In light of these reasons, we do not believe it is reasonable to defer submission of attainment demonstrations beyond 3 years after designation. We also note that an area's RFP plan and the RACM demonstration under section 172( c)( 1) are due within 3 years after designation. For the reasons stated in sections describing those requirements, it is appropriate that the attainment demonstration, the RFP plan, and the RACM demonstration be submitted at the same time.

Although we proposed that subpart 1 areas requesting an attainment date within 3 years after designation should submit their attainment demonstration within 12 months, we have removed that provision from the final rule because it is unnecessary. That is, a subpart 1 area is free to choose submit its attainment demonstration at any time prior to the 3 year due date.

R. How will the statutory time periods in the ActCAA be addressed when we redesignate areas to nonattainment following initial designations for the 8 hour NAAQS? PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 71Section 181( b) provides that " any absolute, fixed date applicable in connection with any such requirement is extended by operation of law by a period equal to the length of time between the date of enactment of the CAAA of 1990 and the date the area is classified under this paragraph." Under section 181( b), the date of classification is the same as the date of redesignation to nonattainment.

386 [ Section VI. B. of June 2, 2003 proposed rule ( 68 FR 32816); section 51 § 51.906 in draft and final regulatory text.]

1. Background We noted in the proposal that section 181( b) of the CAA provides that for areas designated attainment or unclassifiable for ozone immediately following enactment of the 1990 CAA Amendments and subsequently redesignated to nonattainment, the period to the maximum statutory attainment date would run from the date the area is classified under subpart 2.71 Thus, if an area designated as attainment for the 1 hour ozone standard in 1990 was redesignated to nonattainment for the 1 hour ozone standard in January 2002 and classified as moderate, the area's 1 hour attainment date would be no later than 6 years following January 2002, i. e.,

January 2008. Section 172( a)( 2) of the CAA provides for attainment dates to be calculated from the time the area is designated nonattainment. PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 387 We also noted in the proposal that most of the SIP submittal dates in subpart 2 run for a fixed period from the date of enactment of the 1990 CAA Amendments, which was also the date of designation and classification by operation of law for most subpart 2 areas. Section 181( b)( 1) of the CAA provides that any fixed dates applicable in connection with any such requirements under section 110, subpart 1 and subpart 2 will be extended by operation of law to a period equal to the length of time between the date of enactment of the 1990 CAA Amendments and the date that an area is subsequently designated and classified.

2. Final Rrule We are adopting the approach set forth in the proposed rule. For any area that is initially designated attainment or unclassifiable for the 8 hour NAAQS and subsequently redesignated to nonattainment for the 8 hour ozone NAAQS, the periods for the attainment date and dates for submittal of any applicable requirements under subpart 1 or subpart 2 would run from the date of redesignation to nonattainment of the 8 hour NAAQS. This is consistent with section 181( b),

which gives areas redesignated to nonattainment the same amount of time to submit plans and to attain the standard as areas initially designated nonattainment. PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 3. Comments and Rresponses Comment: One commenter asked what the reasoning was behind the time period extension and if this is an attempt to provide equity, based on the wording of the draft regulatory text.

Response: As stated above, the CAA provides for extending by operation of law any absolute, fixed date applicable in connection with a nonattainment requirement by a period equal to the length of time between the date of enactment of the CAAACAA Amendments of 1990 and the date the area is classified and designated ( or redesignated). Thus,

an area redesignated to nonattainment for the 1 hour standard and classified as moderate would have been given 3 years to submit an attainment demonstration and up to 6 years to attain, which are the same time periods given to an area designated nonattainment and classified by operation of law at the time of the 1990 CAA Amendments. Since it does not make sense to run deadlines from the date of the CAA Amendments of 1990, we have adopted an approach consistent with the intent of that section   that the statutory time periods run from the date of designation.

V. EPA's Final Rule for New Source Review A. Background PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 72 For a more complete discussion of this decision and its implications, see 69 FR 23956.

389 1. The Major NSR Program The major NSR program contained in parts C and D of title I of the ActCAA is a preconstruction review and permitting program applicable to new and modified major stationary sources of air pollutants regulated under the ActCAA. In areas not meeting health based NAAQS and in ozone transport regions ( OTR) s, the program is implemented under the requirements of section 110( a)( 2)( C) and part D of title I of the ActCAA. We call this program the " nonattainment"

major NSR program. Subpart 1 of part D of title I contains general requirements for nonattainment areas for any criteria pollutant and subpart 2 contains provisions specifically for ozone nonattainment areas. Subparts 3 and 4 contain provisions specifically for carbonCO monoxide and PM10,

respectively. In Whitman v. American Trucking Associations,

[ 531 U. S. 457, 482 86 ( 2001)], the Supreme Court reviewed EPA's implementation strategy for the revised 8 hour ozone NAAQS, and remanded it to EPA to develop a reasonable resolution of the roles of subparts 1 and 2 in classifying areas for and implementing the revised ozone standard. 72 PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 73 In some cases, subpart 1 and subpart 2 requirements are inconsistent or overlap. To the extent that subpart 2 390 In areas meeting the NAAQS (" attainment" areas) or for which there is insufficient information to determine whether they meet the NAAQS (" unclassifiable" areas), the NSR requirements under part C of title I of the ActCAA apply. We call this program the Prevention of Significant Deterioration ( PSD) program. Collectively, we also commonly refer to the attainment and nonattainment programs as the major NSR program. These regulations are contained in 40 CFR 51 § § 51.165, 51.166, 52.21, 52.24, and part 51, Aappendix S.

Of these, the nonattainment area regulations are contained in 40 CFR 51 § § 51.165, 52.24, and part 51,

Aappendix S.

The major NSR provisions of the ActCAA are implemented primarily through SIP approved State preconstruction permitting programs. As provided in section 172( c)( 5) of the ActCAA, the SIP must require permits for the construction and operation of new or modified major stationary sources in accordance with section 173 of the ActCAA. Subpart 2 of title I of the ActCAA sets forth additional SIP requirements for ozone nonattainment areas, including preconstruction permitting requirements. 73 PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 addresses a specific obligation, the provisions in subpart 2 control. ( 68 FR 32811; June 2, 2003).

391 The minimum permitting requirements States must meet before EPA can approve a State's nonattainment major NSR program into a SIP are found in part D of title I and 40 CFR 51.165. However, some States are lacking a SIP approved major NSR program for the 8 hour ozone NAAQS. This may be because the State has never had a nonattainment area in which it needed to apply a nonattainment NSR program or because the approved program does not apply to an 8 hour ozone nonattainment area. As discussed in Section V. D of this preamble, EPA is providing States 3 years to develop and submit an approvable nonattainment major NSR program for the 8 hour NAAQS. The regulations at 40 CFR 52.24( k) specify that Appendix S governs permits to construct and operate in a nonattainment area or in any area designated under section 107( d) of the CAA as attainment or unclassifiable for ozone that is located in an ozone transport region that a source applies for during this SIP development period ( the interim period between the effective date of designations and the date that EPA approves a nonattainment major NSR program).

Appendix S is an interpretation of 40 CFR subpart I ( including section 51 § 51.165), and has historically reflected PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 74 On December 31, 2002, we finalized five actions from that proposal related to the applicability of the NSR regulations. For a summary of the regulatory development process and stakeholder development for that rulemaking, see 67 FR 80188.

392 substantially the same requirements as those in 51 § 51.165,

subject to a limited exemption in Ssection VI. This includes the requirement that a source comply with the lowest achievable emission rate ( LAER) and obtain offsetting emissions reductions. Pursuant to section 52.24( k), where necessary, Aappendix S governs nonattainment major NSR permitting of ozone precursors in 8 hour ozone nonattainment areas and all areas within the OTR, including areas designated attainment/ unclassifiable, during the SIP development period. Thus, consistent with section 110( a)( 2)( C), permitting of new and modified stationary sources in the area will be regulated as necessary to ensure that the NAAQS are achieved.

As we describe further in Ssection V. A. 2 of this preamble, today's final regulations were proposed as part of two different regulatory packages. On July 23, 1996 ( 61 FR 38250), we proposed changes to the major NSR program,

including codification of the requirements of part D of title I of the 1990 CAA Amendments. 74 On June 2, 2003 ( 68 FR PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 393 32802), we proposed a rule to implement the 8 hour ozone NAAQS. On April 30, 2004, we promulgated the Phase 1 final rule and you will find a summary of the regulatory development process and stakeholder development for that rulemaking at 69 FR 23951.

2. What Wwe Pproposed a. Proposed Cchanges to Iincorporate the 1990 Clean Air Act Amendments On July 23, 1996 ( 61 FR 38250), we proposed changes to section 51 § 51.165 and Aappendix S to incorporate requirements in part D of title I of the 1990 aCAA Amendments to the CAA for ozone, carbon monoxideCO, and PM10 nonattainment areas.

Concerning ozone, we proposed ( among other things) to codify the following provisions from Ssection 182 of the Act.

CAA:

° major stationary source thresholds ( ranging from 10 to 100 tpy, depending on classification),

° significant emission rates ( ranging from 0 to 25 tpy) m ° offset ratios ( ranging from 1.1: 1 to 1.5: 1), and ° special modification provisions implementing CAA sections 182( c), ( d), and ( e) for serious, severe, and extreme ozone nonattainment areas. PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 75 John S. Seitz, " New Source Review ( NSR) Program Transitional Guidance," March 11, 1991. We provided additional transitional guidance for nonattainment areas in our September 3, 1992 memorandum, New Source Review ( NSR) pProgram Supplemental Transitional Guidance on Applicability of New Part D NSR Permit Requirements, from John S. Seitz, Director, Office of Air Quality Planning and Standards.

394 In the 1996 proposal, we proposed that the major stationary source thresholds and offset ratios of CAA section 182 ( subpart 2 of part D) would apply to all major stationary sources of VOC and NOx to implement major NSR under the 1

hour ozone NAAQS. This proposal is consistent with the 1991 and 1992 Transition Policy Memos explaining major NSR requirements under the 1990 Clean Air ActCAA Amendments. 75 These memos also explained that permits must comply with the new statutory requirements for major NSR under the 1 hour NAAQS after the deadlines set by Congress, regardless of the delay in incorporating them into SIPs.

Our 1996 proposal predated promulgation of the 8 hour ozone NAAQS and thus did not explain the details of implementation of these standards under section 51 § 51.165 or Aappendix S. For a discussion of implementation of the 1

hour and 8 hour ozone NAAQS under section 51 § 51.165 and Aappendix S, see Ssection V. D. of this preamble. PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 395 Also, in our 1996 noticeaction, and then again in our June 2, 2003 noticeaction, we proposed to amend our nonattainment NSR provisions to expressly include NOx as an ozone precursor in nonattainment major NSR programs. ( 61 FR 38297,68 FR 32847). We also proposed that, as provided under CAA section 182( f), a waiver from nonattainment NSR for NOx as an ozone precursor would be available for both subpart 1 and subpart 2 areas. ( 68 FR 32846) .

On June 2, 2003, we proposed a rule to identify the statutory requirements that apply for purposes of developing SIPs under the CAA to implement the 8 hour ozone NAAQS. ( 68 FR 32802). Specifically, we proposed two options one in which all nonattainment areas would be classified and regulated under subpart 2 of part D of title I, and one in which some nonattainment areas would be regulated under the less restrictive requirements of subpart 1 and some would be classified and regulated under subpart 2. For areas classified under subpart 2   those with a 1 hour ozone design value at or above 0.121 ppm   the classifications set forth in subpart 2 ( marginal, moderate, etc.) would govern part D SIPs for the 8 hour ozone standard, with each area's classification determined by a modified version of the subpart 2 classification table containing 1 hour design PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 396 values and translated 8 hour design values for each classification. The NSR permitting requirements for the 8

hour ozone standard necessarily follow from the classification scheme chosen under the terms of subpart 1 and subpart 2. We did not propose specific regulatory language for implementation of NSR under the 8 hour NAAQS. However,

we indicated that we intended to revise the nonattainment NSR regulations to be consistent with the rule for implementing the 8 hour ozone NAAQS. ( 68 FR 32844) .

Concerning carbon monoxideCO, in 1996 we proposed the following.

:

° Major stationary source threshold of 50 tpy for serious nonattainment areas in which the Administrator has determined that stationary sources are significant contributors to carbon monoxideCO levels,

° Significant emission rate of 50 tpy for serious nonattainment areas in which the Administrator has determined that stationary sources are significant contributors to carbon monoxideCO levels .

Concerning PM10, in 1996, we proposed to amend our nonattainment NSR regulations to incorporate requirements of PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 397 the 1990 CAA Amendments and establish significant emission rates. Specifically, we proposed the following.

