base the initial Group 3 bank target amount on the sum of states'
variability limits for the 2022 control period rather than the 2021
control period.
    EPA also views creation of the larger initial Group 3 bank
suggested by the commenter as unnecessary to ensure compliance is
achievable. After consideration of the prorating adjustment discussed
earlier in this section, using the 2021 variability limits instead of
the 2022 variability limits as the basis for determining the size of
the initial Group 3 bank would increase the size of the bank by less
than 600 allowances. In the very unlikely event that Group 3 sources
are unable to reduce their emissions in the 2021 control period
sufficiently to meet their compliance obligations by holding the Group
3 allowances allocated from the state emission budgets and from the
initial Group 3 bank, sources would be able to obtain well over 600
additional Group 3 allowances for 2021 compliance by electing to use
the safety valve mechanism discussed in section VII.C.4.c.
    Comment: Some commenters stated that under the proposed conversion
procedures, sources would not know the quantities of Group 3 allowances
they would receive in sufficient time to rely on that information for
purposes of planning their compliance activities.
    Response: EPA acknowledges that the large degree of flexibility
offered to holders of Group 2 allowances under the proposed rule
created uncertainty regarding one aspect of the process for creating
the initial Group 3 bank--specifically, the conversion ratio that would
be used to create the initial Group 3 bank. As discussed above, the
final rule modifies the formula for the conversion ratio so that the
value of the ratio (i.e., 8:1 based on 2017-2020 data) is knowable as
of the date of this final rule. In the final rule EPA has also advanced
the schedule for carrying out the conversion process so that the
allowances in the initial Group 3 bank will be recorded in accounts by
120 days after publication of the final rule in the Federal Register,
or roughly two months before the end of the 2021 ozone season.
    However, EPA disagrees that uncertainty regarding either the
conversion ratio or the amount of Group 3 allowances received by any
individual source from the initial bank has any meaningful effect on
sources' ability to plan their compliance activities. As an initial
matter, under a trading program, the most cost-effective compliance
strategy for a source is generally to reduce its emissions if it
believes it can do so for less than the market price of an allowance
and then to purchase allowances as needed to cover its remaining
emissions or to sell surplus allowances to other sources that cannot
reduce emissions as cheaply. Because allowance prices under any trading
program are uncertain, sources must always make these compliance
planning decisions based on their best allowance price projections
while recognizing the existence of price uncertainty. For purposes of
forecasting future allowance prices under the Group 3 trading program,
the only relevant question concerning the initial Group 3 bank is the
total quantity of allowances that will be created in that bank, because
that total amount will factor into the market balance between the
overall supply of allowances and the overall demand for allowances.
EPA's proposed rule provided essentially complete information about the
total quantity of allowances that would be created in the initial Group
3 bank, and the final rule closely follows the proposed rule on this
point. In short, nothing about EPA's proposed or final approach to
creation of the initial Group 3 bank increased the uncertainty about
future Group 3 allowance prices beyond the degree of uncertainty that
is inherent in trading program-based approaches to environmental
regulation.
    Further, even if a particular source decides to not to avail itself
of the flexibility provided by a trading program and instead chooses to
plan its compliance strategy based on the number of allowances it
expects to receive as zero-cost allocations, the quantity of allowances
that a source might receive from the initial Group 3 bank would
necessarily play a relatively modest role in such a strategy. Of the
total allowances available for 2021 compliance that will be allocated
to sources from the state emission budgets and from the initial Group 3
bank, more than 80 percent will come from the state emission budgets,
and for subsequent control periods the proportion that will come from
the state emission budgets will be 100 percent. In the proposed rule,
EPA included extensive information on the proposed unit-level
allocations from the proposed state emission budgets, including both a
complete description of the allocation methodology and spreadsheets
showing the allocations to each individual unit that would result from
applying that methodology to the proposed state emission budgets. In
the final rule, the only change to the allocation methodology is that,
because certain units with scheduled future retirements will no longer
receive allocations starting with the 2022, 2023, or 2024 control
period when their scheduled retirements are taken into account for
budget-setting purposes, the remaining units in those states that
continue to operate will receive larger shares of the respective state
budgets in those later control periods. It was clear from the proposed
rule that any allocations of allowances from the initial Group 3 bank
would be considerably smaller and therefore less relevant for an
allocation-based compliance planning process than the allocations of
allowances from the state emission budgets. This is consistent with the
intended purpose of the initial Group 3 bank, which is to accommodate
year-to-year variability in operations and emissions but not to allow
for collective planned emissions to exceed the state emission budgets.
