DRAFT do not cite, quote, or distribute 3/ 8/ 05 6560 50 P ENVIRONMENTAL PROTECTION AGENCY 40 CFR Parts 51 and 96 [ OAR 2003 0053; FRL ]

[ RIN 2060 AM95]

Inclusion of Delaware and New Jersey in the Clean Air Interstate Rule AGENCY: Environmental Protection Agency ( EPA).

ACTION: Proposed rule.

SUMMARY: In today's action, we are proposing to include Delaware and New Jersey in the Clean Air Interstate Rule ( CAIR) for fine particles ( PM2.5), based on a preliminary assessment that they contribute significantly to a downwind State's nonattainment. In the CAIR, we determined that upwind States that contribute 0.2

g/ m3 or more to a downwind fine particles ( PM2.5) nonattainment area are potentially deemed to be contributing significantly to nonattainment. We are proposing here to combine Delaware and New Jersey for purposes of this test. We are doing so to avoid the anomalous omission of these two States from the CAIR due to their relatively small size. We have DRAFT do not cite, quote, or distribute 3/ 8/ 05 2 tentatively determined that Delaware and New Jersey should be covered by the CAIR for annual sulfur dioxide ( SO2) and nitrogen oxides ( NOx) requirements.

In this proposal, we are not reopening any of the technical aspects of the CAIR final analyses. Rather, we are proposing to augment the analytical approach used in the CAIR by supplementing the air quality step of the contribution analysis.

For a more detailed discussion of the purpose,

background, and analytical approach of the CAIR, and for the detailed provisions of the CAIR, see the CAIR final rule which is published in today's Federal Register.

DATES: Comments must be received on or before [ insert date 45 days from publication]. A public hearing, if requested,

will be held in Washington, D. C. on __________________,

beginning at 9: 00 a. m.

ADDRESSES: Submit your comments, identified by Docket ID No. OAR 2003 0053, by one of the following methods:

° Federal eRulemaking Portal:

http:// www. regulations. gov. Follow the on line instructions for submitting comments.

° Agency Website: http:// www. epa. gov/ edocket.

EDOCKET, EPA's electronic public docket and DRAFT do not cite, quote, or distribute 3/ 8/ 05 3 comment system, is EPA's preferred method for receiving comments. Follow the on line instructions for submitting comments.

° E mail: A and R Docket@ epa. gov.

° Fax: ( 202) 566 1741.

° Mail: Air Docket, Environmental Protection Agency,

Mailcode: 6102T, 1200 Pennsylvania Ave., NW.,

Washington, DC 20460. Please include a total of two copies.

° Hand Delivery: EPA Docket Center ( Air Docket),

U. S. Environmental Protection Agency, 1301 Constitution Avenue, NW., Room B102, Washington,

DC 20004. Such deliveries are only accepted during the Docket's normal hours of operation, and special arrangements should be made for deliveries of boxed information.

Instructions: Direct your comments to Docket ID No. OAR

2003 0053. The EPA's policy is that all comments received will be included in the public docket without change and may be made available online at http:// www. epa. gov/ edocket,

including any personal information provided, unless the comment includes information claimed to be Confidential Business Information ( CBI) or other information whose DRAFT do not cite, quote, or distribute 3/ 8/ 05 4 disclosure is restricted by statute. Do not submit information that you consider to be CBI or otherwise protected through EDOCKET, regulations. gov, or e mail. The EPA EDOCKET and the Federal regulations. gov websites are " anonymous access" systems, which means EPA will not know your identity or contact information unless you provide it in the body of your comment. If you send an e mail comment directly to EPA without going through EDOCKET or regulations. gov, your e mail address will be automatically captured and included as part of the comment that is placed in the public docket and made available on the Internet. If you submit an electronic comment, EPA recommends that you include your name and other contact information in the body of your comment and with any disk or CD ROM you submit. If EPA cannot read your comment due to technical difficulties and cannot contact you for clarification, EPA may not be able to consider your comment. Electronic files should avoid the use of special characters, any form of encryption,

and be free of any defects or viruses.

Docket: All documents in the docket are listed in the EDOCKET index at http:// www. epa. gov/ edocket. Although listed in the index, some information is not publicly available, i. e., CBI or other information whose disclosure DRAFT do not cite, quote, or distribute 3/ 8/ 05 5 is restricted by statute. Certain other material, such as copyrighted material, is not placed on the Internet and will be publicly available only in hard copy form. Publicly available docket materials are available either electronically in EDOCKET or in hard copy at the Air Docket,

EPA/ DC, EPA West, Room B102, 1301 Constitution Ave., NW,

Washington, DC. The Public Reading Room is open from 8: 30 a. m. to 4: 30 p. m., Monday through Friday, excluding legal holidays. The telephone number for the Public Reading Room is ( 202) 566 1744, and the telephone number for the Air Docket is ( 202) 566 1742. This Docket Facility is open from 8: 00 a. m. to 5: 30 p. m., Monday through Friday, excluding legal holidays. The Docket telephone number is ( 929) 566

1742, fax ( 202) 566 1741.

FOR FURTHER INFORMATION CONTACT: General questions concerning today's action should be addressed to Jan King,

U. S. EPA, Office of Air Quality Planning and Standards, Air Quality Strategies and Standards Division, Mail Code C539

02, Research Triangle Park, NC, 27711, telephone ( 919) 541

5665, e mail king. jan@ epa. gov. For legal questions, please contact Steven Silverman, U. S. EPA, Office of General Counsel, Mail Code 2344A, 1200 Pennsylvania Avenue, NW,

Washington, DC, 20460, telephone ( 202) 564 5523, e mail at DRAFT do not cite, quote, or distribute 3/ 8/ 05 6 silverman. steven@ epa. gov. For questions regarding air quality analyses, please contact Norm Possiel, U. S. EPA,

Office of Air Quality Planning and Standards, Emissions,

Monitoring, and Analysis Division, Mail Code D243 01,

Research Triangle Park, NC, 27711, telephone ( 919) 541 5692,

e mail at possiel. norm@ epa. gov. For questions regarding the EGU cost analyses, emissions inventories, and budgets,

please contact Roman Kramarchuk, U. S. EPA, Office of Atmospheric Programs, Clean Air Markets Division, Mail Code 6204J, 1200 Pennsylvania Avenue, NW, Washington, DC, 20460,

telephone ( 202) 343 9089, e mail at kramarchuk. roman@ epa. gov. For questions regarding statewide emissions inventories, please contact Marc Houyoux, U. S.

EPA, Office of Air Quality Planning and Standards,

Emissions, Monitoring, and Analysis Division, Mail Code D205 01, Research Triangle Park, NC, 27711, telephone ( 919)

541 3649, e mail at houyoux. marc@ epa. gov. For questions regarding emissions reporting requirements, please contact Bill Kuykendal, U. S. EPA, Office of Air Quality Planning and Standards, Emissions, Monitoring, and Analysis Division,

Mail Code D205 01, Research Triangle Park, NC, 27711,

telephone ( 919) 541 5372, e mail at kuykendal. bill@ epa. gov.

For questions regarding the model cap and trade programs, DRAFT do not cite, quote, or distribute 3/ 8/ 05 7 please contact Sam Waltzer, U. S. EPA, Office of Atmospheric Programs, Clean Air Markets Division, Mail Code 6204J, 1200 Pennsylvania Avenue, NW, Washington, DC, 20460, telephone ( 202) 343 9175, e mail at waltzer. sam@ epa. gov. For questions regarding analyses required by statutes and executive orders, please contact Linda Chappell, U. S. EPA,

Office of Air Quality Planning and Standards, Air Quality Strategies and Standards Division, Mail Code C339 01,

Research Triangle Park, NC, 27711, telephone ( 919) 541 2864,

e mail at chappell. linda@ epa. gov.

SUPPLEMENTARY INFORMATION:

PUBLIC HEARING A public hearing, if requested, will be held in Washington D. C. on ____________, 2005 beginning at 9: 00 a. m.

If you wish to request a hearing and present testimony or attend the hearing, you should notify, on or before __________________, Jan King, U. S. EPA, Office of Air Quality Planning and Standards, Air Quality Strategies and Standards Division, Mail Code C539 02, Research Triangle Park, NC 27711, telephone ( 919) 541 5665, e mail king. jan@ epa. gov. Oral testimony will be limited to 5 minutes each. The hearing will be strictly limited to the subject matter of the proposal, the scope of which is DRAFT do not cite, quote, or distribute 3/ 8/ 05 8 discussed below. Any member of the public may file a written statement by the close of the comment period.

Written statements ( duplicate copies preferred) should be submitted to Docket OAR 2003 0053, at the address listed above for submitted comments. The hearing location and schedule, including lists of speakers, will be posted on EPA's webpage at http:// www. epa. gov/ cleanairinterstaterule.

A verbatim transcript of the hearing and written statements will be made available for copying during normal working hours at the Office of Air and Radiation Docket and Information Center at the address listed for inspection for documents.

If no requests for a public hearing are received by close of business on ______________________, the hearing will be cancelled. The cancellation will be announced on the webpage at the address shown above.

Outline I. Background A. Summary of the Clean Air Interstate Rule B. What Are the Central Requirements of Today's Proposal?

II. Summary of EPA's Analytical Approach, Findings, and Final Actions in the Interstate Air Quality Rule A. How Did EPA Interpret the CAA's Pollution Transport Provisions? B. Which Air Pollutants Did EPA Address In the CAIR and Why? C. Air Quality Analysis of Ozone and PM2.5 Contributions DRAFT do not cite, quote, or distribute 3/ 8/ 05 9 Among States D. Analysis of Highly Cost Effective Controls and Timeframe For Emissions Reductions III. Proposed Inclusion of Delaware and New Jersey in the Clean Air Interstate Rule A. Why is EPA Reconsidering the Status of Delaware and New Jersey in the CAIR? B. Air Quality Modeling Results IV. Proposed Findings and Action A. Proposed Findings of Significant Contribution for Delaware and New Jersey B. SIP Approval Criteria C. SIP Submittal Deadline D. Emissions Reporting Requirements V. Expected Effects of the Proposed Action A. Emissions B. Air Quality VI. Statutory and Executive Order Reviews A. Executive Order 12866: Regulatory Planning and Review B. Paperwork Reduction Act C. Regulatory Flexibility Act D. Unfunded Mandates Reform Act E. Executive Order 13132: Federalism F. Executive Order 13175: Consultation and Coordination with Indian Tribal Governments G. Executive Order 13045: Protection of Children from Environmental Health and Safety Risks H. Executive Order 13211: Actions That Significantly Affect Energy Supply, Distribution or Use I. National Technology Transfer Advancement Act J. Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low Income Populations I. BACKGROUND A. Summary of the Clean Air Interstate Rule In a final rule published in today's Federal Register, DRAFT do not cite, quote, or distribute 3/ 8/ 05 1 " Rule to Reduce Interstate Transport of Fine Particulate Matter and Ozone ( Interstate Air Quality Rule); Proposed Rule," ( 69 FR 4566, January 30, 2004) ( NPR or January Proposal); " Supplemental Proposal for the Rule to Reduce Interstate Transport of Fine Particulate Matter and Ozone ( Clean Air Interstate Rule); Proposed Rule" ( 69 FR 32684, June 10, 2004) ( SNPR or Supplemental Proposal). We summarize major features of that rule here as an aid to the reader. The EPA is not reconsidering any aspect of the CAIR rule and not accepting comment in this proceeding on the promulgated CAIR rule.