:

53. Major stationary source threshold of 100 tpy PM10 or any specific PM10 precursor in moderate PM10 nonattainment areas,

54. Major stationary source threshold of 70 tpy PM10 or any specific PM10 precursor in serious PM10 nonattainment areas, and 55. Significant emission rate of 15 tpy PM10 and 40 tpy PM10 precursors.

b. Proposed Cchanges to Ccriteria for Eemission Rreduction Ccredits from Sshutdowns and Ccurtailments In 1996 we proposed to revise the regulations limiting offsets from emissions reductions due to shutting down an existing source or curtailing production or operating hours below baseline levels (" shutdowns/ curtailments"). The prior regulations at section 51 § 51.165( a)( 3)( ii)( C) provided that such emissions reductions could be used as offsets if the State lacked an approved attainment demonstration, unless the shutdown/ curtailment occurred after the date the new source permit application was filed or the applicant could establish that the proposed new source is a replacement for the PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 76 For a complete discussion of how the 1990 CAA Amendments attainment planning requirements related to 398 shutdown/ curtailed source. We proposed to revise the existing provisions for crediting emission reductions by restructuring existing section 51 § 51.165( a)( 3)( ii)( C)( 1) and ( 2) for clarity without changing the current requirements therein. [ See proposed section 51 § 51.165 ( a)( 3)( ii)( C)( 1)

through ( 4)].] We also proposed substantive revisions in two alternatives that would ease, under certain circumstances,

the existing restrictions on the use of emission reduction credits from source shutdowns and curtailments as offsets.

We explained that easing the restrictions may be warranted by the 1990 CAA Amendments, in which Congress significantly reworked the attainment planning requirements of part D of title I of the CAA such that an approved attainment demonstration is unnecessary.

The revised ActCAA emphasizes the emission inventory as the first requirement in planning, includes new provisions keyed to the inventory requirements, and mandates several adverse consequences for States that fail to meet the planning or emissions reductions requirements related to inventories. 76 In 1993, we issued a policy memorandum PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 shutdown/ curtailment credits, see ( 61 FR 38311; July 23, 1996).

77 Use of Shutdown Credits for Offsets, July 21, 1993, John S. Seitz, Director, Office of Air Quality Planning and Standards.

399 addressing the use of shutdown credits for offsets in ozone nonattainment areas and areas in the OTR in light of the new statutory requirements. 77 According to our longstanding policy, we emphasized that sources may use emission reduction credits generated from shutdowns and curtailments as offsets if the State continues to include the emissions in the emissions inventory for attainment demonstration and RFP milestone purposes. We proposed two alternatives to revise the regulations that limit a source's use of emission reductions as offsets if the reductions were achieved by shutting down an existing emissions unit or curtailing production or operating hours of a unit ( shutdowns/ curtailments).

Under Alternative 1, we proposed to allow emissions reductions from shutdowns and curtailments from sources located in ozone nonattainment areas that lack an EPAapproved attainment demonstration to be used as offsets or netting credits, if the emissions reductions occur after November 15, 1990 and the area is current with part D ozone PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 400 nonattainment planning requirements. See proposed section 51 § 51.165( a)( 3)( ii)( C)( 5) and ( 6)[ Alternative 1]. Proposed Alternative 2 generally would have allowed emission reductions from source shutdowns and source curtailments in all nonattainment areas and for all pollutants to be used as offsets or netting credits when such reductions occur after the base year of the emissions inventory for that pollutant.

See proposed section 51 § 51.165( a)( 3)( ii)( C)( 5)[ Alternative 2]. The 1996 proposal retained the provision that the permitting authority may consider the shutdown or curtailment to have occurred after the date of its most recent emissions inventory if the inventory explicitly includes as current existing emissions the emissions from such previously shutdown or curtailed sources.

c. Proposed Cchanges to Rrevise the Cconstruction Bban Pprovisions On July 23, 1996, we proposed to revise section 52 § 52.24( a) to incorporate changes made by the 1990 CAA Amendments related to the applicability of construction bans.

Under the 1977 Amendments, section 110( a)( 2)( I) of the ActCAA required the EPA to place certain areas under a federally imposed construction moratorium ( ban) that prohibited the construction of new or modified major stationary sources in PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 401 nonattainment areas where the State failed to have an implementation plan meeting all of the requirements of part D. The 1990 aCAA Amendments removed these provisions from the ActCAA. However, in section 110( n)( 3) of the ActCAA ( Savings Clause), the 1990 CAA Amendments retained the prohibition in cases where it was applied prior to the 1990 Amendments1990 CAA Amendments based upon a finding by the Administrator that the area: ( 1) lacked an adequate NSR permitting program ( as required by section 172( b)( 6) of the 1977 ActCAA); or ( 2) the State plan failed to achieve the timely attainment of the NAAQS for sulfur dioxide by December 31, 1982. All other construction bans pursuant to section 110( a)( 2)( I) are lifted as a result of the new statutory provision. This includes previously imposed construction bans based upon a finding that the plan for the area did not demonstrate timely attainment and maintenance of the ozone or CO NAAQS. In accordance with the amended section 110( n)( 3) of the ActCAA, any remaining construction ban continues in effect until the Administrator determines that the SIP meets either the amended part D permit requirements, or the requirements under subpart 5 of part D for attainment of the NAAQS for sulfur dioxide, as applicable. PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 402 We note that section 52 § 52.24( k) was not retained in our proposed rule text. However, the preamble did not in any manner indicate that EPA believed that NSR permits complying with Aappendix S were not required during the SIP development period where necessary. To clarify our intent, our proposed 8 hour ozone NAAQS implementation rule explained that section 52 § 52.24( k) remained in effect and would be retained. In that action, we also proposed that we would revise section 52 § 52.24( k) to reflect the changes in the 1990 CAA Amendments. ( 68 FR 32846). The prior language at section 52.24( k) allowed States to issue permits under Aappendix S for a maximum period of 18 months after designation. After this time, if the nonattainment area did not have an approved part D NSR permit program, the construction ban would apply.

However, the 1990 CAA Amendments to the construction ban provisions altered the provisions of the construction ban such that it would not apply when a State lacked an approved part D NSR program in the future. Thus, the 1990 CAA Amendments supersede that portion of prior section 52 § 52.24 dealing with the construction ban but leave unaltered the requirement that Aappendix S continues to apply through section 52 § 52.24 ( k). We explained that we have interpreted this language to allow States or EPA to issue permits under PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 403 Aappendix S from designation to approval even if the time period between designation and approval exceeds 18 months,

and proposed to revise section 52 § 52.24( k) to properly reflect this interpretation.

We also proposed regulatory text to reflect the revisions to CAA Ssection 173( a)( 4). Before the State can issue a nonattainment major NSR permit, the reviewing authority must first find pursuant to section 173( a)( 4) that the " Administrator has not determined that the applicable implementation plan is not being adequately implemented for the nonattainment area" in accordance with the requirements of part D. We stated our intent to make this determination by sending a letter to the permitting authority, and publishing a subsequent noticeaction in the Federal Register,

but we solicited comment on the need to undertake notice

andcomment procedures before taking final action.

Section 113( a)( 5) of the ActCAA provides that the EPA may issue an order prohibiting the construction or modification of any major stationary source in any area,

including an attainment area, where the Administrator finds that the State is not in compliance with the NSR requirements. Specifically, the EPA may issue an order under section 113( a)( 5) banning construction in an area whenever PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 404 the Administrator finds that a State is not acting in compliance with any requirement or prohibition of the ActCAA relating to construction of new sources or the modification of existing sources. To codify the requirements of section 113( a)( 5), we proposed new language in section 52 § 52.24( c).

We proposed to remove the transition provisions under existing section 52 § 52.24( c) and ( g). These paragraphs were proposed to be removed because they were originally designed to clarify the applicable requirements for permits issued prior to the initial SIP revisions required by the 1977 CAA Amendments.

In addition to the significant changes already discussed, we proposed several minor changes to section 52 § 52.24. These minor changes included: ( 1) the addition of requirements applicable to transport regions; ( 2) the inclusion of requirements applicable to criteria pollutant precursors; ( 3) incorporation of the definitions proposed in section 51 § 51.165( a); ( 4) revisions to the language at section 52 § 52.24( h)( 2); and ( 5) revisions to section 52 § 52.24( j).

d. Proposed Cchanges Oon Aapplicability of Aappendix S and the Ttransitional NSR Pprogram PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 405 On June 2, 2003 ( 68 FR 32802), we explained implementation of the major NSR program under the 8 hour ozone NAAQS during the SIP development period, and proposed flexible NSR requirements for areas that expected to attain the 8 hour NAAQS within three3 years after designation. We stated that the existing regulation codified at 40 CFR 52 § 52.24( k) requires that permits be issued in compliance with Aappendix S during this time, and that a State would have to continue implementing part D nonattainment requirements under Aappendix S unless the source was eligible for flexibility under Ssection VI of the appendix. ( 68 FR 32846 48).)

Our June 2, 2003 proposal would limit the circumstances under which Ssection VI of Aappendix S applies. ( 68 FR 32844)

Under the existing regulatory structure of Ssection VI, major new sources and major modifications located in nonattainment areas for which the attainment date has not yet passed may avoid the requirement to comply with LAER and obtain sourcespecific offsets if the new emissions will not interfere with an area's ability to reach attainment by its attainment date.

Because we believed that most new emissions in 8 hour nonattainment areas would generally not meet this criteria of non interference, we proposed to apply Ssection VI only in PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 406 areas that qualify for a " transitional classification."

classification" ( 68 FR 32846). Accordingly, we called this revised Ssection VI the Transitional NSR Program. We proposed that the program would apply only in nonattainment areas that: ( 1) are attaining the 1 hour NAAQS; ( 2) are subject to subpart 1 ( rather than subpart 2) of part D of title I; ( 3) for which the State submitted an attainment plan by April 15, 2004 that demonstrates attainment within 3 years after designation; ( 4) and for which the State submitted an attainment plan containing any additional local control measures needed for attainment of the 8 hour standard. ( 68 FR 32847). We also proposed that the sources using Section VI would be required to comply with BACT.

On August 6, 2003 ( 68 FR 46536), we solicited comment on additional options for implementing major NSR under the 8

hour NAAQS, including a major rewrite of Aappendix S that would include the proposed changes to Ssection VI. We also solicited comment on two alternatives to Aappendix S for implementing NSR in newly designated nonattainment areas during the transitional SIP development period. One alternative was a fFederal part D NSR regulatory program for major new and modified sources, to be codified at 40 CFR section 52 § 52.10, under which EPA would be responsible for PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 407 permitting unless a State took delegation of the program.

The other alternative was application of the fFederal PSD program at 40 CFR section 52 § 52.21 in such newly designated nonattainment areas. Commenters stated that neither of those alternatives was sufficiently developed for public comment, and we have not pursued them further.

One other proposal affects Aappendix S applicability.

In 1978 ( 43 FR 26408; June 19, 1978) and 1979 ( 44 FR 3276;

January 16, 1979), we proposed that applicability under PSD and Aappendix S respectively be based on uncontrolled emissions, but sources would be exempt from control requirements unless the increase in allowable emissions was at least 50 tons per year ( tpy), 1,000 pounds per day, or 100 pounds per hour. The U. S. Court of Appeals for the District of Columbia Circuit, however, ruled that major source applicability should be based on potential to emit, rather than uncontrolled emissions. Alabama Power Co. v. Costle,

606 F. 2d 1068 ( D. C. Cir. Circuit, 1979), amended 636 F. 3d 323,

356 57 ( D. C. Cir. Circuit, 1980). The court also ruled that EPA had exceeded its authority in establishing the 50 tpy exemption and remanded the exemption for reconsideration. In response, we proposed removing the 50 tpy exemption from the PSD rules and Aappendix S in the 1979 Notice of Proposed PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 408 Rulemaking ( NPRM). ( 44 FR 51930). We finalized these changes in 1980, but we inadvertently did not remove the change in all the places in Aappendix S where it was located,

specifically footnotes 5 and 8 to IV. D.

e. Proposed Cchanges to Iidentify NOx as an Oozone Pprecursor in Aattainment and Uunclassifiable areas.

Currently, only VOCs are expressly regulated as ozone precursors under the PSD regulations. Recognizing the role of NOx in ozone formation and transport, we proposed to amend our PSD regulations to expressly include NOx as an ozone precursor in attainment and unclassifiable areas. Moreover,

we proposed to require States to modify their existing programs to include NOx as an ozone precursor in these areas.

( 68 FR 32846) .

B. Summary of Ffinal Rrule and Llegal Bbasis 1. Final Aaction and Llegal Bbasis for Cchanges to Iincorporate the 1990 Clean Air ActCAA Amendments a. Final Cchanges to Iincorporate the 1990 Clean Air ActCAA Amendments In today's final action, we revised section 51 § 51.165 and Aappendix S to incorporate the major stationary source thresholds, significant emission rates, and offset ratios for sources of ozone precursors pursuant to part D, subpart 1 and PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 409 subpart 2 of title I of the 1990 aCAA Amendments to the CAA.

