methods and increased resources. In addition, the first two steps that
EPA promulgates today are reasonable initial steps that we expect to
build on by lowering thresholds, as appropriate, in the future. We have
no reason to suspect that we may need to reverse either of the first

two steps. Having received and analyzed extensive comment on the number
of permitting actions to expect and on permitting authority resources,
we consider it unlikely that we would need to establish a higher
threshold level than what we have established in Steps 1 and 2. In
addition, if we were to adopt an ``empty permits'' approach for title
V, we would not need to reverse either of Steps 1 and 2, as explained
above.
    Finally, as the DC Circuit stated in Grand Canyon Air Tour
Coalition v. F.A.A., 154 F.3d 455, 477-78 (DC Cir. 1998), the Courts
will accept an initial step towards full compliance with a statutory
mandate, as long as the agency is headed towards full compliance, and
we believe that the doctrine is applicable here. EPA intends to require
full compliance with the CAA applicability provisions of the PSD and
title V programs, but we believe that in the case of GHG-emitting
sources, by application of the ``absurd results'' doctrine or the
``administrative necessity'' doctrine, full compliance with the
applicability provisions does not necessarily mean full compliance with
the literal terms of those provisions.\52\ Rather, as we have explained
elsewhere, in the case of GHG sources, full compliance may mean
compliance with higher levels that are consistent with congressional
intent, under the ``absurd results'' doctrine, or that are within the
reach of permitting authorities in light of their administrative
constraints, under the ``administrative necessity'' doctrine. This
rulemaking constitutes a package of initial steps towards that full
compliance, and, seen in that light, is supported by the ``one-step-at-
a-time'' doctrine.
---------------------------------------------------------------------------

    \52\ For reasons explained elsewhere, our reference to the
literal terms of the applicability provisions means the literal
terms of the definition of ``major emitting facility'' for PSD and
``major source'' for title V, as EPA has narrowed those definitions
to refer to ``any pollutant'' that is subject to regulation under
the CAA.
---------------------------------------------------------------------------

    Even if the doctrine were found to apply only when an agency is
committed to fully implementing statutory requirements according to
their literal terms, we believe that the steps we promulgate in this
notice would be considered valid under the one-step-at-a-time doctrine.
This is because even if we are incorrect about the applicability of the
``absurd results'' and ``administrative necessity'' doctrines, so that
GHG sources are required to comply with the literal terms of the PSD
and title V applicability provisions, the ``one-step-at-a-time''
doctrine would allow PSD and title V applicability to be phased in, and
the first two steps we promulgate in this notice would be upheld as
reasonable initial steps toward full compliance with the literal terms
of the CAA. As we have described elsewhere, there is little question
but that sources and permitting authorities cannot reasonably be
expected to comply with or implement PSD and title V applicability
requirements in the near term--by January 2, 2011 and July 1, 2011--
except to the limited extent described under Steps 1 and 2. Nor is
applicability of the PSD and title V requirements at levels below
50,000 tpy CO2e reasonable before 6 years from promulgation
of this rule, as discussed elsewhere. If further steps resulting in
full compliance with the literal terms of the applicability provisions
of PSD and title V were required, it would be reasonable for those
steps to occur in the future, as part of the rulemaking to be completed
by the sixth year after promulgation, to which EPA commits itself as
part of this action, or as part of subsequent actions. See Grand Canyon
Air Tour, 891 F.2d at 476-77 (upholding agency action as a step towards
full compliance with statutory mandate when the agency expected full
compliance to occur some 20 years after the deadline in the statute).

C. Mechanisms for Implementing and Adopting the Tailoring Approach

    In this section, we discuss three issues related to adoption of the
tailoring approach within our regulations and by permitting agencies.
The first is the regulatory mechanism for implementing the tailoring
approach--that is, the specific way we are revising the PSD and title V
applicability provisions to incorporate the tailoring approach--and our
rationale. The second is the process by which state or local permitting
authorities may incorporate the tailoring approach into their PSD SIP
and title V permit programs. Finally, we discuss our reasons for
delaying action on our proposal to limit approval of both SIP-approved
PSD programs and title V programs, and we request certain information
from states on both of their programs and their actions in response to
this rule.
    In brief, we proposed to exempt sources emitting GHGs below certain
threshold levels from the definition of the regulatory terms ``major
stationary source'' and ``major modification'' in PSD programs and the
definition of the regulatory term ``major source'' in title V programs.
We further proposed to effectuate this change in SIP-approved PSD
programs (as included in SIPs) and EPA-approved part 70 title V
programs by limiting our prior approval of those programs to the
revised applicability thresholds for GHGs.\53\ These changes would have
the effect of putting the higher thresholds adopted under the Tailoring
Rule in place in states PSD and title V programs as a matter of federal
law. However, state commenters expressed concern that they would not be
able to adopt the Tailoring Rule under state laws on an expeditious
basis. To address this, our final action differs from our proposed rule
in the way we incorporate the limitations promulgated in this Tailoring
Rule into the ``major stationary source,'' ``major modification'' and
``major source'' definitions. This approach relies on further defining
the term ``subject to regulation'' and although this approach is not
substantively different in effect from the proposed rule, it will
facilitate more rapid adoption and implementation of the Tailoring Rule
by states through interpretation of language in existing state
regulations. We believe these differences are a logical outgrowth of
our proposed rule. We are also delaying action on our proposed limited
approval of EPA-approved PSD programs and part 70 title programs to
determine how each state will implement the final rules.
---------------------------------------------------------------------------

    \53\ In the alternative, we also proposed to use our section
110(k)(6) error correction authority to revise SIP-approved PSD
program. We are also delaying action on this proposal.
---------------------------------------------------------------------------

1. PSD Approach: Background and Proposal
    Under CAA section 165(a), no ``major emitting facility'' may
construct or modify unless it receives a preconstruction permit that
meets the requirements of the PSD program. CAA section 169(1) defines a
major emitting facility as ``any * * * source[]'' in one of 28
specified source categories that ``emit[s], or ha[s] the potential to
emit, one hundred tons per year or more of any air pollutant;'' or
``any other source with the potential to emit two hundred and fifty
tons per year or more of any air pollutant.'' EPA's regulations replace
the term ``major emitting facility'' with the term ``major stationary
source'' and define the term as ``[a]ny of * * * [28 types of]
stationary sources of air pollutants which emits, or has the potential
to emit, 100 tons per year or more of any regulated NSR pollutant'' or
``any stationary source which emits, or has the potential to emit 250
tons per year or more of a regulated NSR pollutant.'' 40 CFR
51.166(b)(1)(i)(a)-(b). The term ``regulated NSR pollutant'' is defined
to include, among other things,

``any * * * air pollutant that otherwise is subject to regulation under
the Clean Air Act.'' 40 CFR 51.166(b)(50). Note that the regulatory
definition in effect interprets the statutory definition more narrowly
to read ``one hundred [or two hundred and fifty] tons per year or more
of any air pollutant subject to regulation under the Clean Air Act''
(emphasis added).
    Similarly, under the statute, a modification occurs if there is a
physical change or change in the method of operation ``which increases
the amount of any air pollutant emitted * * * .'' CAA section 165(a),
169(2)(c), and 111(a)(4). As with the major stationary source
definition, we have limited coverage of the modification provision to
physical changes or changes in the method of operation that result a
significant net emissions increase in emissions of a ``regulated NSR
pollutant.'' 40 CFR 51.166(b)(2)(i).
    Our proposed rule revised the definition of ``major stationary
source to (1) exempt GHG from the regulated NSR pollutants that, if
emitted by a source in the 100 or 250 tpy quantities, would cause the
source to qualify as a ``major stationary source,'' and (2) add a
specific threshold at which a source that emits a specified quantity of
GHGs (at proposal, that quantity was 25,000 tpy CO2e) would
qualify as a ``major stationary source.'' 74 FR 55351, proposed 40 CFR
51.166(b)(1)(i)(a), (b), and (d). We also proposed a significance
threshold, which is the amount of an increase needed to trigger PSD for
a modification or to require BACT for a new source, at a level between
10,000 and 25,000 tpy CO2e. 74 FR 55351; 40 CFR
51.166(b)(23)(i).
    Additionally, we recognized that it may take some time before
states could change their SIP-approved PSD programs and that as a
result, absent additional action on our part, GHG-emitting sources
would remain subject to the 100 or 250 tpy thresholds, and subject to a
zero significance threshold for major modifications as a matter of
federal law. To address this issue, we proposed to narrow our previous
approval of those SIPs. The effect of our proposal would be that EPA
would have approved the SIP PSD programs only to the extent they apply
PSD and requirements to GHG sources at or above the thresholds
established in the Tailoring Rule (which, generally, were 25,000 tpy
CO2e), and EPA would have taken no action on the SIP PSD
programs to the extent they apply PSD requirements to GHG sources below
that threshold. We relied on the authority of the APA and the general
authority of CAA section 301 and, in the alternative, on the error
correction mechanism under CAA section 110(k)(6). Our limited approval
would revise existing EPA-approved SIP PSD programs to authorize
permitting under the CAA only for GHG sources at the appropriate
levels.
    In response to our proposed approach, we received numerous comments
from state and local permitting agencies expressing significant
concern. They observed that our proposed approach could meet its
objectives to avoid applying PSD requirements to small sources under
federal law, but would not succeed in avoiding the application of PSD
requirements to those small sources under state law. The commenters
explained that, although EPA was changing federal PSD applicability
thresholds; for GHG-emitting sources to incorporate the tailoring
approach, and limiting the scope EPA approval of SIPs consistent with
these thresholds, the state rules containing the originally-approved
SIP thresholds would continue to apply as a matter of state law. As
commenters explained, for the most part, the laws and regulations
states adopt to implement federal PSD programs mirror EPA's
regulations, so that the state laws, apply PSD to sources that emit air
pollutants subject to regulation at the 100/250 tpy threshold.
Commenters reasoned that, until the states can change their state laws,
the 100/250 tpy thresholds will continue to apply as a matter of state
law, even though the higher thresholds apply as a matter of federal
law.
    Importantly, these commenters emphasized, their state process
requires that they promulgate a rulemaking, or in some cases, a
legislative change, to incorporate the higher thresholds for GHG
sources in their SIPs. These processes would require many months and in
some cases as long as 2 years. As a result, sources that emit GHGs
below the federally established levels in the final rule, but at above
the 100/250 tpy levels in state laws and rules, would still be required
to obtain PSD permits under state law. As a result, states, in
attempting to implement state permitting requirements, would be faced
with the same administrative difficulties that EPA recognized in the
proposed rule as impossible. Commenters emphasized that this situation
was untenable.
    In addition to the state comments just described, we received
comments that took issue with our view that we were in effect revising
the numerical thresholds for PSD applicability as the legal mechanism
for the tailoring approach. They asserted that in fact, our mechanism
consisted of interpreting the term ``any source'' to exclude small GHG-
emitting sources. Other commenters objected to our proposed mechanism
of narrowing our previous SIP approval, arguing that this mechanism was
without legal basis.
2. Rationale for Our Final Approach To Implementing PSD
    In response to these concerns, we are adding another mechanism to
implement the tailoring approach for PSD, and that is to adopt a
definition, within our PSD regulations, the phrase ``subject to
regulation,'' as found within the phrase ``any regulated NSR
pollutant,'' which, in turn, is part of the definitions of ``major
stationary source'' and ``major modification.'' To implement this
mechanism, we are defining the phrase ``subject to regulation'' so that
the GHGs emitted by sources that fall below the thresholds or scope
established in Steps 1 and 2 are not treated as ``subject to
regulation,'' and therefore do not trigger PSD for the sources that
emit them. As discussed in section V.B.3., the term ``subject to
regulation'' is one of four terms that should be considered not to
apply literally in the case of GHG sources.
    To understand this approach, it is useful to return to the
definition of ``major stationary source,'' which, again, is central to
PSD applicability. The definition, quoted previously, employs the term
``regulated NSR pollutant,'' which is a defined term. The definition
incorporates many other elements as well (e.g., the 100/250 threshold
requirements), but for convenience, we quote it as follows: A ``major
stationary source'' is ``[a]ny * * * source[-] of air pollutants, which
emits, or has the potential to emit, [depending on the source category,
either] 100 [or 250] tons per year or more of any air pollutant that is
subject to regulation under the Clean Air Act.'' 40 CFR
51.166(b)(1)(i)(a)-(b). Applying our definition of ``subject to
regulation'' to exclude GHG sources that emit below specified
thresholds, the definition may now be paraphrased as follows: A ``major
stationary source'' is any source of air pollutants, which emits, or
has the potential to emit, depending on the source category, either 100
or 250 tpy or more of any air pollutant subject to regulation under the
CAA, except that the source's GHGs are considered to be subject to
regulation under the CAA only the extent indicated under Steps 1 and 2
of the Tailoring Rule, e.g., for Step 2, only if the source's GHG
emissions exceed the threshold established in Step 2. We adopt the same
approach for the

