other pollutants over time. The EPA also
recognizes that several coal-fired EGUs have been considering
retirement by 2028 under compliance pathways available under Clean
Water Act effluent guidelines \271\ and the coal combustion residuals
rule under the Resource Conservation and Recovery Act.\272\ 2028 also
represents the end of the second planning period under the Regional
Haze program, and thus is a significant year in states' planning of
strategies to make reasonable progress towards natural visibility at
Class I areas.\273\ To facilitate a potentially economic and
environmentally superior unit-level compliance response across these
programs that nonetheless maintains the NOX reductions
required by the state budgets from 2026 forward in this proposed rule,
the EPA is requesting comment on potentially deferring the application
of the backstop daily rate for large coal EGUs that submit written
attestation to the EPA that they make an enforceable commitment to
retire by no later than the end of calendar year 2028. EPA anticipates
that units failing to retire contrary to their attestation would become
subject to the backstop emissions rate in the 2029 ozone season, and
would likely be subject to other appropriate enforcement proposed rule
under the Clean Air Act or other relevant authorities.
---------------------------------------------------------------------------

    \271\ See 40 CFR 423.11(w).
    \272\ See 40 CFR 257.103(b).
    \273\ See 40 CFR 51.308(f).
---------------------------------------------------------------------------

8. Unit-Specific Emissions Limitations Contingent on Assurance Level
Exceedances
    As emphasized by the D.C. Circuit in its decision invalidating
CAIR, under the CAA's good neighbor provision, emissions ``within the
State'' that contribute significantly to nonattainment or interfere
with maintenance of a NAAQS in another state must be prohibited. North
Carolina v. EPA, 531 F.3d 896, 906-908 (D.C. Cir. 2008). The CAIR
trading programs contained no provisions limiting the degree to which a
state could rely on net purchased allowances as a substitute for making
in-state emissions reductions, an omission which the court found was
inconsistent with the requirements of the good neighbor provision. Id.
In response to that holding, the EPA established the CSAPR trading
programs' assurance provisions to ensure that, in the context of a
flexible trading program, the emissions reductions required under the
good neighbor provision in fact will take place within the state. The
EPA believes the assurance provisions have generally been successful in
achieving that objective, as evidenced by the fact that since the
assurance provisions took effect in 2017, out of the nearly 300
instances where a given state's compliance with the assurance
provisions of a given CSAPR trading program for a given control period
has been assessed, a state's collective emissions have exceeded the
applicable assurance level only four times.
    Unfortunately, the EPA also recognizes that the assurance
provisions' very good historical compliance record is not good enough.
The four past exceedances all occurred under the Group 2 trading
program: Sources in Mississippi collectively exceeded their applicable
assurance levels in the 2019 and 2020 control periods, and sources in
Missouri collectively exceeded their applicable assurance levels in the
2020 and 2021 control periods.\274\ Both of the

exceedances by Missouri sources could easily have been avoided if the
owner and operator of several SCR-equipped, coal-fired steam units had
not chosen to idle the units' controls and rely instead on net out-of-
state purchased allowances. The exceedances were large, and ample
quantities of allowances to cover the resulting 3-for-1 allowance
surrender requirements were purchased in advance, suggesting that the
assurance level exceedances may have been anticipated as a possibility.
In the case of the Mississippi exceedances, the exceedances were
smaller, operational variability (manifesting as increased heat input)
appears to have been a material contributing factor, and the EPA has
not concluded that the owners and operators anticipated the
exceedances. However, an additional contributing factor was the fact
that several large, gas-fired steam units without SCR controls emitted
NOX at average rates much higher than the average emissions
rates the same units had achieved in previous control periods. In
short, while the Missouri exceedances appear far more significant,
EPA's analysis indicates that all four past exceedances could have been
avoided if the units most responsible had achieved emissions rates more
comparable to the same units' previous performance. In EPA's view, the
operation of the Missouri units in particular--although not prohibited
by the current regulatory requirements--cannot be reconciled with the
statutory requirements of the good neighbor provision. The fact that
such operation is not prohibited by the current regulations therefore
indicates a deficiency in the current regulatory requirements.
---------------------------------------------------------------------------

    \274\ Information on the assurance level exceedances in the 2019
and 2020 control periods is available in the final notices
concerning EPA's administration of the assurance provisions for
those control periods. 85 FR 53364 (August 28, 2020); 86 FR 52674
(September 22, 2021). The EPA will publish an analogous final notice
for the 2021 control period by October 1, 2022, and will also
publish a preliminary notice by August 1, 2022. At this time,
information on the relevant Missouri assurance level for the 2021
control period is available at 40 CFR 97.806(c)(2) and 97.810 and
preliminary data on Missouri units' emissions of NOX
during the 2021 ozone season are available at ampd.epa.gov.
---------------------------------------------------------------------------

    To correct the deficiency in the regulatory requirements, the EPA
proposes in this rulemaking to revise the Group 3 trading program
regulations to establish an additional emissions limitation to more
effectively deter avoidable assurance level exceedances. Because the
pollutant involved is ozone season NOX and the particular
sources for which deterrence is most needed are located in states that
are proposed to transition soon from the Group 2 trading program to the
Group 3 trading program, the EPA is proposing to promulgate the
strengthening provisions as revisions to the Group 3 trading program
regulations rather than the Group 2 trading program regulations.\275\
---------------------------------------------------------------------------

    \275\ The EPA believes that the occurrence of avoidable
assurance level exceedances under the Group 2 trading program,
combined with the express statutory directive that good neighbor
obligations must be addressed ``within the state,'' and through
``prohibition,'' would also provide a sufficient legal basis for the
Agency to promulgate the same revisions to the assurance provisions
for all the other CSAPR trading programs. The EPA is not proposing
to do so at this time because the Agency has seen no reason to
expect exceedances of the assurance levels under any of the other
CSAPR trading programs by any of the states that will remain subject
to the respective trading programs after this rulemaking, except
possibly by Missouri under the CSAPR NOX Annual Trading
Program. The EPA expects that reductions in Missouri's seasonal
NOX emissions sufficient to comply with the proposed
provisions of the revised Group 3 trading program, including the
secondary emissions limitations, would also prevent exceedances of
Missouri's currently applicable assurance level for annual
NOX emissions.
---------------------------------------------------------------------------