[ See section 51 § 51.165( a)( 1)( iv), ( a)( 1)( v), ( a)( 1)( x),

( a)( 8), ( a)( 9) and Ssection II. A. 4, 5, and 10 and Ssection IV. G and H of Aappendix S.] Accordingly, consistent with statutory requirements and the final rules in 40 CFR part 51,

subpart X ( Provisions for Implementation of 8 hour Ozone NAAQS), today's final rules in section 51 § 51.165 require States' part D NSR SIPs implementing the 8 hour ozone standard to include provisions meeting subpart 1 of part D of the ActCAA, and subpart 2 as applicable, based on the area's classification. ( We note 40 CFR part 51, subpart X includes the specific provisions for determining whether an area is designated and classified under subpart 1 or subpart 2 and these rules are explained in the preamble to those final rules at 69 FR 23954.) Also, Appendix S requires States or EPA to issue permits during the SIP development period consistent with these requirements. Specifically, under subpart 1, the major stationary source threshold is 100 tpy,

and an offset ratio of at least 1: 1 applies. Under subpart 2, the major stationary source threshold ranges from 10 to 100 tpy, depending on the classification of the nonattainment area in which the source is located. The applicable offset ratios range from 1: 1 to 1: 5, also depending on the PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 410 classification of the nonattainment area in which the source is located.

We also finalized as proposed in 1996 and 2003 that the NSR requirements applicable to major stationary sources of VOC ( including provisions regarding major modifications,

significant emission rates, and offsets) apply to NOx emissions. These requirements apply in all 8 hour ozone nonattainment areas, including subpart 1 and subpart 2 areas.

These requirements apply except where the Administrator determines, according to the standards set forth in section 182( f), that NOx requirements for major stationary sources,

including nonattainment major NSR requirements, would not apply or would be limited (" NOx waiver"). [ See section 51 § 51.165( a)( 8) and Aappendix S.] Acccording to section 51 § 51.913( c), a section 182( f) NOxNOx exemption granted under the 1 hour ozone standard does not relieve the area from any requirements under the 8 hour ozone standard, including nonattainment major NSR for major stationary sources of NOxNOx. We discuss whether a NOx waiver under section 182( f)

applies in a particular area and the effects of NOx waivers on RACT in Ssection IV. H. of this preamble.

We are not taking final action to implement the special modification provisions at CAA sections 182( c), ( d), and ( e) PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 411 for serious, severe, and extreme ozone nonattainment areas at this time. We are evaluating additional issues related to implementation of these requirements and anticipate taking final action in the future.

As proposed on July 23, 1996 ( 61 FR 38250), we have incorporated requirements in part D of title I of the 1990 aCAA Amendments to the CAA for carbon monoxideCO. [ See section 51 § 51.165( a)( 1)( iv)( A)( 1)( v) and ( a)( 1)( x)( D) and Aappendix S.]

We have also made final changes to incorporate the requirements of the 1990 CAA Amendments concerning PM10 nonattainment areas. Specifically, we have promulgated as proposed in 1996 the major stationary source thresholds and significant emission rates for PM10 in PM10 nonattainment areas. [ See section 51 § 51.165( a)( 1)( iv)( A)( 1)( vi) and ( a)( 1)( x). See also Aappendix S at II. A. 4.( i)( a)( 6) and II. A. 4.( i).] We have not taken final action on our 1996 proposed rules for PM10 precursors. Instead, we plan to propose regulations concerning PM precursors as part of the PM2.5 NAAQS implementation rule. We also plan to address requirements for stationary sources of PM in that action.

b. Legal Bbasis for Cchanges to Iincorporate the 1990 Clean Air ActCAA Amendments PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 412 In areas not meeting health based NAAQS and in the OTR,

the major NSR program is implemented under the requirements of section 110( a)( 2)( C) and part D of title I of the ActCAA.

Subpart 1 of part D of title I contains general requirements for nonattainment areas for any criteria pollutant, s.

Subpart 2 contains provisions specifically for ozone nonattainment areas, s. Subpart 3 contains provisions specifically for carbon monoxideCO nonattainment areas, and s. Subpart 4 contains provisions specifically for PM10 nonattainment areas. On July 23, 1996 ( 61 FR 38250), we proposed changes to section 51 § 51.165 and Aappendix S to incorporate requirements in part D of title I of the 1990 aCAA Amendments to the CAA for ozone, carbon monoxideCO, and PM10 nonattainment areas.

We promulgated a new 8 hour ozone NAAQS on July 18,

1997. We indicated that we anticipated that States would implement the 8 hour ozone NAAQS under the less prescriptive subpart 1 requirements. In February 2001, the Supreme Court ruled that the statute was ambiguous as to the relationship of subparts 1 and 2 for purposes of implementing the 8 hour ozone NAAQS. In Whitman v. American Trucking Associations,

[ 531 U. S. 457, 482 86 ( 2001)], the Supreme Court reviewed EPA's implementation strategy for the revised 8 hour ozone PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 413 NAAQS, and remanded it to EPA to develop a reasonable resolution of the roles of subparts 1 and 2 in classifying areas for and implementing the revised ozone standard. On April 30, 2004, we promulgated a final rule to implement the 8 hour ozone NAAQS ( 69 FR 23951), in which some nonattainment areas would be regulated under the less restrictive requirements of subpart 1 and some would be classified and regulated under subpart 2. All ozone nonattainment areas have now been categorized subpart 1 or subpart 2 areas in 40 CFR part 81. Now that we have designated and classified nonattainment areas, the NSR program requirements ( including the specific major stationary source thresholds, significant emission rates, and offset ratios associated with each classification) are determined by reference to subpart 1 and subpart 2, as codified in section 51 § 51.165 and Aappendix S through this rulemaking. Thus, as described in further detail in Ssection V. A. 2 of this preamble, we have incorporated the requirements of the 1990 CAA Amendments for major stationary sources of ozone precursors in ozone nonattainment areas as proposed in 1996, and codified those requirements for the 8 hour standard consistent with the designation and classification scheme finalized in the 8 hour ozone implementation rule ( 69 FR 23951) promulgated in PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 414 response to Whitman v. American Trucking Associations, 531 U. S. 457 ( 2001).

Concerning carbon monoxideCO, Ssection 187( c) of the ActCAA unambiguously establishes the major stationary source threshold of 50 tpy codified today for serious nonattainment areas where the Administrator has determined that stationary sources contribute significantly. It is also reasonable to set the significant emission rate at 50 tpy in those serious nonattainment areas where 50 tpy is the major stationary source threshold. The regulations at section 51 § 51.165( a)( 1)( iv)( A)( 2) require that if a modification itself would constitute a major stationary source, the modification is subject to major NSR.

Concerning PM10, Ssection 189 of the ActCAA unambiguously establishes the major stationary source threshold as 70 tpy in serious nonattainment areas. Also, EPA also has the authority to exempt de minimis emissions from the reach of a rule. See Alabama Power, 636 F. 2d at 360 61. EPA has previouslyPreviously, EPA has defined the PM10 significant emission rate ( that is, de minimis cut off level) as at or above 15 tpy for purposes of determining which modifications are insignificant and thus exempt from PSD review. ( 52 FR 24672, 24694 96 (; July 1, 1987). We believe it is PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 78 The 1991 NSR transitional guidance issued to address implementation of the 1990 CAA Amendments acknowledged that Aappendix S did not contain at that time the newly enacted part D provisions, and further provided that the new requirements of part D to title I did not apply until November 15, 1992 for the ozone nonattainment areas; June 30, 1992, for the PM10 nonattainment areas; and three3 years from designation for most carbon monoxideCO nonattainment areas. NSR Program Transitional Guidance, at A5 ( Mar. ch 11, 1991). We later clarified that the 1990 CAA Amendments did apply to all permits after those deadlines passed. NSR Supplemental Program Transitional Guidance on Applicability of New Part D NSR Requirements at 3 ( Sept. September 3, 1992).

415 reasonable to use the same significant emission rate in the nonattainment NSR program. This is consistent with our past practice of applying the same significant emissions rates for each pollutant in the PSD and nonattainment NSR programs.

We also revised Aappendix S to incorporate the requirements of the 1990 CAA Amendments to part D of title I of the ActCAA. These changes are necessary to make Aappendix S consistent with part D. As we discuss in Ssection V. B. 3. b of this preamble, we have determined that Congress intended for permitting equivalent to the part D NSR provisions to apply during the SIP development period through the use of Aappendix S ( subject to the limited Ssection VI exemption).

In light of this determination, there is no reasonable basis for declining to implement the NSR requirements in the 1990 CAA Amendments during that period. 78 Additionally, Aappendix PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 79 Thus, EPA has typically conformed Aappendix S to the part D nonattainment NSR permitting provisions governing SIPs at 40 CFR section 51 § 51.165 ( originally codified at section 51 § 51.18) whenever those regulations were revised. See, for example, 45 FR 52676 ( Aug. August 7, 1980); 47 FR 27554 ( June 25, 1982); 49 FR 43210 ( Oct. October 26, 1984); 54 FR 27274 ( June 28, 1989); 57 FR 3941 ( Feb. February 3, 1992).

416 S provides on its face that it is an interpretation of the NSR permitting rules in 40 CFR subpart I, including section 51 § 51.165. Therefore, it is necessary to have Aappendix S reflect substantially the same requirements as are in section 51 § 51.165.79 Thus, we proposed to amend Aappendix S in this manner in the 1996 NSR proposal. We also are mindful of the Supreme Court's decision in American Trucking Associations.

Although the decision did not directly address NSR implementation during the SIP development period, the Court emphasized the importance of creating a role for subpart 2 in implementation of the 8 hour ozone NAAQS. We believe this suggests the need to create a role for subpart 2 in Appendix S, in contrast to the exclusive subpart 1 scheme currently embodied in Appendix S.

2. Final Aaction and Llegal Bbasis for Cchanges to Ccriteria for Eemission Rreduction Ccredits from Sshutdowns and Ccurtailments PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 80 68 FR 32833. See also " 2002 Base Year Emission Inventory SIP Planning: 8 hr Ozone, PM2.5 and Regional Haze Programs," U. S. EPA, pg. 1 ( November 18, 2002).

417 a. Final Cchanges to Ccriteria for Eemission Rreduction Ccredits from Sshutdowns and Ccurtailments The final revisions lift the requirement to have an approved attainment plan before using preapplication credits from shutdowns or curtailments as offsets. They also facilitate the availability of creditable offsets, consistent with the requirements of Ssection 173 of the ActCAA. We revised the provisions at section 51 § 51.165( a)( 3)( ii)( C) and Aappendix S concerning emission reduction credits generated from shutdowns and curtailments as proposed in Alternative 2 of the 1996 proposal, with one exception. We agree with the commenter who found the regulatory term " most recent emissions inventory" confusing. We have revised section 51 § 51.165( a)( 3)( C)( 1) accordingly, specifying that the shutdown or curtailment must have occurred after " the last day of the base year for the SIP planning process." For the 8 hour ozone NAAQS, the base year is 2002.80 Additionally,

today's final provisions allow a reviewing authority to consider a prior shutdown or curtailment to have occurred " after the last day of the base year if the projected PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 81 See 57 FR 13553. After the 1990 CAA Amendments were enacted, 1990 was the base year for 1 hour ozone NAAQS attainment planning purposes. See 57 FR 13502. The EPA encouraged States to allow sources to use pre enactment banked emissions reductions credits for offsetting purposes. States have been allowed to do so if the restored credits meet all other offset creditability criteria, and States consider such credits as part of the attainment emissions inventory when developing their post enactment attainment demonstration.

418 emission inventory used to develop the attainment demonstration explicitly includes the emissions from such previously shutdown or curtailed emissions unit." This provision is consistent with the previous regulation which also allowed the reviewing authority to treat prior shutdowns or curtailments as occurring after the date of the most recent emissions inventory, but we have modified the regulatory language to clarify the appropriate emissions inventory. This regulatory language is consistent with our previous guidance on how emission reduction credits from shutdowns and curtailments are used in attainment planning. 81 The base year inventory includes actual emissions from existing sources and would not reflect emissions from units that were shutdown or curtailed before the base year, as these emissions are not " in the air." To the extent that these emission reduction credits are considered available for use as offsets and are thus " in the air" for purposes of PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 82 For a discussion of emission inventories for the 8 hour ozone standard, see our draft emission inventory guidance, Emissions Inventory Guidance for Implementation of Ozone and Particulate Matter NAAQS at http:// www. epa. gov/ ttn/ chief/ eidocs/ eiguid/ index. html. For a discussion of emission projections used in attainment demonstrations, see Emission Inventory Improvement Program, Volume X, Emission Projections, December 1999, available at http:// www. epa. gov/ ttn/ chief/ eiip/ techreport/.