definition of the regulatory term ``major modification.''
    Although EPA is revising its regulations to apply the phrase
subject to regulation in this manner, we have been advised that states
may be able to adopt our approach without having to undertake a
rulemaking action to revise their state regulations or without
requiring an act of the state legislature. Instead, it is our
understanding that states may adopt our approach by interpreting the
term ``subject to regulation'' reflected in their regulations to have
the same meaning that we are assigning to that term in our regulations
in this rulemaking. This is particularly--although not exclusively--the
case in a state that has taken the position, or determines now, that
the state's definition of ``subject to regulation,'' or, more broadly,
``regulated NSR pollutant'' or ``major stationary source'' or ``major
modification,'' is intended to be interpreted in a way that tracks the
meanings that EPA has assigned to these phrases. Such states can adopt
the meaning of ``subject to regulation'' that we establish in this rule
by January 2, 2011, and thereby avoid the situation in which, as a
matter of state law, GHG-emitting sources above the 100 or 250 tpy
thresholds become subject to PSD by that date. The following explains
our basis for concluding that states may apply EPA's approach under
existing regulations that use the term ``subject to regulation.'' On
December 18, 2008, EPA issued the Interpretive Memo, establishing EPA's
interpretation of the definition ``regulated NSR pollutant'' found at
40 CFR 52.21(b)(50). EPA intended this memorandum to resolve ambiguity
in subparagraph (iv) of this definition, which includes ``any pollutant
that otherwise is subject to regulation under the Act.'' Specifically,
the memorandum stated that EPA will interpret the definition of
``regulated NSR pollutant'' to exclude pollutants for which EPA
regulations only require monitoring or reporting but to include
pollutants subject to either a provision in the CAA or regulation
adopted by EPA under the CAA that requires actual control of emissions
of that pollutant.
    After reconsidering this interpretation through a formal notice-
and-comment process, EPA refined its interpretation to establish that
the PSD permitting requirements will not apply to a newly regulated
pollutant until a regulatory requirement to control emissions of that
pollutant ``takes effect.'' 75 FR 17704. Importantly, as stated
previously, because the term ``regulated NSR pollutant'' is embedded
within the definition of ``major stationary source,'' this
interpretation effectively defines which major stationary sources are
subject to PSD permitting. As a result, for example, EPA explained that
PSD and title V permitting requirements for GHGs will not apply to GHGs
until at least January 2, 2011, following the anticipated promulgation
of EPA regulations requiring control of GHG emissions under title II of
the CAA. Id.
    In the RTC document for EPA's reconsideration of the PSD
interpretative memorandum, we stated that,

    Absent a unique requirement of state law, EPA believes that
state laws that use the same language that is contained in EPA's PSD
program regulations at 52.21(b)(50) and 51.166(b)(50) are
sufficiently open-ended to incorporate greenhouse gases as a
regulated NSR pollutant at the appropriate time consistent with
EPA's interpretation of these regulations (emphasis added). (Docket
ID No. EPA-HQ-OAR-2009-0597-0128).

Because the state regulations that include EPA's definition of the term
``subject to regulation'' in the reconsideration of the Interpretive
Memo are ``sufficiently open-ended to incorporate greenhouse gases as a
regulated pollutant,'' those state regulations are also sufficiently
open-ended to incorporate the further refinement to the meaning of the
phrase ``subject to regulation'' that we make in this rulemaking.
    By the same token, EPA has historically interpreted certain state
SIP-approved programs as sufficiently open-ended such that the rules
provide for the ``automatic assumption for the responsibility for
review'' of new pollutants before the general deadline for states to
revise their PSD programs. See, e.g., 52 FR 24682. Conversely, we have
also read federal rules and state rules approved in SIPs to provide for
the automatic removal of a pollutant when such pollutant is no longer
``subject to regulation.'' For example, the 1990 CAA Amendments
exempted HAPs listed in section 112(b)(1) from the PSD requirements.
See CAA section 112(b)(6). Following passage of the amendments, EPA
issued ``New Source Review (NSR) Program Transitional Guidance,'' a
memorandum from John S. Seitz, Director, Office of Air Quality Planning
and Standards to Regional Air Division Directors on March 11, 1991. In
that guidance, EPA interpreted its PSD regulations to automatically
cease to apply to listed HAPs (with some noted exceptions), and
implicitly stated that a state with an open-ended SIP-approved PSD rule
could also take the position that its SIP-approved rule automatically
ceased to regulate HAPs.
    After reviewing these past practices in the PSD permitting program,
and EPA's prior statements regarding pollutants subject to the PSD
program, we conclude that states with SIP-approved rules that contain
the same language as used in 40 CFR 52.21(b)(50) or 40 CFR
51.166(b)(49), or that otherwise have sufficiently open-ended PSD
regulations, would be able to implement our Tailoring Rule approach to
permitting by interpreting their regulations, and without needing to
promulgate a regulation or seek state legislative action. This is
particularly--although not exclusively--the case for states that take
the position that they intend their rules to apply in the same manner
as EPA's counterpart rules. If states adopt this reading of their
regulations, GHG sources falling below the specified cutoffs would not
be emitting pollutants ``subject to regulation'' within the definition
of ``regulated NSR pollutant'' and therefore would not be subject to
PSD permitting as a major stationary source or for making a major
modification.
    During our consideration of this action, we participated in
teleconferences with one local and six state agency permitting
authorities to discuss this issue of whether they could implement the
proposed rule without the need for state law or regulation changes or a
revision of the provisions of state law that are a part of the SIP. We
specifically discussed whether defining the phrase ``subject to
regulation'' would better facilitate state incorporation of the
limitations in this final rule. The state and local agencies
participating in the calls generally agreed that defining the phrase
``subject to regulation'' would, compared to our proposed approach,
better facilitate state incorporation of the limitations in the final
rule in states with regulations that mirror the existing federal rules,
or in states whose rules are otherwise sufficiently open-ended to
incorporate the limitations in the final rule by interpretation.
Participants from each agency also indicated that their rules contain
the term ``subject to regulation'' and that term has not been
previously interpreted in ways that would preclude application of the
meaning assigned to the term by EPA. We therefore concluded it is
likely the state rules are sufficiently open-ended to apply EPA's
approach by interpretation (although some states indicated they may
elect to pursue rulemaking in addition to or instead of
interpretation). Accordingly, we selected the ``subject to regulation''
regulatory approach as the mechanism for implementing the final rule.

3. Other Mechanisms
    As just described, we selected the ``subject to regulation''
mechanism because it most readily accommodated the needs of states to
expeditiously revise--through interpretation or otherwise--their state
rules. Even so, it is important to recognize that this mechanism has
the same substantive effect as the mechanism we considered in the
proposed rule, which was revising numerical thresholds in the
definitions of major stationary source and major modification. Most
importantly, although we are codifying the ``subject to regulation''
mechanism, that approach is driven by the needs of the states, and our
action in this rulemaking should be interpreted to rely on any of
several legal mechanisms to accomplish this result. Thus, our action in
this rule should be understood as revising the meaning of several terms
in these definitions, including: (1) The numerical thresholds, as we
proposed; (2) the term, ``any source,'' which some commenters
identified as the most relevant term for purposes of our proposal; (3)
the term, ``any air pollutant; or (4) the term, ``subject to
regulation.'' The specific choice of which of these constitutes the
nominal mechanism does not have a substantive legal effect because each
mechanism involves one or another of the components of the terms
``major stationary source''--which embodies the statutory term, ``major
emitting facility''--and ``major modification,'' which embodies the
statutory term, ``modification,'' and it is those statutory and
regulatory terms that we are defining to exclude the indicated GHG-
emitting sources.\54\
---------------------------------------------------------------------------

    \54\ We also think that this approach better clarifies our long
standing practice of interpreting open-ended SIP regulations to
automatically adjust for changes in the regulatory status of an air
pollutant, because it appropriately assures that the Tailoring Rule
applies to both the definition of ``major stationary source'' and
``regulated NSR pollutant.''
---------------------------------------------------------------------------

4. Codification of Interpretive Memo
    As noted previously, we recently affirmed and refined our
interpretation of the term ``subject to regulation'' as it applies
broadly to the PSD program through a formal notice and comment process.
``Interpretation of Regulations that Determine Pollutants Covered by
Clean Air Act Permitting Programs,'' 75 FR 17004. In the proposal
associated with that action, we requested comment on whether we should
codify our interpretation in the regulatory text. 74 FR 51535, 51547
(October 7, 2009). We elected not to codify our interpretation in the
final action on reconsideration of the Interpretive Memo because we
concluded such an action was not necessary and that it was important to
apply the refined interpretation immediately. 75 FR 17015. However, in
the RTC document for that action, we indicated that we had not ruled
out the option of codifying our interpretation at a later time. Since
we are otherwise adopting a definition of ``subject to regulation'' in
this rule as the mechanism for implementing the phase-in, it makes
sense in this final rule to codify the interpretation reflected in the
Interpretive Memo and the final action on reconsideration at the same
time to bring clarity to our rules. Specifically, the definitions of
the term ``subject to regulation'' contain a paragraph that reflects
our existing interpretation of that term (i.e., prior to adopting the
provisions that implement the phase-in). Codification of the
Interpretive Memo in this action makes sense to ensure the regulations
reflect a complete picture of the meaning of ``subject to regulation''
applied by EPA. We also are moving existing exceptions (e.g., section
112 HAPs) to a new paragraph within the definition of ``subject to
regulation.'' This minor reorganization of these regulations is not
intended to effect any change in how they are to be implemented, but
merely simplifies and clarifies the regulations by clearly delineating
different terms and concepts.
    This codification of this interpretation of ``subject to
regulation'' from the reconsideration for the Interpretive Memo is not
necessary to assure the effectiveness of the interpretation, and it
does not disturb states' existing authority to adopt the definition
through interpretation of their existing rules. Codifying our existing
interpretation in this action will ensure that parties reading the
regulations have a full understanding of how EPA applies the PSD
program requirements. Since the interpretation described in the
Interpretive Memo and the April 2, 2010 final action are otherwise
applicable at this time, the particular time sensitivity discussed in
the latter action is not the same for this final action tailoring the
PSD requirements.
5. Delaying Limited Approvals and Request for Submission of Information
From States Implementing a SIP-Approved PSD Program
    Because we now anticipate that many states will be able to
implement our tailoring approach through interpretation of the term
``subject to regulation,'' and without the need to revise their SIPs,
we are delaying further action on our proposal to limit our approval of
SIPs until we better understand how permitting authorities will, in
fact, implement our tailoring approach. For this purpose, we ask each
state to submit a letter to the appropriate EPA Regional Administrator
no later than August 2, 2010. In that letter, the state should explain
whether it will apply EPA's meaning of the term ``subject to
regulation'' and if so, whether the state intends to incorporate that
meaning of the term through interpretation, and without undertaking a
regulatory or legislative process. If a state must undertake a
regulatory or legislative process, then the letter should provide an
estimate of the time needed to adopt the final rules. If a state
chooses not to adopt EPA's meaning by interpretation, the letter should
address whether the state has alternative authority to implement either
our tailoring approach or some other approach that is at least as
stringent, whether the state intends to use that authority. If the
state does not intend to interpret or revise its SIP to adopt the
tailoring approach or such other approach, then the letter should
address the expected shortfalls in personnel and funding that will
arise if the state attempts to carry out PSD permitting for GHG sources
under the existing SIP and interpretation.
    For any state that is unable or unwilling to adopt the tailoring
approach by January 2, 2011, and that otherwise is unable to
demonstrate adequate personnel and funding, we will move forward with
finalizing our proposal to limit our approval of the existing SIP.
Although we received comments questioning our authority to limit
approval as proposed, using our general rulemaking and CAA section
110(k)(6) authorities, we are not responding to those comments at this
time. We will address these comments in any final action we take to
implement a limited approval.
    In our proposed rule, we also noted that a handful of EPA-approved
SIPs fail to include provisions that would apply PSD to GHG sources at
the appropriate time. This is generally because these SIPs specifically
list the pollutants subject to the SIP PSD program requirements, and do
not include GHGs in that list, rather than include a definition of NSR
regulated pollutant that mirrors the federal rule, or because the state
otherwise interprets its regulations to limit which pollutants the
state may regulate. At proposal, we indicated that we intended to take
separate action to identify these SIPs, and to take regulatory action
to correct this SIP deficiency.
    We ask any state or local permitting agency that does not believe
its existing