10 titled the Clean Air Interstate Rule (" CAIR"), EPA found that certain States must reduce emissions of SO2 and/ or NOx by certain amounts because those emissions contribute significantly to nonattainment in downwind areas in other States that are not meeting the annual PM2.5 national ambient air quality standard ( NAAQS), or the 8 hour ozone NAAQS. 1 The CAIR establishes State implementation plan ( SIP)

requirements for the affected upwind States under Clean Air Act ( CAA) section 110( a)( 2). The CAA section 110( a)( 2)( D)

requires SIPs to contain adequate provisions prohibiting air pollutant emissions from sources or activities in those States that contribute significantly to nonattainment in, or interfere with maintenance by, any other State with respect to a NAAQS. Based on air quality modeling analyses and cost analyses, EPA has concluded in the CAIR that SO2 and NOx emissions in certain States in the eastern half of the DRAFT do not cite, quote, or distribute 3/ 8/ 05 2 In today's final rule, when we use the term " transport" we mean to include the transport of both fine particles ( PM2.5) and their precursor emissions and/ or transport of both ozone and its precursor emissions.

3 We also found that emissions of SO2 and NOx from upwind States in the PM2.5 and ozone CAIR regions can interfere with these same downwind receptors' maintenance of each NAAQS.

11 nation, through the phenomenon of air pollution transport, 2 contribute significantly to nonattainment of the PM2.5 and 8 hour ozone NAAQS in another State. 3 This is because NOx and SO2 are important precursors of PM2.5, and NOx is an important precursor of ozone. As a result of the CAIR, EPA is requiring SIP revisions in 28 States and the District of Columbia to reduce SO2 and/ or NOx emissions.

The 23 States along with the District of Columbia that must reduce annual SO2 and NOx emissions for the purposes of the PM2.5 NAAQS are: Alabama, Florida, Georgia, Illinois,

Indiana, Iowa, Kentucky, Louisiana, Maryland, Michigan,

Minnesota, Mississippi, Missouri, New York, North Carolina,

Ohio, Pennsylvania, South Carolina, Tennessee, Texas,

Virginia, West Virginia, and Wisconsin. While we had originally proposed including Delaware and New Jersey in this group based on our initial air quality contribution assessment, subsequent refinement of the emissions estimates and air quality modeling system resulted in their estimated DRAFT do not cite, quote, or distribute 3/ 8/ 05 12 contributions to PM2.5 nonattainment being below the threshold for inclusion in the PM2.5 related requirements.

The 25 States along with the District of Columbia that must reduce NOx emissions for the purposes of the 8 hour ozone NAAQS are: Alabama, Arkansas, Connecticut, Delaware,

Florida, Illinois, Indiana, Iowa, Kentucky, Louisiana,

Maryland, Massachusetts, Michigan, Mississippi, Missouri,

New Jersey, New York, North Carolina, Ohio, Pennsylvania,

South Carolina, Tennessee, Virginia, West Virginia, and Wisconsin.

Under the CAIR, each State may determine independently which sources to subject to controls, and which control measures to adopt. Our analysis indicated that emissions reductions from electric generating units ( EGUs) are highly cost effective, and, in the CAIR rule, we encouraged States to adopt these controls. States that do so must place an enforceable limit, or cap, on EGU emissions ( see section VII of the CAIR for further discussion). We calculated the amount of each State's EGU emissions cap, or budget, based on reductions that we have determined are highly costeffective States may allow their EGUs to participate in an EPA administered cap and trade program as a way to reduce the cost of compliance, and to provide compliance DRAFT do not cite, quote, or distribute 3/ 8/ 05 13 flexibility. The cap and trade programs are described in more detail in section VIII of the CAIR.

B. What Are the Central Requirements of Today's Proposal?

In today's action, we propose to combine Delaware and New Jersey for purposes of assessing whether that combination is contributing significantly to nonattainment of the PM2.5 NAAQS by downwind receptors under section 110( a)( 2)( D), and to apply the finding from that combined assessment to each State. Based on presently available air quality modeling results, our tentative assessment is that the combination of the two states does contribute significantly to PM2.5 nonattainment in New York County, NY,

and possibly to one or more counties in eastern Pennsylvania. Accordingly, we are proposing that Delaware and New Jersey adopt SIP requirements for addressing annual emissions of the PM2.5 precursors NOx and SO2. We intend to conduct confirmatory air quality modeling and make the results available through a Notice of Data Availability prior to finalization of this proposal.

Delaware and New Jersey are already subject to the CAIR for purposes of ozone, and must reduce ozone season emissions of NOx starting in 2009. This proposal would add requirements for control of annual emissions of SO2 and of DRAFT do not cite, quote, or distribute 3/ 8/ 05 4 We note again that this section is provided for purposes of information, and not to reopen or reconsider any issues discussed in the section.

14 NOx.

We propose to require that SIPs to achieve the required PM2.5 emissions reductions be submitted as soon as practicable, but no later than 18 months after the date of signature of the CAIR, i. e., [ insert date 18 months after signature of the CAIR], the same deadline as in the CAIR rule. We are doing so because we believe this is a reasonable amount of time for submission of these States'

SIPs, and that there are evident efficiencies in having these reductions occur at the same time as the reductions from other states covered by the CAIR rule for NOx and SO2.

See also section IV. D below.

As an option to Delaware and New Jersey, we propose to provide model cap and trade programs for EGUs. We would also administer these programs, which will be governed by rules provided by EPA that Delaware and New Jersey may adopt or incorporate by reference.

II. SUMMARY OF EPA'S ANALYTICAL APPROACH, FINDINGS, AND FINAL ACTIONS IN THE INTERSTATE AIR QUALITY RULE4 A. How Did EPA Interpret the CAA's Pollution Transport DRAFT do not cite, quote, or distribute 3/ 8/ 05 15 Provisions?

The CAIR is based on the " good neighbor" provision of CAA section 110( a)( 2)( D), which requires States to develop SIP provisions assuring that emissions from their sources do not contribute significantly to downwind nonattainment or interfere with maintenance of the NAAQS. We first interpreted this provision and developed a detailed methodology for applying it in the NOx SIP Call rulemaking ( October 27, 1998), which concerned interstate transport of ozone precursors.

As summarized above, the CAIR requires upwind States to submit SIP revisions requiring their sources to eliminate emissions of certain precursors for PM2.5 and ozone, to protect downwind nonattainment areas. We developed the CAIR and this proposal relying heavily on the NOx SIP Call approach. In the NOx SIP Call, we interpreted section 110( a)( 2)( D) to authorize us to determine the amount of emissions in upwind States that " contribute significantly"

to downwind nonattainment or " interfere with" downwind maintenance, and to require those States to eliminate that amount of emissions. We recognized that States must retain full authority to choose the sources to control, and the control mechanisms, to achieve those reductions. DRAFT do not cite, quote, or distribute 3/ 8/ 05 5 In the NOx SIP Call, because the same criteria applied, the discussion of the " contribute significantly to nonattainment" test generally also applied to the " interfere with maintenance" test. However, in the NOx SIP Call, EPA stated that the " interfere with maintenance" test applied with respect to only the 8 hour ozone NAAQS ( 63 FR 57379 80).

16 In the NOx SIP Call, we set out several criteria or factors for the " contribute significantly" test, and further indicated that the same criteria should apply to the " interfere with maintenance" provision. 5 The EPA determined the amount of emissions that significantly contribute to downwind nonattainment from sources in a particular upwind State primarily by ( i) evaluating, with respect to each upwind State, several air quality related factors, including determining that all emissions from the State have a sufficiently great impact downwind ( in the context of the collective contribution nature of the ozone problem); and ( ii) determining the amount of that State's emissions that can be eliminated through the application of highly costeffective controls. Before reaching a conclusion, EPA evaluated several secondary, and more general,

considerations. These include:

 The consistency of the regional reductions with the attainment needs of the downwind areas with nonattainment problems; DRAFT do not cite, quote, or distribute 3/ 8/ 05 17  The overall fairness of the control regimes required of the downwind and upwind areas, including the extent of the controls required or implemented by the downwind and upwind areas;

 General cost considerations, including the relative cost effectiveness of additional downwind controls compared to upwind controls ( 63 FR 57403).

In the CAIR rulemaking, we utilized much the same interpretation and application of section 110( a)( 2)( D) for regulating downwind transport of precursors of ozone and PM2.5 as we adopted for the NOx SIP Call. We adjusted some aspects of the CAIR analytic approaches for various reasons,

including the need to account for regulation of a different pollutant ( PM2.5) with an additional precursor ( SO2). The CAIR's approach to the ozone issue is essentially the same as in the NOx SIP Call, but applied to more recent data on the relevant air quality and cost factors.

For a more detailed discussion of how we interpreted the CAA pollution transport provisions, see section II of the CAIR in today's Federal Register.

B. Which Air Pollutants Did EPA Address In the CAIR and Why?

In section III of the CAIR ( add cite), EPA provided the DRAFT do not cite, quote, or distribute 3/ 8/ 05 6 Ozone Transport Assessment Group, OTAG Final Report, 1997.

18 following characterization of the origin and distribution of 8 hour ozone air quality problems: the ozone present at ground level as a principal component of photochemical smog is formed in sunlit conditions through atmospheric reactions of two main classes of precursor compound: volatile organic compounds ( VOCs) and NOx [ mainly nitrogen oxide ( NO) and nitrogen dioxide ( NO2)]; and the formation of ozone increases with temperature and sunlight, which is one reason ozone levels are higher during the summer.

In the CAIR, EPA noted that we continue to rely on the assessment of ozone transport made in great depth by the Ozone Transport Assessment Group ( OTAG) in the mid 1990s. 6 As indicated in the NOx SIP Call proposal, the OTAG Regional and Urban Scale Modeling and Air Quality Analysis Work Groups reached the following conclusions:

 Regional NOx emissions reductions are effective in producing ozone benefits; the more NOx reduced, the greater the benefit.

 Controls for VOC are effective in reducing ozone locally and are most advantageous to urban nonattainment areas ( 62 FR 60320, November 7, 1997).

In section III of the CAIR, we summarized key DRAFT do not cite, quote, or distribute 3/ 8/ 05 19 scientific and technical aspects of the occurrence,

formation, and origins of PM2.5, as well as findings and observations relevant to formulating control approaches for reducing the contribution of transport to fine particle problems. For a detailed discussion of the key concepts and provisional conclusions drawn from the CAIR, see section III of the CAIR published in today's Federal Register.

PM2.5 in ambient air is a complex mixture of component of different chemical compositions and origins. Based on the understanding of current scientific and technical information, as well as our air quality modeling, as summarized in the CAIR in today's Federal Register, we concluded that it was both appropriate and necessary to focus on control of SO2 and NOx emissions as the most effective approach to reducing the contribution of interstate transport to PM2.5. Current information relating to sources and controls for other components identified in transported PM2.5 ( carbonaceous particles, ammonium, and crustal materials) does not, at this time, provide an adequate basis for regulating the regional transport of emissions responsible for these PM2.5 components ( 69 FR 4582). For all of these components, the lack of knowledge of and ability to quantify accurately the interstate DRAFT do not cite, quote, or distribute 3/ 8/ 05 20 transport of these components limited our ability to include these components in this rule.

For a more detailed discussion of how we chose which pollutants to regulate, see section III. B. 1. a of the final CAIR in the rules section of today's Federal Register.

C. Air Quality Analysis of Ozone and PM2.5 Contributions Among States For the CAIR, we performed State by State zero out modeling to quantify the contribution from emissions in each State to future ozone and PM2.5 nonattainment in other States and to determine whether that contribution meets requirements of the " contribute significantly" test. This zero out modeling technique provides an estimate of downwind impacts by comparing the model predictions from the 2010 base case to the predictions from a run in which all anthropogenic NOx emissions ( in the case of ozone) or all anthropogenic SO2 and NOx emissions ( in the case of PM2.5)

are removed from specific States, one State at a time.