c. Opportunity To Obtain Additional Group 3 Allowances Through Further
Conversion of Group 2 Allowances (``Safety Valve'' Mechanism)
    As discussed in section VI.B.1, in order to further ensure
allowance market liquidity and compliance flexibility, in this final
rule EPA is creating a ``safety valve'' mechanism that will allow Group
3 sources to access additional Group 3 allowances for the 2021 control
period. The new Group 3 allowances would be created in exchange for
banked 2017-2020 Group 2 allowances that have not already been
exchanged for Group 3 allowances as part of the process of creating the
initial Group 3 allowance bank described in section VII.C.4.b. The
safety valve mechanism will be available for the month of February
2022, which falls approximately midway between October 30, 2021 (the
deadline for reporting of emissions for the last three months of the
2021 control period under the Group 3 trading program) and June 1, 2022
(the deadline by which Group 3 sources must hold Group 3 allowances in
their compliance accounts sufficient to cover their emissions during
the 2021 control period). The conversion ratio used in the safety valve
mechanism will be 18:1--in other words, 18 banked 2017-2020 Group 2
allowances would have to

be surrendered in exchange for each Group 3 allowance issued through
this mechanism. No Group 2 allowances will be exchanged for Group 3
allowances under the safety valve mechanism except as specifically
requested by the designated representative for a Group 3 source.
    EPA is establishing the safety valve mechanism and has designed its
features to be responsive to comments on the proposed rule. Even
without the safety valve mechanism, EPA considers it extremely unlikely
that any source would be unable to achieve compliance with the Group 3
trading program's requirements. Sources have a flexible combination of
options to achieve compliance, including reducing emission at the
source, using the allowances allocated to the source from the
applicable state's emissions budget and from the initial Group 3 bank,
and purchasing allowances from other sources that have made emission
reductions. However, given the short time-frame before implementation
of the Group 3 trading program in the 2021 ozone season, inclusion of a
safety valve mechanism will increase sources' confidence in their
ability to comply. EPA views this as an enhancement to the trading
program consistent with mechanisms included in other emissions trading
programs, as long as the mechanism is implemented in a manner that does
not weaken the ability of the trading program to address Group 3
states' obligations under the good neighbor provision with respect to
the 2008 ozone NAAQS. The assurance that the safety valve mechanism
does not undermine the purpose of the trading program is provided by
the use of the 18:1 conversion ratio.
    As discussed in section VII.C.4.b., EPA received comments
expressing widely varying perspectives concerning whether and, if so,
what quantities of Group 3 allowances should be made available for
compliance flexibility beyond the allowances allocated from state
budgets. Some industry commenters advocated for a mechanism that would
allow them to purchase additional allowances at a price of $1,600 per
allowance, consistent with EPA's estimate of the cost per ton of
emission reductions achievable through optimization of installed SCR
controls. In contrast, some commenters from downwind states advocated
for no issuance of any Group 3 allowances beyond the state emission
budgets, but one of these commenters also suggested that if any such
Group 3 allowances were issued through the exchange of banked Group 2
allowances, the conversion ratio should reflect the relation of the
estimated cost of the control strategy reflected in the Group 3 budgets
to the market price of Group 2 allowances. The commenter suggested a
conversion ratio of 11:1 based on the ratio of the same estimated
$1,600 cost per ton of emission reductions available from SCR
optimization to an estimated average market price for Group 2
allowances of $137 per Group 2 allowance during 2019 and 2020.\203\
After consideration of these comments, EPA is setting the conversion
ratio for the safety valve mechanism at 18:1, consistent with the
principles underlying the recommendations of the commenters but using
updated data. For the numerator of the conversion ratio, EPA is using
$1,800 per ton, based on the estimated cost of the emission reductions
available from SNCR optimization that are reflected in the final state
emissions budgets. For the denominator of the updated ratio, EPA is
using $100 per ton, reflecting an estimated average market price over
the period from March 2020 through January 2021 for Group 2 allowances
allocated for the 2020 control period.\204\ EPA finds, first, that this
conversion ratio is high enough to avoid interfering with incentives
for sources to reduce emissions through the use of the control
technologies identified as appropriate for establishing states'
emissions budgets in this action, and second, that it is low enough to
provide additional flexibility that, in extreme circumstances, could
facilitate compliance by some sources. Based on the total quantity of
banked 2017-2020 Group 2 allowances expected to remain after completion
of the deductions necessary for Group 2 trading program compliance for
the 2020 control period and the deductions made in the process of
creating the initial Group 3 bank, EPA estimates that the maximum
quantity of Group 3 allowances that could be created through the safety
valve mechanism will be in the range of 7,000 to 9,000 Group 3
allowances. This degree of conversion of Group 2 allowances would be
highly unlikely to occur, and indeed, EPA considers it more likely that
no source will need to make use of the safety valve mechanism.
