[Federal Register Volume 77, Number 102 (Friday, May 25, 2012)]
[Rules and Regulations]
[Pages 31200-31215]
[FR Doc No: 2012-12500]

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ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 52

[EPA-R09-OAR-2012-0140; FRL-9669-8]

Revision to the South Coast Air Quality Management District
Portion of the California State Implementation Plan, South Coast Rule
1315

AGENCY: Environmental Protection Agency (EPA).

ACTION: Final rule.

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SUMMARY: The Environmental Protection Agency (EPA) is taking final
action to approve a State Implementation Plan (SIP) revision for the
South Coast Air Quality Management District (District) portion of the
California SIP. This SIP revision incorporates Rule 1315--Federal New
Source Review Tracking System--into the District's SIP approved New
Source Review (NSR) program to establish the procedures for
demonstrating equivalency with federal offset requirements by
specifying how the District will track debits and credits in its Offset
Accounts for Federal NSR Equivalency for specific federal nonattainment
pollutants and their precursors. EPA is approving this SIP revision
because Rule 1315 provides an adequate system to demonstrate on an on-
going basis that the rule requires offsets in amounts equivalent to
those otherwise required by the Clean Air Act (CAA) and that the
emission reductions the District is crediting and debiting in its
Offset Accounts meet the CAA's NSR offset requirements for federal
major sources and modifications.

DATES: Effective Date: This rule is effective on June 25, 2012.

ADDRESSES: EPA has established docket number EPA-R09-OAR-2012-0140 for
this action. Generally, documents in the docket for this action are
available electronically at www.regulations.gov and in hard copy at EPA
Region IX, 75 Hawthorne Street, San Francisco, California. Some docket
materials, however, may be publicly available only at the hard copy
location (e.g., voluminous records, maps, copyrighted material), and
some may not be publicly available in either location (e.g., CBI). To
inspect the hard copy materials, please schedule an appointment during
normal business hours with the contact listed in the FOR FURTHER
INFORMATION CONTACT section.

FOR FURTHER INFORMATION CONTACT: Laura Yannayon, EPA Region IX, (415)
972-3534<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: Throughout this document, ``we'', ``us'',
and ``our'' refer to EPA.

Table of Contents

I. Background
II. EPA's Evaluation of the SIP Revision
    A. What action is EPA finalizing?
    B. Public Comments and EPA Responses
III. EPA's Final Action
IV. Statutory and Executive Order Reviews

I. Background

    EPA allows and encourages local authorities to tailor SIP programs,
including new source review permitting programs, to account for that
community's particular needs provided that the SIP is not less
stringent than the Act's requirements. See generally CAA Section 116,
42 U.S.C. 7416; Train v. Natural Res. Defense Council, 421 U.S. 60, 79
(1975); Union Electric Co. v. EPA, 427 U.S. 246, 250 (1976). The
District's SIP-approved nonattainment permitting rules are contained in
District Regulation XIII. See 61 FR 64291 (December 4, 1996) (final
rule approving SCAQMD's NSR program) and 40 CFR 52.220(c)(240)(i)(1).
    When EPA approved Regulation XIII in 1996, we noted that Rule 1304
exempted certain major sources from

the requirement to obtain offsets and Rule 1309.1 allowed the District
to provide offsets for specific ``priority'' projects. We approved
these rules because the District committed to demonstrating on an
annual basis that it was providing an amount of offsets that was
equivalent to the amount required to offset federal new and modified
major sources subject to Rules 1304 and 1309.1.\1\ The District adopted
Rule 1315's regulatory language codifying how it will account for, or
``track'', the emission reductions that it adds into its Offset
Accounts as credits and those which it subtracts as debits to provide
offsets for the construction of certain federal major sources or
modifications exempted from offset requirements pursuant to Rule 1304
or for which the District provided offsets pursuant to Rule 1309.1.
SCAQMD Governing Board Resolution for the Re-adoption of Rule 1315--
Federal New Source Review Tracking System, dated Feb. 4, 2011. EPA is
now finalizing approval of Rule 1315 as a SIP revision. For a more
detailed discussion of the District's NSR program and Rule 1315, please
refer to our proposed approval. 77 FR 10430, 10430-31 (Feb. 22, 2012).
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    \1\ Environmental Protection Agency, Region IX Air & Toxics
Division Technical Support Document for EPA's Notice of Final
Rulemaking for the California State Implementation Plan South Coast
Air Quality Management District New Source Review by Gerardo C.
Rios, October 24, 1996 (TSD).
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II. Evaluation of SIP Revision

A. What action is EPA finalizing?

    EPA is finalizing a SIP revision for the South Coast portion of the
California SIP. The SIP revision will be codified in 40 CFR 52.220 by
incorporating by reference South Coast Rule 1315, as adopted February
4, 2011 and submitted on March 2, 2011.
    The SIP revision provides a federally approved and enforceable
mechanism for the District to transfer offsetting emissions reductions
from the District's Offset Accounts to projects that qualify under
District Rules 1304 and 1309.1.

B. Public Comments and EPA Responses

    In response to our February 22, 2012 proposed rule, we received six
comments, one from the South Coast Air Quality Management District
(District), one from a consortium of environmental groups (Coalition
for a Safe Environment, Communities for a Better Environment, Desert
Citizens Against Pollution and the Natural Resources Defense Council
(collectively referred to herein as ``CSE'')), and one each from the
County Sanitation Districts of Los Angeles County, California Small
Business Alliance, California Council for Environmental and Economic
Balance, and the Southern California Gas Company. Copies of each
comment letter have been added to the docket and are accessible at
www.regulations.gov. The comment from the District supported EPA's
analysis and proposal to approve Rule 1315 into the SIP. With the
exception of CSE, all of the commenters generally supported EPA's
analysis and proposed approval. The comment from CSE opposed the SIP
revision and raised several specific objections. We have summarized the
comments and provided a response to each comment below.
    Comment 1: CSE's first comment provides an overview of the
reasonable further progress (RFP) and base year requirements of the
Clean Air Act (CAA). CSE asserts that the South Coast is prohibited
from including pre-base year (i.e. pre-1997) emissions credits for
particulate matter of 10 microns or less (PM10) and sulfur
oxides (SOX) in its NSR Account under 40 CFR
51.165(a)(3)(ii)(C)(1) because the 2003 Air Quality Management Plan
(2003 AQMP) is not ``valid.'' Comment Letter at 3 (stating: ``In the
absence of a valid attainment demonstration, the shutdown-unit
requirement under 40 CFR 51.165(a)(3)(ii)(C)(2) applies, not the base-
year requirement.'') [Footnote omitted] CSE's basis for concluding the
2003 AQMP is not ``valid'' is that EPA has not re-designated the area
to attainment for PM10. Comment Letter at 3, n. 8 (``Whether
[the `fully approved SIP language'] is currently in 40 [CFR]
51.165(a)(3)(ii)(C)(1) or not is not relevant where, as here, [sic]
attainment demonstration offered for compliance with this provision did
not achievement [sic] attainment.'' [Citation omitted]). CSE also
includes a discussion of the shutdown credit requirement in 40 CFR
51.165(a)(3)(ii)(C)(2).
    Response 1: We disagree with these assertions. Although the text of
EPA's current regulation in 40 CFR 51.165(a)(3)(ii)(C)(1) does not
require a fully approved attainment demonstration in order to allow for
the use of pre-base year shutdown credits as NSR offsets, in light of
recent caselaw we have evaluated Rule 1315 for consistency with EPA's
pre-2005 requirement for an approved attainment demonstration for these
purposes. See NRDC v. EPA, 571 F.3d 1245, 1265 (D.C. Cir. 2009)
(remanding, inter alia, those portions of EPA's 2005 ozone
implementation rule that eliminated the approved attainment
demonstration requirement in 40 CFR 51.165(a)(3)(ii)(C)). As the NRDC
court explains, until EPA amended its regulations in 1989, emissions
reductions from shutting down a source could only be used to offset a
replacement for that source's production capacity. Id. at 1264 (citing
54 FR 27286, 27290 (June 28, 1989)). EPA proposed to change this
limitation in 1989 in response to concerns expressed by local air
pollution authorities that the restriction would infringe on their
authority to make growth management decisions and industry commenters
who argued that the policy encouraged sources to continue operating to
prevent forfeiting emissions credits. 54 FR 27286 (June 28, 1989). EPA
also received negative comments from a consortium of environmental
groups opposing the proposed change because they were concerned that
sources with a limited lifetime could get large ``paper'' credits that
would result in worsening air quality. 54 FR at 27291-92.
    EPA responded to these comments by revising the restriction on
using emissions credits from shutdown sources, stating: ``The essence
of the Act's offset provision is that a new source may be allowed in a
nonattainment area only where its presence would be consistent with RFP
toward attainment of the NAAQS.'' Id. at 27292. EPA explained in the
preamble to the 1989 final rule: ``Thus, where a fully approved SIP
demonstrates RFP and attainment, it is appropriate to grant that State
maximum flexibility in its nonattainment plan, under section 173,
within the constraint that the demonstration not be invalidated. By
definition, any fully approved SIP has independently assured RFP and
attainment.'' 54 FR at 27292 (emphasis added).
    EPA cited several planning scenarios ``in which EPA considers the
SIP to be inadequate and will continue to restrict offset credits for
prior shutdowns.'' Id. at 27294. These scenarios included (1)
``nonattainment areas that have received a final notice of disapproval
of their current SIP,'' (2) ``nonattainment areas that have received
either a section 110(a)(2)(H) notice of deficiency based on failure to
attain or maintain the primary NAAQS, or a notice of failure to
implement an approved SIP,'' and (3) ``nonattainment areas that
received notice from EPA that they have failed to meet conditions in
their EPA-approved SIPs, including commitments to adopt particular
regulations by a certain date.'' Id. at 27294-95. These are the
relevant limited situations in which a fully approved SIP may be
inadequate or inappropriate for allowing pre-base year shutdown credits
to be added. In summary, EPA's pre-2005 regulations