Counties presently exceeding the ozone or PM2.5 NAAQS and forecast to be nonattainment for ozone or PM2.5 in the 2010 Base Case were used as receptors for quantifying interstate contributions of ozone and/ or PM2.5. For each State by

State zero out run, we projected the ozone design value or DRAFT do not cite, quote, or distribute 3/ 8/ 05 21 the annual average PM2.5 concentration at each receptor.

The contribution from an upwind State to nonattainment at a given downwind receptor was determined by calculating difference in ozone or PM2.5 concentration between the 2010 Base Case and the zero out run at that receptor. We followed this process for each State by State zero out run and each receptor, for both ozone and PM2.5. For each upwind State, we identified the largest PM2.5 contribution from that State to a downwind nonattainment receptor in order to determine the magnitude of the maximum downwind contribution to PM2.5 nonattainment from each State. The maximum downwind contribution was our chosen metric for determining whether or not the PM2.5 contribution was significant. After considering an updated analysis and public comments, we applied a threshold of 0.2

g/ m3 for this determination. For ozone, we applied a multi metric test of significant contribution. For ozone, we also used a second method of quantifying State to State contributions, known as source receptor modeling, in addition to the emissions zeroout approach just described. This contribution analysis is more fully described in section VI of the preamble for the CAIR.

D. Analysis of Highly Cost Effective Controls and DRAFT do not cite, quote, or distribute 3/ 8/ 05 22 Timeframe for Emissions Reductions 1. Overall Criteria In the CAIR rulemaking, we considered a variety of factors in evaluating the source categories from which highly cost effective reductions may be available and the level of reduction assumed from that sector. These include:

 The availability of information,

 The identification of source categories emitting relatively large amounts of the relevant emissions,

 The performance and applicability of control measures,

 The cost effectiveness of control measures, and  Engineering and financial factors that affect the availability of control measures ( 69 FR 4611).

We further stated that overall, " We are striving ... to set up a reasonable balance of regional and local controls to provide a cost effective and equitable governmental approach to attainment with the NAAQS for fine particles and ozone." ( 69 FR 4612). These criteria are unaffected by this proposal.

2. Evaluation of Cost Effectiveness and Feasibility Section IV in the CAIR Notice of Final Rulemaking ( NFR)

preamble describes EPA's determination of regionwide SO2 and NOx control levels. As described in section IV in the CAIR DRAFT do not cite, quote, or distribute 3/ 8/ 05 23 NFR preamble, EPA determined that highly cost effective emissions reductions may be obtained by controlling EGUs.

The EPA determined the amounts of emissions reductions that must be eliminated in upwind States to help downwind States achieve attainment of the PM2.5 and ozone NOx NAAQS, by assuming the application of highly cost effective control measures to EGUs and determining the emissions reductions that would result.

For CAIR, EPA determined highly cost effective regionwide amounts of emissions reductions based on, as in the NOx SIP Call, comparison to reference lists of the cost effectiveness of other regulatory controls. We developed reference lists for both average and marginal cost effectiveness of those other controls. By comparison to the reference lists, EPA determined that the CAIR final ( 2015)

SO2 and NOx regionwide control levels are highly cost effective. The EPA also developed marginal costeffectiveness curves for SO2 and NOx abatement at varying levels of stringency, to corroborate its cost effectiveness determinations.

The EPA determined the interim control levels ( commencing in 2009 for NOx and in 2010 for SO2) based on evaluating the feasibility of installing the necessary DRAFT do not cite, quote, or distribute 3/ 8/ 05 24 emission control retrofits. Although the interim regionwide control levels were determined based on feasibility considerations, EPA also evaluated the cost effectiveness of the interim control levels to ensure that they were also highly cost effective.

Section IV. C in the CAIR NFR preamble describes EPA's feasibility analysis, and section IV. A describes our evaluation of highly cost effective controls. Section V in the CAIR NFR preamble describes the method EPA used to apportion regionwide control levels to the affected States.

A technical support document in the CAIR docket entitled " Modeling of Control Costs, Emissions, and Control Retrofits for Cost Effectiveness and Feasibility Analyses" describes EPA's use of the Integrated Planning Model ( IPM) for its cost effectiveness and feasibility analyses. In addition, a technical support document entitled " Boilermaker Labor Analysis for the Final Clean Air Interstate Rule" provides further explanation of EPA's feasibility analyses.

Documentation for IPM, as well as IPM output files, are available in the CAIR docket.

3. CAIR Regionwide SO2 and NOx Emission Reduction Requirements The CAIR requires annual SO2 and NOx reductions in the DRAFT do not cite, quote, or distribute 3/ 8/ 05 25 District of Columbia and the following 23 States: Alabama,

Florida, Georgia, Illinois, Indiana, Iowa, Kentucky,

Louisiana, Maryland, Michigan, Minnesota, Mississippi,

Missouri, New York, North Carolina, Ohio, Pennsylvania,

South Carolina, Tennessee, Texas, Virginia, West Virginia,

and Wisconsin. If all affected States choose to implement the CAIR annual SO2 emission reduction requirements by controlling EGUs, the regionwide annual SO2 emissions caps that will apply for EGUs in these 23 States and the District of Columbia are 3.6 million tons in 2010 and 2.5 million tons in 2015. If all affected States choose to implement the CAIR annual NOx emission reduction requirements by controlling EGUs, the regionwide annual NOx emissions caps that will apply for EGUs in these 23 States and the District of Columbia are 1.5 million tons in 2009 and 1.3 million tons in 2015.

The CAIR does not require annual SO2 or NOx emissions reductions in Delaware or New Jersey. However, today EPA is proposing to require annual SO2 and NOx reductions in these two States. Proposed annual SO2 and NOx budgets for Delaware and New Jersey are presented later in this preamble. If EPA finalizes these proposed annual SO2 and NOx budgets for Delaware and New Jersey   and if those DRAFT do not cite, quote, or distribute 2/ 8/ 05 26 States choose to implement their annual emission reduction requirements by controlling EGUs   then the CAIR regionwide EGU caps would be revised to include reduction requirements for these two States. The revised annual SO2 caps,

including Delaware and New Jersey, would be 3.7 million tons in 2010 and 2.6 million tons in 2015. The revised annual NOx caps, including Delaware and New Jersey, would be 1.5 million tons in 2009 and 1.3 million tons in 2015.

In addition to its annual SO2 and NOx emission reduction requirements, the CAIR requires ozone season NOx emissions reductions in the District of Columbia and the following 25 States: Alabama, Arkansas, Connecticut,

Delaware, Florida, Illinois, Indiana, Iowa, Kentucky,

Louisiana, Maryland, Massachusetts, Michigan, Mississippi,

Missouri, New Jersey, New York, North Carolina, Ohio,

Pennsylvania, South Carolina, Tennessee, Virginia, West Virginia, and Wisconsin. If all affected States choose to implement the CAIR ozone season NOx emission reduction requirements by controlling EGUs, the regionwide ozone season NOx emissions caps that will apply for EGUs in these 25 States and the District of Columbia are 0.6 million tons in 2009 and 0.5 million tons in 2015.

III. Proposed Inclusion of Delaware and New Jersey in the DRAFT do not cite, quote, or distribute 2/ 9/ 05 27 Clean Air Interstate Rule A. Why is EPA Reconsidering the Status of Delaware and New Jersey in the CAIR?

As explained earlier, section 110( a)( 2)( d) of the CAA requires States to eliminate emissions that will contribute significantly to nonattainment in, or interfere with maintenance by, any other State. The term " contribute significantly" is not further defined, so in implementing this section we have had to develop an analytical approach to give specific meaning to that term. The underlying logic of the analytical approach used in both the NOx SIP Call and the CAIR is that the emission reduction efforts needed to reach attainment should be reasonably balanced between the State containing a nonattainment area and upwind States contributing to the nonattainment. In this way, control efforts on one side of a border are not undermined ( and even rendered futile) by out of State emissions, and highly costeffective emissions reductions by out of State sources which contribute significantly to downwind receptors'

nonattainment are achieved. We believe this approach is both efficient and equitable, so that overall costs are less and costs are more fairly distributed than if the burden of reaching attainment were entirely on the State with the DRAFT do not cite, quote, or distribute 2/ 9/ 05 28 nonattainment area.

We are proposing to retain this underlying analytical approach, but to treat Delaware and New Jersey as special cases due to their small size ( and correspondingly lower emissions) compared to other states, because we believe we will achieve a result that is more in keeping with the intention of section 110( a)( 2)( D). Specifically, we propose to combine Delaware and New Jersey for purposes of assessing whether that combination is contributing significantly to nonattainment of the PM2.5 NAAQS by downwind receptors under section 110( a)( 2)( D), and to apply the finding from that combined assessment to each State. In proposing this special treatment of these two States, we note that section 110( a)( 2)( D) does not mandate a single approach to determining significance of contribution, so that we have latitude to craft reasonable tests to supplement the approaches adopted in the NOx SIP Call and the CAIR.

As stated earlier, the analytical approach used for the CAIR has two parts, the first of which is a test of whether the air quality contribution from one entire State to nonattainment in any part of another State is strong enough to be considered significant, pending consideration of control costs. For ozone, we used a test for this first DRAFT do not cite, quote, or distribute 2/ 9/ 05 29 part which is based on several metrics of air quality contribution, involving absolute magnitude, relative magnitude, and frequency. For PM2.5, we used a test with the single criterion of whether the PM2.5 air quality contribution from an upwind State to nonattainment in a downwind State, due to total anthropogenic SO2 and NOx emissions in the upwind State, was 0.2 µ g/ m3 or more. We believe that this specific form of the analytical approach used in the final CAIR rule has very appropriately identified a set of 23 States and the District of Columbia that should make certain reductions in annual emissions by 2009 for NOx and by 2010 for SO2, and larger reductions by 2015 for NOx and SO2, in order to avoid contributing significantly to PM2.5 nonattainment or interfere with maintenance in other States. Similarly, we believe that the original analytical approach has very appropriately identified a set of 25 States and the District of Columbia that should make certain reductions in ozone season NOx emissions by 2009, and larger reductions by 2015, in order to avoid contributing significantly to ozone nonattainment or interfere with maintenance in other States.

In the course of applying that analytical approach, we realized that an upwind State may have relatively low total emissions and thus have a maximum contribution on other DRAFT do not cite, quote, or distribute 2/ 9/ 05 30 States that is below the air quality contribution threshold used in the CAIR, simply because the State is small in geographic area. In particular, it was clear that Delaware and New Jersey each contribute to a degree to PM2.5 nonattainment in downwind States, because each is located between a known significantly contributing State and a downwind receptor State. Also, Delaware and New Jersey each has substantial emissions for its size. Therefore,

excluding Delaware or New Jersey from emission reduction requirements related to PM2.5 might prevent the desired balancing of local and upwind controls. Excluding either State could forgo opportunities for highly cost effective control that would improve air quality in nearby States'

nonattainment areas. We believe that a downwind State with a nonattainment area being affected by emissions from Delaware or New Jersey should not have to implement more,

and more expensive, local controls simply because Delaware or New Jersey is small in geographic area and, hence, low in total emissions. Ignoring the contributions of Delaware and New Jersey could result in both air quality detriments and cost inefficiencies and inequities.