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    \203\ See Comments of Delaware Department of Natural Resources
and Environmental Control (EPA-HQ-OAR-2020-0272-0122) at 14-15.
    \204\ According to price index values developed by SNL Energy
and reported by S&P Global Market Intelligence, prices for 2020
Group 2 allowances ranged between $58 and $75 from March 2020 until
mid-November 2020. The reported price index values then rose to $200
by year-end 2020 and to $475 for part of January 2021. The average
of the reported daily price index values from March 2, 2020 (the
first day of the price index series for Group 2 allowances allocated
for the 2020 control period) through January 30, 2021 is $105, which
EPA has rounded to $100 for purposes of computing the safety valve
mechanism conversion ratio.
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    Under the final regulations, any use of the safety valve mechanism
will be at the initiative of the designated representatives of Group 3
sources. Throughout the month of February 2022, EPA will accept
requests from designated representatives for allocations of additional
Group 3 allowances under the safety valve mechanism. It will be the
responsibility of the Group 3 designated representatives to obtain any
Group 2 allowances needed for this purpose, either by using any 2017-
2020 Group 2 allowances remaining in the Group 3 source's compliance
account after the initial Group 3 bank conversion process, transferring
2017-2020 Group 2 allowances held in the account of a Group 2 source
under the control of the same owners and operators, or purchasing 2017-
2020 Group 2 allowances from third parties. Holders of Group 2
allowances are not obligated to sell or transfer their allowances to
effectuate such conversions if they prefer to retain such allowances
for use in the Group 2 trading program.\205\ As soon as practicable on
or after March 1, 2022, if a request was received from the designated
representative for a particular Group 3 source, EPA will deduct 2017-
2020 Group 2 allowances in sets of 18 from the source's compliance
account on a first-in, first-out basis up to the maximum number of sets
of 2017-2020 Group 2 allowances available in the account. For each set
of 2017-2020 Group 2 allowances deducted from a Group 3 source's
compliance account, EPA will record one Group 3 allowance in the
account.
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    \205\ EPA sees no reason for concern that the creation of the
safety valve mechanism for the Group 3 trading program, based on
conversion of Group 2 allowances to Group 3 allowances, would
adversely impact sources that will continue to participate in the
Group 2 trading program. In both the 2019 and 2020 control periods,
NOX emissions from the set of states that will continue
to participate in the Group 2 trading program were at least 15
percent below the sum of the emission budgets for those states,
indicating that continued compliance with the Group 2 trading
program's requirements is readily achievable even before
consideration of the existing bank of Group 2 allowances. In
addition, EPA expects that few if any banked Group 2 allowances will
be removed from the Group 2 trading program in order to create
additional Group 3 allowances through the safety valve mechanism
because it is extremely likely that Group 3 sources will be able to
fully comply with the Group 3 trading program's requirements by
reducing emissions, using allowances allocated from the Group 3
state emission budgets and from the initial Group 3 allowance bank,
and trading with other Group 3 sources.

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d. Recall of Group 2 Allowances Allocated for Control Periods After
2020
    To maintain the previously established levels of stringency of the
Group 2 trading program for the states and sources that remain subject
to that program under this action, EPA is recalling CSAPR
NOX Ozone Season Group 2 allowances equivalent in amount and
usability to all vintage year 2021-2024 CSAPR NOX Ozone
Season Group 2 allowances previously allocated to sources in Group 3
states and recorded in the sources' compliance accounts. Consistent
with the proposed rule, the recall provisions established in this final
rule apply to all sources in Group 3 states in whose compliance
accounts CSAPR NOX Ozone Season Group 2 allowances for a
control period from 2021 through 2024 were recorded, including sources
where some or all units have permanently retired or where the
previously recorded 2021-2024 allowances have been transferred out of
the compliance account.\206\ However, in response to comments discussed
at the end of this section, and as further detailed below, the final
rule provides a more flexible compliance schedule intended to
accommodate any sources that have already transferred the previously
recorded 2021-2024 allowances out of their compliance accounts and
provides greater flexibility as to the vintage years of Group 2
allowances that sources may surrender to achieve compliance. As
requested in comments, the final rule also clarifies how the recall
provisions apply in instances where a source and its allowances have
been transferred to different parties and adds more specificity
regarding the procedures that EPA will follow to implement the recall.
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    \206\ EPA also proposed to recall Group 2 allowances equivalent
to all 2021-2024 Group 2 allowances that were allocated to non-
source entities in Group 3 states and recorded in the entities'
general accounts. This portion of the proposed rule is not being
finalized because EPA has determined that no such allocations of
2021-2024 Group 2 allowances to any non-source entity in a Group 3
state have been recorded.