required an area to have a fully approved SIP, which has not been
followed by a notice of deficiency, a notice of failure to implement
the SIP or a notice that the area failed to meet conditions in the SIP.
Id. at 27294-95.
    CSE provides no support for its conclusory position that an
approved attainment plan is only ``valid'' if EPA has redesignated the
area to attainment for the pollutant at issue prior to or upon the
attainment date. EPA fully approved the plan submitted by California to
provide for attainment of the particulate matter (PM10)
NAAQS in the Los Angeles-South Coast Air Basin (2003 AQMP) in 2005. 70
FR 69081 (November 14, 2005). EPA has not notified the South Coast of
any deficiency, failure to implement or unsatisfied condition in the
2003 AQMP. Moreover, although EPA has not yet re-designated the South
Coast to attainment for PM10 (for which SOX is a
precursor), the District has submitted a re-designation request to EPA
along with data showing it has not had a violation of the
PM10 NAAQS since 2008. See Final PM-10 Redesignation Request
and Maintenance Plan for the South Coast Air Basin, December 2009.
Because EPA has fully approved the 2003 AQMP (which contains control
strategies for both PM10 and SOX emissions in the
South Coast area), the District may use pre-base year PM10
and SOX shutdown emission credits pursuant to 40 CFR
51.165(a)(3)(ii)(C)(1).
    Accordingly, the requirements in 40 CFR 51.165(a)(3)(ii)(C)(2)
related to emission reductions that do not meet the requirements in
section 51.165(a)(3)(ii)(C)(1) do not apply to our action.
    Comment 2: CSE states ``In its Proposed Rule and associated TSD,
EPA applies the base-year requirement to all pollutants deposited in
SCAQMD's Community Bank. For PM10 and its precursor
SOX, EPA looks to the 2003 AQMP with a 1997 base year. For
ozone precursors VOC and NOX, EPA looks to the 2007 AQMP
with a 2003 base year. In both instances, EPA concludes that `even if
the District Offset Accounts rely on pre-base year emission reductions
as offsets, the District's Plans have adequately added pre-base year
emissions explicitly into the appropriate projected planning
investments [sic].' '' Comment Letter at 4, quoting EPA's TSD at 13.\2\
CSE's comment continues, stating: ``As shown below, this conclusion
violates 40 CFR 52.165(a)(3)(i)(C) in two ways. First, for the
PM10 and SOX credits, EPA should have applied the
shutdown-credit requirement, not the base-year requirement, because no
attainment demonstration is in place for PM10. Even if it
could apply the 2003 AQMP, it commits additional errors. Second, for
VOC an [sic] NOX, EPA erroneously concludes that the 2007
AQMP explicitly includes pre-base year credits that it explicitly
excluded.'' Comment Letter at 4.
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    \2\ We note that our TSD referred to ``projected planning
inventories'' rather than investments.
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    Response 2: This comment appears to repeat arguments CSE made above
in Comment 1 regarding whether the District can rely on the 2003 AQMP
and below in Comment 8 regarding whether the District added pre-base
year credits in its plan to provide for attainment of the 1997 8-hour
ozone NAAQS (2007 AQMP). EPA's responses to this comment are above in
response to Comment 1 and below in response to Comment 8.
    Comment 3: CSE asserts that the 2003 AQMP is not a valid attainment
demonstration because it did not demonstrate attainment with the
federal PM10 NAAQS by 2006. Based on this, the South Coast
may only allow emissions credits from shutdown sources pursuant to 40
CFR 51.165(a)(3)(ii)(C)(2). Comment Letter at 4-5.
    Response 3: As discussed above, the CAA and 40 CFR
51.165(a)(3)(ii)(C)(1) require the South Coast to have a fully approved
attainment demonstration for PM10 (and SOX as a
precursor) in order to allow the use of pre-baseline shutdown emission
reduction credits for PM10 and its precursors. The 2003 AQMP
was fully approved in 2005. 70 FR 69081 (November 14, 2005). EPA has
not issued a notice of deficiency, notice of failure to implement or
notice that the District is not meeting conditions in the 2003 AQMP.
See 54 FR at 27294-95. The District has requested re-designation and
submitted 3 years of data showing there has not been a violation of the
federal PM10 NAAQS. EPA therefore disagrees with CSE's
assertion that the District is limited to allowing emissions reductions
for shutdown sources pursuant to 40 CFR 51.165(a)(3)(ii)(C)(2) (i.e.
shutdowns occurring after the 1997 AQMP base year).
    Comment 4: The next several pages of the CSE's comment letter
assert that the South Coast did not ``explicitly include[] adequate
pre-base-year PM10 and SOX credits in its [2003
AQMP] emissions inventories.'' It discusses ``expected growth from the
NSR program and the need for pre-base year credits.'' Comment Letter at
5. In reviewing Table 2-14 in the 2003 AQMP, CSE states: ``Where no
pre-base-year credits are needed, the emissions inventories exclude
them.'' Id.
    Response 4: Although CSE's references are to the 2007 AQMP, it
appears from the body of the discussion that CSE intended to refer to
the 2003 AQMP and Appendix III of the 2003 AQMP. Comment Letter at 5,
n. 14 & 15. Given the context of these comments, we assume that the
references to the 2007 AQMP are an inadvertent typographical error and
that CSE meant to refer to similar tables in the 2003 AQMP and Appendix
III of this plan.
    CSE's comment uses the phrase ``expected growth,'' which is not a
term used in the 2003 AQMP, and then refers only to portions of the
AQMP pertaining to expected demand. The District handles growth and
demand separately and they are distinct in the 2003 AQMP.
    The District includes pre-base year emissions in the growth portion
of its 2003 AQMP. See 2003 AQMP Figure 3-6 and Appendix III Table 2-8
(Growth Impact to 2010 Annual Average Emissions in Tons Per Day).
Appendix III, Table 2-8 shows a sum of the inventory for all emissions
sources for each criteria pollutant with and without growth. The 2003
AQMP forecasts the 2010 (i.e. future year) emissions inventories ``with
growth'' through a detailed consultation process with the Southern
California Association of Governments (SCAG). SCAG provides extensive
data on demographics and all emissions sources in the South Coast. It
performs an exhaustive analysis of the growth in the inventory of
sources that is likely to occur through the planning periods of 2010.
The District's AQMP summarizes this data in the 2003 AQMP Figure 3-6
and provides additional details in Appendix III Table 2-8 and
Attachments A-C.
    The District's growth projections include the pre-base year
emissions, consistent with the requirements of 40 CFR
51.165(a)(3)(i)(C)(1). For PM10, the District added
PM10 emissions into its future year 2010 inventory for
growth of both point and area sources. For point sources of
PM10, the District added 3 tpd (from 11 tpd to 14 tpd); for
area sources 23 tpd were added (from 77 tpd to 100 tpd) in its future
year 2010 inventory. Appendix III, Table 2-8. This means that the
District added a total of 26 tpd of PM10 emissions to its
future year 2010 inventory for all point and area sources. The detailed
inventories in the Attachments to Appendix III (2003 AQMP) separate the
point and area sources into specific source categories (e.g.
refineries, spray booths, charbroilers) so that the emissions with and
without growth for each category is

included in the base year and future year inventories for 2010 and
2020. Appendix III, Attachments A-C.
    However, not all point and area sources are subject to NSR permit
requirements. Therefore, the District provided data \3\ to EPA
indicating what portion of the baseline and growth projections are
attributed to the point and area sources subject to NSR offset
requirements. Docket Item III-Z and III-AA. This data shows that the
District explicitly included 5.9 tpd of PM10 in its future
year 2020 inventory for point and area sources subject to the
District's NSR program. (Docket Item III-AA showing Total Emissions of
14.5 tpd for 1997 and Docket Item III-Z showing Total Emissions of 20.4
tpd for 2020). The District also provided data showing that it included
3.1 tpd of PM10 (the difference between 14.5 tpd for 1997
and 17.6 tpd for 2010) to the future year 2010 growth projection.\4\
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    \3\ The District submitted several spreadsheets containing
emissions data related to its base year and future year emission
inventories, which we identify herein as lettered ``Docket Items,''
all of which are available in the docket for today's final rule.
    \4\ This table was inadvertently left out of the docket, and has
now been added as Docket Item III-BB.
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    In our proposed rule, after describing the 2007 AQMP's treatment of
VOC and NOX for ensuring a sufficient amount of pre-base
year credits had been added as growth, we stated that ``[t]he District
used a similar approach for the 2003 Plan as it pertains to
PM10 and SOX.'' 77 FR at 10433. EPA's proposal
explains that the District added a certain amount of emissions as
growth for various source categories in Table 2-8 of Appendix III. EPA
further explained that ``[f]or Table 2.8, the District provided EPA
with the point and area source data used to generate the summary data.
EPA used this data to determine the amount of emissions due to growth
at facilities subject to NSR offset requirements.'' 77 FR 10433, n.3.
    Our TSD provides a detailed discussion of these data as it relates
to the 2003 AQMP. We state: ``For PM10, the District added
3.1 tpd as growth. [footnote omitted].'' TSD at 12. EPA is clarifying
in this final approval that the TSD should have said the District added
5.9 tpd as growth because Docket Item III-Z is the District's future
year 2020 inventory for NSR sources. To clarify, for those point and
area sources subject to NSR, the 1997 ``no growth'' inventory was 14.5
tpd. Docket Item III-AA. The District then included ``growth'' of 5.9
tpd for the 2020 inventory in Docket Item III-Z and ``growth'' of 3.1
tpd to the 2010 inventory in Docket Item III-BB, for NSR sources. EPA
inadvertently did not post the information for the 2010 inventory with
our proposal and is adding it to the Docket as Docket Item III-BB.
EPA's TSD inadvertently recited the sum from the 2010 inventory (3.1
tpd growth) rather than 5.9 tpd from the 2020 inventory. This mistake
arising from referring to the wrong future year inventory total does
not have any substantive consequence because the District's inclusion
of either tonnage (3.1 tpd or 5.9 tpd) of pre-base year growth to the
future year inventories far exceeds the amount that the District
expects will be used.
    In summary, CSE confuses growth (3.1 tpd for future year 2010 NSR
sources or 5.9 tpd for future year 2020 NSR sources), which is where
the District adds expected emission increases due to growth into the
inventories--with demand for credits. CSE looks only at demand (0.23
tpd) for pre-base year offsets, which the District provides as a check
to ensure its growth estimate is sufficient to account for this demand.
This confusion leads CSE to contend that ``[t]he 2003 AQMP includes no
pre-base year PM10 credits and 0.7 pre-base year
SOx credits.'' Comment Letter at 5-6, referring to Table 2-
14 in 2003 Appendix III.
    CSE is incorrect. This portion of the 2003 AQMP is evaluating
historic PM10 demand and in addition, is limited to the
historic demand from the District NSR Accounts. See Appendix III Table
2-14 ``2010 Net Demand for ERCs in the AQMD's NSR Accounts''. EPA's TSD
more accurately refers to Table 2-15 that includes the District's
estimated net demand from the NSR Accounts and the open market
transactions, which is 0.23 tpd.
    EPA's proposal and TSD stated: ``For PM10, the District
added 3.1 tpd as growth.'' TSD at 12. The footnote to this statement
provided ``See 2003 Plan Appendix III, pgs. 25-35. For Table 2.8, the
District provided EPA with the point and area source data used to
generate the summary data. EPA used this data to determine the amount
of emission due to growth at facilities subject to NSR offset
requirements.'' TSD at 12, n.7. As explained above, EPA's TSD should
have stated that the District added 5.9 tpd as growth for 2020 (Docket
Item III-Z) and 3.1 tpd as growth for 2010 (Docket Item III-BB). CSE
does not acknowledge that the 2003 AQMP added PM10 emissions
growth in the future year 2010 and 2020 inventories. In fact, the
District added emissions for growth in the 2010 (3.1 tpd) and 2020 (5.9
tpd) inventories far in excess of the expected need for offsets on the
open market and by the NSR Account combined. Further, CSE's comment
that if the District did not estimate that it would need credits from
historic supply and demand that the District has ``excluded'' emissions
from its inventories is not supported by any facts. The 2003 AQMP
includes pre-base year credits in its growth added to its future year
inventories.
    Comment 5: Beginning on page 7 of its Comment Letter, CSE lists
three comments. The first comment actually repeats several paragraphs
of CSE's previous comments (e.g. that the only pre-base year emissions
added in the 2003 AQMP are from Table 2-14 in Appendix III.) To the
extent that CSE is repeating comments, EPA's responses above (and the
statements in EPA's TSD) that the District added PM10
emissions as growth for point and stationary sources subject to NSR,
address these comments. CSE's comment then addresses Table 2-8. Comment
Letter at 8. EPA considers this comment to contain three separate
points. First, CSE states that Table 2-8 includes growth from all point
sources without distinguishing between pre-base year and post-base year
credits. Second, CSE states that the growth from point sources in Table
2-8 does not distinguish between open market emissions transactions and
the District's NSR Account transactions. Third, with respect to the
data provided to EPA by the District (Docket Items III-Z and III-AA)
CSE says: ``A review of those documents reveals that it is nothing more
than identical information already attached to Appendix III of the 2003
AQMP--but simply repackaged into a single table.'' Comment Letter at 8.
    Response 5: CSE's comment in this section confuses the District's
and EPA's treatment of the Table 2-8 point and area sources subject to
NSR. CSE says that it reviewed the documents prepared by the District
and appended to EPA's TSD and found it was repackaging identical
information regarding the future year inventories in Appendix III of
the 2003 AQMP. CSE's review of the information is inaccurate. The
spreadsheets contained in Docket Items III-Z and III-AA extract from
the AQMP's base year and future year inventories (2020) those point and
area sources subject to NSR. The point and area sources listed in
Docket Items III-Z and III-AA are far fewer, particularly for the area
sources, than those included in Appendix III, Attachments A-C.
Therefore it is incorrect to say that the documents provide identical
but repackaged information as that which is included in the 2003 AQMP.
    EPA requested the District to extract those point and area sources
subject to