419 demonstrating attainment, they must be included in the projected emissions inventory used in the attainment demonstration along with other growth in emissions over the base year inventory. This step assures that emissions from shutdown and curtailed units are accounted for in attainment planning. 82 As with the prior rules, reviewing authorities thus retain the ability to consider a prior shutdown or curtailment to have occurred after the last day of the base year if emissions from the shutdown or curtailment are accounted for in the attainment demonstration. However, in no event may credit be given for shutdowns that occurred before August 7, 1977, a provision carried over from the previous regulation.

The other changes to the proposed rule text also are nonsubstantive and instead clarify the restrictions on credits from shutdowns or curtailments. Specifically, the proposed rule retained the requirement for an approved PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 420 attainment demonstration, but made that requirement inapplicable where the credits occurred after the last day of the base year for the SIP planning process or where they were included in the most recent emissions inventory. The final rule recognizes there is no requirement for an approved attainment demonstration in those circumstances, and thus deletes the reference to that former requirement.

We note that the requirements for emission reductions used as offsets and for netting differ from those for emission reduction credits used for RFP and ROP. Section IV. E. 14. of this preamble discusses requirements for emission reduction credits used for RFP and ROP. For a more detailed discussion of emission reduction credits for offsets and netting under the 8 hour ozone NAAQS, see Ssection V. D. 5. of this preamble.

b. Legal Bbasis for Cchanges to Ccriteria for Eemission Rreduction Ccredits from Sshutdowns and Ccurtailments The revisions to the rules governing use of emissions reductions from shutdowns/ curtailments as offsets are warranted by the more detailed attainment planning and sanction provisions of the 1990 CAA Amendments. These provisions specifically address air quality concerns in nonattainment areas lacking EPA approved attainment PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 421 demonstrations. As a threshold matter, we note that CAA Ssection 173 does not mandate the prior restrictions on shutdown credits, specifically, the requirement to have an approved attainment demonstration. [ See 48 FR 38742, 38751 ( Aug. August 25, 1983).] Rather, in promulgating these restrictions in 1989, EPA recognized that it had a large degree of discretion under the ActCAA to shape implementing regulations, as well as the need to exercise that discretion such that offsets are consistent with RFP as required in CAA Ssection 173. [ ( See 54 FR 27286, 27292 (; June 28, 1989.]

EPA oOriginally, EPA believed that areas without approved attainment demonstrations lacked adequate safeguards to ensure that shutdown/ curtailment credits would be consistent with RFP. We thus subjected those areas to more restrictive requirements to ensure a link between the new source and the source being shut down/ curtailed ( that is,

shutdown/ curtailment must occur after application for a new or modified major source is filed).

The 1990 CAA Amendments changed the considerations involved. As discussed above, for areas subject to Ssubpart 2, Congress emphasized the emission inventory requirement in section 172( c)( 3) as a fundamental tool in air quality planning. Congress also added new provisions keyed to the PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 422 inventory requirement, including specific reduction strategies and " milestones" that measure progress toward attainment from the base year emissions inventory or subsequent revised inventories. Where the emission reduction credits pre date the base year, State and local agencies must include the credits from the shutdown/ curtailment in the projected emissions inventory used to develop the attainment demonstration. Subpart 4 sets forth specific reduction strategies and milestones for attainment of the PM10 standards. Additionally, there are now several adverse consequences where States fail to meet the planning or emissions reductions requirements of the ActCAA. For example, the ActCAA contains mandatory increased new source offset sanctions at a 2: 1 ratio where the Administrator finds that a State failed to submit a required attainment demonstration. In areas that are subject to Ssubpart 2 and Ssubpart 4, failure to attain the air quality standard by the attainment deadline results in the area being bumped up to a higher classification. Additional regulatory requirements are imposed as a result of the higher classification. These statutory changes justify shifting the focus of the current regulations from individual offset transactions between a specific new source and shutdown source and towards a PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 423 systemic approach. Considering the changes to the 1990 CAA Amendments, we now believe that continuing the prohibition on the use of shutdown/ curtailment credits generated where there is no approved attainment demonstration is not warranted. We believe that use of emission reduction credits from shutdowns/ curtailments will be consistent with RFP towards attainment under CAA Ssection 173 , even in the absence of an approved attainment demonstration, if they occur after the last day of the base year for the SIP planning process or are included in the projected emissions inventory used to develop the attainment demonstration. From an air quality planning perspective, emissions from the shutdown source actually impacted the measurements of air quality used in determining the nonattainment status of an area. Subsequently, emissions reductions from such source shutdowns/ curtailments are actual emissions reductions, and their use as emission offsets at a ratio of 1: 1 or greater is consistent with RFP towards improved air quality as set forth in CAA Ssection 173( a)( 1)( A).

3. Final Aaction and Llegal Bbasis for Cchanges to the Cconstruction Bban Pprovisions a. Final Aaction for Cchanges to the Cconstruction Bban Pprovisions PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 83 We note that we are changing the cross reference in section 52 § 52.24( f) to " section 51" § 51.165" instead of the definitions section at section 51 § 51.165( a), to ensure that all of the provisions of section 51 § 51.165 apply in interpreting the terms of section 52 § 52.24.

424 We are promulgating final changes to section 52 § 52.24 to implement the construction ban provisions and other changes,

as proposed in 1996 and 2003.83 We believe these changes are beneficial to conform the regulatory text with the requirements that apply under the 1990 Clean Air ActCAA Amendments.

As noted in our June 2003 proposal, we are retaining the provision in section 52 § 52.24( k) that specifies that Aappendix S governs permits to construct and operate applied for during the SIP development period. Although the regulatory text proposed in 1996 omitted section 52 § 52.24( k),

the 1996 preamble also explained that the changes to section 52 § 52.24 were intended only to update and clarify the regulation with regard to the changes to the construction ban made by the 1990 CAA Amendments. ( 61 FR 38250, 38305) The preamble did not in any manner indicate that EPA believed that NSR permits complying with Aappendix S were not required during the SIP development period where necessary.

Additionally, it did not contemplate nonattainment major NSR PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 425 permitting in light of the situation that today's final action addresses, which is the need to permit nonattainment area sources during a transition period in which a substantial number of new nonattainment areas are being created. Therefore, we are retaining section 52 § 52.24( k).

As we proposed in the 8 hour ozone NAAQS implementation rule ( 68 FR 32846), we made one change to the regulatory language in section 52 § 52.24( k). The previous language at section 52 § 52.24( k) only allowed States to issue permits under Aappendix S for a maximum period of 18 months after designation. This language was consistent with the previous SIP development period and construction ban under the 1977 ActCAA, which no longer apply under the 1990 CAA Amendments.

We have revised section 52 § 52.24( k) to allow States to issue permits under Aappendix S from designation until the SIP is approved, even if this exceeds 18 months. As we noted in our proposal, this change implements the removal of the construction ban from the 1990 CAA Amendments and is consistent with our 1991 policy memo, " New Source Review ( NSR) pProgram Transitional Guidance, John S. Seitz, March 11, 1991.

b. Legal Bbasis for Cchanges to the Cconstruction Bban Pprovisions PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 426 Section 110( a)( 2)( c) of the CAA establishes a general duty on States to include a program in their SIP that regulates the modification and construction of any stationary source as necessary to assure that the NAAQS are achieved.

This general duty, often referred to as " minor NSR," exists during all periods, including before a State has an approved part D NSR permit program.

CAA Section 110( a)( 2)( c) of the CAA does not define specific requirements States must follow for issuing major source permits during the interim period between nonattainment designation and EPA approval of a part D nonattainment NSR SIP (" interim period"). However, EPA's regulations at section 52 § 52.24( k) require States to follow EPA's Emission Offset Interpretative Ruling, 40 CFR Ppart 51,

Aappendix S, during this time.

This approach is consistent with Congressional intent,

as indicated in the 1977 Clean Air ActCAA Amendments providing for major NSR permitting during the SIP development period in accordance with Aappendix S. [ See Pub. Public L. aw No. 95

95, section 129129( a), 91 Stat. Statute 685 ( 1977).]

Specifically, Congress enacted a moratorium on construction in any area lacking an approved part D NSR SIP, with a PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 427 delayed effective date of July 1, 1979. Congress also provided that Aappendix S, as modified by rule of the Administrator, govern permitting of sources constructing in such areas before that date, subject to a limited waiver by the Administrator. Id. 108( b), 129( a). We subsequently codified the use of Aappendix S as the interim major NSR program in 40 CFR section 52 § 52.24( k), reasoning ( in the context of implementing a delay in the construction ban for then recently designated nonattainment areas) that Congress had provided that Aappendix S should remain in effect to protect air quality while State plans were being designed.

( 45 FR 65209). When Congress removed the construction ban ( except as provided in section 110( n)( 3)), it left in place 40 CFR section 52 § 52.24( k), implementing the interim major NSR program under Aappendix S.

Accordingly, we have historically recognized that the SIP development period provided for in section 172( b) leaves a gap in part D major NSR permitting and have determined that this gap is to be filled with an interim major NSR program that is substantially similar to the requirements of part D.

This includes the LAER and offset requirements from part D. PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 84Appendix S was originally promulgated in 1976 to address whether, and to what extent, new and modified sources would be allowed to construct in nonattainment areas whose attainment deadlines had already passed, in light of the regulatory requirement that new or modified sources be disapproved where the source would interfere with attainment of the NAAQS. ( 41 FR 55524 ( Dec.; December 21, 1976). It required, inter alia, compliance with the lowest achievable emission rate ( LAER) and offsetting emission reductions in excess of the new source's emissions. At that time, part D NSR was not part of the CAA. When the part D NSR provisions were added in the 1977 CAA Amendments to the CAA, Congress added the requirement that SIPs contain nonattainment NSR provisions as set forth in CAA Ssection 173, including LAER and the requirement to either offset the increase in new source emissions or ensure that emissions fell within a growth allowance. ( The growth allowance provision was repealed in 1990.) Additionally, Congress provided that Aappendix S, as modified by rule of the Administrator, would govern preconstruction permitting in areas lacking approved part D SIPs before a construction ban went into effect, as discussed in more detail above.

428 ( 57 FR 18070, 18076). Appendix S has been used by EPA and the States as this interim major NSR program. 84 Our regulations at 40 CFR section 52 § 52.24( k) require permits issued during this period to be consistent with the requirements in Aappendix S. The continued application of Aappendix S through section 52 § 52.24( k) is also supported by the purpose of the CAA, specifically, Ssection 101( b)( 1), " to protect and enhance the quality of the Nation's air resources so as to promote the public health and welfare and the productive capacity of its population." This provision was the basis for the original judicial finding that the ActCAA PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 85 See Alabama Power Co. v. Costle, 636 F. 3d 323, 346 047 ( D. C. Cir. Circuit 1980) ( discussing Sierra Club v. Ruckelshaus, 344 F. Supp. 253 ( D. D. C. 1972), aff'd per curiam 4 ERC 1815 ( D. C. Cir. Circuit 1972), aff'd by an equally divided court, sub nom Fri v. Sierra Club, 412 U. S. 541 ( 1973).

429 imposed an obligation to prevent significant deterioration in areas that meet the NAAQS, prior to Congress' enactment of the PSD program at Ppart C of the ActCAA. 85 This policy of non degradation applies with even greater force in areas that fail to meet the NAAQS. Thus, we believe that an interim major NSR program for the SIP development period  as codified at Aappendix S and updated to reflect CAA amendments   is supported by section 110( a)( 2)( C), section 101( b)( 1), Congressional intent, and our gapfilling authority under section 301( a).

4. Final Aaction and Llegal Bbasis for Cchanges on Aapplicability of Aappendix S and the Ttransitional NSR Pprogram a. Final Cchanges on Aapplicability of Aappendix S and the Ttransitional NSR Pprogram We are not finalizing the Ttransitional NSR program under Ssection VI of Aappendix S as proposed, which would have established limited criteria for determining in which nonattainment areas Ssection VI could apply. Upon PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 430 consideration of public comments, we decided to retain the original eligibility conditions, but added a procedural requirement that the Administrator determine whether Ssection VI applies for a specific situation.

As we noted at 68 FR 32848, on its surface Ssection VI could apply in any nonattainment area where the dates for attainment have not passed if the source meets all applicable SIP emission limitations and would not interfere with the area's ability to meet its attainment date, without providing any specific safeguards for such noninterference. We noted at proposal, however, that States generally would not be able to show that a nonattainment area would continue to meet its attainment date if it does not apply LAER or offsets to major new sources and major modifications in the absence of safeguards. ( 68 FR 32848) .