    The two current emissions-related compliance requirements in the
Group 3 trading program regulations are both structured in the form of
requirements to hold allowances. The first requirement applies at the
source level: Specifically, at the compliance deadline after each
control period, the owners and operators of each source covered by the
program must surrender a quantity of allowances that is determined
based on the emissions from the units at the source during the control
period. The second requirement applies at the designated representative
level (which typically is the owner or operator level): If the state's
sources collectively emit in excess of the state's assurance level, the
owners and operators of each set of sources determined to have
contributed to the exceedance must surrender an additional quantity of
allowances. As long as a source's owners and operators comply with
these two allowance surrender requirements (and meet certain other
requirements not related to the amounts of the sources' emissions),
they are in compliance with the program.
    In light of the operation of the Missouri sources, the EPA is
doubtful that strengthening the assurance provisions by increasing
allowance surrender requirements at the unit, source, or designated
representative level would create a sufficient deterrent. Accordingly,
the EPA is proposing instead to add a new, unit-level emissions
limitation structured as a prohibition to emit NOX in excess
of a defined amount. A violation of the prohibition would not trigger
additional allowance surrender requirements beyond the surrender
requirements that would otherwise apply, but would trigger the possible
application of the CAA's enforcement authorities. Because the purpose
of the new unit-level emissions limitation would be to deter conduct
causing exceedances of a state's assurance level, the EPA proposes to
condition applicability of the new limitation on (1) the occurrence of
an exceedance of the state's assurance level for the control period,
and (2) the apportionment of at least some of the responsibility for
the assurance level exceedance to the set of units represented by the
unit's designated representative. Apportionment of responsibility for
the assurance level exceedance would be carried out according to the
existing assurance provision procedures and would therefore depend on
the designated representative's shares of both the state's total
emissions for the control period and the state's assurance level for
the control period. The new emissions limitation would be in addition
to, not in lieu of, the other requirements of the Group 3 trading
program. This point would be made explicit by relabeling the source-
level allowance holding requirement, currently called the ``emissions
limitation,'' as the ``primary emissions limitation'' and labeling the
new unit-level requirement as the ``secondary emissions limitation.''
(The regulations label the designated representative-level requirement
as ``compliance with the . . . assurance provisions.'')
    The EPA proposes to define the unit-level secondary emissions
limitation by formula to reflect the amount of additional
NOX emissions caused by the unit's deviation from a
benchmark seasonal average NOX emissions rate during the
control period, where the benchmark seasonal average NOX
emissions rate for the unit would be based on emissions rates the unit
has achieved in the past plus a 25 percent margin. The EPA also
proposes to use a floor for past performance of 0.08 lb/mmBtu (yielding
0.10 lb/mmBtu when the 25 percent margin is added), exclude control
periods where the unit operated in less than 10 percent of the hours
(in order to avoid data that might be unrepresentative), and screen out
instances where the amount of additional emissions caused by the poor
performance is less than 50 tons. Specifically:
     The EPA proposes to define a unit's secondary emissions
limitation for a control period, in tons of NOX, as the sum
of 50 tons plus the product of (1) the unit's benchmark seasonal
average emissions rate times (2) the unit's actual heat input for the
control period, except that if the unit operated during less than 10
percent of the hours in the control period, no secondary emissions
limitation would be defined for the unit for that control period.
     The EPA proposes to calculate the benchmark seasonal
average NOX

emissions rate for a unit for this purpose, in lb NOX/mmBtu,
as the higher of (1) 0.10 lb/mmBtu or (2) 125 percent of the unit's
lowest seasonal average NOX emissions rate in a previous
control period under the CSAPR NOX Ozone Season Group 1,
Group 2, or Group 3 Trading Program, excluding any control periods
where the unit operated for less than 10 percent of the hours in the
ozone season.\276\
---------------------------------------------------------------------------

    \276\ In proposing a formulation for a benchmark rate for the
specific regulatory purpose of defining a secondary emissions
limitation under the Group 3 trading program, the EPA is not
expressing a view that the same formulation of a benchmark rate
would be suitable for any other regulatory purpose.
---------------------------------------------------------------------------

    Table VII.B.8-1 shows the secondary emissions limitations that the
proposed formula would have produced and which units would have
exceeded those limitations if the limitations and formula had been in
effect for the Group 2 trading program in 2019, 2020, and 2021 when
assurance level exceedances occurred in Mississippi and Missouri. The
EPA believes that in each case the formula functions in a reasonable
manner, and the units identified as exceeding their respective
secondary emissions limitations are sources for which an enforcement
deterrent under CAA sections 113 and 304 would have been appropriate to
compel better control of NOX emissions.

     Table VII.B.8-1--Illustrative Results of Applying Proposed Secondary Emissions Limitation in Previous Instances of Assurance Level Exceedances
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                      Benchmark NOX                       Secondary
                                                                      emissions rate     Actual NOX       emissions        Actual NOX       Exceedance
             Owner/operator                         Unit                (lb/mmBtu)     emissions rate     limitation       emissions          (tons)
                                                                                (lb/mmBtu)         (tons)           (tons)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Mississippi--2019
    Miss. Power........................  Watson 4..................            0.137            0.176              458              524               66
    Miss. Power........................  Watson 5..................            0.215            0.349            1,247            1,943              696
Mississippi--2020
    Entergy Miss.......................  Andrus 1..................            0.224            0.289            1,219            1,508              289
    Miss. Power........................  Watson 5..................            0.215            0.286            1,086            1,381              295
Missouri--2020
    Assoc. Elec. Coop..................  New Madrid 1..............            0.135            0.670              961            4,524            3,563
    Assoc. Elec. Coop..................  New Madrid 2..............            0.131            0.497              866            3,108            2,242
    Assoc. Elec. Coop..................  Thomas Hill 1.............            0.123            0.526              374            1,384            1,010
    Assoc. Elec. Coop..................  Thomas Hill 2.............            0.122            0.537              548            2,187            1,639
    Assoc. Elec. Coop..................  Thomas Hill 3.............            0.104            0.195              780            1,374              594
Missouri--2021
    Assoc. Elec. Coop..................  New Madrid 1..............            0.135            0.652              353            1,466            1,113
    Assoc. Elec. Coop..................  New Madrid 2..............            0.131            0.611            1,054            4,700            3,646
    Assoc. Elec. Coop..................  Thomas Hill 1.............            0.123            0.146              421              440               19
    Assoc. Elec. Coop..................  Thomas Hill 2.............            0.122            0.400              600            1,801            1,201
--------------------------------------------------------------------------------------------------------------------------------------------------------