NSR because those are the only sources in Appendix III, Attachments A-
C, for which EPA's regulations require sufficient emissions to be added
back to the future year inventory to account for the use of pre-base
year emissions reductions from shutdowns. EPA calculated that the
District had added 3.1 tpd for the subset of point and area sources
subject to NSR for the future year 2010 inventory by comparing the sum
in Docket Item III-AA to the sum in Docket Item III-BB and 5.9 tpd when
compared to the future year 2020 inventory (Docket Item III-Z). In the
docket for our proposed rule, we included the spreadsheet for future
year inventory for 2020 (Docket Item III-AA), and in response to
comments we are adding Docket Item III-BB for the future year 2010
inventory to the docket for this final rule.
    CSE's same comment contends that the District's Table 2-8 does not
separate emissions into pre- and post-base year emissions. The
spreadsheets the District provided and EPA attached to its TSD show the
actual 1997 emission inventory for point and area sources subject to
NSR--assuming no growth (Docket Item III-AA), the 2010 projected
emission inventory (added to the docket as Docket Item III-BB), and the
2020 projected inventory that was attached to the TSD (Docket Item III-
Z). Each of the future year NSR inventories (2010 and 2020) are based
on emissions growth expected from the 1997 baseline. This means that
the inventory for ``no growth'' is the inventory NSR subject point and
area sources of 1997 emissions. Docket Item III-AA. The inventory
``with growth'' is the amount of emissions added into the 1997
inventory for purposes of showing attainment in 2010 and projecting out
to 2020. Docket Items III-Z and III-AA. The distinctions between the
inventories for the base year and after the base year, therefore, are
inherent in the data itself and are summarized for NSR sources in the
Docket Items III-Z, III-AA and III-BB. Based on the District's
projected demand, 3.1 tpd of PM10 emissions added to the
future year 2010 inventory and 5.9 tpd added to the future year 2020
inventory, far exceed the amount of pre-base year PM10
offsets that the District expected would ever be used. The District
projected that it would not need to use any pre-base year
PM10 emissions and 0.7 tpd of SOx emissions from
its NSR Accounts, and that the entire projected demand including the
open market demand would not exceed 0.23 tpd for PM10. We
have concluded that the District has satisfied the requirements of
51.165(a)(3)(C)(ii)(1) by adding PM10 emissions to the 1997
base year emissions inventory and projecting these emissions as
``growth'' for the 2010 and 2020 future year inventories for point and
area sources subject to NSR. 77 FR 10433 n.3.
    CSE is correct that the 2003 AQMP inventories with no growth and
with growth do not distinguish between the open market and the NSR
Account transactions. Comment Letter at 7. However, there is no need
for such a distinction and CSE has not provided any reason that such a
distinction is needed. The only issue is whether the District has added
sufficient pre-base year emissions from shutdown sources to allow for
expected use of those emissions after the base year. As discussed
above, the District has adequately accounted for these pre-base year
PM10 emission reduction credits in the 2003 AQMP's future
year (2010 and 2020) inventories.
    CSE's comment concludes: ``This leads EPA to conclude that the
District added 3.1 tpd of PM10 credits as growth while
admitting that that figure includes only 0.23 tpd of pre-base year
PM10 credits for open-market transactions.'' As noted above,
CSE has mischaracterized the District's 2003 AQMP and EPA's position.
The 2003 AQMP provides its analysis of ``the potential 2010 emissions
from new and modified sources.'' 2003 AQMP at III-2-29. The District
further clarifies: ``The net demand simply represents the emission
increases in the future years to be offset by reductions previously
banked (i.e. prior to the AQMP base year).'' Id. The estimated 2010
demand, however, does not equal the amount of pre-base year emission
reductions that the District added back into the inventory. The pre-
base year PM10 emissions are included in the growth
inventory. The District's evaluation of demand is a check to ensure
that adequate emissions (3.1 tpd and 5.9 tpd calculated from the NSR
subject point and area source growth in 2010 and 2020) are included.
EPA's proposed rule and TSD specifically state: ``For PM10,
the District added 3.1 tpd as growth.'' [footnote omitted]. TSD at 12.
    Comment 6: The section of the Comment Letter that CSE identifies as
its second separate comment says that it was improper for EPA to allow
the District's NSR Account to carry a larger balance (3.94 tpd) of
PM10 credits than the total amount of emissions that were
added as growth (3.1 tpd). Comment Letter at 8.
    Response 6: EPA's proposal and TSD acknowledged that the amount of
PM10 emissions that the District added to its inventories
(3.1 tpd) falls somewhat short of the starting balance in its NSR
Account (3.94 tpd) for PM10. TSD at 12-13 (stating: ``While
this [3.1 tpd] is not the total amount of the pre-1997 base year
emissions reductions available as debits pursuant to Rule 1315 (3.94
tpd) the District has demonstrated that this amount represents the
highest amount of pre-1997 credits that are expected to be used as
offsets prior to attainment of the ozone [sic] standard.'' We note that
the reference to the ozone standard here was a typographical error and
that we intended to refer to Appendix III of the 2003 AQMP for
PM10. TSD at 13.
    As we explained in the TSD, the District's adjustment to the future
year PM10 inventory in the 2003 AQMP is adequate, even
though the total tonnage is somewhat lower than its NSR Account
balance, because the District's analysis showed that it anticipated
using significantly less than the pre-base year credits being added as
growth. EPA's TSD stated: ``This approach is consistent with EPA
guidance that States must include pre-base year credits to the `extent
that the State expects that such credits will be used as offsets * *
*.'' TSD at 13 quoting 57 FR 13498. We conclude that the District's
addition of 3.1 pre-base year PM10 credits to cover an
expected use of emissions offsets (0.23 from both the NSR Accounts and
the open market) in the 2010 emissions inventory and 5.9 tpd for 2020,
is acceptable.
    CSE's argument on this point appears to be that EPA's regulations
require the District to include in its future year inventories all of
the emissions offsets that could ever be available for use in the Air
Basin (i.e. 3.94 tpd of PM10 from the NSR Account). But
EPA's NSR regulations, as interpreted in the General Preamble, do not
require this. See 57 FR 13498 at 13509 (stating that ``[a]ll pre-
enactment banked credits must be included in the nonattainment areas
attainment demonstration for ozone to the extent that the State expects
that such credits will be used for offsets or netting prior to
attainment of the ambient standards'') (emphasis added). As CSE's
summary sentence itself says: ``the guidance was intended to direct the
District to include all pre-base year credits it expected to use in the
emissions inventories because otherwise the CAA would not allow their
usage.'' Comment Letter at 9.
    EPA proposed to approve Rule 1315 upon finding that the District
included in its 2003 AQMP 3.1 tpd of PM10 emissions for 2010
and 5.9 tpd for 2020, an amount that would amply cover the District's
projected historic supply and demand of 0.23 tpd. CSE has failed to

demonstrate that the District has projected any circumstance in which
it would use 3.94 tpd of pre-base year PM10 emissions by
2010. CSE's Comment Letter fails to provide any reasoning, much less
regulatory citation, showing why the District's AQMD should be required
to add 3.94 tpd of pre-base year PM10 credits when the
projected demand is only 0.23 tpd (and that demand is expected to occur
on the open market rather than in the District's NSR Accounts.)
    Comment 7: The following comment appears to be ancillary to CSE's
prior comment. In the portion of its comment letter that purports to
discuss CSE's ``third'' comment, CSE contends that Section 173 and 40
CFR 51.165(a)(3)(ii)(C)(1)(ii) requires the District to place a ``cap''
on the amount of pre-base year emissions offsets it may use in applying
Rule 1315. CSE states: ``In other words approving pre-base year
PM10 and SOX credits for withdrawal that were not
included in the emission inventories with no limitations on their use
based on an `expectation' they will not be used is not in accordance
with the law.'' [footnote omitted] Comment Letter at 9.
    Response 7: This comment seems to repeat the same issue as CSE's
Comment 6. The problem is that CSE has misconstrued EPA's regulation at
40 CFR 51.165(a)(3)(ii)(C)(1).
    As EPA noted in Response 1 above, in 1989, EPA significantly
revised its previous restrictions on use of offset credit for source
shutdowns and curtailments (formerly 40 CFR 51.18(j)) to allow the
planning agency to have more control over emissions growth in the area
and to allow sources to shutdown without forfeiting emissions credit if
it could not be used immediately to replace productive capacity. See 54
FR at 27295-95. Congress substantially amended the Clean Air Act in
1990, including the attainment planning process in Part D of Title I of
the Act. In 1992, EPA issued guidance entitled ``State Implementation
Plans: The General Preamble for the Implementation of Title I of the
Clean Air Act Amendments of 1990.'' 57 FR 13498 (April 16, 1992). In
that document, EPA stated: ``For purposes of equity, EPA encourages
States to allow sources to use pre-enactment banked emissions
reductions credits for offsetting purposes. States may do so as long as
the restored credits meet all other offset creditability criteria and
such credits are considered by States as part of the attainment
emissions inventory when developing their post-enactment attainment
demonstration * * *. Existing EPA regulations [40 CFR
51.165(a)(3)(ii)(C)(1)] prohibits certain pre-enactment banked
emissions reduction credits, i.e., reductions achieved by shutting down
existing sources or curtailing production or operating hours, from
being used in the absence of an EPA-approved attainment plan.'' 57 FR
13498 at 13508. Nothing in these discussions suggests that the entire
amount, or balance, of pre-base year banked credits must be included in
the future year inventory of the approved attainment demonstration.
    In 1996, EPA further considered this issue as part of our proposed
rule to revise the Prevention of Significant Deterioration (PSD) and
NSR regulations in 40 CFR part 51, subpart I (61 FR 38250, July 23,
1996). In that proposed rule, EPA stated: ``Passage of the 1990
Amendments has significantly altered the landscape that confronted EPA
at the time of the 1989 rulemaking. Congress significantly reworked the
attainment planning requirements of part D of title I of the Act such
that EPA now believes it is appropriate to delete the restrictions on
crediting of emissions reductions from source shutdowns and
curtailments that occurred after 1990. In particular, Congress enhanced
the importance of the requirement in section 172(c)(3) that States
prepare a `comprehensive, accurate, current inventory of actual
emissions from all sources' in a nonattainment area as the fundamental
tool for air quality planning.'' 61 FR 38250, 38311.
    The proposed rule in 1996 notes that the 1990 Amendments added
specific milestones towards achieving attainment and also mandated
sanctions that would apply to States that fail to submit an attainment
demonstration. 61 FR at 38311-12. EPA proposed two alternatives to
allow increased use of shutdown credits. Id. In 2005, EPA's Phase 2 8-
hour ozone implementation rule finalized the 1996 proposed alternative
that did not require a State to have an approved attainment plan to use
prior shutdown credits. 70 FR 71612, 71676 (November 29, 2005). On
reconsideration of this rule in 2007, EPA disagreed with a comment that
suggested retiring a certain quantity of pre-base year emissions each
year, stating: ``The requirements of the NSR program provide growth
management tools and are an integral part of the overall air quality
attainment program.'' \5\ 72 FR 31727, 31741 (June 8, 2007).
---------------------------------------------------------------------------

    \5\ EPA notes that for purposes of the California Environmental
Quality Act (CEQA), the District capped its account balances. See
Chapter 4.1--Environmental Impacts And Mitigation Measures--Air
Quality. CSE submitted this Chapter with its Comment Letter but does
not provide any comments that address it. Although the CEQA caps are
not part of Rule 1315 that will be included in the SIP, the
District's commitment to limit usage of the Offset Accounts below
these levels unless it performs additional CEQA analysis is
significant.
---------------------------------------------------------------------------

    NRDC challenged this portion (among others) of EPA's 2005 final
rulemaking, arguing in part that EPA's allowance of pre-base year
shutdown credits and elimination of the requirement for an approved
attainment demonstration were arbitrary and capricious. In 2009, the
Court of Appeals for the D.C. Circuit rejected NRDC's challenge to
EPA's longstanding policy allowing ``pre-application reductions'' as
NSR offsets, as codified in 40 CFR 51.165(a)(3)(ii)(C)(1)(ii). NRDC,
571 F.3d 1245 (DC Cir. 2009). The court held that NRDC's challenge to
this longstanding policy was time-barred because EPA's 2005 ozone
implementation rule did not reopen the general issue of allowing pre-
application offsets addressed in the 1989 rulemaking. However, the D.C.
Circuit agreed with NRDC on the narrow issue that EPA's elimination of
the requirement to have an approved attainment demonstration was not
adequately justified. The court remanded this portion of EPA's 2005
rule to the Agency but did not vacate it.\6\ Id.
---------------------------------------------------------------------------

    \6\ As a result, although the text of current 40 CFR
51.165(a)(3)(ii)(C)(1) does not require a fully approved attainment
demonstration in order to allow offset credit for prior shutdowns or
curtailments, in light of the NRDC decision we have evaluated Rule
1315 for consistency with EPA's pre-2005 requirement for an approved
attainment demonstration for these purposes. The NRDC decision did
not affect section 51.165(a)(3)(ii)(C)(1) in any other respect.
---------------------------------------------------------------------------

    Thus, we agree with CSE's general point that approval of an
attainment demonstration for the relevant NAAQS is a prerequisite to
the use of prior shutdown credits in accordance with 40 CFR
51.165(a)(3)(ii)(C)(1). We disagree, however, with CSE's assertion that
the District is required to either add the entire pre-base year balance
of credits to the approved future year attainment inventory or somehow
cap the Rule 1315 NSR Account balance at the amount of projected
demand, as this assertion is not supported by the text of 40 CFR
51.165(a)(3)(ii)(C) or the NRDC decision.
    Comment 8: CSE titled this section of their comments ``The 2007
AQMP Explicitly Excludes VOC and NOX Credits From Projected
Emissions Inventories.'' CSE does not contest the ``validity'' of the
2007 AQMP. CSE's comments about the 2007 AQMP's treatment of pre-base
year credits largely mirrors the comments about the 2003