We continue to believe, as stated in the proposal, that States should not interpret Ssection VI as allowing a blanket exemption from LAER and offsets for all major new sources and major modifications in a given area before attainment dates have passed for that area. However, based on public comment,

we now believe that the program as proposed at 69 FR 32846 is not implementable. As many commenters noted, the April 15,

2004 deadline for submission of attainment plans and December PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 431 31, 2004 deadline for implementation of all necessary attainment controls were impracticable. We agree with the many commenters who supported flexible NSR requirements under Ssection VI for some areas and maintained that attainment would not be in jeopardy due to such programs. While we do not identify any such particular instances in today's final rule, we believe that participation in programs such as the NOx SIP cCall and the Clean Air Interstate Rule proposalCAIR ( 6970 FR 456625162, Jan. 30May 12, 20045) will achieve significant emissions reductions across broad geographical areas. Certainly, we want to encourage development of programs that address transported air pollution. We recognize that these and other programs may prove to be more effective and practical in assuring that there is no interference with an area's ability to meet its attatinment deadline than relying on offsets from a single source.

For these reasons, we have retained the original eligibility conditions for determining when Ssection VI applies, but added a procedural requirement that the Administrator provide public notice that Ssection VI applies for a specific situation. This requirement will achieve the proposal's purpose of assuring that States do not interpret Ssection VI to provide a broad exemption to all major new PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 432 sources and major modifications in any nonattainment area for which the attainment date has not passed.

We also are taking final action to remove the 50 tpy exemption from Aappendix S. As discussed in Ssection V. A. 2. f of this preamble, we proposed this change in 1979 and finalized it in most respects in 1980. However, we inadvertently did not remove the exemption in all the places in Aappendix S where it was located, specifically footnotes 5 and 8 to IV. D. We are now finalizing the 1979 proposal to the extent it remained incomplete, by removing these last two references to the 50 tpy exemption in Aappendix S.

b. Legal Bbasis for Cchanges to Aapplicability of Aappendix S and the Ttransitional NSR Pprogram The legal basis for Aappendix S itself, including Ssection VI, is discussed in detail in Ssection V. B. 3. b. of this preamble. We have historically recognized that the SIP development period provided for in section 172( b) leaves a gap in part D major NSR permitting and have determined that this gap is to be filled with an interim major NSR program that is substantially similar to the requirements of part D,

including the LAER and offset requirements from part D,

subject to a limited exemption where the attainment deadline PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 433 will be met. ( 57 FR 18070, 18076). This interim NSR program has been implemented to date through Aappendix S.

We also believe that, contrary to objections made by some commenters, Aappendix S  and in particular, Ssection VI  has not been superseded by the 1990 CAA Amendments to title I of the ActCAA. In short, Aappendix S only applies where an NSR permitting program for the new or revised NAAQS is not otherwise in effect, and thus does not replace any part D NSR SIP provisions, as many commenters erroneously believed.

That is, it applies only in newly designated or redesignated nonattainment areas lacking approved part D programs for a new or revised NAAQS, such as the 8 hour ozone NAAQS. Thus,

the evasion of subpart 2 requirements posited by commenters and the anti backsliding concerns they raise are not triggered, as nothing in the SIP is replaced. Our detailed response to those comments is set forth in Ssection V. C. 4. of this preamble.

The Ssection VI exemption, as limited by this final rule, is consistent with the section 110( a)( 2)( C) requirement that the preconstruction permitting is implemented " as necessary to assure that the [ NAAQS] are achieved." We are not adopting the eligibility criteria that were proposed to ensure satisfaction of the original Ssection VI conditions. PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 434 However, we have added a requirement that the Administrator determine that sources exempted from LAER and offsets under Ssection VI will meet those conditions, in particular,

noninterference with the attainment deadline. Section VI also is consistent with the exercise of our gapfilling authority under section 301, as informed by the legislative history. That is, Aappendix S reflects Congressional intent that standards equivalent to part D govern the issuance of NSR permits, subject to a limited degree of flexibility under conditions where attainment of the NAAQS by the attainment deadline is assured.

The removal of the 50 tpy exemption from Aappendix S is based on Alabama Power Co. v. Costle, 636 F. 3d 323, 356 57 ( D. C. Cir. Circuit, 1980), in which the court held that EPA had exceeded its authority to establish the exemption, as discussed in more detail in Ssection V. A. 2. f. above.

5. Final Aaction and Llegal Bbasis for Cchanges to Iidentify NOx as an Oozone Pprecursor in Aattainment and Uunclassifiable Aareas a. Final Cchanges to Iidentify NOx as an Oozone Pprecursor in Aattainment and Uunclassifiable Aareas.

Our existing PSD regulations in section 51 § 51.166 and section 52 § 52.21 define regulated NSR pollutants, which PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 435 includes any pollutant for which we promulgate a NAAQS and any constituents or precursors for such pollutants as identified by the Administrator. [ See section 51 § 51.166( b)( 49)( i) and section 52 § 52.21( b)( 50)( i).] Today,

the Administrator is identifying NOx as an ozone precursor in attainment and unclassifiable areas. Accordingly, as proposed, we amended our PSD regulations in section 51 § 51.166 and section 52 § 52.21 to expressly include NOx as an ozone precursor. Specifically, we have amended the definitions of major stationary source, major modification, significant, and regulated NSR pollutant to include NOx as an ozone precursor.

[ See section 51 § 51.166( b)( 1)( ii), ( b)( 2)( ii), ( b)( 23), and ( b)( 49). See also section 52 § 52.21( b)( 1)( ii),

( b)( 2)( ii),( b)( 23), and ( b)( 50).] We have also amended the footnote to section 51 § 51.166( i)( 5)( i)( e) and section 52 § 52.21( i)( 5)( i) to require sources with a net increase of 100 tpy or more of NOx to perform an ambient impact analysis.

b. Legal Bbasis to Iidentify NOx as an Oozone Pprecursor in Aattainment and Uunclassifiable areas The nonattainment provisions of the ActCAA, as amended in 1990, recognize NOx as an ozone precursor; section 182( f)

of the CAA established nonattainment requirements for NOx.

The definition of air pollutant under section 302( g) of the PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 86 See 68 FR 32805 06, 32840 footnote 58 ( discussing national rules for controlling VOC and NOx emissions); Clean Air Interstate Proposed Rule, 69 FR 4566, January 30, 2004. and 68 FR at 32840 note 57.

436 CAA includes, ``* * * "... any precursors to the formation of any air pollutant * * *''..." Also, the definition of regulated NSR pollutant in section 51 § 51.166 and section 52 § 52.21 specifically recognizes that a regulated NSR pollutant is " any pollutant for which a national ambient air quality standard has been promulgated and any constituents or precursors for such pollutant identified by the Administrator ( e. g., volatile organic compounds are precursors for ozone)."

The EPA has recognized NOx as an ozone precursor in several national rules because of its contribution to ozone transport and the ozone nonattainment problem. The EPA's recognition of NOx as an ozone precursor is supported by scientific studies, which have long recognized the role of NOx in ozone formation and transport. 86 Such formation and transport is not limited to nonattainment areas. Therefore,

we believe NOx should be treated consistently as an ozone precursor in both our PSD and nonattainment NSR regulations.

For these reasons, we have promulgated final regulations providing that NOx is an ozone precursor in attainment areas. PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 437 6. Final Cchanges and Llegal Bbasis for Cchanges to Eemission Ooffset Pprovisions of Aappendix S.

a. Final Cchanges to Eemission Ooffset Pprovisions of Aappendix S.

We are revising certain provisions in Aappendix S to reflect requirements of the 1990 Clean Air ActCAA Amendments concerning offsets and RFP. Specifically, we have conformed Aappendix S at IV. D. to the 1990 CAA Amendments by replacing the interim policy on offsetting emissions with the statutory language at section 173( c)( 1). We also have removed the language concerning reasonable progress in Ssection IV. E. of Aappendix S and replaced it with the statutory requirements at 173( a)( 1)( A).

Also, we note that the definition of net emissions increase at section 51 § 51.165( a)( 1)( vi)( E) requires that a decrease in actual emissions is creditable only to the extent that the State has not relied on it in demonstrating attainment or RFP. This requirement has never been codified in Aappendix S. However, the 1990 CAA Amendments at Ssections 172( b)( 1) and 182 codifies the requirements concerning RFP. State and local agencies should consider the effect of creditable decreases from permitting under PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 87 See Emission Offset Exemptions for Resource Recovery Facilities from Gerald A. Emison, Director, Office of Air Quality Planning and Standards, December 28, 1988.

438 Aappendix S in their planning for demonstrating attainment and RFP.

We are also restating our policy on offsets from resource recovery facilities under Aappendix S. Appendix S at IV. B.( i) exempts resource recovery facilities from permitting under certain circumstances. Our 1988 policy memo indicates that as a matter of policy, EPA no longer adheres to the offset exemption for resource recovery facilities in Aappendix S. 87 As we did not propose to change this provision, we are not revising the final rules today regarding resource recovery facilities. However, we plan to remove this exemption in a future rulemaking.

b. Legal Bbasis for Cchanges to Eemission Ooffset Pprovisions of Aappendix S.

Because we have not revised the regulatory text in Aappendix S since the latest revision to the statute, the 1990 Clean Air ActCAA Amendments provisions limiting the use of offsets are not explicitly included in Aappendix S.

Nonetheless, these requirements apply to sources permitted using Aappendix S because Aappendix S is intended to reflect PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 439 the same offset requirements contained in part D of the ActCAA. These provisions relate to offsets and RFP.

We are revising Aappendix S to incorporate the statutory restrictions on offsets and remove the existing regulatory text that is outdated. The 1977 Clean Air ActCAA is silent concerning the location of offsetting emissions. As we noted in footnote 9 to Ssection IV. D. of Aappendix S, in the absence of specific statutory language, we developed an interim policy on offset locations. The 1990 CAA Amendments to the Clean Air Act at section 173( c)( 1), however, placed specific limits on the location of offsets and therefore superceded the interim policy in Aappendix S. Accordingly,

we conformed Aappendix S at IV. D. to the 1990 CAA Amendments by replacing the interim policy on offsetting emissions with the statutory language at section 173( c)( 1).

Appendix S at Ssection IV. E. contains provisions regarding the relationship between offsets, reasonable progress towards attainment, and RFP. Under the 1990 CAA Amendments, section 173( a)( 1)( A) was revised to set forth the extent to which offsets must represent RFP, as defined in section 171. Therefore, we removed the language concerning PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 440 reasonable progress in Ssection IV. E. of Aappendix S and replaced it with the statutory requirements at 173( a)( 1)( A).

C. Comments and Rresponses 1. Comments on Pproposed Cchanges to Iincorporate the 1990 Clean Air ActCAA Amendments In today's final action, we have revised section 51 § 51.165 and Aappendix S to incorporate the major stationary source thresholds, significant emission rates, and offset ratios pursuant to part D of title I of the 1990 aCAA Amendments to the CAA for major stationary sources of ozone precursors. As we noted in Ssection V. A. 2. a. of this preamble, now that the designations and classifications have been made, the provisions of Ssubpart 1 and Ssubpart 2 determine the NSR program requirements. Those requirements are codified in this rulemaking. For a summary of comments and responses related to when subpart 1 or subpart 2 applies,

please see the preamble to those final rules at 69 FR 23961.

Commenters on both the 1996 and 2003 proposals generally supported applying the nonattainment major NSR requirements applicable to major stationary sources of VOC ( including provisions regarding major modifications, significant emission rates, and offsets) to NOx emissions, except where the Administrator determines pursuant to section 182( f) that PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 441 NOx requirements for major stationary sources, including NSR requirements, would not apply or would be limited (" NOx waiver"). A few commenters opposed waivers under section 182( f) for exemptions from NOx requirements, due to their effect on NOx emissions in downwind States.

We agree with the commenters supporting NOx as an ozone precursor for nonattainment major NSR applicability, and have retained it in the final rule. We note that whether a NOx waiver applies in a particular area and the effects of NOx waivers on RACT are discussed in Ssection IV. H. of this preamble.

2. Comments on Pproposed Rrevisions to Ccriteria for Eemission Rreduction Ccredits from Sshutdown and Ccurtailments Many commenters generally supported EPA's conclusion that emission reduction credits from shutdowns and curtailments can be used for NSR offsets. These commenters believed the safeguards in the 1990 CAA Amendments justified removing the previous requirement for an approved attainment plan before such credits can be used as offsets. One commenter opposed lifting the restrictions, believing that the cited 1990 CAA Amendment provisions, including submittal of SIP attainment demonstrations, have not been implemented. PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 442 While no commenters supported the adoption of Alternative 1 exclusively, a few commenters supported both proposed Alternatives. However, many commenters strongly supported Alternative 2. These commenters asserted that the safeguards in the 1990 CAA Amendments address progress in nonattainment areas and that an approved attainment demonstration is no longer necessary to ensure shutdown/ curtailment credits are accounted for in the attainment demonstration. These commenters also believed Alternative 2 was more flexible and would encourage stable banking programs. Many commenters believed that State agencies would be unable to meet the deadlines in Alternative 1. They also believed that Alternative 1 was unnecessarily restrictive, and would cause confusion.