EPA considered alternative approaches to addressing this issue. We do not believe it would be appropriate to consider amending or revising the significance critria set DRAFT do not cite, quote, or distribute 2/ 9/ 05 31 forth in the final CAIR notice. Nevertheless, we believe that in these two states, which combined represent a significant source of emissions, fail to meet these tests solely because of their comparatively small geographic size.

We have faced a similar issue with respect to small geographic entities in the NOx SIP Call, and more recently in CAIR. In the NOx SIP Call we combined both Delaware and the District of Columbia with Maryland in the contribution analyses, foreshadowing the issues addressed by this proposal. Furthermore, the final CAIR similarly addressed the special case of one small political jurisdiction, the District of Columbia and combined that with Maryland. In all the analysis of air quality contributions for the CAIR,

we combined the District of Columbia and Maryland into one unit for purposes of analyzing contributions to nonattainment in other States, because of the small size of the District of Columbia and, hence, its emissions, and its close proximity to Maryland. We applied the finding from this combined analysis to each jurisdiction separately. We did not receive any adverse comment on this approach. Nor did we receive adverse comment in the SIP Call rule regarding combining Delaware, Maryland, and the District of Columbia in the contribution analysis.

The final CAIR's exclusion of Delaware and New Jersey DRAFT do not cite, quote, or distribute 2/ 9/ 05 7 By emissions density we mean the total SO2 and NOx emissions from each State in tons per year, divided by the geographic area of the State in square miles. For comparing emissions densities for the purposes of contributions to PM2.5 nonattainment, we have compared the emissions density expressed in terms of SO2 plus NOx emissions per square mile. Such a comparison is a reasonable measure of comparison that is independent of the disparity in the land area size of the two States.

32 for purposes of PM2.5 drew our attention because of features unique to Delaware and New Jersey. Table III 1 presents relevant facts regarding Delaware and New Jersey, and Table III 2 presents similar information for Maryland, New York,

and Pennsylvania for comparison. On balance, we believe the most appropriate way to address the factual situation of the issue here is to consider Delaware's and New Jersey's contributions together, as one unit of analysis. Since Delaware and New Jersey are already subject to CAIR for purposes of ozone, the remainder of this discussion focuses on PM2.5 considerations.

Delaware and New Jersey are both relatively small in land area; both are smaller than any of the 23 states already subject to CAIR for purposes of PM2.5. Portions of both States are urbanized and industrialized, and overall both have a high emissions density, comparable to that of their neighbors. 7 Delaware has an emissions density of 76.1 tons/ year per square mile, almost twice that of neighboring DRAFT do not cite, quote, or distribute 2/ 9/ 05 8 Because electricity generation costs in States subject to the CAIR will in general rise to some degree to cover the cost of new emission controls, there is the possibility that some electrical generation load and the associated emissions may shift to States that remain outside the CAIR. Such shifting may not always occur, because physical factors in the electrical distribution system, economic factors, or other regulatory requirements may prevent it. The IPM model predicts that increases will occur in Delaware and New Jersey. We believe that such emission increases can be 33 Pennsylvania and also higher than that of Maryland, States already linked to downwind nonattainment areas. New Jersey has an emissions density of 46.6 tons/ year per square mile,

above that of Pennsylvania although somewhat lower than that of Maryland.

Delaware and New Jersey are near major cities where current PM2.5 nonattainment affects large populations.

Also, both are relatively near to a county or counties in other States that are projected to still be nonattainment for PM2.5 in 2010 in the base case. Delaware and New Jersey are also near large markets for electric power in other States subject to CAIR for PM2.5, and thus have a potential to become emissions havens if power generation were to shift to Delaware and New Jersey to serve those markets. In fact,

predictions from the IPM model indicate that if Delaware and New Jersey are excluded from the CAIR's requirements related to PM2.5, emissions of SO2 and NOx will increase in both States. 8 DRAFT do not cite, quote, or distribute 2/ 9/ 05 considered as a factor supporting a finding of significant contribution, since it would be contrary to the " emissions eliminating" purposes of section 110( a)( 2)( D) if States subject to the CAIR reduce their emissions and a substantial portion of those emissions merely shift to a non covered State from which they can impact the same or other downwind nonattainment area( s). Indeed, failure to consider this possibility could create inappropriate incentives for small States to become " pollution havens."

34 Both Delaware and New Jersey lie between upwind States that are now subject to the CAIR for both ozone and PM2.5 and downwind receptor PM2.5 nonattainment areas that are linked to one or both of those upwind States. Maryland has already been determined to contribute significantly to nonattainment in both Philadelphia and New York City,

Pennsylvania has already been determined to contribute significantly to nonattainment in New York City, and New York has been determined to contribute to nonattainment in Lancaster County, Pennsylvania. New Jersey lies between Pennsylvania and New York City, and Delaware lies between Maryland and both Philadelphia and New York City. This means that emissions from Delaware and New Jersey are mixed with the emissions of these other upwind States and arrive together at the downwind nonattainment areas in other States. Moreover, Delaware and New Jersey are closer to these receptors.

Given these highly distinctive facts, it is reasonable DRAFT do not cite, quote, or distribute 2/ 9/ 05 35 that Delaware and New Jersey could be viewed as contributing significantly to PM2.5 nonattainment. We have therefore considered how to determine in an objective way whether they should be formally considered to contribute to PM2.5 nonattainment in specific other States. We propose to do this by treating the combination of these two small states as a unit, subjecting that combination to the 0.2 µ g/ m3 threshold for PM2.5 air quality contribution used in the original analytical approach for the CAIR. As noted, this is consistent with our approach in the NOx SIP call, where Maryland, Delaware, and the District of Columbia were treated as a combined unit. We note also that Delaware and New Jersey lie side by side and together form a compact geographic area. In addition, Delaware and New Jersey are both part of the PJM Interconnection, which means they are in a coordinated portion of the electricity grid. We believe this further supports combining them for purposes of this analysis. By combining these two small States we believe the underlying cost balancing and control program efficiency goals of our original analytical approach can be better met.

Based on the air quality modeling that was done for the CAIR, we propose to find that when treated as a combined unit, Delaware and New Jersey do in fact contribute 0.2 DRAFT do not cite, quote, or distribute 2/ 9/ 05 36 µ g/ m3 or more to PM2.5 nonattainment in New York County, NY and may do so in one or more counties in eastern Pennsylvania. The next section of this preamble presents these modeling results. DRAFT do not cite, quote, or distribute 2/ 9/ 05 37 Table III 1. Contribution Factors for States Under Review State Contribution Factors Delaware Land Area of State 2050 square miles Most Affected Downwind Nonattainment Counties Philadelphia Co., PA Delaware Co., PA Lancaster Co., PA Berks Co., PA New York Co., NY Geography The Wilmington area, which is the most densely industrialized and populated part of Delaware, lies on or very close to the lines of transport between the Maryland suburbs of the District of Columbia and Philadelphia Co. and Delaware Co. PA, and also on or very close to the lines of transport between Baltimore and the Philadelphia Co. and Delaware Co., PA.

The Wilmington area also lies on or very close to the line of transport between these areas of Maryland and New York Co., NY.

2010 Base Emissions of SO2 plus NOx 156,000 tons/ year SO2 plus NOX Emissions Density 76.1 tons/ year per square mile Emission Changes IPM predicts that implementing the CAIR without subjecting Delaware to limits on annual emissions will result in increases in EGU SO2 emissions of 5000 tons and 2000 tons in 2010 and 2015, respectively, and an increase in NOx emissions of 2000 tons in 2010 with no increase in 2015.

New Jersey Land Area of State 7510 square miles DRAFT do not cite, quote, or distribute 2/ 9/ 05 38 Most Affected Downwind Nonattainment Counties New York Co., NY Berks Co., PA Lancaster Co., PA Geography: Some part of New Jersey lies in the path of transport connecting any source in Pennsylvania to New York Co., NY.

2010 Base Emissions of SO2 plus NOx 350,000 tons/ year SO2 Plus NOX Emissions Density 46.58 tons/ year per square mile SO2 plus NOX Emission Changes IPM predicts that implementing the CAIR without subjecting New Jersey to limits on annual emissions will result in increases in EGU SO2 emissions of 1,000 and 2,000 tons in 2010 and 2015, respectively, and an increase in EGU NOx emissions of 1,000 tons in 2010 and 2015. DRAFT do not cite, quote, or distribute 2/ 9/ 05 39 Table III 2. Contribution Factors for Neighboring States Already Subject to the CAIR, For Purposes of Comparison to Delaware and New Jersey State Contribution Factors Maryland & DC Size of State Land Area 9,740 square miles 2010 Base Emissions of SO2 plus NOx 631,000 tons/ year Nearby Downwind Nonattainment Counties with Significant Contribution From This State Lancaster Co., PA Berks Co., PA Philadelphia Co., PA Delaware Co., PA New York Co., NY Union Co., NJ SO2 plus NOX Emissions Density 64.8 tons/ year per square mile DRAFT do not cite, quote, or distribute 2/ 9/ 05 40 New York Size of State Land Area 48,560 square miles 2010 Base Emissions of SO2 plus NOx 902,400 tons/ year Nearby Downwind Nonattainment Counties with Significant Contribution From This State New Haven, CT Berks Co., PA Lancaster Co., PA Philadelphia Co., PA Delaware Co., PA Union Co., NJ SO2 plus NOX Emissions Density 18.6 tons/ year per square mile Pennsylvania Size of State Land Area 45,360 square miles 2010 Base Emissions of SO2 plus NOx 1,818,000 tons/ year Nearby Downwind Nonattainment Counties with Significant Contribution From This State New York Co., NY Union Co., NJ SO2 plus NOX Emissions Density 40.1 tons/ year per square mile B. Air Quality Modeling Results As explained in section II above, the air quality modeling used to assess contributions to PM2.5 nonattainment estimated the contribution by individual States by selectively removing DRAFT do not cite, quote, or distribute 2/ 9/ 05 41 anthropogenic emissions of SO2 and NOx from one state at a time,

and observing how that change in emissions affected PM2.5 concentrations in other States. This included separate assessments for New Jersey and Delaware, and did not include any run in which emissions in both states were removed together.

Consequently, we do not presently have exactly the same type of air quality modeling analysis for the combination of Delaware and New Jersey as we do for the 23 states already subject to CAIR for purposes of PM2.5. We intend to perform such modeling as soon as possible and to make the results available for public comment through a Notice of Data Availability.

However, a tentative assessment is currently possible.

Since results are available from the separate air quality model runs that were done for Delaware and New Jersey, we can add ( or superimpose) the contributions from the two states on each individual receptor monitor in order to estimate the contribution that would be calculated if the two states were taken as one unit of analysis. While there are non linear chemical and other atmospheric processes which could make the outcomes of these two approaches somewhat different, we believe the superimposition approach is sufficiently persuasive to support proposing inclusion of both States as significantly contributing to downwind PM2.5 nonattainment problems.

Table III 3 presents the superimposition analysis, using DRAFT do not cite, quote, or distribute 2/ 9/ 05 9 The Air Quality Technical Support Document provides full details of how the air quality modeling was done and all of the results.

42 detailed contribution results from the air quality analysis for the final CAIR. 9 The table shows that the sum of Delaware's and New Jersey's contributions to PM2.5 nonattainment in New York County, NY is 0.21 µ g/ m3 for one of the monitors in that county.

We note that this is the result that obtained from using the base case emissions from the two States. In actuality, as previously stated, we estimate, based on the IPM model, that under the final CAIR, which does not require reductions from Delaware and New Jersey for purposes of PM2.5, emissions in Delaware and New Jersey will be higher than in this base case. Thus, the actual contribution of Delaware and New Jersey combined and considered as a unit may be higher than the 0.21 µ g/ m3 result shown in the table. As mentioned above, non linearities in the atmospheric process may also affect the result, in either direction. Based on this analysis, we propose that New Jersey and Delaware taken together as one unit contribute significantly to PM2.5 nonattainment in New York County.