SIP provides authority to issue PSD permits to GHG sources to notify
the EPA Regional Administrator by letter, and to do so no later than
August 2, 2010. This letter should indicate whether the state intends
to undertake rulemaking to revise its rules to apply PSD to the GHG
sources that will be covered under the applicability thresholds in this
rulemaking, or alternatively, whether the state believes it has
adequate authority through other means to issue federally-enforceable
PSD permits to GHG sources consistent with this final rule. For any
state that lacks the ability to issue PSD permits for GHG sources
consistent with this final rule, we intend to undertake a separate
action to issue a SIP call, under CAA section 110(k)(5). As
appropriate, we may also impose a FIP through 40 CFR 52.21 to ensure
that GHG sources will be permitted consistent with this final rule.
6. Title V Programs
    Our final action also differs from the proposal in the specific
regulatory mechanism by which we tailor the definition of ``major
source'' for title V permit programs, but is a logical outgrowth of our
proposed rule. EPA proposed to implement tailoring for GHGs under title
V by excluding sources of GHGs from the general definition of ``major
source'' under 40 CFR 70.2 and 71.2, and adding a separate definition
of ``major source'' with tailored thresholds for sources of GHGs. In
response to comments, particularly from states concerned with
implementation of the proposed approach under state law, EPA is
adopting an approach in the final rule that (1) amends the definition
of ``major source'' by codifying EPA's longstanding interpretation that
applicability for a ``major stationary source'' under CAA sections
501(2)(B) and 302(j) and 40 CFR 70.2 and 71.2 is triggered by sources
of pollutants ``subject to regulation,'' and (2) adds a definition of
``subject to regulation.'' Further, we are delaying our action to move
forward with limiting our previous approval of existing state part 70
programs.
    We are finalizing this alternative approach to address concerns
similar to those we received with respect to state implementation of
SIP-approved PSD programs. Specifically, we received comments that the
mechanism we proposed would not address the significant administrative
and programmatic considerations associated with permitting GHGs under
title V, because the 100 tpy threshold would continue to apply as a
matter of state law. Commenters stated that states would need to
undertake a regulatory and/or legislative process to change the
threshold in their state laws which they could not complete before the
laws would otherwise require issuance of operating permits to GHG
sources.
    After considering the commenters' concerns, we are finalizing an
approach designed to address the state law concerns for states. As a
result, it is unnecessary to move forward at this time with our
proposed approach to limit approval of existing part 70 programs in
many states.
    EPA's approach involves the interrelationship of terms within the
part 70 definition of ``major source'' in title V and EPA's
implementing regulations, and EPA's historical practice of interpreting
the term ``any air pollutant'' in the ``major stationary source''
component of that definition. EPA believes the approach in the final
rule will allow many states to adopt the final rule through
interpretation of existing state laws. Specifically, paragraph (3)
within the definition of ``major source'' found in 40 CFR 70.2 and 71.2
defines a major source as ``a major stationary source of air
pollutants, as defined in section 302 of the Act, that directly emits
or has the potential to emit, 100 tpy or more of any air pollutant * *
*.'' The EPA previously articulated the Agency's interpretation that
the regulatory and statutory definitions of ``major source'' under
title V, including the term ``any air pollutant,'' applies to
pollutants ``subject to regulation.'' Memorandum. EPA recently re-
affirmed this position in EPA's Reconsideration of Interpretation of
Regulations that Determine Pollutants Covered by Clean Air Act
Permitting Programs. 75 FR 17704, 17022-23 (April 2, 2010)
(Interpretive Memo reconsideration final action).
    Accordingly, under our long-established policy, states historically
have interpreted the term ``any air pollutant'' under the title V
definition of ``major source'' to mean any pollutant ``subject to
regulation'' under the Act. Thus, as a matter of established
interpretation, EPA and states effectively read the definition of
``major source'' under title V to include a source ``* * * that
directly emits or has the potential to emit, 100 tpy or more of any air
pollutant subject to regulation under the Act'' (emphasis added). By
amending our regulations to expressly include and define ``subject to
regulation'' to implement our tailoring for GHGs under title V, we are
seeking to enable states to adopt and implement this approach through a
continued interpretation of the phrase ``any air pollutant'' within the
``major source'' definition, without the need for changes to state
regulations or statutes. States may be able to track EPA's approach to
tailoring for GHG permitting without regulatory or statutory changes,
for example, where a state has taken the position, or determines now,
that the state's interpretation of ``major source,'' ``subject to
regulation'' and/or ``any air pollutant'' is intended to track EPA's
interpretation.
    Thus, EPA is adding the phrase ``subject to regulation'' to the
definition of ``major source'' under 40 CFR 70.2 and 71.2. EPA is also
adding to these regulations a definition of ``subject to regulation.''
Under the part 70 and part 71 regulatory changes adopted, the term
``subject to regulation,'' for purposes of the definition of ``major
source,'' has two components. The first component codifies the general
approach EPA recently articulated in the ``Reconsideration of
Interpretation of Regulations That Determine Pollutants Covered by
Clean Air Act Permitting.'' 75 FR 17704. Under this first component, a
pollutant ``subject to regulation'' is defined to mean a pollutant
subject to either a provision in the CAA or regulation adopted by EPA
under the CAA that requires actual control of emissions of that
pollutant and that has taken effect under the CAA. See id. at 17022-23;
Wegman Memorandum at 4-5. To address tailoring for GHGs, EPA includes a
second component of the definition of ``subject to regulation,''
specifying that GHGs are not subject to regulation for purposes of
defining a major source, unless as of July 1, 2011, the emissions of
GHGs are from a source emitting or having the potential to emit 100,000
tpy of GHGs on a CO2e basis.
    As explained previously, we find no substantive difference between
the alternative mechanisms for implementing GHG tailoring in the final
rule. Whether we add GHG thresholds directly to the definition of
``major source'' (as we proposed), or alternatively, expressly add and
define the term ``subject to regulation,'' both approaches revise the
definition of ``major source'' to implement the Tailoring Rule.
Accordingly, we adopt the later approach to facilitate state
implementation of the final rule through an interpretation of existing
state part 70 programs. Similar to our explanation previously for PSD,
while we adopt the ``subject to regulation'' mechanism for implementing
GHG tailoring in the final rule, the thrust of our rulemaking is to
apply the title V definition of ``major source''--which includes the
statutory term, ``major stationary source''--to GHG sources by treating
only GHG sources

that emit at levels above the Steps 1 and 2 thresholds as meeting that
definition. Further, we believe that our action may reasonably be
construed to revise any of several terms in that definition, including
(1) The numerical thresholds, as we proposed; (2) the term ``any air
pollutant,'' (3) the term ``a major stationary source,'' (4) the term
``subject to regulation,'' which, as discussed previously, our
regulations graft into the definition of ``major source.'' We believe
that the specific choice of which term constitutes the legal mechanism
does not have a substantive legal effect because each mechanism
involves one of the components of the regulatory term ``major
source''--which embodies the meaning of the statutory term, ``major
source''--and it is that term that we are interpreting to tailor title
V applicability for GHG-emitting sources. Thus, while the ``subject to
regulation'' mechanism facilitates expeditious implementation by
states, and we are therefore revising our regulations to adopt this
approach, we otherwise find no substantive difference between the
alternative mechanisms we may use to finalize the proposed rule.
    Further, similar to our revised approach for addressing state SIP-
approved PSD programs, we are delaying our action to limit our previous
approvals for state part 70 operating permit programs. In our proposed
rule, we explained our concern that states lack adequate personnel and
resources to carry out part 70 operating permit programs for GHG
sources that emit or have the potential to emit 100 tpy of GHGs.
Accordingly, we proposed to use our general rulemaking authority under
section 301(a) of the CAA and APA section 553 to limit our prior
approval of state operating permit programs. This limited approval
action would have had the effect of applying CAA permitting
requirements only to sources that exceed the permitting thresholds
established in this rule for the phase-in, because only those sources
would be covered by the federally approved part 70 programs. 74 FR
55345. As discussed previously, we are proceeding with a slightly
revised approach to address concerns similar to those raised with our
proposed approach for addressing SIP-approved PSD permit programs.
Because we now recognize that, like the PSD program, many states will
be able to implement the final rules without the need to revise their
existing part 70 operating permit programs, we are delaying further
action on our proposal to limit approval of existing part 70 programs
until we better understand how permitting authorities will implement
our final rule.
    In addition to the information requested previously on SIP-approved
PSD permit programs, we ask each state to submit a letter to the
appropriate EPA Regional Administrator no later than August 2, 2010
detailing the state's plan for permitting of GHG sources under the
state's part 70 program. In that letter, states should explain whether
they will adopt an interpretation of the terms ``major source'' or any
of its component terms--``a major stationary source,'' ``any air
pollutant,'' or ``subject to regulation,'' or the numerical
thresholds--that is consistent with EPA's regulatory interpretation of
these terms as codified at 40 CFR 70.2, and whether the state intends
to adopt the interpretation without undertaking a regulatory or
legislative process. This approach may be available, for example, where
a state has taken the position, or determines now, that the state's
interpretation of these terms is intended to track EPA's
interpretation, resulting in title V permitting for sources of GHGs as
described in EPA's regulations adopted in this rule. If a state must
revise its title V regulations or statutes to implement the
interpretation, we ask that it provides an estimate of the time to
adopt final rules or statutes in its letter to the Regional
Administrator. If a state chooses not to (or cannot) adopt our
interpretation, the letter should address whether the state has
alternative authority to implement the GHG tailoring approach or some
other approach that is at least as stringent, but which also addresses
the expected shortfalls in personnel and funding and delays in
permitting that would exist if the state carried out permitting under
part 70 program thresholds lower than those adopted by EPA in this
final rule. For any state that is unable or unwilling to adopt the
permitting thresholds in the final rules, and otherwise is unable to
demonstrate adequate personnel and funding, EPA will move forward with
finalizing a narrowed limited approval of the state's existing part 70
program. If we do so, then we will respond in that action to comments
on our proposal.
    In our proposed rule, we also noted that a handful of part 70
operating permit programs may include provisions that would not require
operating permits for any source of GHG emissions because, for example,
the programs may apply only to pollutants specifically identified in
the program provisions, and the provisions do not specifically identify
GHGs. In these cases, states may be unable to interpret their
regulatory provisions to interpret the term ``any pollutant'' to
include pollutants ``subject to regulation.'' We indicated that we
intended to take separate action to identify these programs, and to
take regulatory action to correct this deficiency. Accordingly, we ask
any state or local permitting agency that does not believe its existing
part 70 regulations convey authority to issue title V permits to GHG
sources consistent with the final rule to notify the EPA Regional
Administrator by letter as to whether the state intends to undertake
rulemaking to revise its rules consistent with these applicability
thresholds. This notification should be done no later than the
previously described letter regarding adoption of the Tailoring Rule,
and could be combined with similar notifications we request regarding
the PSD program. We intend to undertake a separate regulatory action to
address part 70 programs that lack the ability to issue operating
permits for GHG sources consistent with the final rule. We also intend
to use our federal title V authority to ensure that GHG sources will be
permitted consistent with the final rule.