AQMP. The Comment Letter begins by characterizing Tables 2-10 and 2-11
in Appendix III of the 2007 AQMP, and then states: ``This is where
growth for the Community Bank portion of the NSR program is accounted
for, and this is where the pre-base-year credits would need to be
included for ozone precursors. The 2007 AQMP includes no pre-base-year
credits for VOC and NOX.'' [Citation omitted] Comment Letter
at 11. CSE's comment on the 2007 AQMP also recites three specific
objections: (1) That EPA ``conflates total growth from all point
sources in Table 2-8--where no distinctions are made between pre-base-
year credits and post-base-year credits nor open-market transactions
and NSR-Account transactions--for growth based on pre-base year credits
from the NSR Account''; (2) EPA approves starting balances in the NSR
Account that are larger than the growth; and (3) EPA's approval does
not require a cap on the bank that is the same as the amount of growth
that is added. Comment Letter at 12-14. Last, CSE states that EPA was
required to analyze whether the 1-hour ozone attainment plan included
adequate pre-base year credits. EPA responds to this comment at
Response 27 below.
    CSE is continuing to confuse growth and demand. Tables 2-10 and 2-
11 in Appendix 3 are evaluating historic demand for VOC and
NOX credits. The District adds the pre-base year credits to
its 2007 future year inventories in the growth portion of the 2007 AQMP
which is graphically shown in Table 2-8 of the AQMP. Then, the District
evaluates historic supply and demand as a check to ensure that adequate
growth is added back into the future year inventories.
    Table 2-8 in the 2007 AQMP Appendix III shows the VOC and
NOX emissions from area and point sources as ``no growth''
and ``with growth''. The growth that is added for the point and area
sources in the ``with growth'' portion of Table 2-8 includes the pre-
base year credits the District is adding to its future year
inventories. For total point sources of VOC, Table 2-8 shows that the
District added 12 tpd as growth (35 tpd to 47 tpd) and for area sources
of VOC, the District added 36 tpd (195 tpd to 231 tpd). For
NOX, the District added 1 tpd for point sources (36 tpd to
37 tpd) and 2 tpd for area sources (29 tpd to 31 tpd).
    EPA requested the District to provide data on the amount of growth
that was included for point and area sources subject to NSR. EPA
provided that information in Docket Items III-P (showing point and area
NSR subject sources with growth) and III-Q (showing point and area NSR
subject sources for no growth). These tables show that for NSR subject
sources the District added 12 tpd for VOC (35 tpd to 47 tpd) and 2 tpd
for NOX (36 tpd to 38 tpd). EPA's TSD says that the District
added 27 tpd for VOC and 2 tpd for NOX. The TSD notes that
the amount of pre-base year credits included in the growth far exceeded
the District's projection of possible demand (3.1 tpd for VOC from the
NSR Account and the open market) and 0 for NOX. EPA
determined that the credits the District was including in its growth
for its future year inventories was ``conservative and an appropriate
way to meet the requirements of 40 CFR 51.165.'' TSD at 12.
    CSE's comment that EPA ``conflates total growth from all point
sources in Table 2-8 * * * for growth based on pre-base-year credits
from the NSR Account'' is not clear. CSE appears to consider only point
sources as being subject to NSR. However, the District includes both
point and area sources in its NSR program. Therefore, the District put
together data on the point and area sources that are subject to NSR and
prepared the tables in Docket Item III-P and III-Q. CSE apparently did
not understand this information because it says that ``it is identical
information already attached to Appendix III of the 2007 AQMP--simply
repackaged into a single table.'' Comment Letter at 13. This is
incorrect. EPA stated in its TSD: ``For Table 2.8 [sic], the District
provided EPA with point and area source data used to generate the
summary data. EPA used this data to determine the amount of emission
due to growth at facilities subject to NSR requirements.'' TSD at 12, n
6. Therefore, EPA correctly determined that the District added
sufficient pre-base year credits for point and area sources subject to
NSR. The amount added as growth far exceeded the historic demand that
the District used as a check.
    For the two next points in CSE's comment on the 2007 AQMP, EPA
incorporates its response from Responses 6 and 7, as applicable to the
2007 AQMP for VOC and NOX emissions.
    Comment 9: CSE comments that EPA lacks evidence to support the
conclusions in the proposed rule concerning retroactive rule operation:
``Internal bank balances lack documentation.'' As an introduction to
this section, CSE makes the following statement: ``Approving Rule 1315
would incorporate in federal law two changes to the District's internal
banking system: ``One retroactive, in an effort to expunge from the
District's legers [sic] the fact that it permitted more emission
increases than the CAA's offsetting requirements allow; and one
prospective, so that going forward the District would operate a new
banking or ``tracking'' scheme. The rule's attempt to change history is
rife with flaws, including a pervasive lack of documentation.''
    Response 9: These statements are unsupported and lack sufficient
specificity for EPA to respond. We assume the lettered subsections that
follow this introduction contain specific comments which provide the
factual support for these conclusions. Our response to the additional
comments found in this subsection are provided below in response to
each section (group of comments) provided by CSE.
    Comment 10: CSE titled this section of their comments ``Pre-1990
Credits Lack Documentation.'' In this comment, CSE makes several
assertions about the emission reductions that occurred prior to 1990
and how they are tracked in Rule 1315. The first is that ``the 1990
`starting balance' established in the Rule includes offsets for which
the District claims to have `some or all' documentation. (Emphasis
added by commenter.) (See Response 10A) ``Second, the EPAs approval of
the decision to retire the pre-1990 offsets that remained in the
Internal Bank in 2005 does not remove all invalid offsets from the
system, since the Rule proposes to allow the facilities permitted prior
to 2005 in reliance upon those pre-1990 offsets to ``return'' those
offsets as ``payback of offset debt'' under Rule 1315(c)(3)(A)(v).''
(See Response 10B) Third, CSE states ``it is unclear why the EPA did[]
not include the documentation that establishes the validity of the
offsets in the ``Initial District Offset Account Balances'' set out at
Table A in the Proposed Rule in the record for this rulemaking'' and
that ``* * * EPA's failure to do so not only deprives the public the
opportunity to review and comment upon that documentation, the failure
is also a violation of the Administrative Procedures Act.'' (See
Response 10C) And fourth that ``Proposed Rule 1315 has no mechanism to
track how the pre-1990 credits are returned to the bank, either as
payback of offset debt or through orphan shutdowns * * *''. (Citations
omitted) (See Response 10D).
    Response 10: EPA disagrees with each of these assertions for the
reasons provided below.
    Response 10A: First, CSE states that ``the 1990 `starting balance'
established in the Rule includes offsets for which

the District claims to have `some or all' documentation,'' (emphasis
added by commenter) and continue by stating that ``having `some'
documentation to support the claim that an offset is valid is not
sufficient.'' The District provided a full discussion of their
evaluation of pre-1990 credits on page 12 of their Staff Report (as
well as the prior 2005 and 2006 evaluations), all of which are included
in the Docket. The District explains that where ``all'' documentation
was not available (e.g., the original permit file that generated the
emission reductions) there was still sufficient historical records to
verify the specific information listed in the 1994 Seitz memo and
determine that the emission reductions meet the federal integrity
criteria for offsets. The Staff Report also explains that all pre-1990
credits were evaluated when they were originally transferred into the
District's initial Internal Bank. As discussed below, the District's
2003-2005 re-evaluation of all of its banked pre-1990 emissions
reductions eliminated (with a starting date of 1990) all credits for
which the District no longer possessed sufficient documentation to
determine the emission reductions meet the federal integrity criteria
for offsets. Therefore, we disagree with CSE and CSE has not pointed to
any specific information showing that the District retained a pre-1990
credit without adequate documentation.
    As discussed both in the District's Staff Report and EPA's TSD, EPA
raised the issue of availability of sufficient records for the pre-1990
credits in the District's Offset Accounts in 2002, in light of the
District's adoption of Rule 1309.2--Offset Budget, which would allow
more sources access to the Offset Accounts. TSD at 4. EPA pointed to a
1994 EPA memo regarding the use of pre-1990 offsets as guidance. See
Memorandum dated August 26, 1994 from John S. Seitz, Director, EPA
Office of Air Quality Planning and Standards, to David Howekamp,
Director, EPA Region IX Air and Toxics Division, ``Response to Request
for Guidance on Use of Pre-1990 ERC's and Adjusting for RACT at Time of
Use'' (1994 Seitz Memo). The 1994 Seitz Memo states that pre-1990
credits may be utilized, provided the State ``collect[s] and
maintain[s] information on these ERC's, including, at a minimum, the
name of the source that generated the ERC's, the source category that
applies to this source, the quantity of ERC's generated by this source,
the specific action that created the ERC's (e.g., a shutdown of a unit,
process change, add-on control), the date that the ERC's were generated
and enough other information to determine the creditability of all
ERC's.'' 1994 Seitz Memo at 2. At EPA's request, the District reviewed
all available records and determined that sufficient records were no
longer available for some of pre-1990 credits, or that the effort to
provide those records was too burdensome. See Proposed SCAQMD NSR
Offset Tracking System, Background, February 23, 2006. Nevertheless,
the District undertook a complete and thorough review of its offset
records. Id. at 2. The result was the District's elimination of pre-
1990 credits for which it did not have adequate documentation. Id.
(stating: ``In order to resolve EPA's comments, SCAQMD staff is
proposing several modifications to the procedures used in the tracking
system. In the revised procedures SCAQMD has proposed elimination of
all credits for which SCAQMD no longer retains documentation.'')
    From this review, the District calculated new beginning balances
for each of the pollutants. The District removed pre-1990 credits with
inadequate records from the 1990 starting balance, leading to much
lower balances for all pollutants except NOX. Id. (stating:
``Several elements of the proposed revisions to the SCAQMD's tracking
system contribute to these reductions, as discussed below, but the
single element of the proposal with the greatest contribution is the
reevaluation of pre-1990 credits and proposed elimination of all
credits for which SCAQMD no longer retains documentation.'')
Accordingly, the District removed this quantity of credits from the
1990 starting balances for the Internal Bank, as shown on page I-1 of
Appendix I of the District's staff report. Thus the District's 1990
starting balances only contain credits for which the District possessed
sufficient documentation, consistent with the 1994 Seitz Memo.
Therefore, we disagree with CSE that there are pre-1990 credits in the
District's bank that lack documentation. In approving the District's
newly calculated starting balances (i.e those from which pre-1990
credits without documentation were eliminated), EPA is not required to
independently review all documentation. As noted in our TSD, EPA is
approving a system for tracking credits. EPA acknowledges the system
depends on the starting balances. EPA determined that the District's
Staff Report and the preceding documents setting forth the District's
procedures ensured accurate and conservative starting balances for each
pollutant. CSE has not identified any information to show otherwise.
    Response 10B: Regarding CSE's second assertion that while Rule 1315
requires ``removal of some of those offsets, [the Rule] does not
actually require removal of all invalid offsets''; EPA disagrees. As
stated on page 14 of the District's Staff Report, all pre-1990 credits
for CO and PM10 were used by 1997, and the remaining balance
of VOC, NOX and SOX credits were retired at the
end of 2005. CSE claims that this retirement ``does not remove all
invalid offsets from the system, since the Rule proposes to allow the
facilities permitted prior to 2005 in reliance upon those pre-1990
offsets to `return' those offsets as `payback of offset debt' under
Rule 1315(c)(3)(A)(v).'' [Footnote omitted] Comment Letter at 16.
According to CSE, as the pre-1990 internal bank offsets are returned to
the internal bank, they are laundered, or `tracked' as if they were
never touched by the improper crediting of those offsets in the first
place.'' Comment Letter at 16. These statements are incorrect and
appear to be based on a misunderstanding of the fact that once a credit
is used to offset new emission increases, the ``credit'' is gone. When
credits are debited from the bank to allow the construction and
increased emissions from a new or modified source, these new emissions
are no longer ``pre-1990'' emissions, as they are being emitted in the
present timeframe. When such a source shuts down or has controls
applied to reduce emissions, the reductions reduce the current emission
inventory. In other words, pollution that is being emitted into the air
stops being emitted into the air. These current day emission reductions
no longer have any relationship to any pre-1990 credits. For example,
assume a new piece of equipment was permitted in 2000 entirely with the
use of pre-1990 credits and operated until the entire facility shutdown
in 2011. If the facility submits an application to claim the emission
reductions from the entire facility (where some pieces of equipment
obtained credits from the District Offset Account and some did not),
the District would evaluate the application under the provisions of
Rule 1309--Emission Reduction Credits and Short Term Credits, which is
SIP approved. Rule 1309 requires the quantity of emission reductions
verified as meeting the federal integrity criteria to undergo an
additional adjustment to reflect current day BACT levels,\7\ and

only then is the quantity of any ``payback of offset debt'' credited to
the District Offset Accounts. The remaining balance of emission
reductions is issued to the source as an ERC certificate. If the source
did not claim any emission reductions from the shutdown of their
facility, the District would then evaluate the emission reductions
pursuant to Rule 1315, which imposes different requirements than Rule
1309, but also ensures that all credits meet the federal integrity
criteria. It is important to note that all crediting of emission
reductions in either example are based on real reductions of emissions
that were recently emitted into the air but are no longer being
emitted. The association with the pre-1990 credits no longer exists.
Thus CSE is incorrect to claim that the pre-1990 credits are
``laundered'' in the tracking system, since the tracking system only
collects as credits the quantity of actual emission reductions
calculated pursuant to Rule 1309 that were originally lent to the
source from the District's Offset Accounts. In addition, orphan
shutdown credits are collected in accordance with Rule 1315, which
requires that permitted emission limits be adjusted by an 80% factor to
estimate actual emissions. See Rule 1315(c)(3)(B)(i).
---------------------------------------------------------------------------