Of the several PM2.5 nonattainment counties in eastern Pennsylvania that are shown in Table III 3, none have a superimposed contribution from Delaware and New Jersey that is as large as 0.2 µ g/ m3. However, the planned air quality modeling DRAFT do not cite, quote, or distribute 2/ 9/ 05 43 that treats Delaware and New Jersey as a combined unit and that reflects the above mentioned emissions increases as a result of their current exclusion from CAIR may yield a different result. DRAFT do not cite, quote, or distribute 2/ 9/ 05 44 Table III 3 Assessment of Combined Contribution by Delaware and New Jersey to PM2.5 Nonattainment Based on Superimposition of Results from Air Quality Modeling for CAIR Receptor State Receptor County PM2.5 Contribution from Delaware ( µ g/ m3) PM2.5 Contribution from New Jersey ( µ g/ m3) Sum ( µ g/ m3)

New York New York 0.08 0.13 0.21 Pennsylvania Berks 0.10 0.06 0.16 Pennsylvania Dauphin 0.07 0.04 0.11 Pennsylvania Delaware 0.14 0.04 0.18 Pennsylvania Lancaster 0.12 0.06 0.18 Pennsylvania Philadelphia 0.14 0.04 0.18 Pennsylvania York 0.09 0.04 0.13 DRAFT do not cite, quote, or distribute 2/ 9/ 05 45 IV. PROPOSED FINDINGS AND ACTION A. Proposed Findings of Significant Contribution for Delaware and New Jersey We are proposing to find that emissions of the PM2.5 precursors SO2 and NOx emitted by Delaware and New Jersey contribute significantly to nonattainment of the PM2.5 NAAQS in downwind States. Accordingly, we are proposing SIP requirements for these States under section 110( a)( 1) to meet the requirements of section 110( a)( 2)( D), namely, to contain adequate provisions to prohibit SO2 and NOx emissions from sources or activities within the States from " contribut[ ing] significantly to nonattainment" of the PM2.5 NAAQS in downwind States.

B. SIP Approval Criteria The CAIR added two new sections to Title 40 of the Code of Federal Regulations, § § 51.123 and 51.124 containing requirements related to NOx and SO2 respectively, which establish the requirement for submission of SIP revisions to comply with the CAIR and the criteria which EPA will use to review these revisions for approval or disapproval. The content of these sections is presented in section VII of the preamble to the CAIR,

which appears in the rules section of today's Federal Register.

Delaware and New Jersey are already subject to the ozone related DRAFT do not cite, quote, or distribute 2/ 9/ 05 46 provisions of these sections but not to the provisions that relate to PM2.5. We propose to amend these two sections to extend the PM2.5 related provisions to both States. The practical effect of the proposed amendments will be to subject the States to budgets for annual emissions of NOx and SO2.

The proposed NOx and SO2 annual and ozone season budgets for New Jersey and Delaware are shown below in Tables IV 1 and IV 2.

Table IV 1. Proposed Annual NOx Budgets ( tons)

Year Delaware New Jersey 2009 4,166 12,670 2015 3,472 10,558 Note: Table I NOx budgets are calculated using the highest year heat input from 1999 2002.

Table IV 2. Proposed Annual SO2 Budgets ( tons)

Year Delaware New Jersey 2010 22,411 32,392 2015 15,687 22,674 State annual SO2 budgets for the years 2010 2014 ( Phase I)

are based on a 50 percent reduction from title IV allocations for all units in the affected State. The State annual budgets for 2015 and beyond ( Phase II) are based on a 65 percent reduction from title IV allowances allocated to units in the affected State for SO2 control. DRAFT do not cite, quote, or distribute 2/ 9/ 05 47 To calculate annual State NOX budgets, EPA calculated a total " regional" budget for Delaware and New Jersey using the same methodology as in the CAIR. The EPA calculates the regional NOx budget using the highest heat input for each State for the years 1999 2002, multiplied by 0.15 lb/ mmBtu ( for 2009) and 0.125 lb/ mmBtu ( for 2015).

The EPA is proposing to calculate State NOx budgets through a fuel adjusted heat input basis, as is being finalized in the CAIR. State budgets would be determined by multiplying historic heat input data ( summed by fuel) by different adjustment factors for the different fuels. These factors reflect for each fuel ( coal, gas and oil), the 1999 2002 average emissions by State,

summed for the CAIR region, divided by average heat input by fuel by State, summed for the CAIR region. The resulting adjustment factors from this calculation are 1.0 for coal, 0.4 for gas and 0.6 for oil. The factors would reflect the inherently higher emissions rate of coal fired plants, and consequently the greater burden on coal plants to control emissions. The regional budget is then apportioned to States on a pro rata basis, based on each State's share of total adjusted average heat input.

The final CAIR annual NOx cap and trade rule will provide additional incentives for early annual NOx reductions by creating a Compliance Supplement Pool ( CSP) for CAIR States from which they can distribute allowances for early, annual NOx emissions DRAFT do not cite, quote, or distribute 2/ 9/ 05 48 reductions in the years 2007 and 2008. The CSP functions much like the NOx SIP Call's CSP. The CSP would be comprised of CAIR annual NOx allowances of vintage year 2009.

In the final CAIR, EPA apportions a 200,000 ton CSP to all States. The CSP was apportioned based on a State's share of the required emissions reductions ( i. e., the difference between their State baseline emissions and their projected emissions under the CAIR). States may distribute these CAIR NOx allowances to sources based upon either: ( 1) a demonstration to the State of NOx emissions reductions in surplus of any existing NOx emission control requirements; or ( 2) a demonstration to the State that the facility has a " need" that would affect electricity grid reliability. Sources that wish to receive CAIR NOx allowances based upon a demonstration of surplus emissions reductions will be awarded one CAIR annual NOx allowance for every 2 tons of NOx emissions reductions. Determination of surplus emissions must use emissions data measured using part 75 monitoring. See sections VII and VIII of the CAIR preamble in today's Federal Register for details of the CSP.

The CSP for CAIR States affected by the CAIR NFR has a total of 195,582 CAIR NOx allowances in addition to the annual CAIR NOx budgets. If Delaware and New Jersey are part of the final CAIR program, as we propose, they would be allotted an additional 1,478 allowances. Table IV 3 shows the NOx CSP for New Jersey DRAFT do not cite, quote, or distribute 2/ 9/ 05 49 and Delaware.

Table IV 3. Proposed NOx Compliance Supplement Pool ( tons)

Delaware New Jersey 667 811 C. SIP Submittal Deadline We are also proposing today to require that PM2.5 transport SIPs be submitted, under CAA section 110( a)( 1), as soon as practicable, but not later than 18 months from the date of signature of the CAIR, i. e., [ insert date 18 months after signature of the CAIR]. Our expectation is that this will be 12 months from the date of promulgation of the present proposal.

We note that this would leave the two States affected by this proposal less time to submit transport SIPs than allowed for States covered by the CAIR rule. There are a number of reasons this result appears to be justifiable. First, Delaware and New Jersey were covered by the initial CAIR proposal for PM2.5 precursors, so the States already have been on notice that they might have to submit transport SIPs for PM2.5. Moreover, we are proposing here to adopt all of the key features of the initial CAIR proposal, including the same annual SO2 and NOx reductions and budgets and the same implementation mechanisms. Again, since these States have been on notice regarding these issues, we believe that less time would be needed to submit transport SIPs. DRAFT do not cite, quote, or distribute 2/ 9/ 05 10 The EPA compared IPM runs with and without New Jersey and Delaware to make this determination. See IPM runs in the docket for further details.

11 The EPA compared IPM runs with and without New Jersey and Delaware to make this determination. See IPM runs in the docket for further details.

50 Moreover, as noted, we expect to finalize this proposal within 6 months. If we do so, and if we adopt the proposed SIP submittal deadline, transport SIPs would be required within 12 months of the final action, the same deadline as provided in the NOx SIP Call ( 69 FR 4585).

According to EPA modeling, including New Jersey and Delaware in the annual CAIR program results in only one additional flue gas desulfurization ( FGD) unit installation, i. e., one additional FGD in New Jersey. 10 The EPA modeling shows no additional selective catalytic reduction ( SCR) units would be required in the two States. 11 Assuming EPA finalizes this proposal in 6 months ( by September 15, 2005) and allows the two States 18 months from signature of the CAIR to submit their SIPs ( i. e., due by [ insert date 18 months from signature date of the CAIR]),

there would be about 40 months remaining for the installation of the one additional FGD required. The EPA estimates 27 months are required to install an FGD. Also, EPA believes sufficient boiler maker labor and other resources exist to support one additional FGD installation by January 1, 2010. Therefore, EPA proposes the DRAFT do not cite, quote, or distribute 2/ 9/ 05 51 above schedule for finalizing and implementing this rule.

For all these reasons, we think it reasonable to propose that Delaware and New Jersey submit PM2.5 transport SIPs by [ insert date 18 months from signature of CAIR final rule].

D. Emissions Reporting Requirements In order to provide emissions inventory information that will allow EPA to better monitor the implementation and effects of the CAIR's emissions reductions, EPA incorporated into the CAIR revisions to the pre existing emission inventory reporting requirements applicable to States affected by the CAIR. Those requirements were specific to whether a State was affected by the annual emission reduction requirements for SO2 and NOx or only the ozone season reduction requirements for NOx. Because we are proposing to apply the annual emissions reduction requirements to Delaware and New Jersey, we are also proposing to place these two States under the corresponding provisions of the emissions reporting requirements. The only practical effect of this change relative to existing requirements is that if either State chooses to obtain some of the required annual emissions reductions from a source which emits less than 2500 tons/ year of both SO2 and NOx and that source is not also made subject to the EPA operated emissions trading programs, the State must report the annual emissions of that source to EPA annually in contrast to the triennial requirement that presently applies to such sources. DRAFT do not cite, quote, or distribute 2/ 9/ 05 52 V. EXPECTED EFFECTS OF THE PROPOSED ACTION A. Emissions EPA has conducted power sector analysis of The CAIR using the IPM. The IPM is a dynamic linear programming model that can be used to examine air pollution control policies for SO2 and NOx throughout the contiguous United States for the entire power system. Documentation for IPM can be found at www. epa. gov/ airmarkets/ epa ipm.

Emissions of SO2 and NOx in the CAIR region would be higher under the final CAIR where Delaware and New Jersey are only included in a summer season ozone cap, similar to Connecticut and Massachusetts. If these two States are included as part of the annual SO2 and NOx caps for the CAIR as proposed in this proposal, emissions in the region would be reduced by another 48,000 tons of SO2 and 11,000 tons of NOx from the final CAIR scenario.

The inclusion of Delaware and New Jersey in the annual CAIR requirements would result in additional reductions of SO2 and NOx that would help in achieving attainment for downwind States.

Table V 1. Annual Emissions from Affected Sources for DRAFT do not cite, quote, or distribute 2/ 9/ 05 12 The CAIR region for purposes of this table includes the following States: Alabama, Arkansas, Connecticut, Delaware, District of Columbia, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Texas, Virginia, West Virginia, Wisconsin.