    For further illustrations of the application of the proposed
formula and secondary emissions limitation to other units in the states
proposed to be subject to the expanded Group 3 trading program in the
control periods from 2016 through 2021, see the spreadsheet
``Illustrative Calculations Using Proposed Secondary Emissions
Limitation Formula'', available in the docket. The EPA notes that, with
the exception of the units listed in Table VII.B.8-1, no unit shown in
the spreadsheet as having emissions exceeding the illustrative
secondary emissions limitation calculated for the unit would have
violated the proposed prohibition because no violation would occur in
the absence of an exceedance of the assurance level and apportionment
of responsibility for a share of the exceedance to the unit under the
assurance provisions.
    The EPA requests comment on the proposal to establish a secondary
emissions limitation for the Group 3 trading program as described in
this section. The EPA specifically requests comment on the proposed
form of the secondary emissions limitation, the proposed formula for
computing each unit's secondary emissions limitation, and the proposed
values for the screening parameters used in the calculations.
9. Unit-Level Allowance Allocation and Recordation Procedures
    In the Revised CSAPR Update, the EPA established default procedures
for allocating CSAPR NOX Ozone Season Group 3 allowances
(``Group 3 allowances'') in amounts equal to each state emissions
budget for each control period among the sources in the state for use
in complying with the Group 3 trading program. The EPA also provided
states with several options to submit SIP revisions which, if approved,
would result in the replacement of EPA's allowance allocations with
state-determined allowance allocations for the 2022 control period and
beyond. The current regulations (i.e., before this proposed rule)
provide that EPA's allocations and allocation procedures apply for the
2021 control period and, by default, for subsequent control periods
unless and until a state provides state-determined allowance
allocations under an approved SIP revision.
    The current default allocation process for the Group 3 trading
program established in the Revised CSAPR Update involves three main
steps. First, a portion of each state emissions budget for each control
period is reserved for potential allocation to units that are subject
to allowance holding requirements and that would not otherwise receive
allowance allocations in the overall allocation process. Under the
current Group 3 trading programs, the reserved allowances are made
available generally (but not exclusively \277\) to ``new'' units--which
for purposes of the Revised CSAPR Update means units commencing
commercial operation on or after January 1, 2019--through a ``new unit
set-aside'' established for qualifying units in each state and, if
areas of Indian country exist within the state's borders, a separate
``Indian country new unit set-

aside'' for qualifying units in such Indian country. Second, in advance
of each control period, the unreserved portion of the state budget is
allocated among the state's eligible ``existing'' units--which for
purposes of the Revised CSAPR Update generally means units that
commenced commercial operation before January 1, 2019--and the
allocations are recorded in the respective sources' compliance
accounts. Finally, after the control period but before the compliance
deadline by which sources must hold allowances to cover their emissions
for the control period, allowances from the reserved portions of the
budget are allocated to qualifying units, any remaining reserved
allowances not allocated to qualifying units are allocated among the
state's existing units, and the allocations are recorded in the
respective sources' compliance accounts.
---------------------------------------------------------------------------

    \277\ The units qualifying for allocations from a new unit set-
aside may include not only units that have recently started
operating but also units that previously received, but are no longer
eligible to receive, allocations from the unreserved portion of the
budget as ``existing'' units.
---------------------------------------------------------------------------

    In this rulemaking, the EPA would retain the overall three-step
allocation process summarized above but is proposing revisions to each
step to better address units in Indian country and to better coordinate
the unit-level allocation process with the proposed dynamic budget-
setting process discussed in Section VII.B.4 of this proposed rule.
Like the allocation process established in CSAPR, the CSAPR Update, and
the Revised CSAPR Update, the revised process proposed in this
rulemaking would be designed to provide default allowance allocations
to all units that are subject to allowance holding requirements,
including, for the first time under any CSAPR trading program, an
existing EGU in Indian country not covered by a state's CAA
implementation planning authority. The proposed revisions to the three
steps are discussed in Sections VII.B.4.a, VII.B.4.b, and VII.B.4.c of
this proposed rule, respectively.
    Echoing the approach to unit-level allocations followed in CSAPR,
the CSAPR Update, and the Revised CSAPR Update, in this rulemaking, EPA
is again proposing to provide states with several options to submit SIP
revisions which, if approved, would result in the replacement of EPA's
default allocations with state-determined allocations for subsequent
control periods. Specifically, the proposed regulations would provide
that EPA's allocations and allocation procedures will apply for the
2023 control period and, by default, for subsequent control periods
unless and until a state provides state-determined allocations under an
approved SIP revision. The options to submit SIP revisions that would
accomplish this purpose are discussed in Section VII.D of this
document. Similarly, for a covered area of Indian country not subject
to a state's CAA implementation planning authority, a tribe could elect
to work with the EPA under the Tribal Authority Rule to develop a full
or partial tribal implementation plan under which the tribe would
determine allowance allocations that would replace EPA's default
allocations for subsequent control periods.
a. Set-Asides of Portions of State Emissions Budgets for New Units
    As the first step in the default allocation process that the EPA
has applied under CSAPR, the CSAPR Update, and the Revised CSAPR Update
for any control period where a state does not employ an alternative
allocation process pursuant to an approved SIP revision, EPA has
reserved a portion of the state's emissions budget for potential
allocation to units that are subject to allowance holding requirements
and that would not otherwise receive allowance allocations in the
overall allocation process. Consistent with the budget-setting approach
in those rulemakings, where the state emissions budgets for all future
control periods were determined in the initial rulemakings, the amounts
of the reserved portions of the budgets were also determined in the
initial rulemakings.\278\
---------------------------------------------------------------------------

    \278\ Under the current regulations for each of the CSAPR
trading programs, when a unit that has received allocations as an
``existing'' unit ceases operation, after a specified number of
control periods the unit loses the allocations, which are then
allocated to the state's new unit set-asides for subsequent control
periods.
---------------------------------------------------------------------------

    The units for which portions of the budgets were reserved in set-
asides have fallen into two main categories: First, units for which the
data needed to determine allowance allocations does not exist at the
time when the allocations for other units were being determined--i.e.,
``new'' units \279\--and second, units that would be left out if a
state chooses to replace EPA's default allocations with state-
determined allocations--i.e., any units in Indian country not covered
by a state's CAA implementation planning authority. Because there were
no existing units in what the EPA understood to be Indian country for
purposes of CSAPR, the CSAPR Update, and the Revised CSAPR Update,
potential units in Indian country were considered to be a subcategory
of ``new'' units, and the two types of set-asides that have been
created are ``new unit set-asides'' and ``Indian country new unit set-
asides.'' The principal difference between these two types of set-
asides under the regulations for all of the CSAPR trading programs has
been that a state can take over administration of the allowances
allocated to a new unit set-aside from the EPA through an approved SIP
revision but cannot take over administration of the allowances
allocated to an Indian country new unit set-aside.
---------------------------------------------------------------------------