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    Under the Group 2 trading program regulations, each Group 2
allowance is a ``limited authorization to emit one ton of
NOX during the control period in one year,'' where the
relevant limitations include the EPA Administrator's authority ``to
terminate or limit the use and duration of such authorization to the
extent the Administrator determines is necessary or appropriate to
implement any provision of the Clean Air Act.'' 40 CFR
97.806(c)(6)(ii). In this action, the Administrator is determining
that, in order to effectively implement the Group 2 trading program as
a compliance mechanism through which states not subject to the Group 3
trading program may continue to meet their obligations under CAA
section 110(a)(2)(D)(i)(I) with regard to the 2008 ozone NAAQS, it is
necessary to limit the use of Group 2 allowances equivalent in quantity
and usability to all Group 2 allowances previously allocated for the
2021-2024 control periods and recorded in the compliance accounts of
sources in Group 3 states. The Group 2 allowances that have already
been allocated to sources in Group 3 states for the 2021-2024 control
periods and recorded in the sources' compliance accounts represent more
than half of the total quantity of Group 2 allowances that have been
allocated and recorded for the 2021-2024 control periods. Because
allowances can be freely traded, if the use of the 2021-2024 Group 2
allowances previously recorded in Group 3 sources' compliance accounts
(or equivalent Group 2 allowances) were not limited, the effect would
be the same as if EPA had issued to sources in the states that will
remain covered by the Group 2 trading program a quantity of allowances
available for compliance under the 2021-2024 control periods more than
double the levels that EPA determined to be appropriate emissions
budgets for these states in the CSAPR Update. Through the use of banked
allowances, the excess Group 2 allowances would affect compliance under
the Group 2 trading program in control periods after 2024 as well.
Continued implementation of the Group 2 trading program at levels of
stringency consistent with the levels contemplated under the CSAPR
Update therefore requires that EPA limit the use of the excess
allowances, as EPA is doing in this final rule.
    In the recall provisions finalized in this action, limitations on
the use of the excess 2021-2024 Group 2 allowances are being
implemented through requirements to surrender, for each 2021-2024 Group
2 allowance recorded in a Group 3 source's compliance account, one
Group 2 allowance of equivalent usability under the Group 2 trading
program. The surrender requirements apply to the owners and operators
of the Group 3 sources in whose compliance account the excess 2021-2024
Group 2 allowances were initially recorded. In general, each source's
current owners and operators will be required to comply with the
surrender requirements for the source by ensuring that sufficient
allowances to complete the deductions are available in the source's
compliance account by one of two possible deadlines discussed below.
However, an exception is provided if it is demonstrated to EPA's
satisfaction that a source's current owners and operators obtained
ownership and operational control of the source in a transaction that
did not include rights to direct the use and transfer of some or all of
the 2021-2024 Group 2 allowances allocated and recorded (either before
or after that transaction) in the source's compliance account. The
final rule provides that in such a circumstance, with respect to the
2021-2024 Group 2 allowances for which rights were not included in the
transaction, the surrender requirements apply to the most recent former
owners and operators of the source for which such a demonstration is
not made. Because in this situation a source's former owners and
operators might lack the ability to access the source's compliance
account for purposes of complying with the surrender requirements, the
former owners and operators will instead be allowed to meet the
surrender requirements with Group 2 allowances held in a general
account.\207\
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    \207\ EPA is currently unaware of any source that would need to
use this flexibility but, in response to comments, has included the
option in the final rule to address the theoretical possibility of
such a situation.
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    To provide as much flexibility as possible consistent with the need
to limit the use of the excess Group 2 allowances, for each 2021-2024
Group 2 allowance recorded in a Group 3 source's compliance account,
EPA will accept the surrender of either the same specific 2021-2024
Group 2 allowance or any other Group 2 allowance with equivalent (or
greater) usability under the Group 2 trading program. Thus, a surrender
requirement with regard to a Group 2 allowance allocated for the 2021
control period may be met through the surrender of any Group 2
allowance allocated for the 2021 control period or the control period
in any earlier year--in other words, any 2017-2021 Group 2
allowance.\208\ Similarly, the surrender requirement with regard to a
2022 Group 2 allowance, a 2023 Group 2 allowance, or a 2024 Group 2
allowance may be met through the surrender of any 2017-2022 Group 2
allowance, any 2017-2023 Group 2 allowance, or any 2017-2024 Group 2
allowance, respectively.
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    \208\ The first control period for the Group 2 trading program
was in 2017.