53 the CAIR Region12 ( thousand tons)

2010 2015 SO2 NOx SO2 NOx Base Case 8,868 2,826 8,056 2,853 Final CAIR ( DE and NJ Included for Ozone Season NOx Only) 5,336 1,592 4,216 1,342 CAIR Modified By This Proposal( DE and NJ Included for Annual SO2 and NOx) 5,305 1,582 4,168 1,331 Difference between CAIR Scenarios 32 10 48 11 Note: Numbers may not add due to rounding.

B. Air Quality Section VI of the preamble to the CAIR, which appears in the rules section of today's Federal Register, describes the air quality modeling performed to determine the projected impacts of the CAIR on PM2.5 and 8 hour ozone of the SO2 and NOx emissions reductions in the control region modeled. The modeling used to estimate the air quality impact of these reductions assumed annual SO2 and NOx controls for Arkansas, Delaware, and New DRAFT do not cite, quote, or distribute 2/ 9/ 05 54 Jersey ( as had been proposed before completion of the final contribution analysis) in addition to the 23 States plus the District of Columbia. Since Arkansas, Delaware, and New Jersey are not included in the final CAIR PM2.5 region, the modeled estimated impacts are overstated for today's final CAIR which excludes all three States from the CAIR region for PM. Because we are now proposing that Delaware and New Jersey become subject to the PM2.5 related emissions limits for SO2 and NOx, the air quality modeling for the final CAIR better approximates the net effects of the CAIR plus today's proposal, but still overestimates the air quality changes somewhat due to the continued discrepancy regarding Arkansas. The Regulatory Impact Analysis for the CAIR discusses these differences in scenarios in more detail.

The EPA analyzed the impacts of the regional emissions reductions in both 2010 and 2015. These impacts are quantified by comparing air quality modeling results for the regional control scenario to the modeling results for the corresponding 2010 and 2015 Base Case scenarios. The 2010 and 2015 emissions reductions and air quality improvements from the regional control strategy modeled are presented in summary form in section VI of the preamble to the CAIR and in detail in the Emission Inventory Technical Support Document and the Air Quality Modeling Technical Support Document for the CAIR. DRAFT do not cite, quote, or distribute 2/ 9/ 05 55 The EPA estimates, based on the air quality analysis for the CAIR, that the required SO2 and NOx emissions reductions would,

by themselves, bring into attainment 52 of the 80 counties that are otherwise expected to be in nonattainment for PM2.5 in 2010,

and 57 of the 75 counties that are otherwise expected to be in nonattainment for PM2.5 in 2015. The EPA further estimates that the required NOx emissions reductions would, by themselves, bring into attainment 3 of the 40 counties that are otherwise expected to be in nonattainment for 8 hour ozone in 2010, and 6 of the 22 counties that are expected to be in nonattainment for 8 hour ozone in 2015. In addition, today's rule will improve PM2.5 and 8 hour ozone air quality in the areas that will remain nonattainment for those two NAAQS after implementation of today's rule. Because of today's rule, the States with those remaining nonattainment areas will find it less burdensome and less expensive to reach attainment by adopting additional local controls. The CAIR will also reduce PM2.5 and 8 hour ozone levels in attainment areas.

We have not conducted an incremental analysis of the air quality effects from the proposed extension of the annual emissions reductions requirements to New Jersey and Delaware.

However, IPM modeling of EGU emissions indicates that assuming that all States join the EPA trading programs, highly costeffective emissions reductions will be distributed across the region in addition to New Jersey and Delaware themselves, and DRAFT do not cite, quote, or distribute 2/ 25/ 05 56 contribute to the attainment of these two States' downwind neighbors as well as other States with nonattainment areas.

VI. STATUTORY AND EXECUTIVE ORDER REVIEWS A. Executive Order 12866: Regulatory Planning and Review Under Executive Order 12866 ( 58 FR 51735, October 4, 1993),

the Agency must determine whether a regulatory action is " significant" and therefore subject to Office of Management and Budget ( OMB) review and the requirements of the Executive Order.

The Order defines " significant regulatory action" as one that is likely to result in a rule that may:

1. Have an annual effect on the economy of $ 100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment,

public health or safety, or State, local, or Tribal governments or communities;

2. Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;

3. Materially alter the budgetary impact of entitlements,

grants, user fees, or loan programs or the rights and obligations of recipients thereof; or 4. Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order.

In view of its important policy implications and potential DRAFT do not cite, quote, or distribute 2/ 25/ 05 13 White House, National Energy Policy  Report of the National Energy Policy Development Group, May 2001.

57 effect on the economy of over $ 100 million, the CAIR program inclusive of this proposal has been judged to be an economically " significant regulatory action" within the meaning of the Executive Order. As a result, today's proposal was submitted to OMB for review, and EPA has prepared an economic analysis of the CAIR program including this proposal entitled " Regulatory Impact Analysis of the Final Clean Air Interstate Rule" ( March 2005).

The CAIR and this New Jersey and Delaware proposal build upon the findings of the National Energy Policy Development Group; to provide reliable, affordable, and environmentally sound energy for America's future13 ( http:// www. whitehouse. gov/ energy).

Recognizing the need for an integrated approach to environmental,

energy, and economic policy, the CAIR program is an example of aggressive environmental regulation that recognizes and balances the need for energy diversity, reliability, and affordability.

1. What Economic Analyses Were Conducted for the Rulemaking?

The analyses conducted for the CAIR program ( CAIR final rule plus this New Jersey and Delaware proposal) provide several important analyses of impacts on public welfare. These include an analysis of the social benefits, social costs, and net benefits of the regulatory scenario. The economic analyses also address issues involving small business impacts, unfunded DRAFT do not cite, quote, or distribute 2/ 25/ 05 58 mandates ( including impacts for Tribal governments),

environmental justice, children's health, energy impacts, and requirements of the Paperwork Reduction Act.

2. What Are the Benefits and Costs of the CAIR Program?

The benefit cost analysis shows that substantial net economic benefits to society are likely to be achieved due to reduction in emissions resulting from the CAIR program that includes annual SO2 and NOx controls for New Jersey and Delaware.

The results show that the CAIR program would be highly beneficial to society, with annual net benefits ( benefits less costs) of approximately $ 71.4 or $ 60.4 billion in 2010 and $ 98.5 or $ 83.2 billion in 2015. These alternative net benefits estimates occur due to differing assumptions concerning the social discount rate used to estimate the annual value of the benefits of the rule with the lower estimates relating to a discount rate of 7 percent and the higher estimates a discount rate of 3 percent. All amounts are reflected in 1999 dollars. For more information, see the NFR for the CAIR and the Regulatory Impact Analysis for the Final Clean Air Interstate Rule ( March 2005).

3. What are the Incremental Costs to the Electricity Generating Industry Associated with this New Jersey and Delaware Proposal?

The costs presented here represent the total incremental cost to the electricity generating industry of reducing NOx and SO2 emissions to meet the reduction requirements set forth in the DRAFT do not cite, quote, or distribute 2/ 25/ 05 14 In 2003, the electric power industry had retail sales of 259 billion dollars ( http:// www. eia. doe. gov/ cneaf/ electricty/ epm/ table5 2. html).

59 rule, assuming all States participate in a regionwide cap

andtrade program. These costs estimates are referred to as private costs, and these estimates differ from the cost of the program to society or social cost estimates presented for the CAIR program discussed previously. As shown in Table VI 1, EPA estimates the annual private costs of this proposal are approximately $ 30 million in 2010 and $ 40 million in 2015. All estimates reflect 1999 dollars. Overall, the impacts of the CAIR program are modest, particularly in light of the large benefits we expect.

This industry generates over $ 250 billion in annual revenues. 14 The industry has the ability to largely pass along the costs of the rule to consumers, and this will result in the costs largely falling upon the consumers of electricity. Retail electricity prices are projected to increase roughly 2.0  2.7 percent with the CAIR program ( inclusive of this proposal) in the 2010 and 2015 timeframe, and then drop below 2.0 percent thereafter. The effects of the CAIR program on natural gas prices and the power sector generation mix is also small, with a 1.6 percent or less increase in natural gas prices projected from 2010 to 2020.

There will be continued reliance on coal fired generation, which is projected to remain at roughly 50 percent of total electricity generated. A relatively small amount of coal fired capacity, DRAFT do not cite, quote, or distribute 2/ 25/ 05 60 about 5.3 GW ( 1.7 percent of all coal fired capacity and 0.5 percent of all generating capacity), is projected to be uneconomic to maintain. For the most part, these units are small and infrequently used generating units that are dispersed throughout the CAIR region. Units projected to be uneconomic to maintain may be ' mothballed,' retired, or kept in service to ensure transmission reliability in certain parts of the grid.

As demand grows in the future, additional coal fired generation is projected to be built under the CAIR program. As a result, both coal fired generation and coal production for electricity generation are projected to increase from 2003 levels by about 15 percent in 2010 and 25 percent by 2020, and we expect a small shift towards greater coal production in Appalachia and the Interior coal regions of the country with the CAIR.

For today's proposal, EPA analyzed the costs using the IPM.

The IPM is a dynamic linear programming model that can be used to examine the economic impacts of air pollution control policies for SO2 and NOx throughout the contiguous U. S. for the entire power system. Documentation for IPM can be found in the docket for this rulemaking or at www. epa. gov/ airmarkets/ epa ipm. The additional annualized incremental cost of including Delaware and New Jersey in the CAIR program occur because of the additional installation and operation of a modest amount of pollution control equipment and other relatively minor compliance costs. DRAFT do not cite, quote, or distribute 2/ 25/ 05 61 Table VI 1. Annualized Incremental Private Costs for the CAIR Region ( billions of 1999 dollars)

Program Costs in 2010 Costs in 2015 Final CAIR ( DE and NJ: Ozone Season NOx Only) $ 2.33 $ 3.59 Final CAIR plus NJ and DE proposal ( DE and NJ: Annual SO2 and NOx) $ 2.36 $ 3.63 Difference between CAIR scenarios $ 0.03 $ 0.04 4. What Potential Benefits May Be Associated With This Proposal?

Air quality modeling was not conducted for the New Jersey and Delaware proposal. For this reason, an analysis of the potential benefits for the New Jersey and Delaware proposal could not be completed with any degree of specificity. However based on the air quality modeling results for the CAIR, we make ball park estimates of the benefits and net benefits that might occur with this proposal. Including New Jersey and Delaware in the CAIR program would result in additional reductions of SO2 and NOx emissions. We estimate that approximately $ 630 million of the total annual CAIR program benefits previously discussed are attributable to annual SO2 and NOx controls for New Jersey and Delaware in 2010. This estimate increases to over $ 1.1 billion in 2015. The full CAIR analysis including New Jersey and DRAFT do not cite, quote, or distribute 2/ 25/ 05 62 Delaware showed a benefit cost ratio of around 39: 1 in 2015.

Based on the relatively low estimated private costs of including New Jersey and Delaware of $ 30 million in 2010 and $ 40 million in 2015, it is highly unlikely that costs of including New Jersey and Delaware would exceed benefits even if benefits of controlling SO2 and NOx for New Jersey and Delaware were substantially lower than the average benefit we used to estimate the benefits. It is highly unlikely that benefits are much lower than average given the urban nature of much of New Jersey, and the proximity of New Jersey and Delaware to many heavily populated urban areas.