    \279\ A unit that has received allocations as an ``existing''
unit, then loses its allocations because of non-operation, and then
later resumes operation is treated as a type of ``new'' unit for
allocations purposes.
---------------------------------------------------------------------------

    In this rulemaking, the EPA is proposing several revisions
affecting the establishment of set-asides. The first proposed revision,
which is largely unrelated to the other aspects of this rulemaking,
would update the regulations for the Group 3 trading program \280\ to
reflect the D.C. Circuit's holding in ODEQ v. EPA that the relevant
states have initial CAA implementation planning authority in non-
reservation areas of Indian country until displaced by a demonstration
of tribal jurisdiction over such an area.\281\ Consistent with this
holding, EPA is proposing to revise language in the Group 3 trading
program regulations that, for purposes of allocating allowances from a
given state's emissions budget, currently distinguishes between (1) the
set of units within the state's borders that are not in Indian country
and (2) the set of units within the state's borders that are in Indian
country. As revised, the provisions would distinguish between (1) the
set of units within the state's borders that are not in Indian country
or are in areas of Indian country covered by the state's CAA
implementation planning authority and (2) the set of units within the
state's borders that are in areas of Indian country not covered by the
state's CAA implementation planning authority. The revised language
would more accurately distinguish which units are, or are not, covered
by a state's CAA implementation planning authority, which is the
underlying purpose for which the term ``Indian country'' is currently
used in the allowance allocation provisions. The effect of the proposed
revision would be that any

units located in areas of ``Indian country'' as defined in 18 U.S.C.
1151 that are covered by a state's CAA implementation planning
authority would be treated for allowance allocation purposes in the
same manner as units in areas of the state that are not Indian country,
consistent with the ODEQ holding.\282\
---------------------------------------------------------------------------

    \280\ As further discussed in Section VII.B.12 of this proposed
rule, the EPA is also proposing to make this revision to the
regulations for the other CSAPR trading programs in addition to the
Group 3 trading program.
    \281\ For additional discussion of the ODEQ v. EPA decision and
other issues related to the CAA implementation planning authority of
states, tribes, and the EPA in various areas of Indian country, see
Section IV.C.2 of this proposed rule.
    \282\ The EPA notes that the units that would be treated for
allocation purposes in the same manner as units not in Indian
country would include units in any areas of Indian country subject
to a state's CAA implementation planning authority, whether those
are non-reservation areas (consistent with ODEQ) or reservation
areas (such as areas of Indian country within Oklahoma's borders
covered by the EPA's October 1, 2020 approval of Oklahoma's request
under SAFETEA, as discussed in Section IV.C.2 of this proposed
rule).
---------------------------------------------------------------------------

    The remaining proposed revisions, which are interrelated, concern
the types of set-asides that in the context of this proposal will best
accomplish the goal of ensuring the availability of allocations to
units that are subject to allowance holding requirements and that would
not otherwise receive allowance allocations. One proposed revision to
the types of set-asides addresses allocations to existing units in
Indian country. The revised geographic scope of the Group 3 trading
program under this proposal would for the first time include an
existing EGU in Indian country not covered by a state's CAA
implementation planning authority--the Bonanza coal-fired unit in the
Uintah and Ouray Reservation within Utah's borders. In order to provide
an option for Utah (or a similarly situated state in the future) to
replace EPA's default allowance allocations to most existing units with
state-determined allocations through a SIP revision while continuing to
ensure the availability of a default allocation to the Bonanza unit (or
similarly situated units in the future), the EPA proposes to revise the
Group 3 trading program regulations to provide for ``Indian country
existing unit set-asides.'' Specifically, for each state and for each
control period where the inventory of units used to compute the state's
emissions budget includes one or more existing units \283\ in an area
of Indian country not covered by the state's CAA implementation
planning authority, the EPA would reserve a portion of the state's
emissions budget in an Indian country existing unit set-aside for the
unit or units. The amount of each Indian country existing unit set-
aside would equal the sum of the default allocations that the units
covered by the set-aside would receive if the allocations to all
existing units within the state's borders were computed according to
EPA's default allocation procedure (which is discussed in Section
VII.B.9.b of this proposed rule). Immediately after determining the
amount of a state's emissions budget for a control period (and after
reserving a portion for potential allocation to new units, as discussed
below), the EPA would first determine the default allocations for all
existing units within the state's borders, then allocate the
appropriate quantity of allowances to the Indian country existing unit
set-aside, then allocate the allowances from the set-aside to the
covered units in Indian country, and finally record the allocations in
the sources' compliance accounts at the same time as the allocations to
other sources not in Indian country. The existence of the Indian
country existing unit set-aside thus would have no substantive effect
unless and until the relevant state chose to replace EPA's default
allowance allocations through a SIP revision, in which case the state
would have the ability to establish state-determined allocations for
the units subject to the state's CAA implementation planning authority
while the EPA would continue to administer the Indian country existing
unit set-aside for the units in Indian country not covered by the
state's CAA implementation planning authority.\284\ The EPA believes
the proposal to establish Indian country existing unit set-asides would
accomplish the objective of allowing states to control allowance
allocations to units covered by their CAA implementation planning
authority while providing equitable allocations to units in Indian
country not covered by such authority.
---------------------------------------------------------------------------

    \283\ In coordination with the dynamic budgeting process
discussed in Section VII.B.4 of this proposed rule, each unit
included in the unit inventory used to determine a state's emissions
budget for a given control period in 2025 or a later year would be
considered an ``existing'' unit for that control period for purposes
of the determination of unit-level allowance allocations. In other
words, there would no longer be a single fixed date that would
divide ``existing'' from ``new'' units.
    \284\ As noted in Section VII.D, of this proposed rule a tribe
could elect to work with EPA under the Tribal Authority Rule to
develop a full or partial tribal implementation plan under which the
tribe would determine allowance allocations for units in the
relevant area of Indian country that would replace EPA's default
allocations for subsequent control periods.
---------------------------------------------------------------------------