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    Owners and operators subject to the surrender requirements can
choose from two possible deadlines for meeting the requirements. The
first deadline will be July 14, 2021. As soon as practicable or

after this date, EPA will make a first attempt to complete the
deductions of Group 2 allowances required for each Group 3 source from
the source's compliance account. EPA will deduct Group 2 allowances
first to address any surrender requirements for the 2021 control
period, then to address any surrender requirements for the 2022, 2023,
and 2024 control periods in turn. When deducting Group 2 allowances to
address the surrender requirements for each control period, EPA will
first deduct allowances allocated for that control period and then will
deduct allowances allocated for each successively earlier control
period. This order of deductions is intended to ensure that whatever
Group 2 allowances are available in the account are applied to the
surrender requirements in a manner that both maximizes the extent to
which all of the source's surrender requirements will be met and also
ensures that any Group 2 allowances left in the source's compliance
account after completion of all required deductions will be the
earliest allocated, and therefore most useful, Group 2 allowances
possible. Among the Group 2 allowances allocated for a given control
period, EPA will first deduct allowances that were initially recorded
in that account, in the order of recordation, and will then deduct
allowances that were transferred into that account after having been
initially recorded in some other account, in the order of recordation.
    Following the first attempt to deduct Group 2 allowances to address
Group 3 sources' surrender requirements, EPA will send a notification
to the designated representative for each such source (as well as any
alternate designated representative) indicating whether all required
deductions were completed and, if not, the additional amounts of Group
2 allowances usable in the 2021, 2022, 2023, and/or 2024 control
periods that must be held in the appropriate account by the second
surrender deadline of September 15, 2021. Each notification will be
sent to the email addresses most recently provided to EPA for the
recipients and will include information on how to contact EPA with any
questions. Consistent with the proposed rule, the final rule provides
that no allocations of Group 3 allowances will be recorded in a
source's compliance account until all the source's surrender
requirements with regard to 2021-2024 Group 2 allowances have been met.
For this reason, the principal consequence to a source of failure to
fully comply with the surrender requirements by the July 14, 2021
surrender deadline is that any Group 3 allowances allocated to the
units at the source for the 2021 and 2022 control periods that would
otherwise have been recorded in the source's compliance account by July
29, 2021 will not be recorded as of that recordation date.
    If all surrender requirements of 2021-2024 Group 2 allowances for a
source have not been met in EPA's first attempt, EPA will make a second
attempt to complete the required deductions from the source's
compliance account (or from a specified general account, in the limited
circumstance noted above) as soon as practicable on or after September
15, 2021. The order in which Group 2 allowances will be deducted will
be the same as described above for the first attempt.
    If the second attempt to deduct Group 2 allowances to meet the
surrender requirements through deductions from the source's compliance
account (or from a specified general account) is unsuccessful for a
given source, the final regulations provide that as soon as practicable
on or after November 15, 2021, to the extent necessary to address the
unsatisfied surrender requirements for the source, EPA will deduct the
2021-2024 Group 2 allowances that were initially recorded in the
source's compliance account from whatever accounts the allowances are
held in as of the date of the deduction, except for any allowances
where, as of January 31, 2021, no person with an ownership interest in
the allowances was an owner or operator of the source, was a direct or
indirect parent or subsidiary of an owner or operator of the source, or
was directly or indirectly under common ownership with an owner or
operator of the source. Although this consequence of a source's failure
to hold the allowances necessary to comply with the surrender
requirements in the source's compliance account (or a specified general
account) by the surrender deadline was not expressly stated in the
recall provisions in the proposed rule, the provision merely makes
explicit a remedy for a source's noncompliance that is inherent in
EPA's existing authority under 40 CFR 97.806(c)(6)(ii) to limit the use
of any Group 2 allowance as necessary or appropriate to address the
requirements of CAA section 110(a)(2)(d)(i)(I). Before making any
deduction under this provision, EPA will send a notification to the
authorized account representative for the account in which the
allowance is held and will provide an opportunity for submission of
objections concerning the data upon which EPA is relying. In EPA's
view, this provision does not unduly interfere with the legitimate
expectations of participants in the allowance markets because the
provision would not be invoked in the case of any allowance that was
transferred to an independent party in an arms-length transaction
before EPA's intent to recall 2021-2024 Group 2 allowances became
widely known. The provision would apply only to a Group 2 allowance
that, as of January 31, 2021, was still controlled either by the owners
and operators of the source in whose compliance account it was
initially recorded or by an entity affiliated with such an owner or
operator. EPA believes that by January 31, 2021, which was three months
after publication of the proposed rule for this rulemaking in the
Federal Register, all market participants had ample opportunity to
become informed of the proposed rule provisions to recall 2021-2024
Group 2 allowances recorded in Group 3 sources' compliance
accounts.\209\
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    \209\ Even before publication of the proposed rule, EPA posted
information on its websites to notify market participants that a
pending rulemaking could have consequences for the value and
usability of Group 2 allowances. The posted locations included the
electronic portal that authorized account representatives use to
enter allowance transfers for recordation by EPA in the Allowance
Management System. Additionally, EPA emailed a notice identifying
the possibility of such consequences to the representatives for all
Allowance Management System accounts.