D. Rationale for Treatment of GHGs for Title V Permit Fees

    The title V program requires permitting authorities to collect fees
``sufficient to cover all reasonable (direct and indirect) costs
required to develop and administer [title V] programs.'' \55\ To meet
this requirement, permitting authorities either collect an amount not
less than a minimum amount specified in our rules (known as the
``presumptive minimum''), or may collect a different amount (usually
less than the presumptive minimum). We did not propose to change the
title V fee regulations in our notice of proposed rulemaking for this
action, nor did we propose to require new fee demonstrations when title
V programs begin to address GHGs. However, we did recommend that each
state, local or tribal program review its resource needs for GHGs and
determine if the existing fee approaches will be adequate. If those
approaches will not be adequate, we suggested that states should be
proactive in raising fees to cover the direct and indirect costs of the
program or develop other alternative approaches to meet the shortfall.
We are retaining this proposed approach, and are not changing our fee
regulations as part of this final action establishing Steps 1 and 2 of
the phase-in. However, we are offering some additional clarification of
our fee

approach during these steps in response to comments we received on this
issue. Additional discussion of fees will be included as part of
subsequent actions establishing Step 3 and beyond.
---------------------------------------------------------------------------

    \55\ The fee provisions are set forth in CAA section 502(b)(3)
and in our regulations at 40 CFR 70.9 and 71.9.
---------------------------------------------------------------------------

    A few state commenters suggested that EPA should modify part 70 to
adopt a presumptive minimum fee (or range for such fee) for GHGs, some
of whom suggested that current fees may be insufficient to cover the
costs of their program. It is important to clarify that altering the
presumptive minimum would only affect those states that chose to charge
the presumptive minimum fee to sources. Most states--including some of
the commenters asking EPA to raise the presumptive minimum--collect a
lower amount that is not based on the presumptive minimum, but rather,
relies on another fee schedule that it developed and EPA approved as
adequate to cover costs. Therefore, it is useful to first discuss our
approach to programs that have fee schedules resulting in a different
amount before discussing our approach to the presumptive minimum.
    Because of the added GHG title V permitting workload described
elsewhere in this notice, any state that will not, under its current
fee structure, collect fees adequate to fund the permitting of GHG
sources must alter its fee structure in order to meet the requirement
that fees be adequate to cover costs. Changes may not be required in
every instance; circumstances will vary from state to state. For
example, a state may see increases in revenue from newly-covered
sources (based on emissions of pollutants already subject to fees) that
fully cover the state's increased costs, or a state may be over-
collecting fees now and could use the surplus to offset the increased
costs. Nonetheless, in many cases, we think states will need to adjust
their fee structures to cover the costs of GHG permitting in order to
meet the requirements of the Act and our regulations.
    For this reason, although we are not calling for new fee
demonstrations at this time, we plan to closely monitor state title V
programs during the first two steps of the Tailoring Rule to ensure
that the added workload from incorporating GHGs into the permit program
does not result in fee shortfalls that imperil operating permit program
implementation and enforcement, whatever the basis of the states' fee
schedule. As described in the proposal, such fee oversight by EPA may
involve fee audits under the authority of 40 CFR 70.9(b)(5) to ensure
that adequate fees are collected in the aggregate to cover program
costs, with emphasis on whether the additional GHG workload is being
appropriately funded. Also, EPA retains the ability to initiate a
program revision under 40 CFR 70.4(i)(3) or issue a notice of
deficiency under the process described in 40 CFR 70.10(b) to address
fee adequacy issues, which may be uncovered during a fee audit. By
relying on existing oversight measures, we are ensuring that the fee
requirements are met with a minimum of disruption to existing programs
at a time when they will already be facing significant challenges
related to GHG permitting.
    Turning to the minority of states that do use the presumptive
minimum, we did not propose to change the presumptive minimum
calculation method to account for GHGs. Currently under the statute and
our rules, the presumptive minimum is based on a subset of air
pollutants (i.e., VOCs, NAAQS pollutants except for CO, and pollutants
regulated under the NSPS and MACT standards promulgated under sections
111 and 112 of the Act, respectively) that does not include GHGs. The
amount is specified on a per-ton basis and changes with inflation (it
is currently set at $43.75/ton), but does not apply to emissions over
4,000 tpy of a given pollutant from a given source. We noted several
difficulties in applying the presumptive minimum to GHG, including the
large amounts of GHG emissions relative to other pollutants and the
need for better data to establish a GHG-specific amount. Noting that
GHGs are not currently included in the Act's list of pollutants to
which the presumptive fee applies, we also invited comment on whether
we should raise the fee for listed pollutants to cover the added cost
of GHG permitting.
    A few state commenters asked us to set a presumptive fee for GHGs,
which we take to mean we should add GHGs to the list of pollutants to
which a presumptive fee would apply. However, many commenters noted
that the current presumptive minimum fee is unreasonable for GHGs
because GHGs are emitted in greater quantities than the pollutants
currently subject to presumptive fees, which would result in excessive
fees. These commenters believe that EPA needs to limit the fees that
states can charge for GHGs. Moreover, one commenter read the statute to
prohibit us from listing GHGs in the presumptive fee calculation in the
first place. Several commenters disagreed with the idea of increasing
the presumptive fee for other pollutants to cover the cost of
regulating GHGs, some of whom believed that this would unfairly punish
existing sources or would bring in no new revenue from sources
triggering title V for the first time.
    After considering these comments, we remain disinclined, as we were
at proposal, to change the presumptive fee calculation regulations.
While there is some support for changing the regulations, the comments
confirm the challenges in doing so. While we expressly rejected
charging the full presumptive cost per ton amount for GHG, we also did
not propose language to establish a different amount just for GHG, to
establish whether a different tpy cap would apply, or to assess whether
GHGs could even be added to the list. Thus, many commenters were very
concerned about whether the full $43.75 or the 4000 tpy cap would apply
to GHG if we listed it as a regulated pollutant for fee purposes.
Furthermore, we noted at proposal, and commenters did not disagree,
that more data would be needed to establish the appropriate basis for
the GHG presumptive minimum. We are not taking a final position in this
notice on whether the statute is amenable to including GHG in the
presumptive fee calculation currently, but these comments illustrate
some of the difficulties of such an approach.
    At the same time, we are not increasing the presumptive minimum for
other pollutants already included in the fee calculation. We disagree
with the commenter who said such an approach would bring in no new
revenue from newly-subject sources. Many of the newly-subject sources
would emit already-included pollutants. If new revenue from these
pollutants were insufficient, and because the Act does not specify how
the shortfall must be addressed, the amount of any projected shortfall
could be made up by increasing fees on these pollutants. In fact, the
projected shortfall could be addressed without having to inventory GHG
emissions from title V sources, since the emissions of already-included
pollutants are well-known. We also note that, although some commenters
are concerned that failing to assess fees for GHGs directly would be
unfair, the statute does not provide that the presumptive fee be
proportional to each type of pollutant or be proportionally allocated
to all sources. Rather, the presumptive fee approach provides a
backstop for states that do not wish to adopt a more tailored approach.
Nonetheless, we have decided not to increase the presumptive fee
amounts for other pollutants because we lack information about the
extent to which shortfalls exist due to GHG permitting, and which mix
of sources and fees is appropriate for addressing any such

shortfall in a state. This decision also provides greater flexibility
to states and minimizes disruption to existing programs.
    We note that, contrary to the statements of some commenters, the
CAA provisions allowing for a presumptive fee calculation do not
override the basic requirement that fees be adequate to cover costs. As
noted previously, we expect states to see a revenue increase from
emissions of listed pollutants at newly-major sources for GHGs, and it
is also possible that the presumptive minimum may currently be
resulting in over-collection of fees in a state. Thus, a state
continuing to use the presumptive minimum may not have a shortfall.
However, if states using the presumptive minimum approach do have a
revenue shortfall due to GHG permitting, the statute requires the
shortfall to be addressed. The EPA has had, and will continue to have,
the ability to require states that use the presumptive minimum to
increase their fees if the presumptive minimum results in a revenue
shortfall that imperils operating permit program implementation and
enforcement. Thus, although we are not changing the presumptive minimum
in our regulations, we plan to follow the same oversight approach for
states using the presumptive minimum as for those collecting less based
on a resource demonstration. As described previously, this approach may
involve fee audits with emphasis on whether the additional GHG workload
is being appropriately funded, and other appropriate follow-up.
    Consistent with our proposal, EPA is not modifying its own part 71
fee structure (which closely mirrors the presumptive minimum) in order
to charge an additional fee for GHGs. EPA must revise its fee schedule
if the schedule does not reflect the costs of program administration.
We have not determined that the existing fee structure will be
inadequate to fund the part 71 programs costs during the first two
phases of permitting GHGs as set forth in this action. However, we are
required to review the fee schedule every 2 years, and make changes to
the fee schedule as necessary to reflect permit program costs. 40 CFR
71.9(n)(2). Thus we will continue to examine the increases in part 71
burden due to GHG permitting, the current revenue collection, and the
increases in revenue from newly-subject part 71 sources, and will
adjust the part 71 fee approach accordingly.
    Finally, several state and industry commenters asked EPA to provide
guidance and recommendations for an appropriate GHG fee structure. We
note that title V grants permitting authorities considerable discretion
in charging fees to sources for title V purposes and does not require
or prohibit fees specifically for GHGs, provided the states collect
fees in the aggregate that are sufficient to cover all the direct and
indirect program costs. In responding to requests for guidance, we do
not wish to limit state discretion. For example, some commenters
suggest that EPA prohibit emissions-based fees for GHGs or cap the
amount that can be collected, while others suggest we provide a range
of acceptable fees. We are concerned that, given the wide variety of
fee approaches that states now take, providing specific guidance may be
disruptive, rather than helpful, to states.
    On the other hand, we recognize that it will initially be difficult
for states to establish an appropriate emissions fee for GHGs. As noted
previously, there are currently limited data available for establishing
such a fee, and, due to the large quantities of GHG emissions, such a
fee may only amount to a few cents per ton. At the same time, as noted
in the proposal, a number similar to that used for other pollutants
(e.g., the presumptive minimum of approximately $45/ton of GHG) would
be inappropriate because it would likely result in huge over-
collection. Because of this challenge, we note that 40 CFR 70.9(b)(3)
allows the state to charge fees to individual sources on any basis
(e.g., emission fee, application fee, service-based fees, or others, in
any combination). While most states use emissions-based fees, there is
merit to considering all the available fee bases to address increased
GHG workload, including approaches that do not require a GHG emissions
inventory for fee purposes. For example, where it is possible to
estimate a revenue shortfall as a percentage of fee revenue, it may be
appropriate to simply attach a percentage-based surcharge to each
source's fee to match that shortfall. Similarly, where the shortfall
could be estimated as a total dollar amount, a flat surcharge could be
added to each source's fee to address the shortfall.
    These suggestions should not be read to indicate that EPA prefers
any particular approach, or that EPA rejects a cost per ton approach.
Rather, they illustrate that it is possible to address a revenue
shortfall without establishing a GHG per-ton fee. While the EPA is
declining to recommend specific approaches in this preamble, we are
committed to assisting states in implementing the fee requirements for
GHG. Therefore, we will work with any state that requests assistance
from EPA in developing a workable fee approach.

E. Other Actions and Issues

1. Permit Streamlining Techniques
    In our proposal, we stated that while we were phasing-in permitting
requirements, we would make a concerted effort to assess and implement
streamlining options, tools, and guidance to reduce the costs to
sources and permitting authorities of GHG permitting. We recognized
that the development and implementation of these techniques should be
an integral part of our strategy during the phase-in period, and we
stated that we would undertake as many streamlining actions as
possible, as quickly as possible. We discussed several streamlining
techniques in particular, including: (1) Defining PTE for various
source categories, (2) establishing emission limits for various source
categories that constitute presumptive BACT, (3) establishing
procedures for use of general permits and permits-by-rule, (4)
establishing procedures for electronic permitting, and (5) establishing
``lean'' techniques for permit process improvements. The first three of
these approaches have the potential to have the greatest impact in
reducing the numbers of sources subject to PSD or title V (the
definition of PTE) or of reducing permitting costs (presumptive BACT
and general permits or permits-by-rule).
    In our proposal, we also described the timing for development and
implementation of these streamlining techniques. We explained that each
of the first three techniques would generally take 3-4 years to develop
and implement, and therefore would be of limited use in the near-term.
This time frame is necessary because EPA will first need to collect and
analyze small source data that we do not currently have--because these
are sources that EPA has not traditionally regulated--in order to
assess which of these techniques are viable or effective for such
sources. In general, EPA will then need to conduct notice-and-comment
rulemaking to establish the approaches, and that rulemaking will need
to address various legal and policy aspects of these approaches. After
that, the permitting authorities will need some time to adopt the
streamlining techniques as part of their permitting programs.
    We received several comments on streamlining techniques. In
general, the comments indicate widespread support for our pursuit of
streamlining approaches, but some commenters were

concerned that one or more of EPA's identified streamlining options
were complex, vague, ineffective, and questionable legally. Noting our
proposal to phase in permitting, in part to allow more time to develop
streamlining options for smaller sources, some commenters suggested
that we should delay permitting for larger sources for the same
reasons. We disagree. Such a delay is not justified under our legal
basis for this rule. While implementation of Steps 1 and 2--which will
cover larger sources--will pose implementation challenges, and some of
the streamlining tools could assist with meeting these challenges, we
have assessed the burdens associated with GHG permitting and have
established a phase-in schedule that represents a manageable workload,
even in the absence of streamlining techniques. On the other hand, we
do agree with these commenters that, absent streamlining, applying PSD
and title V requirements to the much larger number of small sources
would lead to absurd results and administrative impossibility. The
sources for whom the phase-in delays applicability are precisely the
sources that have the greatest need for streamlining measures, and thus
the greatest need for a deferral while we develop and implement
streamlining options.
    In addition, commenters generally echoed many of our concerns about
why it will take time to put these measures in place, and no commenter
presented any information to suggest that our 3-4 year estimate for the
PTE, presumptive BACT, and general permit measures was invalid.
    For these three techniques, we continue to believe that as we noted
at proposal, we will require collection of significant category-
specific data for source and emission unit types that have heretofore
generally not been regulated by the CAA (e.g., furnaces, water heaters,
etc.), which could take up to 1 year. Moreover, commenters had
differences of opinion as to whether and how we should move forward on
these approaches, and some raised policy and legal issues that we would
likely want to explore through a notice and comment process in order to
assess which of these measures are viable to pursue further.\56\ Even
if a rulemaking were done expeditiously, it would likely require 1
year. Finally, unlike lean and electronic permitting, these approaches,
once finalized by EPA, will likely require additional time of up to 2
years for states to adopt. Thus, it is clear that these approaches will
not be in place in time to ease any burden prior to the planned
rulemaking for Step 3.
---------------------------------------------------------------------------