    The remaining revisions to the types of set-asides address the set-
asides used to ensure availability of allowance allocations to new
units in light of the division of the budget for existing units into a
reserved portion for existing units in Indian country and an unreserved
portion for other existing units. Under the current Group 3 trading
program regulations, allowances for new units are provided from
separate new unit set-asides and Indian country new unit set-asides.
The EPA proposes to combine these two types of set-asides starting with
the 2023 control period by eliminating the Indian country new unit set-
asides and expanding eligibility for allocations from the new unit set-
asides to include units anywhere within the relevant states' borders.
However, as with the Indian country new unit set-asides under the
current regulations, the EPA would continue to administer the new unit
set-asides in the event a state chose to replace EPA's default
allocations to existing units with state-determined allocations,
thereby ensuring the availability of allocations to any new units not
covered by a state's CAA implementation planning authority.
    The reason for the proposed revisions to the new unit set-asides
and Indian country new unit set-asides is to avoid unnecessary and
potentially inequitable changes to the degree to which individual
existing units contribute to, or benefit from, the new unit set-asides.
Under the current regulations, the allowances used to establish these
set-asides are reserved from each state emissions budget before
determination of the allocations from the unreserved portion of the
budget to existing units, so that certain existing units--generally
those receiving the largest allocations--contribute to creation of the
set-asides through roughly proportional reductions in their
allocations. Later, if any allowances in a set-aside are not allocated
to qualifying new units, the remaining allowances are reallocated to
the existing units in proportion to their initial allocations from the
unreserved portion of the budget, so that certain existing units--
again, generally those receiving the largest allocations--benefit from
the reallocations in rough proportion to their previous
contributions.\285\ The EPA believes maintaining this symmetry, where
the same existing units--whether in Indian country or not--both
contribute to and potentially benefit from the set-asides, is a
reasonable policy objective, and doing so requires that the EPA
continue to administer the new unit set-asides in the event a state
chooses to replace EPA's default allocations to existing units with
state-determined allocations, because otherwise the EPA would be unable
to ensure that the units in Indian country would receive an appropriate

share of any reallocated allowances.\286\ Since the principal
difference between the new unit set-asides and the Indian country new
unit set-asides under the current regulations is that the EPA continues
to administer the Indian country new unit set-asides in the event a
state chooses to replace EPA's default allocations with state-
determined allocations, if under the revised regulations the EPA would
need to continue to administer the new unit set-asides, then there
would no longer be any reason to establish separate Indian country new
unit set-asides.
---------------------------------------------------------------------------

    \285\ Allowances from an Indian country new unit set-aside that
are not allocated to qualifying new units are first transferred to
the state's new unit set-aside, and if the allowances are still not
allocated to qualifying new units, the allowances are then
reallocated to the state's existing units.
    \286\ If units in Indian country were unable to share in the
benefits of reallocation of allowances from the new unit set-asides,
it would be possible to achieve a different form of symmetry by
simultaneously exempting the units in Indian country from the
obligation to share in the contribution of allowances to the new
unit set-asides. However, some stakeholders might view this
alternative as potentially inequitable because existing units in
Indian country would then make no contributions toward the new unit
set-aside while other existing units would still be required to do
so.
---------------------------------------------------------------------------

    With respect to the total amounts of allowances that would be set
aside for potential allocation to new units from the emissions budgets
for each state, for the control periods in 2023 and 2024 (but not for
subsequent control periods, as discussed below), EPA proposes to
establish total set-aside amounts equal to the projected amounts of
emissions from any planned units in the state for the control period,
plus an additional 2% of the state emissions budget to address any
unknown new units. For example, if planned units in a state are
projected to emit 3% of the state's NOX ozone season
emissions budget, then the new unit set-aside for the state would be
set at 5 percent, which is the sum of the minimum 2% set-aside plus an
additional 3 percent for planned units. This is the same approach
previously used to establish the amounts of new unit set-asides in
CSAPR, the CSAPR Update, and the Revised CSAPR Update for all the CSAPR
trading programs. See, e.g., 76 FR 48292 (August 8, 2011). As under the
Revised CSAPR Update, EPA proposes to make an exception for New York
for the 2023 and 2024 control periods, establishing a total new unit
set-aside amount for each control period of 5 percent of the state's
emissions budget, with no additional consideration for planned units,
because this approach is consistent with New York's preferences as
reflected in an approved SIP addressing allowance allocations for the
Group 2 trading program. Because the amounts of the state emissions
budgets for the 2023 and 2024 control periods would be determined in
the rulemaking, the amounts of the new unit set-asides for these
control periods would also be determined in the rulemaking. The
proposed amounts are shown in Tables VII.B.9.a-1 and VII.B.9.a-2 of
this proposed rule.

    Table VII.B.9.a-1--Proposed CSAPR NOX Ozone Season Group 3 New Unit Set-Aside (NUSA) Amounts for the 2023
                                               Control Period \a\
----------------------------------------------------------------------------------------------------------------
                                                                                New unit set-   New unit set-
                              State                                  Emissions     aside amount    aside amount
                                                                  budgets (tons)     (percent)        (tons)
----------------------------------------------------------------------------------------------------------------
Alabama.........................................................           6,364               3             191
Arkansas........................................................           8,889               2             178
Delaware........................................................             384              14              54
Illinois........................................................           7,364               5             368
Indiana.........................................................          11,151               2             223
Kentucky........................................................          11,640               2             233
Louisiana.......................................................           9,312               2             186
Maryland........................................................           1,187               2              24
Michigan........................................................          10,718               4             429
Minnesota.......................................................           3,921               2              78
Mississippi.....................................................           5,024               2             100
Missouri........................................................          11,857               2             237
Nevada..........................................................           2,280               6             137
New Jersey......................................................             799               2              16
New York........................................................           3,763               5             188
Ohio............................................................           8,369               5             418
Oklahoma........................................................          10,265               2             205
Pennsylvania....................................................           8,855               3             266
Tennessee.......................................................           4,234               2              85
Texas...........................................................          38,284               2             766
Utah............................................................          14,981               3             449
Virginia........................................................           3,090               5             155
West Virginia...................................................          12,478               2             250
Wisconsin.......................................................           5,963               2             119
Wyoming.........................................................           9,125               3             274
----------------------------------------------------------------------------------------------------------------
Table Notes:
\a\ In the event a final rule in this rulemaking becomes effective after May 1, 2023, the emissions budgets for
  the 2023 control period would be adjusted under the rule's proposed transitional provisions to ensure the new
  budgets would apply only after the rule's effective date, even though the revised Group 3 trading program
  would be implemented for most sources as of the start of the 2023 ozone season on May 1, 2023. The 2023 budget
  amounts shown in Table VII.B.9.a-1 do not reflect these possible adjustments. The transitional provisions are
  discussed in Section VII.B.11 of this proposed rule.