    \7\ The District imposes this more stringent current day BACT
adjustment at the time of credit creation in lieu of current and
future surplus adjustments to the quantity of emission reductions.
See 61 FR 64292, Dec. 4, 1996 and Environmental Protection Agency,
Region IX Air & Toxics Division Technical Support Document for EPA's
Notice of Final Rulemaking for the California State Implementation
Plan South Coast Air Quality Management District New Source Review
by Gerardo C. Rios, October 24, 1996 (TSD).
---------------------------------------------------------------------------

    Response 10C: CSE's third comment claims that EPA must review
documentation for each of the thousands of individual transactions that
contributed to the 1990 starting balance, otherwise our approval of
Rule 1315, including our determination that the 1990 starting balance
meets the federal integrity criteria for offsets is improper. EPA does
not believe it was Congress's intent that we review each individual
action carried out by a local air District to ensure compliance with
the CAA. As the Court's have recognized, the Clean Air Act establishes
a system of cooperative federalism. The federal EPA establishes the
National Ambient Air Quality Standards, but the States have primary
authority for ensuring that their air quality meets the NAAQS. 42
U.S.C. 7407(a), 7401(a)(3). The CAA requires States to develop SIPs to
implement, maintain and enforce the NAAQS and to submit these SIPs to
EPA, and EPA must approve a submitted SIP that meets the CAA's
requirements. 42 U.S.C. 7410, 7410(k)(3). In this case, the District
adopted and submitted a rule that provides detailed methodologies for
reviewing and quantifying specific types of emission reductions prior
to crediting such reductions to their Offset Accounts. It is the
overall program that EPA must review to ensure it contains the
necessary provisions to ensure (1) that the District is providing an
adequate quantity of emission reductions to make up for all required
federal emission reductions not required by the District's NSR program
(CAA Section 173), and (2) to ensure the federal offset criteria for
offsets debited to be permanent, surplus, quantifiable, and enforceable
are met (40 CFR 51.165((a)(3)(ii)(C)(1)(i)). For the reasons explained
in EPA's proposed rule and TSD, we have determined that Rule 1315
satisfies these statutory and regulatory criteria for approval. CSE's
broad assertion that EPA should have reviewed the extensive
documentation for each pound of emissions credits in the District's
Offset Accounts is without merit.
    CSE claims that since ``EPA failed to review the documentation that
the SCAQMD relied upon to establish its Offset Account balance, then
EPA[ ] is in no position to find * * *'' that the credits in the Offset
Accounts meet the requirements of the CAA. As discussed on page 10 of
the TSD, EPA made a determination as to the whether the credits
contained in the District's Offset Accounts meet the federal integrity
criteria of being permanent, surplus, quantifiable, and enforceable and
therefore meet the requirements of the CAA. It is not necessary for EPA
to review documentation for every single credit and debit in the
District's Offset Account to make this determination. Instead EPA has
reviewed and evaluated the mechanisms contained within Rule 1315 to
ensure that at the time of use, all credits used to offset new emission
increases meet the federal integrity criteria. Further discussion of
how EPA evaluated the rule is provided below in response to specific
comments made by CSE.
    Response 10D: CSE's fourth assertion is based on the misconception
that pre-1990 credits remain classified as pre-1990 credits even after
they have been used to construct a new project. As discussed above in
EPA's response to CSE's second assertion, this is incorrect. (See
Response 10B) Once a credit is used by a source, the credit is retired.
Any credits generated later from emissions reductions at that source
are new credits from actual reductions that meet the federal criteria.
See EPA's response to CSE's second assertion under this comment for a
more detailed discussion.
    Comment 11: CSE titled this section of their comments ``Annual
Balances Lack Documentation''. In this comment, CSE correctly points
out that Rule 1315 relies on permitted emission limits, discounted by
20% to account for actual emissions from a shutdown source, rather than
relying on actual emissions information for major or minor source
orphan shutdowns. They claim that ``This presents three problems
inherent to this rulemaking.''
    The first problem identified by CSE is that ``the CAA's plain
language requires `actual' emissions be used to meet its offsetting
requirement * * *'' They then cite 40 CFR 51.165(a)(1) which reads
``All such plans shall use the specific definitions. Deviations from
the following wording will be approved only if the State specifically
demonstrates that the submitted definition is more stringent, or at
least as stringent, in all respects as the corresponding definition
below.'' While not stated explicitly, it appears that CSE's intended
comment is that the rule must use the term and meaning of ``actual'' as
defined in 51.165 and not an alternative determination of ``actual''
emissions.
    Response 11: As CSE points out in their comment, the CAA does allow
deviations from defined terms if the definition is ``at least as
stringent, in all respects as the corresponding definition * * *''
Except for orphan shutdowns, all credits are first evaluated pursuant
to the requirements of Rule 1309, which in turns specifies that the
Rule 1306 emission calculation methods be used to calculate emission
reductions. Rule 1306(c)(1) states that emission decreases are ``The
sum of actual emissions, * * * which have occurred each year during the
two-year period immediately preceding the date of permit application,
or other appropriate period, determined by the Executive Officer or
designee to be representative of the source's cyclical operation, and
consistent with federal requirements; * * *'' In turn, Rule 1302
defines Actual emissions as ``the emissions of a pollutant from an
affected source determined by taking into account actual emission rates
and actual or representative production rates (i.e., capacity
utilization and hours of operation).'' Thus, except for reductions from
Orphan Shutdowns, the quantity of emission reductions credited to the
District Offset Accounts is based on the same definition of ``Actual
Emissions'' as in 40 CFR 51.165.

    The only remaining question is whether the District's use of 80% of
permitted emission limits for orphan shutdowns provides a result that
is ``at least as stringent as'' the result of using the 40 CFR 51.165
definition of the term Actual Emissions when quantifying the amount of
emission reductions to be credited to the District Offset Accounts. The
TSD and proposal for the proposed approval of Rule 1315 both provide a
discussion on this topic and explain why the provisions of Rule 1315
provide an acceptable method (i.e. at least as stringent as the federal
requirement) to calculate actual emissions from orphan shutdowns as
required by Rule 1315. (See TSD pgs 9-10) CSE's comments do not
question the reasoning behind EPA's determination, but simply state in
their next comment that actual emission data is available, therefore it
should be used. EPA's responds to this assertion in our response to
Comment 13, that also makes this point.
    Comment 12: CSE also states in this comment that Rule 1315 contains
a definition for ``Net Emission Increase'' that differs from the
language in the regulation.
    Response 12: This definition is not included in the version of Rule
1315 that we are approving, as the District has specifically excluded
this definition from the SIP submittal. See Rule 1315(h). Therefore, we
do not need to evaluate this definition as part of our action on Rule
1315.
    Comment 13: CSE states that ``While some very small sources do not
report emissions, major sources and sources that emit over 4 tons per
year of certain pollutants all report annually. Yet under Rule
1315(c)(3)(B), all orphan shutdowns and reductions are treated as if
they were very small sources, with no emissions information. Actual
emissions information cannot be ignored in favor of assuming 80% of
permitted emissions.''
    Response 13: While District Rule 301--Permitting and Associated
Fees, requires all sources with a potential to emit greater than 4 tpy
to submit an annual emission report, these reports do not always
include emission data for individual pieces of equipment. Instead,
since the annual report covers the entire facility, many sources, such
as combustion sources and coating operations are often grouped together
for the report. Annual emissions from these units are based on the
equipment group's total material usage multiplied by an appropriate
default emission factor. The default emission factors are designed to
be conservative and may not be as accurate as the emission factors used
for permitting of equipment or the calculation of ERCs. For these
reasons, EPA disagrees with CSE that the use of annual emission reports
would provide a better (more accurate?) way to calculate actual
emission reductions from orphan shutdowns. As stated in the TSD and
proposal, we have determined that the method provided in Rule 1315 is
at least as stringent as using actual emissions records for determining
the actual emission reductions from orphan shutdowns. See TSD at 9, 10.
    Comment 14: CSE states that there is no evidence that any of the
Orphan Reduction/Orphan Shutdown credits meet the definitions for these
terms because the District does not evaluate whether these reductions
are ``not otherwise required by rule, regulation, law, approved Air
Quality Management Plan Control Measure, or the State Implementation
Plan.''
    Response 14: This statement is incorrect. As part of the process
for collecting orphan shutdowns the District reviews existing rules and
laws to ensure the reduction or shutdown (or equivalent such as
electrification) is not required as of the date of the reduction. The
requirement to perform this check and make any necessary adjustments is
inherent in the definition of orphan shutdown, which is defined as
follows: ``Any reduction in actual emissions from a permitted source
within the District resulting from removal of the source from service
and inactivation of the permit without subsequent reinstatement of such
permit provided such reduction is not otherwise required by rule,
regulation, law, approved Air Quality Management Plan Control Measure,
or the State Implementation Plan and does not result in issuance of an
ERC.'' Rule 1315(b)(5). To the extent CSE intended to comment on the
District's implementation of the rule, such comments are outside of the
scope of our action on this rule under CAA 110(k).
    Comment 15: This comment states that ``[CSE] knows[ ] that the
SCAQMD has made mistakes in determining what can lawfully be credited
to its Internal Bank,'' and offers two examples. First they cite the
District's action of removing pre-1990 credit balances for which
sufficient records were no longer available. Second they claim that the
documentation the District provided for the CPV Sentinel Energy Project
source-specific SIP revision proves that the District has claimed some
offsets for their Internal Bank that were not valid. Last, CSE claims
that the rulemaking lacks the record required for EPA to make a finding
``* * * that the emission reductions the District is crediting and
debiting in its Offset Accounts meet the requirements of the CAA and
can be used to provide the offsets otherwise required for Federal major
sources and modification.'' CSE bases this claim primarily on that fact
that the same type of documentation provided for the CPV Sentinel
Energy Project source-specific SIP revision was not made available for
Rule 1315.
    Response 15: As EPA stated earlier in Response 10C, there is no
requirement for EPA to review and approve every transaction that was or
will be undertaken pursuant to Rule 1315. Instead EPA has carefully
reviewed each of the provisions of Rule 1315 and determined that it
provides an adequate method for tracking and quantifying emission
reductions which meet all of the federal integrity criteria for
offsets. The TSD provided a full discussion on each aspect of these
criteria. (See TSD pgs 7-10)
    As stated in the District's Staff Report, the District has
implemented an NSR tracking system to demonstrate programmatic
equivalence between its NSR program and the offset requirements of the
Federal program since EPA's 1996 approval of the Districts NSR program.
District staff have prepared and presented to the AQMD Governing Board
at public meetings a series of reports that track credits and debits
from August 1990 through July 2002. While the rulemaking process for
Rule 1315 was in flux (adopted, challenged in court, repealed, re-
adopted * * *) the District submitted additional reports in 2007 that
also tracked the credits and debits from the District's Offset
Accounts. Each of these reports demonstrated that in the aggregate, the
District provided an equivalent number of offsets as would have
otherwise been required by the federal CAA. Each of these reports is
included in the docket for this rulemaking.
    Comment 16: CSE titled this section of their comments ``The Rule
1315 Approach to Surplus Adjustment Does Not Capture Reductions as
Required by Federal Law'' CSE claims that ``the provisions of Proposed[
] Rule 1315(c)(4) are inadequate to capture all the reductions needed
to ensure banked reductions remain surplus at time of use'' because
when offsets are deposited from any source listed in 1315(c)(3)(A)
there is no provision that requires those emission reductions to be
surplus adjusted prior to deposit; and ``once the emissions reductions
are deposited, there is no mechanism for ensuring that the proper
annual reduction is