We agree with the commenters who supported Alternative 2. We have promulgated final regulations that allow emission reduction credits to be used as offsets in the absence of an approved attainment demonstration, provided that these emission reduction credits were generated from shutdowns or curtailments that are included in the base year emission inventory as current actual emissions.

One commenter stated that the regulatory language concerning the " most recent emissions inventory" is PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 443 confusing. The commenter believed this language could be mistaken to mean that the base year would continue to shift.

The commenter noted that it would be more accurate to state that the base year emissions inventory is the starting point and all creditable emissions reductions must have been reported in the base year inventory or a subsequent emissions inventory. We agree with the commenter that the terminology " most recent emissions inventory" is confusing and have revised section 51 § 51.165( a)( 3)( C)( 1) accordingly, specifying the cutoff date as " the last day of the base year if the projected emissions inventory used to develop the attainment demonstration explicitly includes the emissions from such previously shutdown or curtailed emission units." As we discussed in Ssection V. B. 2. a. of this preamble, this regulatory language is consistent with our previous guidance on how emission reduction credits from shutdowns and curtailments are used in attainment planning. Most importantly, it assures that emissions from shutdown and curtailed units are accounted for in attainment planning.

We disagree with the commenter who opposed the revisions. Since the submission of this comment in 1997,

States have made substantial progress in implementing the 1990 CAA Amendments. This progress includes submitting the PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 88 Of the 135 areas designated as nonattainment for the 1 hour ozone NAAQS in 1991, 69 have been redesignated as attainment. See http:// www. epa. gov/ oar/ oaqps/ greenbk/ onsum2. html. Of the 55 nonattainment areas with classifications of moderate and higher that were required to submit SIPs and attainment demonstrations, all but 4 have an approved SIP or have requested redesignation to attainment.

444 required inventories to which attainment planning is keyed,

along with the required attainment demonstrations. 88 We believe that implementation of the 1990 CAA Amendments to date supports the conclusion that emission inventories have been effective in attainment planning, and will continue to be effective in implementing the 8 hour standard. Therefore,

we disagree with the commenter that the 1990 Amendments do not justify the revisions due to inadequate implementation.

3. Comments on Cconstruction Bban Pprovisions We received comments on the following procedural issue.

In the proposal, we stated our intent to issue determinations of inadequate SIP implementation under section 173( a)( 4) by letter, followed by publication in the Federal Register, and explained that such determinations would result in a prohibition on construction in the area pursuant to that provision. ( 61 FR 38305). We also solicited comment on whether an opportunity for public notice and comment should be provided. A few State commenters believed that EPA should PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 445 provide such notice and comment, but did not state a basis for their position.

The text of section 52 § 52.24( b) as proposed tracked the language of section 173( a)( 4) and did not include a provision on the process to be used for issuing a determination of inadequate SIP implementation. We have finalized section 52 § 52.24( b) in substantially the same form as we proposed.

The Agency is still considering the appropriate process to use in issuing a determination under CAA section 173( a)( 4).

4. Comments on Aapplicability of Aappendix S and the Ttransitional Pprogram Many commenters opposed our proposed Transitional NSR Program, stating that it would not be protective of air quality. Many other commenters supported the proposed program, believing that it would provide needed flexibility and would not interfere with achieving attainment. Many commenters, including some who supported the Transitional Program, believed the schedule for submitting attainment plans and control requirements was impracticable. Some commenters opposed the Transitional NSR Program on legal grounds, arguing that Ssection VI does not authorize any NSR flexibility or that Aappendix S has been superseded in its entirety by various sections of the Clean Air ActCAA. PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 446 We agree with commenters that the schedule in the proposed rule for submitting attainment plans to be eligible for Transitional NSR was impracticable. On the other hand,

however, we do agree with the many commenters who urged us to provide flexible NSR requirements for some areas. While we have not promulgated specific criteria for when such flexibility would apply, we have promulgated final regulations specifying that Ssection VI applies where the original conditions are met ( that is, the attainment deadline has not passed, the source would not interfere with attainment by the deadline, and the source meets all applicable SIP emissions limitations) and the Administrator has determined and provided public notice that Ssection VI applies.

Regarding the objections to our legal authority to implement flexible NSR under Aappendix S, some commenters argued that the Ssection VI exemption is potentially applicable only where an attainment date for the secondary standards has not yet passed. However, this comment ignores the plain language of Ssection VI, which references primary standards. It states: " In some cases, the dates for attainment of primary standards have not yet passed due to the delay in the promulgation of a plan under this section of PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 89 Designations are in 40 CFR 81.300. This citation has been corrected in today's final rules.

447 the Act." It then goes on to note that the attainment deadlines for the secondary standards may also not yet have passed. It then states: " In such cases [ a reference to attainment dates that have not passed for both primary and second standards], a new source locating in an area designated in 40 CFR 81.3000 et seq. as nonattainment may be exempt from the conditions of Section IV. A" 89 where certain requirements are met. Thus, the Ssection VI exemption is applicable where the attainment date for the primary standard has not passed.

Other commenters argued that Aappendix S and 40 CFR 52 § 52.24( k) have been superseded by or prohibited by various sections of the ActCAA. ( EPA will use the term " Aappendix S"

in this section of the preamble to refer to these collectively).) Although commenters made this argument in the context of opposing the proposed revisions to Ssection VI of Aappendix S, this comment applies to any use of Aappendix S for permitting, including the LAER and offset requirements of Ssection IV, and the existing version of Ssection VI.

First, the commenter contended that Aappendix S has been superseded by section 181( b)( 1) within subpart 2 of the PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 448 ActCAA, under which it believes a newly designated nonattainment area receives its nonattainment classification by operation of law and immediately becomes subject to all of the requirements  including section 110, subpart 1, and subpart 2  that apply to that classification. The EPA disagrees with the commenter. As a threshold matter, even if the commenter were correct that both subpart 1 and subpart 2 applied upon an area's nonattainment classification, the statute provides that the area may have a period of time to develop and submit a SIP or SIP revision meeting the preconstruction permitting requirements of section 173. See CAA Ssections 172( b)( 5) and 182( a)( 2)( C). For the SIP development period, part D leaves a gap as to the NSR requirements applicable to the newly designated nonattainment area ( if the State's part D NSR SIP does not automatically cover the area). This gap exists even if EPA were to accept the commenter's contention that subpart 2 applies. Pursuant to 40 CFR 52 § 52.24( k), this gap is filled by Aappendix S,

which requires NSR permitting that mirrors part D, subject to the Ssection VI exemption.

Additionally, EPA disagrees with the commenter's contention that subpart 2 must apply to all newly designated nonattainment areas. As discussed in more detail in the PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 449 preamble to the Phase 1 8 hour ozone implementation rule ( 69 FR 23951), EPA has determined that it has discretion in determining whether subpart 2 applies to these areas because subpart 2 does not dictate whether it applies where the 1

hour design value falls below the lowest value in the subpart 2 classification table. The EPA has described in that rule the circumstances in which subpart 2 applies.

The commenter also contends that section 193 has superseded Aappendix S. The EPA disagrees. The commenter relies on the following language in section 193: " No control requirement in effect, or required to be adopted by a[] . . .

[ implementation] plan in effect before November 15, 1990, in any area which is a nonattainment area for any air pollutant may be modified after November 15, 1990, in any manner unless the modification insures equivalent or greater emission reductions of such air pollutant." However, this part of section 193 is of no relevance to Aappendix S because Aappendix S does not replace any existing SIP requirements.

An area is only required to apply Aappendix S where it does not have a part D NSR SIP covering permitting for the 8 hour standard. In other words, it covers only the gap in the SIP PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 90 Although EPA did state in the proposal that States with already applicable part D NSR SIPs may choose to amend their SIPs to allow them to take advantage of the proposed revisions to Ssection VI ( 68 FR 32844 n. 67), the decision not to go forward with the Ssection VI revisions as proposed makes that issue moot. NSRNew source review under Ssection VI, as finalized, will involve notification by the Administrator that it applies for new sources meeting the Ssection VI criteria in areas lacking approved part D NSR programs, rather than replacement of an NSR program in the SIP with an alternative NSR Pprogram.

450 caused by the lack of a part D NSR program for the relevant NAAQS, and is supplemental to any existing SIP requirements. 90 The commenter also believes that use of Aappendix S for permitting would violate section 110( l), which provides, in relevant part, that: " The Administrator shall not approve a revision of a plan if the revision would interfere with any applicable requirement concerning attainment and reasonable further progress . . ." The commenter states that nonattainment preconstruction permitting requirements " concern[] attainment and reasonable further progress," so if a SIP is already written such that nonattainment NSR will apply in an area as soon as it is designated nonattainment under the 8 hour standard, then any revision that would thwart the automatic effectiveness of those requirements would violate section 110( l). Again, Aappendix S is not an amendment to a SIP, and does not replace any existing SIP PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 451 requirements. Rather, it covers the gap caused by the lack of a part D NSR SIP for the newly designated nonattainment area. If a SIP applies the nonattainment NSR program to a newly designated nonattainment area, Aappendix S does not apply to that area. [ See 40 CFR 52.24( k) and Aappendix S,

Section I.] For these same reasons, the commenter is incorrect that NSR permitting under Aappendix S violates Congressional intent not to relax pollution control requirements when the NAAQS are revised, as expressed in section 172( e). One commenter stated that any major revisions to Aappendix S should be subject to additional notice  and  comment because such revisions could not be a logical outgrowth of the June 2, 2003 proposal. We disagree that the public lacked adequate notice and opportunity to comment. The changes to incorporate the 1990 CAA Amendments to part D of title I of the ActCAA ( for example, major stationary source thresholds, significant emission rates, and offset ratios) and the revisions to the rule governing creditable emissions reductions from shutdowns and curtailments were proposed in 1996 for the major NSR program,

including Aappendix S. ( 61 FR 38252). The method for making designations and classifications specific to the 8 hour standard under Ssubparts 1 and 2 was proposed on June 2, 2003 PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 452 ( 68 FR 32802). Although rule language was not proposed specifically for Aappendix S, the rule language could be discerned from the rule language proposed for section 51 § 51.165, as Aappendix S states it is an interpretation of 40 CFR subpart I, which includes section 51 § 51.165.

Additionally, the ActCAA does not require that the Agency provide notice of the exact rule language that will be finalized, but rather that the Agency provide a statement of basis, including, among other things, the major legal interpretations and policy considerations underlying the proposal. These were provided by the 1996 and 2003 proposals and, in the case of the removal of the 50 tpy exemption, in the 1979 proposal.

With regard to the changes to Ssection VI of Aappendix S, the Agency notes that because it declined to adopt the extensive revisions proposed, the changes are minimal. The additional condition regarding approval by the Administrator is a logical outgrowth of the proposed revisions to Ssection VI, which explained that the Agency's goal was to limit the applicability of Ssection VI to situations where the new source would comply with all of the conditions in Ssection VI, most notably, not interfering with an area's ability to meet its attainment deadline. PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 453 5. Comments on Cchanges to Iidentify NOx as an Oozone Pprecursor in Aattainment and Uunclassifiable Aareas Commenters supported our proposal to amend our PSD regulations to expressly include NOx as an ozone precursor.

We agree with these commenters.

6. Comments on Rremoving the 50 ton Eexemption For comments on removing the 50 ton exemption, see the discussion in the 1980 final rules at 45 FR 52689 90.

D. NSR Iimplementation Uunder the 8 hour ozone NAAQS As promulgated at 69 FR 23858, the designation and classifications for the 8 hour NAAQS became effective June 15, 2004. The transition to NSR under the 8 hour NAAQS raises multiple implementation questions, which are discussed below. We intend to address additional issues in the future.

1. Areas Tthat Hhave Nnever Bbeen Nnonattainment for Oozone If an area has never been nonattainment for ozone and is nonattainment for the 8 hour ozone NAAQS, it became subject to nonattainment major NSR under the 8 hour standard on June 15, 2004. Permits for new or modified major stationary sources in such areas issued on or after June 15, 2004 must reflect NSR requirements under the 8 hour ozone NAAQS. Some States may already have in place a part D major source PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 454 permitting program applicable to newly designated 8 hour ozone nonattainment areas. For nonattainment areas in States whose SIPs contain a generic requirement to issue part D major source NSR permits in areas designated as nonattainment, the State can continue to issue nonattainment NSR permits for new and modified major stationary sources under the part D NSR SIP on or after June 15, 2004. For a nonattainment area in a State with a SIP that specifically lists the areas in which part D NSR applies, or in an area that currently has no nonattainment plan or otherwise lacks authority to implement NSR for the 8 hour ozone NAAQS through a SIP approved permitting program, there will be an interim period between June 15, 2004 and the date that the State amends its SIP either to list any new nonattainment area( s)

or to include a part D plan. During this interim period,

pursuant to section 52 § 52.24( k), permits for new and modified major stationary sources in such areas must be consistent with the requirements in Aappendix S. Where a State or local agency lacks authority to issue permits consistent with Aappendix S, EPA is the reviewing authority.