    Table VII.B.9.a-2--Proposed CSAPR NOX Ozone Season Group 3 New Unit Set-Aside (NUSA) Amounts for the 2024
                                                 Control Period
----------------------------------------------------------------------------------------------------------------
                                                                                New unit set-   New unit set-
                              State                                  Emissions     aside amount    aside amount
                                                                  budgets (tons)     (percent)        (tons)
----------------------------------------------------------------------------------------------------------------
Alabama.........................................................           6,306               3             189
Arkansas........................................................           8,889               2             178
Delaware........................................................             434              14              61
Illinois........................................................           7,463               5             373
Indiana.........................................................           9,391               2             188
Kentucky........................................................          11,640               2             233
Louisiana.......................................................           9,312               2             186
Maryland........................................................           1,187               2              24
Michigan........................................................          10,718               4             429
Minnesota.......................................................           3,921               2              78
Mississippi.....................................................           4,400               2              88
Missouri........................................................          11,857               2             237
Nevada..........................................................           2,372               6             142
New Jersey......................................................             799               2              16
New York........................................................           3,763               5             188
Ohio............................................................           8,369               5             418
Oklahoma........................................................           9,573               2             191
Pennsylvania....................................................           8,855               3             266
Tennessee.......................................................           4,234               2              85
Texas...........................................................          38,284               2             766
Utah............................................................          15,146               3             454
Virginia........................................................           2,814               5             141
West Virginia...................................................          12,478               2             250
Wisconsin.......................................................           5,057               2             101
Wyoming.........................................................           8,573               3             257
----------------------------------------------------------------------------------------------------------------

    For control periods in 2025 and later years, the EPA proposes to
allocate a total of 2% of each state emissions budget to a new unit
set-aside, with no additional amount for planned new units. The amounts
of the set-asides for each state and control period would be computed
when the emissions budgets for the control period are established, by
May 1 of the year before the year of the control period. The procedure
for determining the amounts of the set-asides based on the amounts of
the state emissions budgets would be codified in the Group 3 trading
program regulations and would reflect the same percentage of the
emissions budget for all states.
    The purpose of the proposed change to the procedure for
establishing the amounts of the set-asides is to coordinate with the
dynamic budget-setting process that would also become effective as of
the 2025 control period. As discussed in Section VII.B.4 of this
proposed rule, under the dynamic budget-setting process, each state's
budget for each control period would be computed using fleet
composition information and the total ozone season heat input reported
by all affected units in the state for the latest control period before
the budget-setting computations, which would be 2 years before the
control period for which the budgets are being determined. (For
example, 2025 emissions budgets would be based on 2023 fleet
composition and heat input data.) Moreover, as discussed in Section
VII.B.9.b of this proposed rule, all units whose heat input was used in
the budget computations for a given control period would be eligible to
receive allocations as ``existing'' units in that control period.
Consequently, by the 2025 control period, all or almost all units that
commence commercial operation before issuance of a final rule in this
rulemaking would be considered ``existing'' units for purposes of
budget-setting and allocations, and units commencing commercial
operation after issuance of a final rule generally would be considered
``existing'' units for all but their first two full control periods of
operation (and possibly a preceding partial control period). Given that
new units would not be relying on the new unit set-asides as a
permanent source of allowances, as is the case for ``new'' units under
the other CSAPR trading programs, the EPA believes smaller set-asides
would be sufficient.
    The EPA requests comment on the proposals to establish Indian
country existing unit set-asides, eliminate Indian country new unit
set-asides, and expand eligibility for allocations from new unit set-
asides to include units in Indian country for control periods in 2023
and later years. In the alternative, the EPA requests comment on
establishing emissions budgets (and assurance levels and new unit set-
asides) for the Uintah and Ouray Reservation separate from the
emissions budgets (and assurance levels, new unit set-asides, and
Indian country new unit set-asides) established for the remaining lands
within Utah's borders, and otherwise retaining the structure of prior
CSAPR trading programs' approach to allocations to new units in Indian
country (i.e., keeping the Indian country new unit set-asides, and not
expanding eligibility for allocations from the new unit set-asides).
The EPA also requests comment on the proposed new unit set-aside
amounts for the 2023 and 2024 control periods, the proposed procedure
for establishing the new unit set-aside amounts for the control periods
in 2025 and later years, and the proposed procedure for establishing
the Indian country existing unit set-aside amounts for the control
periods in 2023 and later years.
b. Allocations to Existing Units, Including Units That Cease Operation
    In conjunction with the new and revised state emissions budgets for
the Group 3 trading program proposed in this rulemaking, the EPA is
necessarily proposing new unit-level allocations of Group 3 allowances
to existing units.\287\

The procedure that the EPA proposes to employ to compute the unit-level
allocations is very similar but not identical to the procedure used to
compute unit-level allocations for units subject to the Group 3 trading
program in the Revised CSAPR Update. The steps of the proposed
procedure for determining allocations from each state emissions budget
for each control period, are described in detail in the Unit-Level
Allowance Allocations Proposed Rule TSD. The steps are summarized
later, with changes from the procedure followed in the Revised CSAPR
Update noted.
---------------------------------------------------------------------------

    \287\ The proposed revisions to the procedures for computing
unit-level allowance allocations in this rulemaking apply only to
the Group 3 trading program. In this rulemaking, the EPA is not
proposing changes to or reopening the methodology for computing the
amounts of allowances allocated to any unit under any other CSAPR
trading program.
---------------------------------------------------------------------------