calculated and applied.'' Comment Letter at 19.
    Response 16: EPA disagrees. Rule 1306 requires all actual emission
reductions to be BACT adjusted at the time of creation. South Coast
Rule 1306(c). This means that only reductions that exceed the level of
control required by BACT are allowed to be credited under the Districts
NSR program. As EPA discussed in our 1996 approval of the District's
NSR program (61 FR 64292), we approved this requirement in lieu of the
requirement to surplus adjust credits at the time of use based on our
conclusion that the District's BACT adjustment at time of creation was
at least as stringent as a requirement to adjust at the time of use.
For the same reasons, we believe that all credits deposited under
paragraph (c)(3)(A), except clauses (c)(3)(A)(i), (c)(3)(A)(ii), and
(c)(3)(A)(vi) are adequately surplus adjusted both at the time of
creation and use. Paragraph (c)(4) entitled ``Surplus at the Time of
Use'' only applies to these three clauses because they are the only
ones not automatically adjusted to account for a surplus adjustment at
the time of use. Instead, paragraph (c)(4) requires credits deposited
into the District Offset Accounts, pursuant to clauses (c)(3)(A)(i),
(c)(3)(A)(ii), and (c)(3)(A)(vi), to be annually discounted in the
aggregate to ensure they remain surplus at the time of use.
    Typically credits are adjusted at the time of use by reviewing the
source category and type of reduction that created the emission
reduction and determining if any new requirements requiring additional
reductions have become applicable. This method would be extremely
difficult and administratively burdensome if applied to the District's
tracking system. Therefore the District proposed an alternative which
we believe is equivalent to the case by case application of surplus
adjustment at the time of use. Rule 1315 paragraph (c)(4) requires the
District to determine the quantity of emission reductions expected from
the adoption of new regulations for each non-attainment pollutant. The
District then determines what percentage of permitted emissions these
reductions represent. The same percentage of emission reductions is
then applied to the Offset Account balance for that pollutant. For
example, if the District adopts two rules that will achieve 200 tpy of
PM10 emission reductions, these 200 tpy represents a
specific percentage of the total PM10 stationary source
inventory. This percentage is applied to (multiplied by) the Offset
Account balance and the resulting figure is subtracted from the Offset
Account Balance, which in effect reduces the total Offset Account
balance by a percentage equal to the total amount of emission
reductions achieved by new or revised control measures, as a percentage
of the total PM10 stationary source inventory. This means
that the degree of emission reduction achieved by any rules implemented
in a year are applied to the entire Offset Account balance, not just to
sources that would otherwise be subject to the new rules, which will
result in a greater downward adjustment in the total Offset Account
balance compared to source category-specific adjustments. We conclude
that this surplus adjustment requirement in Rule 1315 is at least as
stringent as other, more traditional methods for surplus adjustments at
time of use.
    Comment 17: CSE's comment states that while Rule 403, a fugitive
dust rule, was adopted to control PM10 emissions, no surplus
reductions appear in the District Offset Account balance sheet for that
year. Comment Letter at 19.
    Response 17: CSE is correct that no surplus reductions were made
for Rule 403. This rule regulates fugitive dust from any active
operation--such as earth-moving activities, construction/demolition
activities, disturbed surface areas, or heavy- and light-duty vehicular
movement and open storage piles. It does not apply to permitted
emission units. If a source subject to this rule was to shut down, no
emission reductions would be collected for the reduced fugitive
emissions subject to Rule 403. Since there are no emission reductions
in the District's Offset Accounts that are subject to Rule 403, the
Offset Account balance does not need to be surplus adjusted for Rule
403.
    Comment 18: CSE's comment continues by stating that this system is
not equivalent because the credits in the District's internal bank do
not reflect the District's rules as a whole and offers as an example
that spray coating operations are more likely to occur at minor, rather
than federal major facilities. And finally that ``Spray coating
operations became subject to a new PM regulation in 2002, when the
District adopted Rule 481. The District made no discount to the
internal bank PM10 account in 2002-2003.'' Comment Letter at
19.
    Response 18: This statement is not correct. Since the balance of
both minor and major orphan shutdowns undergo annual surplus
adjustments, it does not matter at which type of facility the emission
reductions occur. In addition, since Rule 1315 requires the amount of
emission reductions achieved from the entire permitted stationary
source inventory to be applied to the total Offset Account balances, it
does not matter at which source categories the emission reductions from
new rules occur, nor does it matter what source categories generated
the credits in the District's Offset Accounts. The Offset Account
balances are surplus adjusted annually, in the aggregate, so that all
credits meet the surplus at time of use requirement prior to being
debited from these accounts. The revisions to Rule 481, which were
adopted in 2002, were all administrative in nature and did not achieve
any PM10 emission reductions, therefore no surplus
adjustment was made to the District's Offset Accounts for
PM10 in 2002-03.
    Comment 19: Finally CSE offers an example of an instance where the
District failed to surplus adjust at time of use some of the emission
reductions listed in the AB 1318 Tracking System. Comment Letter at 19.
EPA notes that credits transferred from the Rule 1315 Offset Accounts
into the AB 1318 Tracking System had already been surplus adjusted to
account for the emission reductions of Rule 1157--in the aggregate, as
represented by the 0.31 tpd surplus adjustment the District made to
their PM10 Offset Account balance at the end of 2006. While
CSE is correct that Rule 1157 reduced emissions from the 389 affected
facilities by 60%, the effect on the entire permitted stationary source
emission inventory was only 2.8%.
    Response 19: It appears, based on CSEs comments, that CSE did not
fully understand the requirements of Rule 1315 (c)(4). Section (c)(4)
of the rule requires an ``in the aggregate'' adjustment of the Offset
Account balances, which reduces emissions by the same overall
percentage achieved by any new rules, whether or not credits in the
District's accounts came from source categories affected by the new
rules. For the reasons provided in our TSD in Section IV.A.2. and in
Response 16 above, we conclude that Rule 1315 contains adequate
provisions to ensure all Offset Account balances are surplus adjusted
annually to satisfy the surplus adjustment at the time of use
requirement.
    Comment 20: CSE asserts that ``Proposed Rule 1315 Does not
Incorporate the Federal Validity Requirements.'' Specifically, CSE
states that ``To meet the requirements of federal law, the Proposed
Rule must incorporate the definitions for validity found in federal law
* * *'' and that ``While Proposed Rule 1315 (6) is titled ``Federal
Offset Criteria,'' it does nothing more than reference other parts of
the Proposed Rule and those parts

neither contain nor reference the requirements of federal law. Proposed
Rule 1315(6) instead is circular and self-referential.'' Comment Letter
at 20.
    Response 20: CSE does not provide any citations to support this
alleged requirement. While EPA agrees that all emission reductions used
to offset the emissions from new and modified sources must meet the
federal integrity criteria of being permanent, surplus, quantifiable,
and enforceable, it is not necessary for the rule to specifically
define these terms. See 40 CFR 51.165(a)(3)(ii)(C)(1)(i). Instead the
rule must include provisions that ensure that the credits being used as
offsets meet these criteria. Paragraph (c)(6) of Rule 1315 is not
intended to be a requirement that the criteria be met, but instead
points to the rule section(s) that ensure each of these criteria are
met. Section IV.A. of our TSD discusses EPA's evaluation of how the
rule ensures each of these criteria are being met, consistent with the
requirements of 40 CFR 51.165(a)(3)(ii)(C)(1)(i). CSE's comment is
conclusory and unsupported.
    Comment 21: CSE's comments that the SCAQMD's existing SIP approved
NSR program establishes certain requirements on emissions that this
Rule attempts to set aside. CSE cites sections of Rule 1315 which allow
some of the offsets provided from the open market, pursuant to the
requirements of Rule 1303, to be collected as credits for the
District's Offset Accounts. They claim that since Rule 1303 requires
these offsets to be provided to obtain a permit, they are not surplus
to the requirements of the SIP, and may not be credited into the
District's Offset Accounts. Comment Letter at 21.
    Response 21: The purpose of Rule 1315 is to provide a tracking
system to demonstrate that in the aggregate, the District is providing
at least as many offsets under their approved NSR program as would
otherwise be required by a program that contained no exemptions from
federal offset requirements. The requirement in Rule 1303 for minor
sources (>4 tpy but less than major source emission thresholds) to
provide offsets for emission increases is more stringent than federal
requirements which only apply to major sources. South Coast Rule
1303(b)(2). Likewise, the general requirement to provide offsets at a
ratio of 1.2:1 is more stringent than the CAA's general requirement in
subpart 1 of part D, title I to provide offsets at a ratio of 1:1 for
all non-attainment pollutants except ozone precursors (VOC and
NOX), which are subject to more stringent offset ratios
under subpart 2 of part D. When the District collects offsets (or
portions thereof) that were already determined to be surplus, they are
collecting a greater quantity of offsets than required by the federal
NSR program. Rule 1315 collects some of the offsets surrendered to the
District that are in excess of federal requirements to balance against
the offsets not collected by the District, which would have been
required under federal requirements. Before any emission reductions can
be credited to the District's Offset Accounts, the emission reductions
must first meet the federal integrity criteria, which these credits--
offsets collected for minor sources and the additional 0.2 offset
ratio, have already met. They are ``credits'' i.e., pluses to the
tracking system because they are in excess of federal offset
requirements.
    Comment 22: CSE states that the provisions of Section (c)(3)(A)(v)
are problematic for two reasons: (1) ``Once a facility uses an ERC (or
ERC equivalent) to meet its NSR offsetting requirement, that ERC no
longer exists.''; (2) ``* * * there is no provision in Proposed Rule
1315 that requires a surplus adjustment for those emissions * * *''.
Comment Letter at 21. CSE then provides the following example of how
they believe this process would work:

    As the Rule is currently proposed, a manufacturing facility
operating now could have received a Community Bank or Priority
Reserve allocation for emissions in 1994 [check], based upon the
shutdown of a boiler that operated between 1987 and 1993. Then, the
manufacturing facility shuts down in 2010 and submits a 1306 banking
application. This proposed rule would allow the SCAQMD to bank the
entire Community Bank or Priority Reserve allocation even though the
intervening facility has already used that allocation to meet its
1303 obligation and there have been rules adopted between 1987 and
2010 that would have required emission reductions for boilers.