    \56\ We do not attempt to address or resolve the various
opinions about what legal or policy direction we must take regarding
any of these streamlining options. The proper forum for doing that
will be in the action(s) where we apply a given option. Nonetheless,
our RTC document provides additional detail about the options we
described and what commenters said about our proposed options. In
addition, the comments themselves can be accessed in the docket for
this action.
---------------------------------------------------------------------------

    Some commenters did observe that the fourth and fifth techniques,
lean and electronic permitting, could, at least theoretically, become
available sooner. However, these commenters also noted that successful
design and implementation of these approaches will require
implementation experience with GHG permitting that is not now
available. We expect that for the lean and electronic permitting
techniques, at least 1 year of implementation experience (of the type
that we will gain starting in 2011) would be required, plus at least an
additional year to extrapolate that experience to small sources and put
these approaches into effect for small source permitting. Thus, we do
not think the lean and electronic permitting would be in place before
the beginning of 2013. Moreover, a handful of commenters questioned
whether lean and/or electronic permitting would alleviate significant
burden. Thus we are not able, at this time, to presume that these
approaches will ease any burden prior to the planned rulemaking for
Step 3.
    It is also important to note that, as a practical matter, while
these efforts to streamline the program for small sources are underway,
EPA and states will also be devoting a significant amount of their
permitting resources and expertise to implementing the PSD and title V
programs for the GHG-emitting sources covered under Steps 1 and 2. We
have established these steps in a manner that they will be feasible for
EPA and state/local/tribal authorities, but even so, they will not only
consume current permitting authority resources, but they will also
require substantial additional resources. As a result, the efforts to
develop and implement streamlining techniques will have to compete with
the work necessary to administer existing programs. For example, during
the remainder of 2010, as described elsewhere in this notice, EPA
permitting program resources will, in addition to continuing to
administer programs for non-GHG pollutants, be used to conduct at least
the following GHG-related activities in addition to streamlining: (1)
Develop BACT and other information and guidance for implementing
programs for sources covered by Step 1, followed by additional guidance
and information for sources covered by Step 2; (2) review and act on
information we receive regarding state adoption of GHG permitting
requirements, which may entail narrowing of previous SIP approvals or
processing of other programmatic revisions; and (3) propose and
finalize measures to address programs with deficiencies in GHG
coverage. As the beginning of Step 2 nears, we will also begin to
receive and process the first applications for permits that will
incorporate GHG requirements (i.e., those that will be issued after
January 2, 2011). States seeking to implement streamlining approaches
will face similar competition for permitting resources.
    These time frames and resource considerations for streamlining
confirm the approach to phase-in that we are taking in this rule. First
and foremost, they make clear that it will not be possible to have
streamlining measures in place in time for either Step 1 or Step 2.
Therefore our selection of threshold for those steps is not built on
assumptions that streamlining will remove some or all of the burden
during those steps.
    Second, they make clear that, while no significant streamlining can
be in place by the time we must begin to develop the Step 3 rule (i.e.,
latter half of 2011, to promulgate by July 2012, effective July 2013),
it is likely that by that time EPA and states will have had an
opportunity to gain implementation experience that could serve as the
basis for beginning to implement streamlining techniques that do not
require rulemaking or state adoption (e.g., lean and electronic
permitting). It is also likely that we will have had an opportunity to
gather technical information--which we have already begun to gather--
for certain source and emissions unit categories that would be
necessary to support proposal of PTE or presumptive BACT approaches for
those categories. We expect that the Step 3 rulemaking will provide an
opportunity for us to use that experience and data to begin to propose
streamlining approaches that need notice and comment rulemaking. We can
also begin to take into account any burden reductions from possible
early streamlining efforts--that is, through lean and electronic
permitting--in the establishment of Step 3.
    Third, it is clear that the potential availability of streamlining
measures does not call into question our decision that in no event will
we broaden PSD and title V applicability to cover GHG-emitting sources
below the 50,000 tpy CO2e level prior to July 2016, as
discussed elsewhere. EPA cannot now

predict the resources that will be required to implement PSD and title
V programs for GHG-emitting sources once various streamlining
techniques are ultimately completed. This is uncertain not only because
we need data and implementation experience with GHG permitting during
Steps 1, 2, and 3 that we can apply to estimates for small sources, but
also because, as comments indicate, there is a broad range of legal and
policy issues to consider in crafting the streamlining approaches we
ultimately adopt. We have presented an initial assessment of options
and obtained views of commenters both supporting and opposing them, and
it is the result of these future actions, whose outcomes are uncertain
at this time, that will ultimately determine the extent to which
streamlining approaches will allow for the administration of PSD and
title V programs for numerous small sources. Thus, while we are
optimistic that we can craft workable, common-sense solutions, we
nonetheless, believe it is important to preserve our small source
exclusion until we have not only had time to put the streamlining
approaches in place, but also have had time to assess the burdens that
remain, before we bring in additional sources below the 50,000 tpy
CO2e levels. We believe that the 6-year timeframe will
require a sustained intensive effort by EPA and states to develop,
adopt, and implement streamlining techniques, and will require EPA to
then evaluate those techniques and complete a rulemaking concerning PSD
and title V applicability to small-sources based on that evaluation. In
this manner, the 6-year period will give us the necessary time to make
the best decisions about the actions we should take beyond Step 3.
    While comments make clear that there are issues to be addressed,
nothing in the comments has persuaded us that we should abandon our
streamlining efforts. To the contrary, the strong support for these
efforts shown by many commenters reinforces our intention, as stated at
proposal, to move forward with these approaches as an integral part of
our phase-in approach. Moreover, notwithstanding the competition for
GHG permitting resources and expertise, we believe it is critical that
we move forward expeditiously. As noted previously, we are already
taking a first step by initiating permitting for larger sources,
beginning January 2011, that will begin to provide valuable
implementation experience. This experience can be useful in allowing
states to begin implementing early streamlining measures, like lean and
electronic permitting, which do not require EPA action. We have also
already begun, and will continue, developing data necessary to support
possible rulemakings addressing approaches such as PTE, presumptive
BACT, and/or general permits. We expect to be able to use these data to
support possible rulemakings on these topics, as appropriate, at about
the same time as our Step 3 rulemaking. There may also be available
streamlining options that were not described in our proposal that
warrant further consideration. Because of the uncertainty surrounding
such approaches, we are not committing to finalize rules on any
particular approach, but we do plan to explore all streamlining options
as expeditiously as possible, beginning immediately and proceeding
throughout the phase-in period, and we encourage permitting authorities
to do the same. We commit to consider a wide array of possible
streamlining measures, and we commit to propose and take comment on, in
the Step 3 rulemaking, a set of those measures that we determine are
viable to pursue further.
2. Guidance for BACT Determinations
    The CAA requires that a PSD permit contain, among other things,
emissions limits based on the BACT for each pollutant subject to
regulation under the Act emitted from the source that triggers PSD. 42
U.S.C. 7475(a)(4); 42 U.S.C. 7479(3). BACT is defined as follows:

    (3) The term ``best available control technology'' means an
emission limitation based on the maximum degree of reduction of each
pollutant subject to regulation under this Act emitted from or which
results from any major emitting facility, which the permitting
authority, on a case-by-case basis, taking into account energy,
environmental, and economic impacts and other costs, determines is
achievable for such facility through application of production
processes and available methods, systems, and techniques, including
fuel cleaning, clean fuels, or treatment or innovative fuel
combustion techniques for control of each such pollutant. In no
event shall application of ``best available control technology''
result in emissions of any pollutants which will exceed the
emissions allowed by any applicable standard established pursuant to
section 111 or 112 of this Act. Emissions from any source utilizing
clean fuels, or any other means, to comply with this paragraph shall
not be allowed to increase above levels that would have been
required under this paragraph as it existed prior to enactment of
the Clean Air Act Amendments of 1990.

42 U.S.C. 7479(3).

    Thus, the BACT process is designed to determine the most effective
control strategies achievable in each instance, considering energy,
environmental, and economic impacts. However, the case-by-case nature
of BACT, together with the range of factors and technologies that must
be considered, presents a challenge in determining BACT for newly
regulated pollutants. When a new pollutant is regulated, the first
permit applicants and permitting authorities that are faced with
determining BACT for a new pollutant will likely need to invest more
time and resources in gathering and analyzing information necessary to
make an assessment of BACT under the statutory criteria. Once the PSD
permitting program matures with respect to the new pollutant,
successive BACT analyses will establish precedents that can inform
subsequent BACT determinations. While the BACT provisions clearly
contemplate that the permitting authority evaluate control strategies
on a case-by-case basis, EPA recognizes the need to develop and share
policy guidance and technical information for sources and permitting
authorities as they begin to permit sources of newly regulated
pollutants, such as GHGs. When applied in a practical manner, this
additional EPA guidance and technical information should reduce time
and resource needs when evaluating BACT for newly regulated pollutants.
    As described in the proposed Tailoring Rule, EPA intends to compile
and make available technical and background information on GHG emission
factors, control technologies and measures, and measurement and
monitoring methodologies for key GHG source categories. We expressed
our intent to work closely with stakeholders in developing this
supporting information and to ensure this information is available in
sufficient time to assist permitting agencies in their BACT
determinations. The proposal took comment on what other types of
support or assistance EPA can provide to initially help air pollution
control agencies with the permitting of GHGs.
    Commenters on the proposed Tailoring Rule generally supported EPA
providing technical information and policy guidance for sources of
GHGs. Several commenters specifically requested guidance to clarify
GHG-related issues, such as how to compute CO2e emissions,
how to evaluate emissions of CO2 from biomass fuel, and
whether an air quality analysis will be required for GHGs.
Additionally, commenters requested that EPA issue ``white papers'' and
other tools that would provide information on a range of control
technologies and measures for major stationary source categories, such
as power plants, cement kilns, glass