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    The final rule includes the proposed provision under which failure
of a source's owners and operators to comply with the surrender
requirements is subject to enforcement as a violation of the Clean Air
Act, with each allowance and each day of the control period
constituting a separate violation.
    To eliminate any possible uncertainty regarding the amounts of
Group 2 allowances allocated for the 2021-2024 control periods (or
earlier control periods) that the owners and operators of each Group 3
source must surrender under the final rule's recall provisions, EPA has
prepared a list of the sources in Group 3 states in whose compliance
accounts allocations of 2021-2024 Group 2 allowances were recorded with
the amounts of the allocations recorded in each such compliance account
for each control period from 2021 through 2024. An additional list
shows, for each Group 3 source, the specific Group 2 allowances
(batched by serial number) allocated for each control period and
recorded in the source's compliance account and indicates whether, as
of January 31, 2021, that batch of allowances was held in the source's
compliance account, in an account believed to be partially or fully

controlled by a related party (i.e., an owner or operator of the source
or an affiliate of an owner or operator of the source), or in an
account believed to be fully controlled by independent parties. The
lists are in a spreadsheet entitled ``Recall of CSAPR NOX
Ozone Season Group 2 Allowances'', available in the docket for this
action. After the first and second surrender deadlines, EPA intends to
update the lists to indicate for each Group 3 source whether or not the
surrender requirements for the source under the recall provisions have
been fully satisfied. EPA will post the updated lists on a publicly
accessible website to ensure that all market participants have the
ability to determine which specific 2021-2024 Group 2 allowances
initially recorded in any given Group 3 source's compliance account do
or do not remain subject to potential deduction to address the source's
surrender requirements under the recall provisions.
    Comment: One commenter requested that EPA provide greater
flexibility for complying with the recall provisions in the case of
sources that may have already sold the 2021-2024 Group 2 allowances
previously recorded in the sources' compliance accounts. The commenter
suggested that such sources might have difficulty acquiring the Group 2
allowances needed to comply with the surrender requirements by the
proposed surrender date, which would have been 60 days after
publication of the final rule in the Federal Register.
    Response: In the final regulations, EPA has modified the recall
provisions to provide two deadlines for compliance with the surrender
requirements: July 14, 2021 and September 15, 2021. The final
provisions also provide greater flexibility than the proposed rule by
allowing the surrender requirements to be satisfied not only with Group
2 allowances allocated for the same control periods as the excess 2021-
2024 Group 2 allowances, but also with Group 2 allowances allocated for
earlier control periods. Any source may miss the first surrender
deadline with no consequence except that any Group 3 allowances
allocated to the units at the source will not be recorded in the
source's compliance account by the otherwise applicable recordation
date of July 29, 2021, but instead will be recorded after the source
has fully complied with the surrender requirements. The second
surrender deadline is expected to be more than five months after the
publication date--and six months after the signature date--of this
final rule. EPA believes that the second deadline provides sufficient
time for any source that has sold the 2021-2024 Group 2 allowances
initially recorded in the source's compliance account to acquire
replacement Group 2 allowances for purposes of complying with the
recall provisions. Further, because at the time of the proposed rule in
this action, the large majority of Group 3 sources subject to the
recall provisions still held all 2021-2024 Group 2 allowances initially
recorded in their compliance accounts, EPA expects that most sources
will be able to easily comply with the first deadline simply by not
transferring those Group 2 allowances to another account before that
deadline. Inclusion of the first deadline thus ensures that EPA will be
able to record most Group 3 allowances within 30 days after the
effective date of this final rule.
    Comment: One commenter suggested that retired sources that have
already sold the 2021-2024 Group 2 allowances recorded in their
compliance accounts should not be subject to the recall provisions on
the grounds that ``requiring already-retired units to purchase
allowances would be antithetical to the goal of a trading program, in
which allowances can be freely traded.'' The commenter also suggested
that there might be no willing sellers of Group 2 allowances from whom
the retired sources could purchase replacement Group 2 allowances to
comply with the recall provisions. The commenter further asserted that
the proposed rule did not provide adequate notice that the recall
provisions would apply to retired sources because the proposed
regulatory text included a cross-reference to an existing rule section
that addresses retired units.
    Response: EPA disagrees with this comment. As explained earlier in
this section, recall of Group 2 allowances equivalent in quantity and
usability to the 2021-2024 Group 2 allowances allocated to Group 3
sources is necessary to maintain the previously established levels of
stringency of the Group 2 trading program for the states and sources
that remain subject to that program, because not recalling the excess
allowances would be equivalent to increasing the budgets for the
remaining Group 2 states, contrary to the stringency of the
requirements established for those states in the CSAPR Update. The
necessity of recalling the excess Group 2 allowances exists regardless
of whether the sources in whose compliance accounts the excess
allowances were initially recorded continue to operate or have retired.