Additionally, we note that from June 15, 2004, to June 15, 2005, two designations will be in effect for ozone for newly designated nonattainment areas   an attainment PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 455 designation based on the 1 hour classification and a nonattainment designation based on the 8 hour classification.

Thus, as noted in the proposal, a source triggering major NSR in such areas will be subject to PSD requirements for the 1

hour standard and subject to nonattainment NSR requirements for the 8 hour standard. 20 Generally, nonattainment NSR requirements would supersede PSD requirements because of the more stringent LAER requirement and the requirement to offset new emission increases ( id. at 32870). We believe States could reasonably interpret their SIPs in this manner. We also believe that the obligation to obtain offsets satisfies the requirements for any ambient impacts analysis that might otherwise apply to a source triggering major NSR in an area that is attainment for the 1 hour standard and nonattainment for the 8 hour standard.

States may not issue PSD permits to address major NSR obligations arising from nonattainment classifications. As we stated at 69 FR 23992, PSD permits may not be issued after June 14, 2004, to satisfy permitting obligations under the 8

hour nonattainment designation. We clarify here that States are not precluded from issuing PSD permits based on the 1

hour attainment classifications, but such actions do not PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 456 relieve States or sources from addressing nonattainment NSR obligations based on the 8 hour classification.

2. Areas Tthat Aare Nnonattainment for the 1 hour NAAQS and the 8 hour NAAQS NSRNew source review under the 8 hour NAAQS became effective in 8 hour nonattainment areas on June 15, 2004.

Currently, the 1 hour NAAQS remains in effect. Thus, there is a period of time when major NSR requirements for both the 1 hour and 8 hour NAAQS applies in an area or parts of an area. During this period, different major stationary source thresholds and offset ratios may apply in a given nonattainment area under the 1 hour and 8 hour ozone NAAQS,

due to a change in its classification. Permits issued during this transition period will assure compliance with both programs if the permit requirements are based on the highest classification that applies to the area. If the area's 1

hour classification is higher than its 8 hour classification,

the NSR SIP program under the 1 hour NAAQS will satisfy the requirements of both programs. If the 8 hour classification is higher, then the NSR program under the 8 hour classification will determine the NSR requirements. For example, suppose a source is locating in an area that is now classified as moderate nonattainment under the 8 hour ozone PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 457 NAAQS but was previously classified as a serious ozone nonattainment area under the 1 hour NAAQS. Any permit the State issues during the transition would be based on the 50 tpy major stationary source threshold and at least 1.2: 1 offset ratio that apply to serious ozone nonattainment areas under the 1 hour ozone NAAQS.

Pursuant to 40 CFR 50.9( b), EPA will revoked the 1 hour NAAQS oneffective June 15, 2005 for areas designated for the 8 hour ozone standard effective June 15, 2004. We anticipate that, upon revocation of the 1 hour ozone NAAQS, States will submit requests for approval of SIP revisions removing NSR requirements based on the 1 hour classifications, where such SIP revisions are necessary to achieve this result. At 69 FR 23985, we stated that upon revocation of the 1 hour ozone NAAQS, for any area that was designated nonattainment for the 1 hour ozone NAAQS, the area's implementation plan provisions satisfying sections 172( c)( 5) and 173 ( including provisions satisfying section 182) based on the area's previous 1 hour ozone NAAQS classification are no longer required elements of an approvable implementation plan. We also indicated that a State may request approval of a SIP revision to remove its 1

hour nonattainment NSR program from its SIP. We further stated that we will approve such changes to a State's SIP PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 458 because we have determined based on 110( l) of the ActCAA that such changes will not interfere with any State's ability to reach attainment of the 8 hour standard and will be consistent with RFP.

On June 29, 2004, we received a Petition for Reconsideration from Earthjustice concerning these statements on removing the 1 hour NSR SIP and on the 110( l)

determination related to removing the 1 hour NSR SIP. You can find a copy of this Petition for Reconsideration at http:// www. epa. gov/ ttn/ naaqs/ ozone/ o3imp8hr/ materials. html.

We have granted reconsideration on these two narrow NSR issues in the Phase I1 Ozone Implementation Rule. We will publish a Federal Register Notice concerning this Petition for Reconsideration and will request public comment published a proposed rule on these issues on April 4, 2005 ( 70 FR 17018). We published a final rule on these two issues. We have also agreed to complete the reconsideration process by May 20, 2005, at which time we will announce our final action on these two issues. at [ xxx INSERT CITATION   PUBLICATION EXPECTED MID JULY ]

As we stated at 69 FR 23986 ( Column 1), emission limitations and other requirements in major NSR permits issued under 1 hour NSR programs will continue to be in force PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 459 when the 1 hour NAAQS is revoked. For example, suppose an existing source is located in an area classified as serious nonattainment under the 1 hour ozone NAAQS and has a nonattainment major NSR permit based on its PTE ofpotential to emit 75 tpy VOC. That major NSR permit ( including emission limitations and other requirements) remains in force on and after June 15, 2005 even if the area that the source is located in is now classified moderate nonattainment ( with a major stationary source threshold of 100 tpy) under the 8

hour ozone NAAQS.

3. Part D NSR SIP Ssubmittals Today's final action on the regulations at section 51 § 51.165 establishes the minimum requirements for part D SIPs implementing major NSR under the 8 hour NAAQS. Some States may find it unnecessary to revise their SIPs to implement NSR under the 8 hour NAAQS. This can happen when the approved part D NSR and ozone classification scheme SIP applies to any areas designated as nonattainment under section 107 of the ActCAA or listed in 40 CFR 81.300 et seq.

In States that do not have authority to implement a part D program for the 8 hour NAAQS, a SIP revision for major NSR PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 91 As noted in section V. D. 2 of this paragraphpreamble, we will complete our reconsideration on issues related to NSR SIP submittals and announce our final action by May 20, 2005.

92 CAA Section 182( a)( 2)( C)( i) requires NSR SIPs to meet the 1 hour ozone NAAQS to be submitted within 2 years after the date of the enactment of the 1990 CAA Amendments of the CAA. This requirement has been met by the submission of NSR SIPs due on November 15, 1992, which EPA requested on April 16, 1992 at 57 FR 13499. We have interpreted the twoyear2 year schedule not to apply for the NSR SIPs implementing the 8 hour ozone NAAQS. 460 under the 8 hour NAAQS must be submitted. 91 The revised implementation plan must include requirements to implement the provisions of sections 172( c)( 5) and 173 of the ActCAA based on the area's 8 hour ozone NAAQS classification under 40 CFR part 81, and the provisions of section 51 § 51.165 as amended in today's final action.

States must submit SIP provisions incorporating today's final rules at section 51 § 51.165 no later than June 15, 2007,

which is 3 years after designation. This schedule is consistent with the schedule set forth in CAA Ssections 172( b) and 1109a110( a)( 1). 92 This date facilitates coordination of NSR program changes with the submission of the attainment plan, which is also due within three3 years.

Part D NSR SIPs to implement the 8 hour NAAQS should reflect the requirements of today's final action, as well as the requirements in subpart X of Ppart 51 promulgated on April PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 461 30, 2004 at 69 FR 23951. Before EPA can approve a program into the SIP to implement a nonattainment major NSR program for the 8 hour ozone NAAQS, State and local agency programs implementing part D ( nonattainment NSR permit program in section 51 § 51.165) must include today's changes as minimum program elements. States must also submit SIP provisions incorporating today's final rules at section 51 § 51.166 no later than June 15, 2007.

4. Effective Ddate for Ttoday's Rrequirements All of these changes will take effect in the NSR permitting programs for nonattainment areas codified at Aappendix S of part 51 and section 52 § 52.24 on [ INSERT DATE OF PUBLICATION IN THE FEDERAL REGISTER]. This means that Aappendix S as amended in today's final action will apply on [ INSERT DATE OF PUBLICATION IN THE FEDERAL REGISTER] in any nonattainment area without an approved part D NSR SIP that applies to major sources in the nonattainment area for the nonattainment pollutant. The provisions of section 51 § 51.165 and section 52 § 52.24, as amended in today's final action,

also apply on [ INSERT DATE OF PUBLICATION IN THE FEDERAL REGISTER].

5. Requirements for Ooffsets PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 462 Offsets under CAA Ssection 173 are typically based on emissions reductions achieved through installation of control technology, shutdown of a source, or curtailment of production or operating hours below baseline levels. Offset must meet several requirements set forth in Ssection 173 of the ActCAA, including the following.

:

° Offsets must be obtained by the time the source is to commence operation. [ CAA Ssection 173( a)( 1)( A)].

° Offsets must be consistent with reasonable further progressRFP [ CAA Ssection 173( a)( 1)( A)].

° Offsets must be federally enforceable before permit issuance. [ CAA Ssection 173( a)].

° Offsets must be in effect and enforceable by the time a new or modified source commences operation. [ CAA Ssection 173( c)( 1)( B)] .

° Emissions reductions that are otherwise required under the ActCAA cannot be creditable as offsets. [ CAA Ssection 173( c)( 2)] .

° Offsets must come from a source in the same nonattainment area, unless it comes from an area that has an equal or higher nonattainment classification and the emissions from such other area contribute to a PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 463 violation of the national in the nonattainment area in which the source is located. [ CAA Ssection 173( c)( 1)] .

If an emission reduction credit ( including an emission reduction credit generated from a shutdown or curtailment)

has been used to meet ROP or RFP milestones, it is not available for use as an offset or in netting. This is because Ssection 173( c)( 2) of the ActCAA prohibits use of emission reductions as offsets where the reductions are " otherwise required by the Act." Thus, reductions that are used to meet fFederal requirements, including SIP approved ROP and RFP obligations under CAA Ssection 182, are not creditable. Where emissions reductions pre dating 2002 have not been used to meet ROP and RFP obligations, or other fFederal requirements, CAA Ssection 173( c)( 2) does not prohibit their use. Thus, EPA believes that such credits may be used as offsets consistent with the ActCAA. The EPA encourages States to allow sources to use pre 2002 banked emissions reductions credits ( that is, those that were generated before January 1, 2002, which is the first day of the emissions inventory base year for the base year inventory used to develop the attainment demonstration) for offsetting purposes. States may do so as long as the banked credits meet all other offset creditability criteria and such credits PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 464 are included by States as growth in developing the attainment demonstration as discussed elsewhere in this preamble. See also 57 FR 13508 09. The credits must be certified and approved for such purposes.

Additional requirements apply to credits generated from shutdowns or curtailments. Pursuant to today's final rule,

States may revise their SIPs to remove the requirement for an approved attainment demonstration as a condition of using shutdown/ curtailment credits pre dating the new source application. Under the revised rule, emissions from the shutdown/ curtailed source can be creditable if they are included in the projected emissions inventory used to develop the attainment demonstration. For emissions reductions from shutdowns or curtailments to be creditable for offset purposes, the State must also certify that emissions from the shutdown or curtailed source have not been used and are not necessary to meet any other requirement under the ActCAA,

including RFP or ROP.

Use of emission reduction credits banked before the base year ( that is, those generated before January 1, 2002) for netting continues to be available to the extent allowed under State rules. However, because these emission reduction credits represent emissions that are not included in the 2002 PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 base year inventory, States should consider net emission increases occurring on or after January 1, 2002 as growth even though, for applicability purposes, the source does not have a significant net emissions increase.

VI. Final Rule for RFG.

A. Introduction This portion of the rule addresses what effect the transition to the 8 hour NAAQS will have on certain aspects of the federal reformulated gasoline ( RFG) program. Under the CAA, the RFG requirements apply in certain areas of the country. First, there are nine areas that Congress identified pursuant to section 211( k)( 10)( D) of the CAA as mandatory RFG areas. Second, there are five RFG areas that are mandatory areas based on their reclassification to a severe ozone classification. These areas are typically called " bump up" areas. See CAA section 211( k)( 10)( D),

211( k)( 6), and 211( k)( 5). Finally, there are a number of areas that have voluntarily opt in to the RFG program. The purpose of the RFG program is to improve air quality through the use in certain areas of gasoline that is reformulated to reduce motor vehicle emissions of tropospheric ozone forming compounds and toxics, as set forth in section 211( k)( 1) of the Act. PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 466 B. Background In the Phase 1 Rule, EPA addressed two key issues regarding the transition from the 1 hour NAAQS to the 8 hour NAAQS. First, when will the 1 hour NAAQS no longer apply ( i. e., be " revoked")? Second, what protections are in place to ensure that, once the 1 hour NAAQS is revoked, air quality will not degrade and that progress toward attainment will continue as areas transition from implementing the 1 hour NAAQS to implementing the 8 hour NAAQS?