B. Paperwork Reduction Act In compliance with the Paperwork Reduction Act ( 44 U. S. C.

3501 et seq.), EPA announces that it has submitted a proposed Information Collection Request ( ICR) ( EPA ICR number 2184.01) to OMB for review and approval. The purpose of the ICR is to estimate the anticipated monitoring, reporting, and recordkeeping burden estimates and associated costs for States, local governments, and sources that are expected to result from this proposal. This ICR describes the nature of the information collection and the estimated burden for this proposal. In cases where information is already collected by a related program, the ICR takes into account only the additional burden. This situation arises in States that are also subject to requirements DRAFT do not cite, quote, or distribute 2/ 25/ 05 63 of the Consolidated Emissions Reporting Rule ( EPA ICR number 0916.10; OMB control number 2060 0088) or for sources that are subject to the Acid Rain Program ( EPA ICR 2152.01; EPA ICR number 1633.13; OMB control number 2060 0258) or the NOx SIP Call ( EPA ICR number 1857.03; OMB number 2060 0445) requirements.

The monitoring, recordkeeping, and reporting burden to sources resulting from New Jersey and Delaware choosing to participate in a regional cap and trade program are expected to be at the time the monitors are implemented. This estimate includes the annualized cost of installing and operating appropriate SO2 and NOx emissions monitoring equipment to measure and report the total emissions of these pollutants from affected EGUs ( serving generators greater than 25 megawatt capacity) for this proposed rule. The burden to State and local air agencies includes any necessary SIP revisions, performing monitoring certification, and fulfilling audit responsibilities.

C. Regulatory Flexibility Act The Regulatory Flexibility Act ( 5 U. S. C. § 601 et seq.)( RFA), as amended by the Small Business Regulatory Enforcement Fairness Act ( Public Law No. 104 121)( SBREFA),

provides that whenever an agency is required to publish a general notice of rulemaking, it must prepare and make available an initial regulatory flexibility analysis, unless it certifies that the rule, if promulgated, will not have " a significant economic DRAFT do not cite, quote, or distribute 2/ 25/ 05 64 impact on a substantial number of small entities." 5 U. S. C. § 605( b). Small entities include small businesses, small organizations, and small governmental jurisdictions.

For purposes of assessing the impacts of today's rule on small entities, small entity is defined as: ( 1) a small business that is identified by the North American Industry Classification System ( NAICS) Code, as defined by the Small Business Administration ( SBA); ( 2) a small governmental jurisdiction that is a government of a city, county, town, school district or special district with a population of less that 50,000; and ( 3) a small organization that is any not for profit enterprise which is independently owned and operated and is not dominant in its field. Table VI 2 lists entities potentially impacted by this rule with applicable NAICS code.

VI 2. Potentially Regulated Categories and Entities Category NAICS code1 Examples of potentially regulated entities Industry 221112 Fossil fuel fired electric utility steam generating units.

Federal government 221122 Fossil fuel fired electric utility steam generating units owned by the Federal government. DRAFT do not cite, quote, or distribute 2/ 25/ 05 Category NAICS code1 Examples of potentially regulated entities 65 State/ local/ Tribal government 221122 921150 Fossil fuel fired electric utility steam generating units owned by municipalities.

Fossil fuel fired electric utility steam generating units in Indian Country.

1 North American Industry Classification System.

2 Federal, State, or local government owned and operated establishments are classified according to the activity in which they are engaged.

According to the SBA size standards for NAICS code 221112 Utilities Fossil Fuel Electric Power Generation, a firm is small if, including its affiliates, it is primarily engaged in the generation, transmission, and or distribution of electric energy for sale and its total electric output for the preceding fiscal year did not exceed 4 million megawatt hours.

Courts have interpreted the RFA to require a regulatory flexibility analysis only when small entities will be subject to the requirements of the rule. See Michigan v. EPA, 213 F. 3d 663,

668 69 ( D. C. Cir., 2000), cert. den. 121 S. Ct. 225, 149 L. Ed. 2d 135 ( 2001).

The CAIR final rule and this proposed rule would not establish requirements applicable to small entities. Instead, it would require States to develop, adopt, and submit SIP revisions DRAFT do not cite, quote, or distribute 2/ 25/ 05 66 that would achieve the necessary SO2 and NOx emissions reductions, and would leave to the States the task of determining how to obtain those reductions, including which entities to regulate. Moreover, because affected States would have discretion to choose the sources to regulate and how much emissions reductions each selected source would have to achieve,

EPA could not predict the effect of the rule on small entities.

Although not required by the RFA, the Agency has conducted a small business analysis for the CAIR program inclusive of the New Jersey and Delaware proposal.

Overall, about 445 MW of total small entity capacity, or 1.0 percent of total small entity capacity in the CAIR region, is projected to be uneconomic to maintain under the CAIR relative to the base case. In practice, units projected to be uneconomic to maintain may be " mothballed," retired, or kept in service to ensure transmission reliability in certain parts of the grid.

Our IPM modeling is unable to distinguish between these potential outcomes.

The EPA modeling identified 264 small power generating entities within the entire CAIR region based upon the definition of small entity outlined above. The EPA excluded from this analysis 189 small entities that were not projected to have at least one unit with a generating capacity of 25 MW or great operating in the base case. Thus, we found that 75 small DRAFT do not cite, quote, or distribute 2/ 25/ 05 67 entities may potentially be affected by the CAIR program. Of these 75 small entities, 28 may experience compliance costs in excess of 1 percent of revenues in 2010, and 46 may in 2015,

based on the Agency's assumptions of how the affected States implement control measures to meet their emissions budgets as set forth in this rulemaking. Potentially affected small entities experiencing compliance costs in excess of 1 percent of revenues have some potential for significant impact resulting from implementation of the CAIR. However, it is the Agency's position that because none of the affected entities currently operate in a competitive market environment, they should be able to pass the costs of complying with the CAIR on to rate payers. Moreover,

the decision to include only units greater than 25 MW in size exempts 185 small entities that would otherwise be potentially affected by the CAIR.

Two other points should be considered when evaluating the impact of the CAIR program ( inclusive of the New Jersey and Delaware proposal), specifically, and cap and trade programs more generally, on small entities. First, under the CAIR program, the cap and trade program is designed such that States determine how NOX allowances are to be allocated across units. A State that wishes to mitigate the impact of the rule on small entities might choose to allocate NOX allowances in a manner that is favorable to small entities. Finally, the use of cap and trade in general DRAFT do not cite, quote, or distribute 2/ 25/ 05 68 will limit impacts on small entities relative to a less flexible command and control program.

D. Unfunded Mandates Reform Act Title II of the Unfunded Mandates Reform Act of 1995 ( Public Law 104 4)( UMRA), establishes requirements for Federal agencies to assess the effects of their regulatory actions on State,

local, and Tribal governments and the private sector. Under section 202 of the UMRA, 2 U. S. C. 1532, EPA generally must prepare a written statement, including a cost benefit analysis,

for any proposed or final rule that " includes any Federal mandate that may result in the expenditure by State, local, and Tribal governments, in the aggregate, or by the private sector, of $ 100,000,000 or more ... in any one year." A " Federal mandate"

is defined under section 421( 6), 2 U. S. C. 658( 6), to include a " Federal intergovernmental mandate" and a " Federal private sector mandate." A " Federal intergovernmental mandate," in turn, is defined to include a regulation that " would impose an enforceable duty upon State, Local, or Tribal governments," section 421( 5)( A)( i), 2 U. S. C. 658( 5)( A)( i), except for, among other things, a duty that is " a condition of Federal assistance,"

section 421( 5)( A)( i)( I). A " Federal private sector mandate"

includes a regulation that " would impose an enforceable duty upon the private sector," with certain exceptions, section 421( 7)( A),

2 U. S. C. 658( 7)( A). DRAFT do not cite, quote, or distribute 2/ 25/ 05 69 Before promulgating an EPA rule for which a written statement is needed under section 202 of the UMRA, section 205, 2 U. S. C. 1535, of the UMRA generally requires EPA to identify and consider a reasonable number of regulatory alternatives and adopt the least costly, most cost effective, or least burdensome alternative that achieves the objectives of the rule.

The EPA prepared a written statement for the CAIR final inclusive of this proposal consistent with the requirements of section 202 of the UMRA. Furthermore, as EPA stated in the rule,

EPA is not directly establishing any regulatory requirements that may significantly or uniquely affect small governments, including Tribal governments. Thus, EPA is not obligated to develop under section 203 of the UMRA a small government agency plan.

Furthermore, in a manner consistent with the intergovernmental consultation provisions of section 204 of the UMRA, EPA carried out consultations with the governmental entities affected by this rule.

For several reasons, however, EPA is not reaching a final conclusion as to the applicability of the requirements of UMRA to this rulemaking action. First, it is questionable whether a requirement to submit a SIP revision would constitute a Federal mandate in any case. The obligation for a State to revise its SIP that arises out of section 110( a) of the CAA is not legally enforceable by a court of law, and at most is a condition for DRAFT do not cite, quote, or distribute 2/ 25/ 05 70 continued receipt of highway funds. Therefore, it is possible to view an action requiring such a submittal as not creating any enforceable duty within the meaning of section 421( 5)( 9a)( I) of UMRA ( 2 U. S. C. 658 ( a)( I)). Even if it did, the duty could be viewed as falling within the exception for a condition of Federal assistance under section 421( 5)( a)( i)( I) of UMRA ( 2 U. S. C.

658( 5)( a)( i)( I)).

As noted earlier, however, notwithstanding these issues, EPA prepared the statement that would be required by UMRA if its statutory provisions applied for the CAIR final rule and this proposal. The EPA also consulted with governmental entities as would be required by UMRA. Consequently, it is not necessary for EPA to reach a conclusion as to the applicability of the UMRA requirements.

The EPA conducted an analysis of the economic impacts anticipated from the CAIR program inclusive of the New Jersey and Delaware proposal for government owned entities. The modeling conducted using the IPM projects that about 340 MW of municipality owned capacity ( about 0.4 percent of all subdivision, State and municipality capacity in the CAIR region)

would be uneconomic to maintain under the CAIR program, beyond what is projected in the base case. In practice, however, the units projected to be uneconomic to maintain may be " mothballed,"

retired, or kept in service to ensure transmission reliability in DRAFT do not cite, quote, or distribute 2/ 25/ 05 71 certain parts of the grid. For the most part, these units are small and infrequently used generating units that are dispersed throughout the CAIR region.

The EPA modeling identified 265 State or municipally owned entities, as well as subdivisions, within the entire CAIR region.

The EPA excluded from the analysis government owned entities that were not projected to have at least one unit with generating capacity of 25 MW or greater in the base case. Thus, we excluded 184 entities from the analysis. We found that 81 government entities will be potentially affected by the CAIR. Of the 81 government entities, 20 may experience compliance costs in excess of 1 percent of revenues in 2010, and 39 may in 2015, based on our assumptions of how the affected States implement control measures to meet their emissions budgets as set forth in this rulemaking.

Government entities projected to experience compliance costs in excess of 1 percent of revenues have some potential for significant impact resulting from implementation of the CAIR.

However, as noted above, it is EPA's position that because these government entities can pass on their costs of compliance to rate payers, they will not be significantly impacted.

Furthermore, the decision to include only units greater than 25 MW in size exempts 179 government entities that would otherwise be potentially affected by the CAIR program. DRAFT do not cite, quote, or distribute 2/ 25/ 05 72 The above points aside, potentially adverse impacts of the CAIR program on State and municipality owned entities could be limited by the fact that the cap and trade program is designed such that States determine how NOx allowances are to be allocated across units. A State that wishes to mitigate the impact of the rule on State or municipality owned entities might choose to allocate NOX allowances in a manner that is favorable to these entities. Finally, the use of cap and trade in general will limit impacts on entities owned by small governments relative to a less flexible command and control program.

E. Executive Order 13132: Federalism Executive Order 13132, entitled " Federalism" ( 64 FR 43255,

August 10, 1999), requires EPA to develop an accountable process to ensure " meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications." " Policies that have federalism implications" is defined in the Executive Order to include regulations that have " substantial direct effects on the States,

on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government."