    The commenter provides no support for the assertion that requiring
retired sources to comply with the recall provisions is somehow
inconsistent with a trading program, and EPA sees no basis for the
assertion. EPA has made clear that the recall provisions apply to the
owners and operators of the sources in whose compliance accounts the
excess Group 2 allowances were initially recorded (and who paid nothing
for those Group 2 allowances), not to persons who may have purchased
the excess Group 2 allowances in arms-length transactions before EPA
provided general notice of the proposed recall. By honoring arms-length
market transactions for Group 2 allowances, EPA is executing the recall
in a manner that is entirely consistent with the normal freedom to
trade allowances under EPA's trading programs.
    The commenter's suggestion that there might be no willing sellers
of Group 2 allowances is speculative and contrary to EPA's experience
in administering every trading program implemented by the Agency over
the course of the last 25 years, starting with the Acid Rain Program.
The commenter's statement that ``some Group members are already finding
that Group 2 allowances are not readily available because companies are
holding onto them'' is vague and insufficient to counter EPA's
reasonable expectation, supported by decades of experience, that Group
2 allowances will be available for purchase in the six-month period
following finalization of this action. To the extent that public notice
of proposed changes to regulatory requirements may have temporarily
affected activity in the market for Group 2 allowances, any such
temporary effects would indicate only that, as intended, public notice
made market participants aware of the possibility of changed regulatory
requirements. The fact that some market participants may view waiting
for the additional information contained in the final regulatory
requirements as sensible does not serve as a reasonable basis for
assertions that allowance markets will be illiquid when those final
regulatory requirements are made public.
    The commenter's assertion that the proposed rule did not provide
adequate notice that the recall provisions would apply to retired
sources is belied by the fact that the commenter, as well as other
commenters, understood that the recall provisions were proposed to
apply to retired sources and submitted comments on that aspect of the
proposed rule. Moreover, the commenter offers no basis to support the
notion that any person reviewing the proposed rule would reasonably
have believed that the proposed recall did not apply to retired

sources. The section of the preamble to the proposed rule that
discusses the recall provisions states that the recall was proposed to
apply with respect to ``all'' 2021-2024 Group 2 allowances allocated
not only to sources in Group 3 states but also to non-source entities
in Group 3 states. There is no language indicating that any source,
retired or not, would be treated differently under the provisions than
any other source, and the inclusion of non-source entities left no room
for an interpretation that continued production of electricity and
emissions was a prerequisite for applicability of the recall. The fact
that, in order to be as clear as possible that the recall applied to
sources with retired units, the proposed regulatory text included a
cross-reference to an existing regulatory text provision identifying
permanently retired units, but did not use the exact words
``permanently retired units,'' does not somehow manufacture a lack of
notice. The use of cross-references is common and appropriate in
regulatory text. Further, the proposed regulatory text would have
encompassed 2021-2024 Group 2 allowances allocated to retired units
even without the clarifying cross-reference.
    Comment: One commenter requested that the regulations lay out in
greater detail the specific procedures EPA would follow to administer
the recall. The commenter sought clarification specifically as to how
the recall provisions would apply in instances where a source or its
allowances had been sold, potentially to different purchasers.
    Response: As described earlier in this section, the final
regulations include more detailed provisions concerning the procedures
EPA will follow to deduct Group 2 allowances to implement the surrender
requirements. Consistent with the proposed rule, the final surrender
requirements apply with respect to all Group 3 sources in whose
compliance accounts 2021-2024 Group 2 allowances were recorded,
regardless of whether some or all units at the source may have retired
or whether the source or its allowances may have been sold. However, in
response to the comment, the final regulations provide that if it is
demonstrated to EPA's satisfaction that the current owners and
operators of a source obtained ownership and operational control of the
source in a transaction that did not include rights to direct the use
and transfer of some or all of the 2021-2024 Group 2 allowances
allocated and recorded (either before or after that transaction) in the
source's compliance account, then with regard to the 2021-2024 Group 2
allowances for which such rights were not included in the transaction,
the surrender requirements apply to the most recent former owners and
operators of the source for which such a demonstration is not made. EPA
believes that this provision identifies the appropriate parties to whom
the surrender requirements should apply in the situation identified by
the commenter, consistent with EPA's intent expressed in the proposed
rule for the requirements to apply to the owners and operators of the
Group 3 source in whose compliance account the excess 2021-2024 Group 2
allowances were initially recorded.