    In the first step, the EPA would identify the list of units
eligible to receive allocations for the control period, which would be
the same set of units whose heat input was used in computing the
state's emissions budget for the control period (except any units that
are included in the budgets as ``new'' units, which would receive
allocations from the new unit set-asides instead). The unit inventories
used to compute emissions budgets for the 2023 and 2024 control periods
would be determined in the rulemaking in the same manner as in the
Revised CSAPR Update. The unit inventories used to compute emissions
budgets and unit-level allocations for control periods in 2025 and
later years would be determined in the year before the control period
in question based on the latest reported emissions and operational
data, which is an extension of the methodology used in the Revised
CSAPR Update to reflect more recent data (for example, the unit
inventories used to compute 2025 budgets and allocations would reflect
reported data for the 2023 control period). The procedures for updating
the unit inventories for 2023 and 2024 and for 2025 and beyond are
discussed in Section VII.B.4 of this proposed rule, and the criteria
that the EPA has applied to determine whether a unit's scheduled
retirement is sufficiently certain to serve as a basis for adjusting
emissions budgets and unit-level allocations are discussed in Section
VI.B and in the Ozone Transport Policy Analysis Proposed Rule TSD. With
regard to the use of the inventories from the budget-setting procedure
in setting unit-level allocations, in the Revised CSAPR Update, the
inventories used to establish the budgets were generally also used to
compute unit-level allocations, except that units that commenced
construction after January 1, 2019, were not treated as eligible to
receive allocations as existing units and instead received allocations
from the new unit set-asides. Under this rulemaking, any unit whose
heat input is used to set a state's emissions budget for a given
control period would also be eligible to receive allocations as an
existing unit for that control period.
    The EPA notes that this proposal to base the list of eligible units
on the list of units that reported heat input in the control period 2
years earlier than the control period for which allocations are being
determined would represent a revision to the current regulations
concerning the treatment of allocations to retired units. Under the
current regulations, units that cease operations for 2 consecutive
control periods continue to receive allocations as existing units for 3
additional years (that is, a total of 5 years) before the allowances
they would otherwise have received are reallocated to the new unit set-
aside for the state. Under the proposal in this rulemaking, units that
cease operation would receive allocations for only two full control
periods of non-operation. While the EPA has in prior transport
rulemakings noted a qualitative concern that ceasing allowance
allocations prematurely could distort the economic incentives of EGUs
to continue operating when retirement is more economical, the EPA
believes current market conditions are such that a continuation of
allowance allocations to retiring units likely has no more than a de
minimis effect on the consideration of an EGU whether to retire or not.
    In the second step of the procedure for determining allocations to
existing units, the EPA would compile a database containing for each
eligible unit the unit's historical heat input and total NOX
emissions data for the five most recent ozone seasons. For each unit,
the EPA would compute an average heat input value based on the three
highest non-zero heat input values over the 5-year period, or as the
average of all the non-zero values in the period if there are fewer
than three non-zero values. For each unit, the EPA would also determine
the maximum total NOX emissions value over the 5-year
period. These procedures are nearly identical to the procedures used in
the Revised CSAPR Update, with two exceptions. First, instead of using
only the data available at the time of the rulemaking, for each control
period the EPA would use data from the most recent five control periods
for which data had been reported. (For example, for the 2025 control
period, the EPA would use data for the 2019-2023 control periods.)
Second, to simplify the data compilation process, the EPA would use
only a five-year period for NOX mass emissions, in contrast
to the 8-year period used in the Revised CSAPR Update for
NOX mass emissions.
    In the third step of the procedure for determining allocations to
existing units in each state, the EPA would allocate the available
allowances for that state among the state's eligible units in
proportion to the share each unit's average heat input value represents
of the total of the average heat input values for all the state's
eligible units, but not more than the unit's maximum total
NOX value. If the allocations to one or more units are
curtailed because of the units' maximum total NOX values,
the EPA would iterate the calculation procedure as needed to allocate
the remaining allowances, excluding from each successive iteration any
units whose allocations have already reached their maximum total
NOX values. This calculation procedure is identical to the
calculation procedure used in the Revised CSAPR Update (as well as the
CSAPR Update and CSAPR).
    The unit-level allocations for the 2023 and the 2024 control
periods would be determined in the rulemaking based on the emissions
budgets for those control periods also determined in the rulemaking and
would be recorded 30 days after the effective date of the final rule
(in order to provide time to execute the proposed recall of 2023 and
2024 Group 2 allowances, as discussed in Section VII.B.11.c of this
proposed rule). This proposed recordation schedule represents a
revision to the recordation schedule currently in the Group 3 trading
program regulations which calls for allocations of 2023 and 2024 Group
3 allowances to existing units to be recorded on July 1, 2022. The EPA
notes that for the three states with approved SIP revisions
establishing their own methodologies for allocating Group 2
allowances--Alabama, Indiana, and New York--EPA proposes to follow
those methodologies to the extent possible in developing the
allocations of Group 3 allowances for the 2023 and 2024 control
periods. For the amounts of the proposed allocations to existing units
for the 2023 and 2024 control periods, see the ``Unit-Level Allowance
Allocations Proposed Rule TSD'' in the docket.
    The unit-level allocations for each control period in 2025 or a
later year would be computed immediately following the determination of
the emissions budgets for the control period. The EPA would perform the