On the first issue, EPA decided that the 1 hour NAAQS will be revoked in full, including the associated designations and classifications, one year following the effective date of the designations for the 8 hour NAAQS.

Most areas were designated effective June 15, 2004, and for those areas the 1 hour NAAQS and the related designation and classification will no longer apply as of June 15, 2005.

On the second issue, the anti backsliding portion of the Phase 1 rule established that all areas designated nonattainment for the 8 hour ozone NAAQS, that were designated nonattainment for the 1 hour NAAQS at the time of designation for the 8 hour NAAQS, remain subject to mandatory control measures that applied by virtue of the area's classification for the 1 hour NAAQS. These control measures PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 93 In the Phase 1 Rule, EPA defined applicable requirements as those control measures in place as of the date of signature of the Phase 1 rule, ( ie., April 15, 2004). The EPA recently reconsidered this issue and changed this date to the effective date of the 8 hour designations  for most areas this would be June 15, 2004. ( 70 FR 30596)

94 While the Phase 1 Rule also addressed the transition to the 8 hour NAAQS for areas recently designated as attainment for the 8 hour NAAQS, all relevant RFG areas are designated as 8 hour nonattainment areas. ( 69 FR 23858)

467 are called " applicable requirements." 93 EPA also decided that areas designated nonattainment for the 8 hour NAAQS,

that were designated attainment subject to a Section 175A maintenance for the 1 hour NAAQS at the time of designation for the 8 hour NAAQS, must continue to implement all applicable requirements that have been approved into the SIP. 94 In the June 2003 proposal, EPA identified federal RFG as an applicable requirement. ( 68 FR 32867) In the final rule,

however, EPA did not include RFG in the list of applicable requirements. The EPA instead clarified that RFG is required under a Federal program, and thus differs significantly from the other programs on the list of applicable requirements,

which are developed and adopted by States for inclusion in the SIP. The EPA recognized that various issues exist regarding the scope and applicability of the RFG program PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 468 during and after implementation of the 8 hour NAAQS that need further clarification. The EPA stated that we were still considering how to treat RFG and that we would address these issues in an action separate from the Phase 1 rule. ( 69 FR 23973) Thus, EPA did not include RFG in the list of applicable requirements in the Phase 1 Rule, and EPA made no decision at that time concerning RFG treatment in the transition to the 8 hour NAAQS.

C. What action is EPA taking?

As discussed in more detail below, EPA is clarifying today that the nine original mandatory RFG areas, as well as most other areas that have become mandatory RFG areas by being " bumped up" to a severe classification, will continue to be required to use RFG at least until they are redesignated to attainment for the 8 hour NAAQS. The EPA is not deciding at this time what will happen when the original nine areas and the bump up areas covered by this rule are redesignated to attainment for the 8 hour NAAQS. The EPA is also not deciding at this time what RFG requirements apply for any bump up areas that are redesignated to attainment for the 1 hour NAAQS before the 1 hour NAAQS is revoked. The only such area that was redesignated to attainment prior to revocation of the 1 hour NAAQS is Atlanta, Georgia. That PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 469 issue will be addressed in an action separate from this final rule.

The RFG areas that opted into the program will continue to be RFG areas unless they opt out pursuant to EPA's opt out regulations. The transition to the 8 hour NAAQS does not change the terms and conditions that apply to opting out of the RFG program. Likewise, EPA's current rules on opting in to RFG will apply in the same manner under the 8 hour NAAQS as under the 1 hour NAAQS  i. e., 8 hour nonattainment areas that are classified as marginal or above under Subpart 2 will be able to opt in to the RFG program. D. Why is EPA taking this action?

1. RFG mandatory areas Under section 211( k)( 5), RFG is required in any " covered area." The term " covered area" is defined in Section 211( k)( 10)( D) as:

[ t] he 9 ozone nonattainment areas having a 1980 population in excess of 250,000 and having the highest ozone design value during the period 1987 through 1989 shall be " covered areas" for purposes of this subsection. Effective one year after the reclassification of any ozone nonattainment area as a PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 470 severe ozone nonattainment area under section 181( b) of this title, such severe area shall also be a " covered area" for purposes of this subsection.

In the June 2003 proposed Phase 1 rule, EPA proposed that RFG be considered an applicable requirement and treated like the various mandatory control obligations that States remained obligated to adopt and implement after revocation of the 1 hour NAAQS. Under that proposal, the nine original mandatory areas and all bump up areas would have continued to be covered areas after revocation of the 1 hour NAAQS. For the reasons discussed below, EPA is adopting this basic approach for the nine original mandatory areas as well as those bump up areas covered by this final rule.

( a) Nine original mandatory areas. The first sentence of section 211( k)( 10)( D) identifies certain covered areas by reference to their 1980 population and their 1987 1989 ozone design value. The nine areas that meet these criteria are Los Angeles, San Diego, Hartford, New York, Philadelphia,

Chicago, Baltimore, Houston, and Milwaukee. It is clear that transition to the 8 hour NAAQS does not change the historical facts that define these areas. In addition, all of these areas are designated as nonattainment areas under the 8 hour NAAQS. Thus, they will continue to be " ozone nonattainment PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 471 areas" until they are redesignated to attainment for the 8

hour NAAQS. Revocation of the 1 hour NAAQS and transition to the 8 hour NAAQS does not change the fact that each of these nine mandatory areas will continue to meet the definition of covered area at least until it is redesignated to attainment for the 8 hour NAAQS. As discussed below, EPA is not deciding at this time whether these areas will continue to be covered areas upon redesignation to attainment for the 8 hour NAAQS. The EPA reserves any determination on that issue for a future action.

EPA believes that this is a straightforward and clear application of the plain language of the statute. However,

even if the statutory terms were considered ambiguous on this issue, EPA believes that the same statutory interpretation and policy considerations described below for the " bump up"

areas covered by this final rule apply to the nine mandatory areas and would lead EPA to require continued use of RFG in the nine areas at least until they are redesignated to attainment for the 8 hour NAAQS.

Since EPA regulations at 40 CFR § 80.70 currently define the term " covered area" to include the original nine mandated areas, no change in EPA regulations is needed at PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 472 this time. The EPA will address in a future action what RFG requirements, if any, apply to the original nine RFG covered areas when they are redesignated to attainment for the 8 hour NAAQS.

( b) Bump up areas. The second sentence of section 211( k)( 10)( D) identifies areas that become covered areas because they have been reclassified as a severe area under CAA section 181( b). These are called " bump up" areas. To date, five areas have been reclassified to severe for the 1

hour NAAQS. They became RFG covered areas one year after their reclassification  Baton Rouge, Atlanta, Sacramento,

San Joaquin Valley, and Washington, DC which was already an opt in area.

The areas that are RFG covered areas based on the bumpup provision were designated as ozone nonattainment areas and classified by operation of law at the time of the 1990 CAA amendments, and their bump up to severe occurred by operation of law based on EPA's determination under section 181( b) that the areas failed to attain the 1 hour NAAQS by the applicable attainment date. Thus, their reclassification to severe was not based on a determination that their air quality met the severe area design value. Instead, reclassification was based on their failure to meet the applicable attainment PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 473 date. The bump up to severe has two effects  a later attainment date is set for the area, and a variety of additional control measures become mandatory for the area.

The federal RFG program becomes a mandatory control measure in an area one year after it is bumped up to a severe classification.

There are two ways that a bump up area classified as severe could lose its severe classification. First, it could do so through redesignation to attainment for the 1

hour NAAQS. ( This is no longer an option for areas where the 1 hour NAAQS was revoked on June 15, 2005.) Second, since the 1 hour NAAQS is revoked, a bump up area will no longer be classified as severe under the 1 hour NAAQS and may have a lower classification ( i. e., subpart 1, marginal, moderate or serious) for the 8 hour NAAQS. This rule only addresses the second situation.

The bump up areas in this second situation are all designated as 8 hour ozone nonattainment areas, with classifications under the 8 hour NAAQS that are a lower classification than severe. This raises the issue of whether the bump up areas that lose their severe classification through revocation of the 1 hour NAAQS should continue to be PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 95 While this final rule only addresses bump up areas that lose their severe classification based upon revocation of the 1 hour NAAQS, the ambiguity in section 211( k)( 10)( D) extends to all bump up areas, including those not covered by this final rule. As noted above, EPA intends to address and resolve this ambiguity for any bump up areas not covered by this rule in an action separate from this final rule. 474 covered areas once the 1 hour NAAQS and the areas' related severe classifications are revoked.

EPA believes that section 211( k)( 10)( D) is ambiguous on the issue of whether a bump up area continues to be a covered area when it is no longer classified as severe. The text of the provision could be read to set the defining criteria as the occurrence of reclassification to severe, a historical fact that does not change based on subsequent changes in classification. It could also be read as identifying areas that are reclassified to severe, but as leaving unresolved what happens when they are no longer so classified. Given this ambiguity, EPA has discretion to determine whether section 211( k)( 10)( D) authorizes removal of a bump up area from the RFG program when it is no longer classified as severe, and to set appropriate criteria for such removal. 95 For a bump up area covered by this rule, it is instructive to consider what would happen if EPA had never revised the 1 hour NAAQS. In that case, the area would continue to be a covered area at least until it was PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 475 redesignated to attainment for the 1 hour NAAQS. While section 211( k)( 10)( D) does not directly address whether a bump up area would continue to be a covered area after redesignation, it is clear that if EPA had never revised the 1 hour NAAQS, the area would continue to be a covered area at least as long as it was a severe area, and it would be severe area as long as it was still designated as an ozone nonattainment area.

EPA does not believe that Congress would have intended that removal of the severe classification based solely on revocation of the less protective 1 hour NAAQS should result in backsliding of the RFG requirement. For example, as noted above, if EPA had not adopted a more protective 8 hour NAAQS,

with the related revocation of the 1 hour NAAQS and removal of the severe classification, then the bump up areas covered by this rule would remain covered areas at least until they were redesignated to 1 hour attainment, at which point they would no longer be designated as ozone nonattainment areas.

Here, the removal of the severe classification is through revocation of the 1 hour NAAQS, not through redesignation to 1 hour attainment. These bump up areas are still designated as ozone nonattainment areas. EPA believes the removal of the severe classification for these areas as a result of PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 476 revocation of the 1 hour standard should not lead to removal of the RFG requirement. The EPA believes the RFG requirement should continue beyond revocation of the 1 hour NAAQS, and it should continue at least until the areas are redesignated to attainment for the 8 hour NAAQS.

This is consistent with the approach taken in the Phase 1 Rule for the mandatory obligations that EPA identified there as " applicable requirements." In that rule, EPA determined that a number of provisions of the CAA evidence Congress' intent that certain obligations that applied to an area by virtue of the area's classification for the 1 hour NAAQS should continue to apply despite EPA's determination the 1 hour NAAQS is no longer necessary to protect public health. While some of these various statutory provisions do not have direct bearing on federal RFG and section 211( k),

the issues are closely analogous. For example, the inclusion of a bump up area in the RFG program is integrally tied to the subpart 2 provisions that establish the original classification and attainment date for an area and its later reclassification as severe under section 181( b). The Supreme Court cautioned in Whitman v. American Trucking Assn., 531 U. S. 457 ( 2001), against EPA making subpart 2 " abruptly obsolete." Although the RFG requirement itself is not set PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 477 forth in subpart 2, the requirement to use it in severe bumpup areas is tied directly to the classifications that arise by operation of subpart 2. Thus, it would appear that the Supreme Court's caution should be as relevant for RFG bump up areas as it is for the subpart 2 control obligations. For further discussion of the reasoning behind antibacksliding provisions in the Phase 1 Rule, see 69 FR 23951, 23972. The reasoning presented there also supports EPA's interpretation of section 211( k)( 10)( D) regarding RFG requirements for bumpup areas covered by today's rule.

One issue addressed in the Phase 1 Rule involved setting the trigger date for determining what 1 hour SIP related requirements would continue as mandatory " applicable requirements" after revocation of the 1 hour NAAQS. The EPA considered three possible trigger dates for the Phase 1 Rule  the date of signature of the Phase 1 Rule, the effective date of the 8 hour nonattainment designation, and the date of revocation of the 1 hour NAAQS. See fn. 1 above. For purposes of this final rule, it is not necessary to decide on a similar date for determining the continued applicability of RFG for these bump up areas. Under all potential trigger date options, RFG would be a requirement on the trigger date for the bump up areas covered by this rule, as they would all PREDECISIONAL DRAFT   DO NOT QUOTE, CITE OR DISTRIBUTE draft 7/ 8/ 05 478 be classified as severe areas on any of the trigger dates that were considered.

Based on the above, EPA has determined that bump up areas that lose their severe classification based solely on revocation of the 1 hour NAAQS should remain RFG covered areas at least until they are redesignated to attainment for the 8 hour NAAQS.