    Response 22: There are several errors in this example. If an
existing facility shutdown in 2010 and submits a banking application
pursuant to Rule 1306, then the District will first determine how much
of the emission reduction meets the federal offset integrity criteria,
including the required BACT surplus adjustment. After this
determination has been made, the District will then review its records
to determine if the source ever obtained any offsets from the District
(e.g., Priority Reserve, Community Bank, NSR Balance). If so, then the
District will subtract this amount from the total creditable amount of
emission reductions calculated pursuant to Rule 1306, and credit only
the amount originating from the District accounts back to the Rule 1315
tracking system. To the extent the District provided these credits to
the source in the first place, the District is simply returning the
same amount of credits to the District NSR Account. These credits are
still surplus adjusted.
    Comment 23: Based on the example provided in the earlier comment,
CSE also claims these emission reductions are not surplus when they are
credited back to the District offset accounts because they were already
relied upon by the shutdown source. Comment Letter at 22.
    Response 23: EPA agrees that such a facility would have relied on
these credits at the time their permit was issued, but since that time,
the facility has been emitting its own emissions into the air. When the
facility shuts down, it is creating new emission reductions when
compared to the baseline inventory. These new emission reductions are
evaluated pursuant to Rule 1306 to verify that they meet all of the
federal integrity criteria, including the requirement that the
reduction be surplus.
    Comment 24: CSE claims that ``Similarly, for Proposed Rule
1315(3)(A)(vi)[ ] Rule 1306 does not allow ERCs to be generated for the
activities described therein.''
    Response 24: CSE's comment does not provide an explanation or basis
for this claim. The provision contained in section (c)(3)(A)(vi) of
Rule 1315 allows, upon EPA concurrence, the amount of the BACT
adjustment required by Rule 1306(c) to be credited to the District's
Offset Accounts if this amount ``is not otherwise required by rule,
regulation, law, approved Air Quality Management Plan Control Measure,
or the State Implementation Plan.'' This provision has only been used
once since the District created its Internal Bank in 1990.\8\ EPA
intends to approve such use only in cases where the credits are to be
used immediately for a specifically identified project (and therefore
the credits would not be subject to an additional at time of use
surplus adjustment) and where EPA determines that the construction of
the identified project would not interfere with any applicable
requirement concerning attainment and RFP or any other applicable
requirement of the Act.
---------------------------------------------------------------------------

    \8\ See Appendix A of Rule 1315 Staff Report, entry entitled
``1990-97 BACT Discount ERCs [(c)(3)(A)(vi)]''.
---------------------------------------------------------------------------

    Comment 25: CSE states in this comment ``As a broader, more
universal matter the SCAB and the Coachella Valley's failure to attain
the PM10 NAAQS and the 1 hour ozone NAAQS

coupled with the massive black box in the 8 hour ozone plan show that
no emission reductions that have occurred or will occur as part of the
NSR program are actually surplus. In fact, the Air Basins need all the
reductions of the NSR program and more for attainment. The currently
approved SIP Rules set out a rigorous process for banking emission
reductions that was developed at the direction of the Clean Air Act
because the Air Basins are nonattainment areas. The EPA cannot now
approve a Rule that, in effect, sets aside parts the SIP approved NSR
program.'' Comment Letter at 22.
    Response 25: It appears that CSE is using the term ``surplus'' in
this comment to mean something different from the requirement in 40 CFR
51.165((a)(3)(ii)(C)(1)(i) that emission reductions be ``surplus'' to
any other requirement of the CAA. In the context of evaluating the
integrity of an NSR offset, EPA uses the term ``surplus'' to refer to
any emission reduction that is not otherwise required by the CAA. See
CAA 173(c); see also TSD at 7-9. Whether the District has attained any
particular NAAQS or needs additional emission reductions as part of its
plan for attaining a particular NAAQS is not relevant to the question
whether a particular emission reduction is ``surplus'' to other CAA
requirements consistent with 40 CFR 51.165(a)(3)(ii)(C)(1). Contrary to
CSE's contention that Rule 1315, ``sets aside parts the SIP approved
NSR program,'' we are approving Rule 1315 based on our conclusion that
it strengthens the SIP-approved NSR program by providing a detailed
methodology for tracking credits within the District's Offset Accounts.
    Comment 26: CSE titled this section of their comments ``Allowing
the District to Shift from a 1.5 to 1.0 Offset Ratio to a 1.2 to 1.0
Offset Ratio Violates the Act''. CSE claims that ``EPA has not
determined that California BARCT and federal BACT are equivalent'' and
that ``federal BACT is a facility by facility approach and BARCT uses
classes of categories'' and therefore, they cannot be equivalent.
Approval of a 1.2:1, rather than 1.5:1 offset ratio is an illegal shift
and is therefore arbitrary and capricious.
    Response 26: We disagree as we are not approving any change in the
offset ratios established in the District's SIP-approved NSR program.
Rule 1303--Requirements, currently requires all sources of VOC and
NOX to provide offsets at a 1.2:1 ratio. EPA approved this
ratio as part of our 1996 approval of the Districts NSR program based
on our conclusion that the District's program met the criteria for
exemption from the requirement in CAA section 182(e)(1) for a 1.5:1
offset ratio in extreme ozone nonattainment areas (61 FR 64291,
December 4, 1996). Nothing in our action today affects our prior action
with respect to Rule 1303. To the extent CSE intended to challenge our
approval of the 1.2:1 ratio in Rule 1303 into the SIP in 1996, such a
challenge is late.
    As CSE notes, Section 182(e)(1) of the CAA provides an exception to
the requirement of a 1.5:1 offset ratio for ozone precursors in extreme
non-attainment areas. This Section reads as follows:

``* * * shall be at least 1.5 to 1, except that if the State plan
requires all existing major sources in the NA areas to use BACT as
defined in section 7479(3) for the control of VOC, the ratio shall
be at least 1.2:1.''

    We note that California state law requires all nonattainment areas
to implement Best Available Retrofit Control Technology (BARCT).\9\ The
District has adopted rules which require BARCT for all source
categories that include major sources and many that apply to minor
sources as well. These rules have been submitted and approved (or in
the process of being approved) into the South Coast portion of the
California SIP. Therefore the District does have requirements in their
plan that require all existing major sources to use BARCT as defined in
Rule 1302--Definitions. CSE provides the definitions of both terms--
Federal BACT and California BARCT in their Comment Letter. A review of
both terms shows that the definition of BARCT contains the same key
elements of the Federal BACT definition, as noted below by the
underlined text of the definition of BARCT:
---------------------------------------------------------------------------

    \9\ Health & Safety Code Sec.  40440(a)(1).

    An air emission limitation that applies to existing sources and
is based on the maximum degree of reduction achievable, taking into
account environmental, energy, and economic impacts by each class or
---------------------------------------------------------------------------
category of source.

The application of both BACT and BARCT each result in ``an air emission
limitation,'' ``based on the maximum degree of reduction,'' ``taking
into account environmental, energy, and economic impact,'' ``for such
facility'' (BACT) or ``each class or category of source'' (BARCT).
    The definition of BACT referenced in Section 182(e)(1) is from the
new source review regulations, which only apply when a facility is new
or makes a modification that increases emissions. The language in
Section 182(e)(1) therefore specifically states that the requirement--
to apply the Best Available Control Technology--also applies to
existing major sources. This inherently means that any additional
control must be applied on a retrofit basis, which is exactly what the
California requirement to apply Best Available Retrofit Control
Technology does. Since the District requires the implementation of
BARCT on all major ozone pre-cursor sources, we continue to find that
the provisions of Section 182(e)(1) allow for approval of a NSR program
that requires a 1.2:1, rather than 1.5:1 offset ratio of ozone
precursors in the South Coast.
    Comment 27: CSE titled this section of their comments ``EPA Failed
to Show That This SIP Amendment Does Not Interfere With Attainment of
the 1-hour Ozone Standard. CSE comments that EPA's proposed approval of
Rule 1315 ``fails to make the assessment that this SIP revision will
not interfere with attainment of the 1-hour ozone standard,'' citing
CAA section 110(l) and Hall v. EPA, 273 F.3d 1146, 1158 (9th Cir.
2001). The comment states that the absence of such a ``finding''
violates ``bedrock statutory provisions and longstanding NSR case law *
* *'' CSE believes that EPA's failure to assess this SIP revision for
potential interference with the 1-hour ozone standard is particularly
troubling in light of a recent Ninth Circuit decision that the current
1-hour ozone plan is deficient to actually attain the 1-hour ozone
standard, citing Association of Irritated Residents v. EPA. Comment
Letter at 24.
    Response 27: EPA acknowledges that, for the proposed rule, the
Agency did not evaluate whether the SIP revision would interfere with
attainment of the 1-hour ozone standard under CAA section 110(l). Given
that the 1-hour ozone standard was revoked in 2005 [see 40 CFR
50.9(b)], the potential issue to address under section 110(l) is not
whether the SIP revision would interfere with attainment or RFP of the
1-hour ozone NAAQS because the 1-hour ozone standard is no longer one
of the NAAQS. Instead the issue to be addressed is whether the SIP
revision would interfere with any other applicable requirement of the
CAA, which in this case refers to the ``anti-backsliding'' requirements
[found in 40 CFR 51.905(a)(1)(i)], which continue to apply in 8-hour
ozone nonattainment areas (such as the South Coast) that had been a
nonattainment area for the 1-hour ozone standard. Among the anti-
backsliding requirements is the requirement to have an approved 1-hour
ozone attainment demonstration plan.

    The South Coast Air Basin has a 1-hour ozone attainment plan
(referred to as the ``1997/1999 South Coast Ozone SIP'') that EPA
approved in 2000 (65 FR 18903, April 10, 2000) and this SIP revision
would not interfere with that plan. However, the commenter is correct
that a recent Ninth Circuit decision raises the possibility that, in
light of deficiencies in the 1997/1999 South Coast Ozone SIP brought to
EPA's attention in 2003 (i.e., prior to revocation of the 1-hour ozone
standard) and having nothing to do with NSR, EPA may find it necessary
to develop and adopt a new 1-hour ozone attainment plan or require the
State of California to do so, in response to the remand of that case.
See, generally, Association of Irritated Residents v. EPA, No. 09-71383
and 09-71404, rehearing denied and amended opinion filed Jan. 27, 2012.
EPA has not yet decided how the Agency intends to respond to the
decision in Association of Irritated Residents, and although this SIP
revision would not interfere with such a future plan, it would need to
be taken into account in developing the emissions inventories and
control strategies for such a 1-hour ozone attainment plan in much the
same manner as has been done for the now-approved South Coast 8-hour
ozone and PM2.5 plans.
    Comment 28: CSE titled this section of their comments ``It is
Arbitrary and Capricious for This SIP Amendment to Allow for Vast
Increases in Pollution Credits Given the Reliance on a Large `Black
Box'.'' CSE's final comment is that EPA cannot approve Rule 1315
because the District has emissions reductions in its AQMPs ``black
box''. Comment Letter at 24. CSE comments that the 2007 AQMP has 55% of
the emission reductions needed to attain the 8-hour ozone NAAQS in the
``black box''. CSE then states: ``Given that there really is not a true
framework for attaining the 8-hour ozone standard (e.g. reliance on
speculative, undefined measures) on time combined with the recent
failure of the region to attain the 1-hour ozone standard, [footnote
omitted] it is arbitrary and capricious for EPA to allow 1315 to move
forward with the myriad of newly minted offsets that will be allowed to
impede the already formidable task of actually closing the ``black
box'' gap that currently exists. Even if the rosy assumptions in the
TSD are accurate, adding 29 tpd (27 tpd VOC and 2 tpd NOX)
of pre-2002 credits is approximately 10% of the emissions reductions
needed to be met through black box reductions. This represents a
significant amount of pollution that could be prevented, which would
actually help push the region to attain the standard on time.'' Comment
Letter at 24-25.
    Response 28: We disagree with these assertions. First, with respect
to the commenter's contentions that the ``black box'' (which we refer
to herein as the ``long-term strategy'') in the 2007 AQMP accounts for
55% of the reductions needed to attain the 1997 8-hour ozone standard
and that pre-2002 credits account for approximately 10% of these
``black box'' reductions, these statements are factually incorrect. As
we explained in our responses to similar comments on our proposal to
approve the 2007 AQMP (referred to in that action as the ``South Coast
2007 Ozone SIP''), the correct amounts of the needed emission
reductions attributed to the long-term strategy in the 2007 AQMP are
26% for NOX (241 of 910 tons per day (tpd) needed to attain)
and 9% for VOC (40 of 461 tpd needed to attain). See 77 FR 12674, 12686
(March 1, 2012). Thus, the pre-2002 base year emission reduction
credits (2 tpd of NOX and 27 tpd of VOC) that the District
added as growth into its projected inventories for the 2007 AQMP
constitute roughly 0.83% of the NOX reductions and 68% of
the VOC reductions attributed to the long-term strategy in the 2007
AQMP.\10\
---------------------------------------------------------------------------

    \10\ It appears that CSE simply summed the NOX and
VOC emissions estimates to arrive at its 55% and 10% figures, but
this approach entirely overlooks the significant differences in the
NOX reductions and VOC reductions attributed to the long-
term strategy in the 2007 AQMP, as well as the respective
contributions of reductions in each pollutant to attainment of the
ozone standards in the South Coast.
---------------------------------------------------------------------------