furnaces, and other sources. Many of these commenters further requested
that EPA provide an opportunity for stakeholder input on the guidance,
and a few commenters insisted that permitting for sources of GHGs
should not begin prior to issuing final guidance.
    Consistent with our commitment at proposal to involve all
stakeholders in our guidance development, EPA called upon the CAAAC in
September 2009, to provide assistance and recommendations for what
types of guidance and technical information would be helpful.\57\
Specifically, our charge to the CAAAC was ``* * * to discuss and
identify the major issues and potential barriers to implementing the
PSD Program under the CAA for greenhouse gases * * * [and] focus
initially on the BACT requirement, including information and guidance
that would be useful for EPA to provide concerning the technical,
economic, and environmental performance characteristics of potential
BACT options.'' This charge also requested the CAAAC to ``identify and
discuss approaches to enable state and local permitting authorities to
apply the BACT criteria in a consistent, practical and efficient
manner.''
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    \57\ The CAAAC is a senior-level policy committee established in
1990 to advise the U.S. EPA on issues related to implementing the
CAA Amendments of 1990. The committee is chartered under the Federal
Advisory Committee Act and has been renewed every 2 years since its
creation. The membership is approximately 40 members and experts
representing state and local government, environmental and public
interest groups, academic institutions, unions, trade associations,
utilities, industry, and other experts. The CAAAC meets three times
a year, normally in Washington, DC. It provides advice and counsel
to EPA on a variety of important air quality policy issues. The
committee has formed several subcommittees to provide more detailed
discussion and advice on many technical issues.
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    At its October 6, 2009 meeting, the CAAAC established a Climate
Change Work Group, made up of 35 representatives from a variety of
industries, state and local governments, and environmental and public
health non-profit organizations, organized under CAAAC's Permits, New
Source Review and Toxics Subcommittee. The Work Group initially focused
its attention on the procedure for evaluating BACT and decided that the
process and criteria for determining BACT for criteria pollutants
represented a workable and acceptable framework for GHGs. The Work
Group also recommended a second phase, in which the Work Group would
consider member proposals regarding possible alternative or
supplementary approaches to applying the PSD program to GHG sources.
    In February 2010, the CAAAC completed work on the first phase of
its effort and sent EPA a list of recommendations that highlighted
areas of the BACT determination process that are in need of technical
and policy guidance. For more information, see the Interim Phase I
Report on Issues related to BACT for GHGs, February 3, 2010 that is
located in the public docket for this rulemaking and at http://
www.epa.gov/air/caaac/climate/2010_02_InterimPhaseIReport.pdf. In
response, we are working on a number of fronts to develop technical
information, guidance, and training to assist states in permitting
large stationary sources of GHGs, including identifying GHG control
measures for different industries. EPA is currently working with states
on technical information and data needs related to BACT determinations
for GHGs. This includes developing the EPA Office of Research and
Development GHG Mitigation Strategies Database, enhancing the RACT/
BACT/LAER Clearinghouse to include GHG-specific fields, and preparing
technical information on sector-based GHG control measures. Also, EPA
is actively developing BACT policy guidance for GHGs that will undergo
notice and comment and will culminate in training courses for state,
local, and tribal permitting authorities. The results of all of these
efforts will roll out over the remainder of 2010. EPA currently awaits
the Work Group's recommendations from its second phase of
deliberations, which is underway as of the date of this notice.
    EPA does not agree with some commenters' suggestion that EPA should
delay permitting of any sources until final BACT guidance is issued. As
discussed in the final action on reconsideration of the Interpretive
Memo, delaying the application of BACT to enable the development of
guidance or control strategies is not consistent with the BACT
requirements. 63 FR 17008. Furthermore, as just described, EPA expects
such a delay to be unnecessary because EPA will soon begin providing
technical information to inform BACT decisions, and will continue to
provide additional guidance prior to the date that GHG permitting
begins. However, even in the absence of such guidance, a delay would
not be justified under the legal doctrines of ``absurd results'' and
``administrative necessity.'' While implementation of the BACT
requirement during Steps 1 and 2 will pose implementation challenges,
EPA has assessed the burden associated with GHG permitting with
consideration given to these challenges, and has established a phase-in
schedule that represents a manageable workload.
    Thus, while BACT will remain a case-by-case assessment, as it
always has been under the PSD program, EPA is confident that this
guidance development effort will help support a smooth transition to
permitting emissions of GHGs. Furthermore, EPA will continue to work to
provide the most updated information and support tools to allow
permitting authorities to share and access the most updated information
on GHG BACT determinations as they are made once permitting of GHGs
begins. EPA remains committed to involving stakeholders in the upcoming
efforts to develop guidance to help permitting authorities in making
BACT determinations for sources of GHGs.
3. Requests for Higher Category-Specific Thresholds or Exemptions From
Applicability
    Although we did not propose any categorical exemptions, many
commenters requested exemptions from major source and major
modification applicability determinations under title V and PSD for
certain types of GHG-emitting sources or certain types of GHG emissions
as follows:
    Source Categories. Many commenters requested various exemptions or
exclusions from source applicability for GHGs under both PSD and title
V permitting, either during the phase-in period or permanently, citing
anticipated burdens, societal costs, and differences in emission
characteristics. Commenters representing non-traditional sources or
source categories (sources that have not historically been required to
get permits) requested exemptions from permitting based on GHG
emissions, including agricultural sources, residential sources, and
small businesses. In general, these commenters sometimes, but not
always, cited ``absurd results'' and ``administrative necessity''
arguments in their exemption requests.
    Several commenters from sectors that consume a great deal of energy
in their industrial processes and that are subject to international
competitiveness, such as aluminum, steel, cement, glass, pulp and
paper, and other manufacturers, requested that they be exempt from
permitting under this final rule. These commenters state that we have
not carefully considered the environmental and economic consequences of
this action because if we had, we would have exempted them for several
reasons, including (1) other countries typically exempt similar sources
from GHG cap

and trade programs because the industries are making significant energy
efficiency improvements even in the absence of GHG regulation, and (2)
permitting such sources may cause many facilities to move to countries
that have less regulation or no regulation for GHGs.
    Other industry groups cited unique characteristics of their
emissions, or the quantities in which they are emitted, that they
argued should justify exclusion or unique thresholds. Semiconductor
production facilities asked for exemptions, arguing that combustion-
related GHG emissions are different from their GHG emissions, which
result from the use of high-GWP industrial gases, such as PFCs, with
higher GWP values that are more likely to trigger permitting
requirements at relatively low tpy values. One lime production
commenter stated that EPA could encourage energy efficiency projects at
its plants by excluding calcination and other process emissions,
arguing that these emissions are a relatively small portion of the
national inventory that will have no material effect on air quality and
global warming. Another commenter requested that EPA exclude emissions
from poultry production (natural bird respiration) from permitting
consideration because the IPCC excludes them from its GHG emission
estimates. Representatives of the landfill industry pointed to the
relationship between current statutory thresholds that apply to their
regulated emissions, primarily NMOC, and the equivalent amount of GHG
emissions this corresponds to. They argued for a source-category
specific threshold that is at least equivalent to their current NMOC
threshold, or roughly 750,000 tpy CO2e according to their
estimate.
    Although the proposal for the Tailoring Rule generally addressed
how the statutory requirements for major source applicability (100/250
tpy thresholds) could be phased in in ways that would offer relief to
traditional and non-traditional sources, such as residences, farms,
small business, and semiconductor manufacturers, it did so by
establishing relatively high CO2e thresholds during the
early implementation period and lowering the thresholds over time as
streamlining mechanisms become available to reduce administrative
burdens. We did not propose any permanent exemptions of any kind or
temporary exemptions based on source category. Also, note that the
proposal discussed energy efficiency, process efficiency improvements,
recovery and beneficial use of process gases, and certain raw material
and product changes in the context of short-term, low-cost means of
achieving GHG emission reductions for small-scale stationary sources,
but not in the context of exemptions.
    As discussed previously, we are still considering whether permanent
exemptions from the statute are justified for GHG permitting based on
the ``absurd results'' legal doctrine. We do not have a sufficient
basis to take final action at this time to promulgate any of the
suggested exclusions on the grounds, described previously, suggested by
the commenters. We note, however, that nothing in this rule forecloses
the opportunities we may have to explore such options in the future.
Therefore, we are taking no action in this rule on these various
commenters' requests for exclusions.
    Some commenters also recommended that we create exclusions for
their particular source categories for the specific purpose of avoiding
overwhelming permitting burdens. We did solicit comment on alternative
approaches to burden relief in the proposal. Some commenters suggested
that the ``administrative necessity'' or ``absurd results'' rationale,
each of which would be based on extraordinary administrative burdens,
could be used to create at least temporary exclusions that would allow
more sources to escape permitting than what we proposed. However,
commenters have not, to date, provided specific information about the
costs and administrative burdens associated with permitting their
source categories.
    Regarding the specific concerns about the need for a small business
exclusion, we note that the Office of Advocacy of the SBA made several
recommendations on the proposal to address concerns about large numbers
of small businesses becoming subject to the permit programs. For
example they recommended that EPA adopt major source thresholds of
100,000 tpy and major modification thresholds of 50,000 tpy
CO2e. They also recommended that we adopt an interpretation
of the effective date of the LDVR to provide additional time to
prepare. We took action consistent with the latter recommendation in
the Interpretive Memo, and we are taking action consistent with the
former recommendation in this rule (although the threshold for
modifications we are adopting is higher, for reasons explained
previously). We are finalizing Steps 1 and 2 using the threshold-based
approach, which applies the various legal doctrines, in the context of
the Chevron framework, in a way that effectively exempts all small
sources during this part of the phase-in, while assuring the
administrability of the permitting programs for the sources that remain
subject to them. We anticipate that virtually all small businesses not
already subject to PSD and title V would be excluded under this
approach. Similarly, with respect to high GWP gases as discussed
previously, we are maintaining the statutory mass-based threshold, and
this should address commenters' concerns regarding the inclusion of
those gases. Therefore, we reiterate that we are not finalizing any
such exclusions in this rule and, as noted above, we are not taking
final action in the commenters' requests for exclusions.
    Concerning the comment that we did not take appropriate economic
and environmental considerations into account for this rulemaking
action, we disagree. The approach we finalize in this notice for Steps
1 and 2 minimizes economic burdens by limiting permitting to the
largest GHG emission sources. We further note that the PSD program as
applied to the sources that are covered in Steps 1 and 2 contains an
express requirement to take energy, environmental, and economic
considerations into account when making control technology (i.e., BACT)
decisions and accordingly many of the concerns about control costs will
be able to be accounted for in that analysis.
    Biomass Combustion/Biogenic Emissions. Several commenters request
that EPA exempt emissions from biogenic activities or biomass
combustion or oxidation activities, including solid waste landfills,
waste-to-energy projects, fermentation processes, combustion of
renewable fuels, ethanol manufacturing, biodiesel production, and other
alternative energy production that uses biomass feedstocks (e.g., crops
or trees). For example, commenters urged that EPA exclude emissions
from biomass combustion in determining the applicability of PSD to GHGs
based on the notion that such combustion is ``carbon neutral'' (i.e.,
that combustion or oxidation of such materials would cause no net
increase in GHG emissions on a lifecycle basis). Some commenters oppose
the exemption of biogenic/biomass activities, claiming the lack of a
valid scientific basis for treating these GHG emissions differently
than other GHG emissions and expressing concern that we should not
assume all biomass combustion is carbon neutral.
    The proposed Tailoring Rule did not address this issue of
exemptions for biomass combustion or biogenic emissions. We are mindful
of the role that biomass or biogenic fuels and feedstocks could play in
reducing