This proposal does not have federalism implications. It will not have substantial direct effects on the States, on the relationship between the national government and the States, or DRAFT do not cite, quote, or distribute 2/ 25/ 05 73 on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. The CAA establishes the relationship between the Federal government and the States, and this proposed rule does not impact that relationship. Thus, Executive Order 13132 does not apply to this proposal. In the spirit of Executive Order 13132, and consistent with EPA policy to promote communications between EPA and State and local governments, EPA specifically solicited comment on the CAIR from State and local officials.

F. Executive Order 13175: Consultation and Coordination with Indian Tribal Governments Executive Order 13175, entitled " Consultation and Coordination with Indian Tribal Governments" ( 65 FR 67249,

November 9, 2000), requires EPA to develop an accountable process to ensure " meaningful and timely input by Tribal officials in the development of regulatory policies that have Tribal implications." The CAIR program ( CAIR final and New Jersey and Delaware proposed rule) does not have " Tribal implications" as specified in Executive Order 13175.

The CAIR program addresses transport of pollution that are precursors for ozone and PM2.5. The CAA provides for States and Tribes to develop plans to regulate emissions of air pollutants within their jurisdictions. The regulations clarify the statutory obligations of States and Tribes that develop plans to DRAFT do not cite, quote, or distribute 2/ 25/ 05 74 implement this rule. The Tribal Authority Rule ( TAR) give Tribes the opportunity to develop and implement CAA programs, but it leaves to the discretion of the Tribe whether to develop these programs and which programs, or appropriate elements of a program, the Tribe will adopt.

The CAIR program does not have Tribal implications as defined by Executive Order 13175. It does not have a substantial direct effect on one or more Indian Tribes, because no Tribe has implemented a federally enforceable air quality management program under the CAA at this time. Furthermore, the CAIR program does not affect the relationship or distribution of power and responsibilities between the Federal government and Indian Tribes. The CAA and the TAR establish the relationship of the Federal government and Tribes in developing plans to attain the NAAQS, and this rule does nothing to modify that relationship.

Because the CAIR program does not have Tribal implications,

Executive Order 13175 does not apply.

If one assumes a Tribe is implementing a Tribal Implementation Plan, today's proposal could have implications for that Tribe, but it would not impose substantial direct costs upon the Tribe, nor preempt Tribal law. As provided above, EPA has estimated that the total annual private costs for the CAIR program inclusive of the New Jersey and Delaware proposal for the CAIR region as implemented by State, Local, and Tribal DRAFT do not cite, quote, or distribute 2/ 25/ 05 75 governments is approximately $ 2.4 billion in 2010 and $ 3.6 billion in 2015 ( 1999 dollars). There are currently very few emissions sources in Indian country that could be affected by the CAIR program and the percentage of Tribal land that will be impacted is very small. For Tribes that choose to regulate sources in Indian country, the costs would be attributed to inspecting regulated facilities and enforcing adopted regulations.

Although Executive Order 13175 does not apply to this proposal, EPA consulted with Tribal officials in developing the CAIR program. The EPA has encouraged Tribal input at an early stage. Also, EPA held periodic meetings with the States and the Tribes during the technical development of the CAIR program.

Three meetings were held with the Crow Tribe, where the Tribe expressed concerns about potential impacts of the CAIR on their coal mine operations. The addition of Delaware and New Jersey to the CAIR program does not have any bearing upon the concerns expressed by the Tribes. In addition, EPA held three calls with Tribal environmental professionals to address concerns specific to the Tribes. These discussions have given EPA valuable information about Tribal concerns regarding the development of the CAIR program. The EPA has provided briefings for Tribal representatives and the newly formed National Tribal Air Association ( NTAA), and other national Tribal forums. Input from DRAFT do not cite, quote, or distribute 2/ 25/ 05 76 Tribal representatives has been taken into consideration in development of the CAIR program.

G. Executive Order 13045: Protection of Children from Environmental Health and Safety Risks Executive Order 13045, " Protection of Children from Environmental Health and Safety Risks" ( 62 FR 19885, April 23,

1997) applies to any rule that ( 1) is determined to be " economically significant" as defined under Executive Order 12866, and ( 2) concerns an environmental health or safety risk that EPA has reason to believe may have a disproportionate effect on children. If the regulatory action meets both criteria,

Section 5   501 of the Order directs the Agency to evaluate the environmental health or safety effects of the planned rule on children, and explain why the planned regulation is preferable to other potentially effective and reasonably feasible alternatives considered by the Agency.

The CAIR program inclusive of the New Jersey and Delaware proposal is not subject to the Executive Order, because it does not involve decisions on environmental health or safety risks that may disproportionately affect children. The EPA believes that the emissions reductions from the strategies in this rule will further improve air quality and will further improve children's health.

H. Executive Order 13211: Actions that Significantly Affect DRAFT do not cite, quote, or distribute 2/ 25/ 05 77 Energy Supply, Distribution, or Use Executive Order 13211 ( 66 FR 28355, May 22, 2001) provides that agencies shall prepare and submit to the Administrator of the Office of Regulatory Affairs, OMB, a Statement of Energy Effects for certain actions identified as " significant energy actions." Section 4( b) of Executive Order 13211 defines " significant energy actions" as any action by an agency ( normally published in the Federal Register) that promulgates or is expected to lead to the promulgation of a final rule or regulation, including notices of inquiry, advance notices of final rulemaking, and notices of final rulemaking ( 1) ( i) a significant regulatory action under Executive Order 12866 or any successor order, and ( ii) likely to have a significant adverse effect on the supply, distribution, or use of energy; or ( 2)

designated by the Administrator of the Office of Information and Regulatory Affairs as a " significant energy action." The CAIR program ( the CAIR final and the New Jersey and Delaware proposal)

is a significant regulatory action under Executive Order 12866,

and the CAIR program may have a significant adverse effect on the supply, distribution, or use of energy.

In May of 2001, the Administration published the National Energy Policy which contained key recommendations for improving energy policy. The CAIR program has the potential to require installation of significant amounts of control equipment at power DRAFT do not cite, quote, or distribute 2/ 25/ 05 78 plants that are integral to the country's electric power supply,

and in light of this, EPA has focused on minimizing the impacts of the CAIR program throughout the development of the rule in keeping with the National Energy Policy. The program follows the recommendations of the National Energy Policy to use costeffectiveness and market based mechanisms while providing regulatory certainty and sufficient time to achieve reductions of SO2 and NOx from the power sector in a way that will help the country maintain electric reliability and affordability while ensuring environmental goals are met. Although the stated recommendation of the Administration's energy plan was to adopt multi pollutant legislation, like the Clear Skies Act, EPA has acted in accordance with the CAA to ensure substantial reduction of pollution to protect human health and welfare, consistent with the National Energy Policy.

If States choose to obtain the emissions reductions required by the CAIR final and this proposed rule by regulating EGUs, EPA projects that approximately 5.3 GWs of coal fired generation may be removed from operation by 2010. In practice, however, the units projected to be uneconomic to maintain may be " mothballed,"

retired, or kept in service to ensure transmission reliability in certain parts of the grid. For the most part, these units are small and infrequently used generating units that are dispersed throughout the CAIR region. Less conservative assumptions DRAFT do not cite, quote, or distribute 2/ 25/ 05 79 regarding natural gas prices or electricity demand would create a greater incentive to keep these units operational. The EPA projects that the average annual electricity price will increase by less than 2.7 percent in the CAIR region for the CAIR program.

The EPA does not believe that the CAIR final and this proposed rule will have any other impacts that exceed the significance criteria.

The EPA believes that a number of features of today's rulemaking serve to reduce its impact on energy supply. First,

the optional trading program provides considerable flexibility to the power sector and enables industry to comply with the emission reduction requirements in the most cost effective manner, thus minimizing overall costs and the ultimate impact on energy supply. The ability to use banked allowances from the existing title IV SO2 Trading Program and the NOx SIP Call Trading Program also provide additional flexibility. Second, the CAIR program caps are set in two phases and provide adequate time for EGUs to install pollution controls. For more details concerning energy impacts, see the Regulatory Impact Analysis for the Final Clean Air Interstate Rule ( March 2005).

I. National Technology Transfer Advancement Act Section 12( d) of the National Technology Transfer Advancement Act ( NTTAA) of 1995 ( Public Law No. 104 113; 15 U. S. C. 272 note) directs EPA to use voluntary consensus standards DRAFT do not cite, quote, or distribute 2/ 25/ 05 80 in its regulatory and procurement activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards ( e. g., materials specifications, test methods, sampling procedures, business practices) developed or adopted by one or more voluntary consensus bodies. The NTTAA directs EPA to provide Congress, through annual reports to OMB, with explanations when an agency does not use available and applicable voluntary consensus standards.

The CAIR final and this proposed rule would require all sources that participate in the trading program under part 96 to meet the applicable monitoring requirements of part 75. Part 75 already incorporates a number of voluntary consensus standards.

Consistent with the Agency's Performance Based Measurement System ( PBMS), part 75 sets forth performance criteria that allow the use of alternative methods to the ones set forth in Part 75. The PBMS approach is intended to be more flexible and cost effective for the regulated community; it is also intended to encourage innovation in analytical technology and improved data quality.

At this time, EPA is not recommending any revisions to part 75;

however, EPA periodically revises the test procedures set forth in Part 75. When EPA revises the test procedures set forth in Part 75 in the future, EPA will address the use of any new voluntary consensus standards that are equivalent. Currently, DRAFT do not cite, quote, or distribute 2/ 25/ 05 15 U. S. Environmental Protection Agency, 1998. Guidance for Incorporating Environmental Justice Concerns in EPA's NEPA Compliance Analyses. Office of Federal Activities, Washington, D. C., April, 1998.

81 even if a test procedure is not set forth in part 75, EPA is not precluding the use of any method, whether it constitutes a voluntary consensus standard or not, as long as it meets the performance criteria specified; however, any alternative methods must be approved through the petition process under section 75.66 before they are used under part 75.

J. Executive Order 12898: Federal Actions to Address Environmental Justice in Minority Populations and Low Income Populations Executive Order 12898, " Federal Actions to Address Environmental Justice in Minority Populations and Low Income Populations," requires Federal agencies to consider the impact of programs, policies, and activities on minority populations and low income populations. According to EPA guidance, 15 agencies are to assess whether minority or low income populations face risks or a rate of exposure to hazards that are significant and that " appreciably exceed or is likely to appreciably exceed the risk or rate to the general population or to the appropriate comparison group." ( EPA, 1998)

In accordance with Executive Order 12898, the Agency has considered whether the CAIR program inclusive of the New Jersey DRAFT do not cite, quote, or distribute 2/ 25/ 05 82 and Delaware proposed rule may have disproportionate negative impacts on minority or low income populations. The Agency expects the CAIR program to lead to reductions in air pollution and exposures generally. For this reason, negative impacts to these sub populations that appreciably exceed similar impacts to the Inclusion of Delaware and New Jersey in the Clean Air Interstate Rule Page 88 of 88 general population are not expected.

List of Subjects in 40 CFR Part 51 Administrative practice and procedure, Air pollution control,

Intergovernmental relations, Nitrogen dioxide, Ozone, Particulate matter, Reporting and recordkeeping requirements, Sulfur oxides,

Volatile organic compounds.

List of Subjects in 40 CFR Part 96 Administrative practice and procedure, Air pollution control,

Nitrogen oxides, Reporting and recordkeeping requirements ________________________

Dated:

________________________

Stephen L Johnson Acting Administrator