    Second, we disagree with the commenter's suggestion that the South
Coast's inclusion of a long-term strategy in the 2007 AQMP precludes
our approval of Rule 1315 into the SIP or somehow renders our approval
arbitrary and capricious. CAA section 182(e)(5) authorizes EPA to
``approve provisions of an implementation plan for an Extreme Area
which anticipate development of new control techniques or improvement
of existing control technologies * * *'' provided certain conditions
have been met. 42 U.S.C. 7511a(e)(5). EPA fully approved the 2007 AQMP
based, in part, on our conclusion that California had met the criteria
for approval of a long-term strategy under CAA section 182(e)(5) for
purposes of attaining the 1997 8-hour ozone standard (77 FR 12674 at
12686-12689) and our conclusion that the SCAQMD had accounted for
existing pre-base year ERCs in the reasonable further progress (RFP)
and attainment year inventories in the plan, consistent with the
applicable requirements of part D, title I of the CAA and EPA's
implementing regulations in 40 CFR part 51 (77 FR 12674 at 12682). CSE
provides no support for its contention that these elements of the 2007
AQMP preclude or undermine our approval of Rule 1315 into the SIP, nor
any information indicating that approval of Rule 1315 would interfere
with any applicable requirement concerning attainment and RFP or any
other applicable requirement of the Act (see CAA 110(l)).
    Finally, to the extent the commenter intended to argue that the
South Coast area's failure to attain the 1-hour ozone NAAQS by the
applicable attainment date precludes our approval of Rule 1315 or
somehow renders our approval arbitrary and capricious, we disagree.
EPA's recent determination that the South Coast area failed to attain
the 1-hour ozone standards by its applicable attainment date of
November 15, 2010 (76 FR 82133, December 30, 2011) has no bearing on
our action on Rule 1315, and the commenter provides no support for any
argument otherwise.
    Comment 29: In CSE's last portion of this comment, CSE reproduces
Table 4.1-4 from Subchapter 4.1 of the Districts Final Program
Environmental Assessment (CEQA analysis) prepared for adoption of Rule
1315. Comment Letter at 25. Using data from this table, CSE states that
the amount of potential ozone emissions increases from Rule 1315 (16.99
tpd VOC in 2014 and 34.52 tpd in 2023 and 1.29 tpd in NOX in
2014 and 2.38 tpd in 2023) is ``important because they represent a
significant increase in the total projected emissions''. (emphasis
added) CSE then provides the total projected emission inventory for
years 2014, 2020 and 2023 from the 2007 AQMP, apparently to show that
the values in Table 4.1.4 are a large percentage of the total projected
emission inventory. CSE then states that EPA must ``demonstrate what
measures will replace this backsliding in emission reductions that will
lead to attainment of all relevant standards,'' and finally that ``it
is arbitrary and capricious for EPA to ignore the significant analysis
prepared by the SCAQMD for the California Environmental Quality Act
document for Rule 1315 that details the emissions and impacts
associated with adopting this Rule.''
    Response 29: EPA disagrees with CSE's characterization of the
information provided in Subchapter 4.1 of the District's CEQA analysis.
See ``Final Program Environmental Assessment for Re-Adoption of

Proposed Rule 1315--Federal New Source Review Tracking System, Volume
I, Subchapter 4.1, ``Environmental Impacts and Mitigation Measures--Air
Quality'' (January 7, 2011) (Rule 1315 CEQA Analysis). The emissions
data in Table 4.1-4 of this CEQA analysis, which CSE reproduced in
Table 4.1-4 of its comment letter, provide conservative (high)
estimates of total NOX and VOC stationary source emissions
expected from implementation of Rule 1315. See Rule 1315 CEQA Analysis
at 4.1-9. The 2007 AQMP includes all of these projected NOX
and VOC emissions in the future projected inventories ``with growth''
for 2014, 2020 and 2023. See 2007 AQMP, Table 2-8 of Appendix III. To
the extent CSE intended to argue that implementation of Rule 1315 will
increase the projected NOX and VOC emission inventories in
the 2007 AQMP by the amounts specified in Table 4.1-4, this assertion
is factually incorrect, as the emissions impacts identified in Table
4.1-4 of the Rule 1315 CEQA Analysis are already accounted for in the
2007 AQMP projected emission inventories. Alternatively, to the extent
CSE intended to challenge the District's inclusion of these additional
NOX and VOC emissions in the projected emissions inventories
underlying the 2007 AQMP, such a challenge to the 2007 AQMP is outside
the scope of our action on Rule 1315.
    Comment 30: The South Coast Air Quality Management District
submitted a comment letter in which the District stated that the
legislative history of the 1990 Amendments to the CAA specifically
addressed the ability of a district to promulgate a rule that, in the
aggregate produces equivalent or greater emissions reductions. Comment
Letter at 1-2. The District also included a discussion of the
importance of Rule 1315 to the economic issues in the area and that
many of the projects in the area that will use credits from the
District's Offset Accounts are environmentally beneficial. Comment
Letter at 2-3. The District's comment also referenced the Ninth
Circuit's decision in Natural Resources Defense Council v. South Coast
Air Quality Management District, 651 F.2d 1066 (9th Cir. 2011) which
evaluated the District's treatment of pre-1990 credits in its Offset
Accounts and ``concluded that the challenge to the pre-1990 offsets was
moot''. [citation omitted] The District stated: ``Therefore, we
conclude that EPA need not be concerned with any issues relating to
pre-1990 offsets.'' Comment Letter at 5. Finally, the District pointed
to some specific language in EPA's TSD that the District considered
inaccurate. TSD at p. 11.
    The District requested EPA to include in its final approval the
following clarification: ``The AQMP growth projections do not
distinguish between new or modified sources and increased operations at
existing sources. Therefore, the growth projections represent a maximum
projected amount of demand for pre-base-year offsets. All growth from
new and modified sources must necessarily be offset by pre-base-year
emission reductions. This is because post-base-year reductions could at
most be used to replace themselves, and would not be available to
support growth. Therefore, the AQMP growth projections represent
maximum projected use of pre-base-year offsets.'' Comment Letter at 5.
The District's comment also attached copies of hundreds of letters from
local municipalities, organizations and businesses that supported State
legislation that would allow the District to continue to issue credits
from its Offset Accounts during preparation of CEQA documents.
    Response 30: EPA agrees with the District that Congress intended to
allow the District to adopt a rule that in the aggregate that
demonstrates an equivalent amount or greater emission reductions than
would be required by the 1990 Amendments to the CAA. EPA appreciates
the District's statements about the importance of Rule 1315. These
considerations may inform the policy choices that the District makes in
choosing how to implement the requirements of the CAA. EPA makes note
of the Ninth Circuit's decision in NRDC v. SCAQMD. As discussed in a
prior Response, EPA has also determined that the District's treatment
of pre-1990 credits in Rule 1315 is approvable. Finally, EPA agrees
that the District's language clarifies EPA's intent with respect to
approving the District's inclusion of pre-base year credits in its
inventories. Accordingly, we agree that ``[t]he AQMP growth projections
do not distinguish between new or modified sources and increased
operations at existing sources. Therefore, the growth projections
represent a maximum projected amount of demand for pre-base-year
offsets. All growth from new and modified sources must necessarily be
offset by pre-base-year emission reductions. This is because post-base-
year reductions could at most be used to replace themselves, and would
not be available to support growth. Therefore, the AQMP growth
projections represent maximum projected use of pre-base-year offsets.''
EPA agrees that in both the 2003 and 2007 AQMPs, the growth that the
District adds represents the maximum projected use of pre-base year
credits. EPA also takes note of the hundreds of pages attached to the
District's comment letter.
    Comment 31: California Council for Environmental and Economic
Balance, the County Sanitation Districts of Los Angeles County and the
Southern California Gas Company submitted comments on our proposed
approval of Rule 1315. These comment letters express support for EPA's
proposed approval of Rule 1315. The comment letters also state that
Rule 1315 is important for the area to continue to operate essential
public services, such as installation of emergency generators at
wastewater pumping plants. Finally, these comment letters ask EPA to
finalize approval of Rule 1315 with an effective date that is shorter
than 30 days based on the good cause exception in section 553(d) of the
Administrative Procedures Act.
    Response 31: EPA takes note of the support for final approval of
Rule 1315. EPA also understands that as a result of State legislation
the District may be precluding from issuing permits pursuant to Rule
1315 for a short period of time until the effective date of EPA's final
approval of Rule 1315. Although EPA understands that waiting for a 30
day effective date to expire may place a burden on the District and
local municipalities, utilities and business, EPA is declining at this
time to provide a shorter effective date based on 5 U.S. C. 553(d)(3).

III. EPA's Final Action

    Under section 110(k)(3) of the Act, EPA is fully approving Rule
1315, as adopted February 4, 2011 and submitted on March 2, 2011, into
the South Coast portion of the California SIP based on our conclusion
that this SIP revision satisfies all applicable CAA requirements.

IV. Statutory and Executive Order Reviews

    Under the Clean Air Act, the Administrator is required to approve a
SIP submission that complies with the provisions of the Act and
applicable Federal regulations. 42 U.S.C. 7410(k); 40 CFR 52.02(a).
Thus, in reviewing SIP submissions, EPA's role is to approve State
choices, provided that they meet the criteria of the Clean Air Act.
Accordingly, this action merely approves State law as meeting Federal
requirements and does not impose additional requirements beyond those
imposed by State law. For that reason, this action:

     Is not a ``significant regulatory action'' subject to
review by the Office of Management and Budget under Executive Order
12866 (58 FR 51735, October 4, 1993);
     Does not impose an information collection burden under the
provisions of the Paperwork Reduction Act (44 U.S.C. 3501 et seq.);
     Is certified as not having a significant economic impact
on a substantial number of small entities under the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.);
     Does not contain any unfunded mandate or significantly or
uniquely affect small governments, as described in the Unfunded
Mandates Reform Act of 1995 (Pub. L. 104-4);
     Does not have Federalism implications as specified in
Executive Order 13132 (64 FR 43255, August 10, 1999);
     Is not an economically significant regulatory action based
on health or safety risks subject to Executive Order 13045 (62 FR
19885, April 23, 1997);
     Is not a significant regulatory action subject to
Executive Order 13211 (66 FR 28355, May 22, 2001);
     Is not subject to requirements of Section 12(d) of the
National Technology Transfer and Advancement Act of 1995 (15 U.S.C. 272
note) because application of those requirements would be inconsistent
with the Clean Air Act; and
     Does not provide EPA with the discretionary authority to
address, as appropriate, disproportionate human health or environmental
effects, using practicable and legally permissible methods, under
Executive Order 12898 (59 FR 7629, February 16, 1994).

In addition, this proposed rule does not have tribal implications as
specified by Executive Order 13175 (65 FR 67249, November 9, 2000),
because the SIP is not approved to apply in Indian country located in
the State and EPA notes that it will not impose substantial direct
costs on tribal governments or preempt tribal law.
    The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the
Small Business Regulatory Enforcement Fairness Act of 1996, generally
provides that before a rule may take effect, the agency promulgating
the rule must submit a rule report, which includes a copy of the rule,
to each House of the Congress and to the Comptroller General of the
United States. EPA will submit a report containing this action and
other required information to the U.S. Senate, the U.S. House of
Representatives, and the Comptroller General of the United States prior
to publication of the rule in the Federal Register. A major rule cannot
take effect until 60 days after it is published in the Federal
Register. This action is not a ``major rule'' as defined by 5 U.S.C.
804(2).
    Under section 307(b)(1) of the Clean Air Act, petitions for
judicial review of this action must be filed in the United States Court
of Appeals for the appropriate circuit by July 24, 2012. Filing a
petition for reconsideration by the Administrator of this final rule
does not affect the finality of this action for the purposes of
judicial review nor does it extend the time within which a petition for
judicial review may be filed, and shall not postpone the effectiveness
of such rule or action. This action may not be challenged later in
proceedings to enforce its requirements. (See CAA section 307(b)(2).)

List of Subjects in 40 CFR Part 52

    Air pollution control, Environmental protection, Incorporation by
reference, Intergovernmental relations, Nitrogen dioxide, Ozone,
Particulate matter, Reporting and recordkeeping requirements, Volatile
organic compounds.

    Authority: 42 U.S.C. 7401 et seq.

    Dated: April 26, 2012.
Jared Blumenfeld,
Regional Administrator, Region IX.

    Part 52, chapter I, title 40 of the Code of Federal Regulations is
amended as follows:

PART 52--[AMENDED]

0
1. The authority citation for part 52 continues to read as follows:

    Authority: 42 U.S.C. 7401 et seq.

Subpart F--California

0
2. Section 52.220 is amended by adding paragraph (c)(403) to read as
follows:

Sec.  52.220  Identification of plan.

* * * * *
    (c) * * *
    (403) A new rule for the following APCD was submitted on March 2,
2011, by the Governor's designee.
    (i) Incorporation by reference.
    (A) South Coast Air Quality Management District.
    (1) Rule 1315, ``Federal New Source Review Tracking System,''
excluding paragraph (b)(2) and subdivisions (g) and (h), adopted on
February 4, 2011.
* * * * *
[FR Doc. 2012-12500 Filed 5-24-12; 8:45 am]
BILLING CODE 6560-50-P