anthropogenic GHG emissions, and we do not dispute the commenters'
observations that many state, federal, and international rules and
policies treat biogenic and fossil sources of CO2 emissions
differently. We note that EPA's technical support document for the
endangerment finding final rule (Docket ID No. EPA-HQ-OAR-2009-0472-
11292) states that ``carbon dioxide has a very different life cycle
compared to the other GHGs, which have well-defined lifetimes. Instead,
unlike the other gases, CO2 is not destroyed by chemical,
photolytic, or other reaction mechanisms, but rather the carbon in
CO2 cycles between different reservoirs in the atmosphere,
ocean, land vegetation, soils, and sediments. There are large exchanges
between these reservoirs, which are approximately balanced such that
the net source or sink is near zero.''
    Nevertheless, we have determined that our application of the
``absurd results,'' ``administrative necessity,'' and one-step-at-a-
time legal rationales that support this rule, which are based on the
overwhelming permitting burdens described previously, does not provide
sufficient basis to exclude emissions of CO2 from biogenic
sources in determining permitting applicability provisions at this
time. This is because such an exclusion alone, while reducing burdens
for some sources, would not address the overwhelming permitting burdens
described above, and a threshold-based approach would still be needed.
As noted above, we have not examined burdens with respect to specific
categories and thus we have not analyzed the administrative burden of
permitting projects that specifically involve biogenic CO2
emissions taking account of the threshold-based approach, nor did the
commenters provide information to demonstrate that an overwhelming
permitting burden would still exist, justifying a temporary exclusion
for biomass sources.
    At the same time, the decision not to provide this type of an
exclusion at this time does not foreclose EPA's ability to either (1)
provide this type of an exclusion at a later time when we have
additional information about overwhelming permitting burdens due to
biomass sources, or (2) provide another type of exclusion or other
treatment based on some other rationale. Although we do not take a
final position here, we believe that some commenters' observations
about a different treatment of biomass combustion warrant further
exploration as a possible rationale. Therefore, although we did not
propose any sort of permanent exclusion from PSD or title V
applicability based on lifecycle considerations of biogenic
CO2, we plan to seek further comment on how we might address
emissions of biogenic carbon dioxide under the PSD and title V programs
through a future action, such as a separate Advance Notice of Proposed
Rulemaking (ANPR). This action would seek comment on how to address
biogenic carbon under PSD and title V, the legal and policy issues
raised by options regarding implementation. We will provide an
opportunity for public comment before adopting any final approach.
    We further note that, while we are not promulgating an
applicability exclusion for biogenic emissions and biomass fuels or
feedstocks, there is flexibility to apply the existing regulations and
policies regarding BACT in ways that take into account their lifecycle
effects on GHG concentrations. This topic has already been explored by
the CAAAC workgroup on BACT issues related to GHGs that recently
provided recommendations to EPA. These recommendations are located in
the public docket for this rulemaking and at http://www.epa.gov/air/
caaac/climate/2010_02_InterimPhaseIReport.pdf. While that group was
unable to come to a consensus on how biomass-based emissions should be
treated, it provided us with information that we will consider as we
issue guidance on BACT. As previously discussed, we plan to issue BACT
guidance later this year, but are not doing so as part of this
rulemaking. Without prejudging the outcome of our process to seek
comment whether and how we might address emissions of biogenic carbon
under the PSD and title V programs through a future action, this issue
warrants further exploration in the BACT context as well, and we plan
to fully explore it and take action if appropriate.
    Fugitive Emissions. Numerous commenters believe that fugitive GHG
emissions should be excluded from major source determinations, citing
difficulties in measuring or estimating such emissions. Others believe
EPA did not address fugitive emissions in the proposal and they ask for
clarification of the treatment of fugitive GHGs in applicability
determinations under PSD and title V. Some of these commenters state
that EPA has not undertaken a rulemaking under CAA section 302(j) for
any source category of fugitive GHGs, so they should not be included.
Several commenters representing the solid waste disposal industry
requested exemptions for fugitive emissions for landfills and waste-to-
energy projects, pointing out that current practice under PSD is for
fugitive emissions from certain landfills to not be counted toward
major source determinations.
    In the proposal, EPA did not offer any specific guidance or discuss
exemptions for fugitive emissions of GHGs. Commenters did not suggest
that a fugitive exemption would address the overwhelming permitting
burdens described previously, or that it was necessary to specifically
tailor GHG applicability through the use of a fugitive emissions
exclusion for categories that would otherwise be required to include
them.
    We do agree with commenters who stated that we should clarify how
to count fugitives in determining applicability under this rule. In
response, we note that we are not taking final action with respect to
commenters' request, and we are not finalizing any special rules for
fugitive emissions related to GHG. Thus, EPA's rules related to the
treatment of fugitives would apply. Regarding the comment that a CAA
section 302(j) rulemaking is required before fugitive emissions may be
counted, we disagree. As we read section 302(j), once EPA has
established by rule that fugitive emissions are to be counted for a
specific source category, nothing in section 302(j) requires EPA to
conduct new rulemaking to allow for the counting of additional
pollutants from that category. We read section 302(j) as imposing an
obligation to determine if fugitive emission generally should be
counted from a source or source category and not requiring that EPA
list both source categories and relevant pollutants. Indeed, our
practice in listing categories has not been to limit the pollutants to
which the listing applies. Therefore, we are applying our existing
rules and policies for fugitive emissions for GHG as we would any other
pollutant.
    Pollution Control Projects. Other commenters request exemptions for
pollution control projects from PSD major modification requirements,
particularly projects that increase the efficiency or thermal
performance of a unit or facility, resulting in emission reductions on
a pounds/megawatt-hour or production basis. The current PSD rules do
not exclude pollution control projects from being considered a physical
change or change in the method of operation that would--if it resulted
in a significant net emissions increase--constitute a major
modification, and the case law makes clear that we could adopt a
permanent exclusion in the future.\58\ To the extent

that the commenters seek an exclusion for pollution control projects
that relies solely on ``absurd results'' or ``administrative
necessity'' for reasons similar to those described previously for other
requested exclusions, we take no action on this request in this
rulemaking.
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    \58\ On June 24, 2005, the United States Court of Appeals for
the District of Columbia Circuit vacated the portions of the 2002
and 1992 NSR rules that pertained to pollution control projects,
among other provisions. In response to this Court action, on June 5,
2007, EPA removed these provisions from the NSR regulations. (See 72
FR 32526). These provisions were added as part of EPA's NSR
improvement rule that was issued on December 31, 2002.
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4. Transitional Issues Including Requests for Grandfathering
    In the Tailoring Rule proposal, we did not discuss or specifically
ask for comment on any provisions to address the transition from a
permitting regime that does not incorporate GHGs to one that does, such
as ``grandfathering'' provisions or similar approaches that would
exempt previously issued permits or pending applications from having to
incorporate requirements for GHGs. We nonetheless received several
public comments that addressed a variety of transitional issues. One
group of comments addresses situations prior to permit issuance where a
PSD or title V application is either administratively complete or more
generally being processed prior to the trigger date for GHG permitting
(``in process'' applications). Another group of comments addresses
situations where a PSD or title V permit is issued prior to the GHG
trigger date and the commenters request that the application and/or
permit be exempt from any requirements for updates related to GHGs
after permit issuance.
    With respect to PSD, many commenters requested that we adopt a
``grandfathering'' approach to applicability to exempt projects that
have administratively complete PSD or minor NSR permit applications
pending when the GHG permitting requirements go into effect. Several
commenters urged us to promulgate transition provisions (without
specifically using the term ``grandfathering''), pointing out that we
have provided transition periods for revising pending PSD permits, in
the past, when new PSD rules were issued (e.g., in late 1970s and
1980). These commenters assert that GHG requirements will cause more
disruption than those previous rule changes. Several commenters asked
that PSD applications be evaluated on the basis of the PSD requirements
effective when the application is submitted and if submitted prior to
the trigger date, then the application and permit would not need to
address GHGs. Several commenters also asked that PSD sources with a
valid permit that commences construction within 18 months of the
trigger date not be required to seek a revised PSD permit for GHGs.
Similarly, several commenters asked that PSD permits issued prior to
the GHG trigger date not be required to be reopened only for the
purpose of addressing GHG emissions. Additional commenters asked that
we clarify that sources or projects not be required to obtain PSD
permits if they obtained a determination that PSD did not apply (a
``non-applicability'' determination) prior to the GHG trigger date.
Finally, many commenters also requested ``grandfathering'' for title V
so that existing title V applications and permits do not need to be
amended, revised, or resubmitted to address GHGs after they become
``subject to regulation.'' Other commenters asked that transition
provisions for title V be provided in the final action that would be
similar to those requested for PSD.
    We partially addressed transitional issues for PSD permitting in
our April 2, 2010 final action on reconsideration of the Interpretive
Memo. 75 FR 17021. This action addressed the applicability of PSD
permitting requirements for GHGs to pending PSD permit applications
that were (or will be) submitted prior to January 2, 2011 based on
emissions of pollutants other than GHGs. However, we have not yet
addressed the questions raised by public comments concerning sources
that obtain PSD permits, minor NSR permits, or determinations that no
such permits are needed prior to the Step 1 period set forth in this
rule. We have also not yet addressed questions about the applicability
of PSD permitting requirements for sources that are not currently
required to submit an application for a PSD permit but that could be
required to do so in Step 2 of the phase-in established in this action.
In addition, our April 2, 2010 action did not address transitional
issues concerning the application of the title V provisions to GHGs.
a. Transition for PSD Permit Applications Pending When Step 1 Begins
    In our action on April 2, 2010, EPA explained that the Agency did
not see grounds to establish a transition provision for pending PSD
permit applications because we had determined that PSD permitting
requirements would not apply for GHGs for another 9 months. We
explained that permit applications submitted prior to April 2, 2010
should in most cases be issued prior to January 2, 2011 and, thus,
effectively have a transition period of 9 months to complete processing
before PSD requirements become applicable to GHGs. We also observed
that, in the case of any PSD permit application review that cannot
otherwise be completed within the next 9 months based on the
requirements for pollutants other than GHGs, it should be feasible for
permitting authorities to begin incorporating GHG considerations into
permit reviews in parallel with the completion of work on other
pollutants without adding delay to permit processing. Additional
discussion of EPA's reasons for not developing transition provisions
for PSD permit applications that are pending on January 2, 2011 are
provided in the April 2, 2010 notice. 75 FR 17021-22.
    For these same reasons, we continue to feel that a transition
period is not warranted to incorporate GHG requirements into any PSD
permit applications that are pending when Step 1 of the permitting
phase-in begins for those sources that would otherwise need to obtain a
PSD permit based on emissions of pollutants other than GHGs. Thus, this
action makes no change to the position we expressed on this particular
issue in the April 2, 2010 notice. In this final rule on tailoring the
PSD program to address GHGs, we have determined that the additional
burden of incorporating GHG requirements into PSD permits for the
sources already required to obtain such permits is manageable in the
Step 1 period. Thus, this rule has added no additional requirements or
limitations that would justify deferring the establishment of pollution
controls for this category of GHG sources once PSD permitting
requirements are initially triggered for GHGs.
    While we do not provide for grandfathering of PSD applications, we
do note that there are more than 7 months left before GHG BACT
requirements will be triggered at anyway sources for projects that
increase GHG emissions by more than 75,000 tpy CO2e and more
than a year before the requirements would be triggered at sources
solely because of emissions of GHGs (more than 100,000 tpy of
CO2e). We intend to work constructively and affirmatively
with permitting authorities to use this time to ensure expeditious
processing of pending permits and to further assure that the triggering
of BACT requirements at such sources will not result in adverse impacts
on pending projects. We have separately described our plans to
expeditiously issue GHG