computations and issue a notice of data availability concerning the
preliminary unit-level allocations for each control period by March 1
of the year before the control period. Objections to the data and
preliminary computations could be submitted for 30 days, and the EPA
would make any appropriate revisions and issue another notice of data
availability by May 1 of the year before the control period. The EPA
would then record the allocations by July 1 of the year before the
control period. This proposed recordation schedule--which is
necessitated by the fact that the amounts of the unit-level allocations
to be recorded would not be known until the year before the control
period, as just discussed--represents a revision to the recordation
schedule currently in the Group 3 trading program regulations which
calls for allocations of Group 3 allowances to existing units for
control periods in 2025 and later years to be recorded on July 1 of the
third year before the year of the control period. The EPA does not
propose to follow any state-specific methodologies as part of the
procedures for determining default unit-level allocations of Group 3
allowances for control periods in 2025 or later years, but any state
wishing to use a procedure different than EPA's default allocations
procedure could do so by obtaining approval of a SIP revision, as
discussed in Section VII.D of this proposed rule.
    In the case of any states making state-determined allocations under
approved SIP revisions, the allocations would have to be submitted to
EPA by June 1 of the year before the control period and the EPA would
record the allocations by July 1 of the year before the control period.
The proposed submission deadline would represent a revision of the
current deadline of June 1 of the year 3 years before the control
period, and the proposed recordation deadline would represent a
revision of the current deadline of July 1 of the year 3 years before
the control period. The purpose of revising the submission deadline is
to provide each state for which the EPA has approved a SIP revision
authorizing state-determined allowance allocations a period of time in
which to apply the state's preferred allocation methodology to the
state's trading budget for the appropriate control period. Because the
state trading budgets under the Group 3 trading program as revised
would not be known until May 1 of the year before each control period,
states could not determine unit-level allocations of the budgets using
their own methodologies significantly before June 1 of the year before
the control period. Submission by June 1 would allow the allowance
allocations to the units in the state to be recorded by July 1 of the
year before the control period, simultaneously with the recordation of
allocations to units in states where the EPA determines the
allocations.
    As an exception to all of the recordation deadlines that would
otherwise apply, the EPA proposes to not record any allocations of
Group 3 allowances in a source's compliance account unless that source
has complied with the requirements to surrender previously allocated
2023-2024 Group 2 allowances. The surrender requirements are necessary
to maintain the previously established levels of stringency of the
Group 2 trading program for the states and sources that remain subject
to that program under this final rule. The EPA finds that it is
reasonable to condition the recordation of Group 3 allowances on
compliance with the surrender requirements because the condition will
spur compliance and will not impose an inappropriate burden on sources.
The EPA considers establishment of this condition, which will
facilitate the continued functioning of the Group 2 trading program, to
be an appropriate exercise of the Agency's authority under CAA section
301 (42 U.S.C. 7601) to prescribe such regulations as are necessary to
carry out its functions under the Act.
    The EPA requests comment on the proposed revisions to the
procedures for allocating allowances to existing units under the Group
3 trading program, the deadlines for recording the allocations, and the
deadlines for submission of state-determined allowance allocations to
the EPA.
c. Allocations From Portions of State Emissions Budgets Set Aside for
New Units
    As promulgated in the Revised CSAPR Update, the Group 3 trading
program regulations provide for the EPA to allocate allowances from
each new unit set-aside and Indian country new unit set-aside after the
end of the control period at issue. The regulations call for the EPA to
allocate allowances to any eligible ``new'' units in the state in
proportion to their respective emissions during the control period, up
to the amounts of those emissions if the relevant set-aside contains
sufficient allowances, and not exceeding those emissions. An eligible
new unit for purposes of allocations from a set-aside for a given
control period is generally any unit in the relevant area that reported
emissions subject to allowance surrender requirements during the
control period and that was not eligible to receive an allowance
allocation as an ``existing'' unit for the control period. Any
allowances remaining in an Indian country new unit set-aside after the
allocations to new units are transferred to the new unit set-aside for
the state for potential allocation to new units in non-Indian country
areas of the state, and any allowances remaining in a new unit set-
aside after the allocations to new units are reallocated to the
existing units in the state in proportion to those units' previous
allocations for the control period as existing units. The EPA issues a
notice of data availability concerning the proposed allocations by
March 1 following the control period, provides an opportunity for
submission of objections, and issues a final notice of data
availability and record the allocations by May 1 following the control
period, one month before the June 1 compliance deadline.
    In this rulemaking, as discussed in Section VII.B.9.a of this
document, the EPA is proposing to eliminate Indian country new unit
set-asides after the 2022 control period and to expand eligibility for
allocations from each state's new unit set-aside for a control period
in 2023 or a later year to include units in Indian country within the
state's borders, regardless of whether the area of Indian country is
covered by the state's CAA implementation planning authority. The
reasons for these proposed revisions are discussed in Section VII.B.9.a
of this proposed rule. The EPA is not proposing any substantive
revisions to the current Group 3 trading program provisions governing
the procedures for allocating allowances from a state's new unit set-
aside for a control period to the eligible units within the state's
borders.\288\
---------------------------------------------------------------------------

    \288\ As discussed in Section X of this proposed rule, the EPA
is proposing to relocate some of the regulatory provisions relating
to administration of the new unit set-asides and is also proposing
to remove certain provisions that would be made obsolete by proposed
revisions to other provisions of the Group 3 trading program
regulations.
---------------------------------------------------------------------------

    This EPA notes that the proposed revisions to other provisions of
the Group 3 trading program regulations discussed elsewhere in this
document will reduce the portions of the state emissions budgets that
are allocated through the new unit set-asides. Specifically, because
the new unit set-asides will no longer receive any additional
allowances when units retire, for control periods in 2025 and later
years the amounts of allowances in the new unit set-asides will always
be 2 percent of the respective state emissions budgets for the
respective control periods. This reduction in the size of the

new unit set-asides is appropriate given that the number of consecutive
control periods for which any particular unit is likely to receive
allocations from a state's new unit set-aside will be reduced to two or
three before the unit becomes eligible to receive allocations from the
unreserved portion of the state's emissions budget. This approach
contrasts with the approach under the other CSAPR trading programs
where a new unit never becomes eligible to receive allocations from the
unreserved portion of the emissions budget and where the new unit set-
aside therefore needs to grow to accommodate an ever-increasing share
of the state's total emissions.
    The EPA also notes that, as discussed in Sections VII.D.2 and
VII.D.3 of this proposed rule, in the event that a state chooses to
replace EPA's default allowance allocations under the Group 3 trading
program with state-determined allocations through a SIP revision, the
EPA will continue to administer the portion of each state emissions
budget reserved in a new unit set-aside in order to ensure the
availability of allowance allocations to new units in any areas of
Indian country within the state not covered by the state's CAA
implementation planning authority.
d. Incorrectly Allocated Allowances
    The Group 3 trading program regulations as promulgated in the
Revised CSAPR Update include provisions addressing incorrectly
allocated allowances. With regard to any allowances that were
incorrectly allocated and are subsequently recovered, the current
provisions generally call for the recovered allowances to be
reallocated to other units in the relevant state (or Indian country
within the borders of the state) through the process for allocating
allowances from the new unit set-aside (or Indian country new unit set-
aside) for the state. If the procedures for allocating allowances from
the set-asides have already been carried out for the control period for
which the recovered allowances were issued, the allowances would be
allocated through the set-asides for subsequent control periods.
    The EPA continues to view the current provisions for disposition of
recovered allowances as reasonable in the case of any allowances that
are recovered before the deadline for recording allocations of
allowances from the new unit set-aside for the control period for which
the recovered allowances were issued. However, in the case of any
allowances that are recovered after that deadline, adding the recovered
allowances to the new unit set-aside for a subsequent control period,
as provided in the current regulations, would be inconsistent with the
proposed trading program enhancements discussed elsewhere in this
document, where the amounts of allowances provided in the state
emissions budgets for each control period are designed to reflect the
most current available information on fleet composition and utilization
and where the quantities of banked allowances available for use in each