BACT guidance, but we understand that for pending projects that will be
permitted soon after January 2, 2011, an opportunity for earlier
engagement with EPA on BACT issues would be beneficial for permitting
authorities to issue these permits without delay.
    Therefore, following the issuance of this rule, we will contact
permitting authorities that have pending PSD permit applications to
identify those applications with a reasonable likelihood that final
issuance will occur after January 2, 2011, and therefore will be
required to contain GHG BACT limits. We will then work closely with
those permit agencies to provide technical, legal, or policy assistance
to help prepare BACT analysis and provide additional support as
necessary to expedite permitting for those pending applications.
Similarly, when EPA is the permitting authority, we will provide
assistance to applicants with pending permits to ensure that GHG
permitting decisions are made promptly, and that administrative
processes move forward expeditiously.
b. PSD Permits Issued Prior to Step 1
    EPA has not historically required PSD permits to be updated or
reopened after they are issued in the absence of an action by the
applicant to change the physical or operational characteristics of the
source described in the permit application. EPA's PSD permitting
regulations contain no provisions that address the modification or
amendment of a PSD permit or require a PSD permit to be reopened or
modified on the basis of new PSD permitting requirements that take
effect after the final permit is issued. Since PSD permits are
construction permits, EPA has not required updates to PSD permits in
the same manner as is typically required for operating permits that
incorporate a variety of applicable requirements (such as title V
permits and National Pollutant Discharge Elimination System (NPDES)
permits under the Clean Water Act). In addition, unlike operating
permits, PSD permits are not required to be renewed. However, if
construction under a PSD permit is not commenced in a timely manner or
is discontinued for an extended period, a PSD permit may expire if an
extension is not requested or justified. See 40 CFR 52.21(r)(2); 40 CFR
124.5(g).
    With respect to the application of PSD permitting requirements for
GHGs beginning on January 2, 2011, we do not see any cause to deviate
from our historical practice of not requiring PSD permits to be
reopened or amended to incorporate requirements that take effect after
the permit is issued. Thus, we are not promulgating any new rules or
requirements pertaining to PSD permits issued prior to Step 1 of the
phase-in described in this rule. There is no mandatory requirement to
reopen a previously issued PSD permit to incorporate GHG requirements
that were not applicable at the time the permit was issued.
    A major source that obtains a PSD permit prior to January 2, 2011
will not be required under EPA regulations to reopen or revise the PSD
permit to address GHGs in order for such a source to begin or continue
construction authorized under the permit. Our current PSD permitting
regulations provide that ``[n]o new major stationary source or major
modification to which the requirements of paragraphs (j) through (r)(5)
of this section apply shall begin actual construction without a permit
that states the major stationary source or major modification will meet
those requirements.'' 40 CFR 51.166(a)(7)(iii); 40 CFR
52.21(a)(2)(iii). The term ``begin actual construction'' generally
means ``initiation of physical onsite construction activities on an
emissions unit which are of a permanent nature'' and includes
activities such as ``installation of building supports and foundations,
laying underground pipework and construction of permanent storage
structures.'' 40 CFR 51.166(b)(11); 40 CFR 52.21(b)(11). A source that
begins actual construction authorized under a PSD permit prior to
January 2, 2011 will not be in violation of the prohibition described
previously if it continues construction after that date. This portion
of the regulation precludes only beginning construction without the
appropriate preconstruction permit and does not require a permit to be
updated to continue actual construction that has already begun.
    Furthermore, a source that is authorized to construct under a PSD
permit but has not yet begun actual construction on January 2, 2011 may
still begin actual construction after that date without having to amend
the previously-issued PSD permit to incorporate GHG requirements.
Sections 51.166(a)(7)(iii) and 52.21(a)(2)(iii) require ``a permit that
states that the major stationary source or major modification will meet
those requirement,'' which refers to the ``requirements in paragraphs
(j) through (r)(5)'' referenced earlier in those provisions. EPA
construes this language to describe a permit that meets the
requirements of paragraph (j) through (r)(5) that are in effect at the
time the permit is issued. Permitting and licensing decisions of
regulatory agencies must generally reflect the law in effect at the
time the agency makes a final determination on a pending application.
See Ziffrin v. United States, 318 U.S. 73, 78 (1943); State of Alabama
v. EPA, 557 F.2d 1101, 1110 (5th Cir. 1977); In re: Dominion Energy
Brayton Point, LLC, 12 E.A.D. 490, 614-616 (EAB 2006); In re Phelps
Dodge Corp., 10 E.A.D. 460, 478 n. 10 (EAB 2002).
    Thus, a source may begin actual construction on or after January 2,
2011 under a PSD permit that authorized construction to begin prior to
January 2, 2011 because such a permit states that the source will meet
the requirements of paragraphs (j) through (r)(5) of these regulations
(or state equivalents) that were in effect at the time the permit was
issued. However, this would not be the case if the permit has expired
because the applicant has discontinued construction or failed to
commence construction by the necessary date. See 40 CFR 52.21(r)(2).
    This approach is consistent with EPA's practice when the
preconstruction permitting requirements change by virtue of the
designation of an area as a nonattainment area after a PSD permit is
issued. In transitional guidance issued by EPA in 1991, EPA explained
that ``the area designation in effect on the date of permit issuance by
the reviewing agency determines which regulations (part C or D) apply
to that permit.'' Memorandum from John S. Seitz, Director OAQPS, New
Source Review (NSR) Program Transitional Guidance, page 6 (March 11,
1991). This memorandum explained further that ``where a source receives
a PSD or other permit prior to the date the area is designated as
nonattainment, the permit remains in effect'' as long as the source
meets the conditions necessary to prevent the permit from expiring. Id.
at 6.
    This approach does not apply if the source engages in a major
modification after January 2, 2011 that is not authorized by the
previously issued permit. Once Step 1 of the phase-in begins, if the
PSD requirements for GHGs are applicable to a previously-permitted
source that engages in a major modification not covered by the permit,
such a source will need to obtain a new PSD permit to authorize the
modification and that permit may need to include GHG requirements
depending on the level of increase in GHGs that results from the
modification.
c. Additional Sources for Which PSD Applies in Step 2
    In light of the terms of existing PSD regulations and the lead time
provided in this action for sources that will first

become subject to PSD permitting in Step 2, we do not believe there is
presently a need to establish transition provisions for sources that
will be required to obtain PSD permits for the first time in Step 2 of
the phase-in. As described previously, under our current PSD permitting
regulations, a new major stationary source or major modification may
not begin actual construction without a PSD permit that meets the
applicable preconstruction permitting requirements. 40 CFR
51.166(a)(7)(iii); 40 CFR 52.21(a)(2)(iii).
    Since a permit must be obtained before a major source may begin
actual construction, the major source preconstruction permitting
requirements in 40 CFR 51.166 and 52.21 of the regulation do not
generally apply to a source that begins actual construction at a time
when it was not a major source required to obtain a PSD permit. One
exception, however, is the unique circumstance when a source becomes a
major source solely by virtue of the relaxation of an enforceable
limitation on the source's PTE. 40 CFR 51.166(r)(2); 40 CFR
52.21(r)(4). But absent these circumstances, PSD preconstruction
permitting requirements do not generally preclude a source from
continuing actual construction that began before the source was a
source required to obtain a PSD permit. Thus, a source that began
actual construction under the authorization of any previously required
minor source or state construction permit is not required to meet any
PSD preconstruction permitting requirement that becomes applicable
after actual construction begins unless the source engages in a major
modification after PSD permitting requirements are applicable.
Likewise, a PSD permit is not required after a source begins actual
construction based on a valid determination (by the source or the
permitting authority) that the source need not obtain either a major
PSD permitting requirements or and minor NSR permit. Based on these
provisions in existing regulations, EPA will not require any sources to
which PSD permitting requirements begin to apply in Step 2 to obtain a
PSD permit to continue construction that actually begins before Step 2
begins.
    However, we will expect Step 2 sources that begin actual
construction in Step 2 (i.e., beginning July 1, 2011) to do so only
after obtaining a PSD permit in accordance with 40 CFR 52.21 or 51.166,
or any applicable state regulation that meets the requirements of 40
CFR 51.166. We recognize the potential for the triggering of Step 2 to
result in a change in status where a project may legally have begun
actual construction before Step 2 but did not do so and would then need
a PSD permit. However we also note that we are providing over a year of
lead time before PSD permitting requirements become applicable to Step
2 sources. If projects would be adversely affected by this change in
status, this lead time affords an opportunity for sources planning such
projects to secure appropriate minor NSR permits (which generally take
less than a year to issue), non-applicability determinations, etc. in
time to avoid such a change in status. If a new or modified source that
would become newly subject to PSD in Step 2 plans to begin actual
construction before Step 2, it has more than a year to obtain the
applicable preconstruction approvals and begin actual construction.
Likewise, a Step 2 source that does not anticipate the ability to begin
actual construction before Step 2 begins should have enough lead time
to submit a PSD permit application and obtain the necessary permit
without significantly delaying the project further. Therefore, we do
not think it is necessary or appropriate to promulgate a transition
provision that would exempt Step 2 sources from PSD permitting
requirements that will apply based on construction that begins after
Step 2 takes effect.
    This approach for Step 2 sources that have obtained a minor source
construction permit or non-applicability determination differs from the
approach described previously for source that obtained a PSD permit
prior to Step 1. As described previously, a Step 1 source that is
authorized to begin actual construction before January 2, 2011 under a
previously-issued PSD permit may begin actual construction under that
permit after January 2, 2011 without modifying the PSD permit to
address GHGs. However, a Step 2 source that was not required to obtain
a PSD permit before Step 2 begins would need to obtain a PSD permit
addressing GHGs if it has not yet begun actual construction prior to
Step 2, even if the source had obtained any preconstruction approvals
that were necessary to authorize construction prior to Step 2. This is
because such a Step 2 source that begins actual construction after Step
2 would likely be doing so without having any permit meeting the
requirements of paragraphs (j) through (r)(5) of 40 CFR 52.21 or
51.166, or a state equivalent. A source that has obtained only a minor
source permit prior to Step 2 but that begins actual construction after
July 1, 2011 would violate the requirements of 40 CFR 52.21(a)(2)(iii)
or 51.166(a)(7)(iii), or a state equivalent, unless the source took
care to ensure that it was authorized to construct under a PSD permit
or could demonstrate that the source's minor source construction permit
makes clear that requirement of paragraphs (j) through (r)(5) of 40 CFR
52.21 or 51.166, or a state equivalent, would be met by the source even
though such a permit was not nominally a PSD permit. This difference in
approach for non-PSD sources is driven by the terms of 40 CFR
52.21(a)(2)(iii) and 51.166(a)(7)(iii). Since we have not provided any
prior notice that we might be considering revisions to 40 CFR 52.21 and
51.166 to address this topic, we are unable to revise the regulations
in this action to achieve the same result for non-PSD sources as for
PSD sources. Furthermore, at the present time, we see no indication
that this difference in approach is unreasonable since non-PSD sources
will not trigger permitting for GHG until Step 2 (only anyway PSD
source trigger in Step 1). Thus sources will have until July 1, 2011,
an additional 6 months of lead time (for a total of more than 14
months), to prepare for the transition described here. Nevertheless, we
recognize that the transition to the increased coverage of new sources
and modifications that occurs in July will represent an unusual
occurrence that may have unanticipated impacts. For this reason it is
important to note that nothing in this rule forecloses our ability to
further address such impacts, as necessary, by adopting rule changes or
using other available tools.
    EPA has previously promulgated exemptions that have authorized some
sources that were not previously subject to the PSD regulations to
commence construction on the basis of minor source permits after the
date new PSD requirements have took effect in 1978 and 1980. See, e.g.,
40 CFR 52.21(i)(1)(iv)-(v). There is a notable distinction between
these provisions, which use the term ``commence construction,'' and the
terms of 40 CFR 52.21(a)(2)(iii) and 51.166(a)(7)(iii), which use the
term ``begin actual construction.'' ``Commence construction'' is
defined more broadly than ``begin actual construction'' to include
obtaining all necessarily preconstruction approvals and either
beginning actual on-site construction or entering into binding
contracts to undertake a program of actual construction. 40 CFR
52.21(b)(9); 40 CFR 51.166(b)(9). The term ``commence construction'' is
also defined in the CAA. 42 U.S.C. 7479(2)(A). Among

other purposes, the term ``commence construction'' is generally used in
the Act and EPA regulations to distinguish construction activities that
are exempt from new PSD permitting requirements from those that are
not. See, e.g., 42 U.S.C. 7475(a); 40 CFR 52.21(i)(1)(i)-(v). In the
absence an explicit exemption in the CAA or the PSD regulations that
uses the term ``commence construction,'' we do not believe we can use
the date a source ``commences construction'' under a minor source
construction permit approval as a demarcation point for Step 2 sources
that may continue ongoing construction activities without having to
obtain a PSD permit based on emissions of GHGs. Since we did not
provide prior notice of an intention to adopt transition provisions
applicable to this situation, we are unable to adopt such an exemption
in this action that applies the term commence construction in this
context. Consequently, the approach described previously applies the
term ``begin actual construction'' based on the language in 40 CFR
52.21(a)(2)(iii) and 51.166(a)(7)(iii).
d. Transitional Issues for Title V Permitting
    Since the title V permitting regulations already include a robust
set of provisions to address the incorporation of new applicable
requirements and other transitional considerations, we do not see
grounds to establish unique transition or grandfathering provisions for
GHGs in this action. Furthermore, since the purpose of title V is to
collect all regulatory requirements applicable to a source and ensure
compliance, we do not believe special exemptions for GHG requirements
are likely to be justified. The existing title V rules do not provide
any exemptions that relieve the obligation to incorporate all
applicable requirements into a title V permit. However, the title V
regulations contain numerous provisions that allow a reasonable period
of time for incorporating new applicable requirements or applying for a
title V permit that was not previously required. Transitional issues
for incorporation of GHG requirements into title V permitting generally
involve questions in the following categories: (1) Permit application
requirements for sources not previously subject to title V that will
become subject to title V requirements in Step 2 of the phase-in; (2)
the need for updates or amendments to title V permit applications that
are pending when GHGs become subject to regulation in Step 1 of the
phase-in; and (3) the incorporation of new applicable requirements for
GHGs into existing permits for sources currently subject to title V.
    With respect to the first category, a title V source applying for
the first time must submit its permit application within 12 months
after the source ``becomes subject to the [operating] permit program''
or such earlier time that the permitting authority may require (see 40
CFR 70.5(a)(1)). Sources not otherwise subject to title V can become
major sources subject to title V due to emissions of GHG no sooner than
July 1, 2011. If a source becomes ``subject to the [operating] permit