    Comment: One commenter requested that where a Group 3 source has
purchased additional 2021-2024 Group 2 allowances beyond those
initially recorded in the source's compliance account, the additional
2021-2024 Group 2 allowances should not be subject to the recall
provisions but should remain available for transfer to a Group 2 source
for future use in the Group 2 trading program. Alternatively, the
commenter requested that EPA convert the additional 2021-2024 Group 2
allowances to Group 3 allowances that could be used in the Group 3
trading program.
    Response: Under the final procedures for implementing the recall
provisions, where a Group 3 source continues to hold the 2021-2024
Group 2 allowances initially recorded in the source's compliance
account and also holds additional 2021-2024 Group 2 allowances
purchased in an arms-length transaction before January 31, 2021,
surrender of the initially recorded 2021-2024 Group 2 allowances would
satisfy the recall provisions and the purchased 2021-2024 Group 2
allowances would remain available for transfer to a Group 2 source for
future use in the Group 2 trading program. The purchased 2021-2024
Group 2 allowances would not be available for use in the Group 3
trading program, either through conversion to Group 3 allowances or
otherwise.
5. Compliance Deadlines
    As discussed in section IV.C. of this preamble, the final rule
requires sources to comply with the revised respective NOX
emission budgets for the ozone seasons (May 1 through September 30 of
each year) in 2021 and subsequent years in order to ensure that these
necessary NOX emission reductions are implemented to assist
in downwind states' attainment and maintenance of the 2008 ozone NAAQS.
The increased stringency of Group 3 budgets for the 2021 ozone season
will take effect on the effective date of this action, which will be
part of the way into the 2021 ozone season, but before the July 20,
2021 Serious area attainment date. Thus, under the new CSAPR
NOX Ozone Season Group 3 Trading Program established in this
rulemaking, the first affected control period is the 2021 ozone season
(i.e. May 1, 2021, through September 30, 2021).
    Under all CSAPR trading programs, compliance at the source level is
achieved by each source surrendering by a compliance deadline--defined
in the new Group 3 trading program regulations at 40 CFR 97.1002 as the
``allowance transfer deadline''--a number of allowances equal to the
source's total emissions for the preceding ozone-season control period.
    For previous control periods under the existing CSAPR trading
programs, the allowance transfer deadline was March 1 of the year
following the control period. In this action, EPA is establishing the
allowance transfer deadline for the Group 3 trading program--and for
all the other CSAPR trading programs starting with the 2021 control
periods \210\--to be June 1 of the year after the control period.\211\
For example, under this coordinated deadline, June 1, 2022, is the date
by which Group 3 sources will be required to hold Group 3 allowances
for the 2021 control period. The reason for the change from earlier
practice is to accommodate the change in the methodology and schedule
for allocating allowances to units from the new unit set-asides that
will start with the 2021 control periods. Under that revised
methodology, allowances from the new unit set-asides will be recorded
in sources' compliance accounts by May 1 of the year following the
control period, and some additional period after that date is needed to
allow for allowance purchases in case a source receives fewer
allowances from the new unit set-aside than anticipated. Under the
previous regulations at 40 CFR 97.812, the deadline for recording
second-round allocations from the new unit set-asides was February 15,
two weeks before the March 1 allowance

transfer deadline. EPA believes sources will have greater trading
flexibility if this interval is extended to a full month, resulting in
the allowance transfer deadline of June 1. Extension of the allowance
transfer deadline is not expected to have any impact on the achievement
of the CSAPR trading programs' environmental objectives because it will
not affect the quantities of allowances that sources will be required
to hold as of the deadline or the total quantities of allowances that
will be made available for compliance in advance of the deadline.
Further discussion is provided in sections VII.C.3.c and VII.C.8.b.
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    \210\ As discussed in section VII.C.8.b., in order to minimize
unnecessary differences between the CSAPR trading programs and the
similarly structured Texas SO2 Trading Program, EPA is
revising the allowance transfer deadline under the Texas
SO2 Trading Program. However, EPA did not propose to
revise the allowance transfer deadline under the Acid Rain Program
for SO2 emissions (which is February 29 in leap years and
March 1 in other years).
    \211\ EPA proposed and requested comment on implementing the
revisions as of the 2023 and 2021 control periods, respectively. No
comments were received, and EPA is simplifying the regulations by
implementing the revisions as of the 2021 control period. For
further discussion, see section VII.C.8.b.
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    EPA received no comments on the Group 3 trading program compliance
deadlines for holding allowances after the end of each control period.
Comments concerning the implementation of emission budgets that require
emission reductions as of the 2021 ozone season instead of a later
ozone season are addressed in sections VI.B.1 and VI.C.1.
6. Monitoring and Reporting
    Monitoring and reporting in accordance with the provisions of 40
CFR part 75 are required for all units subject to all the CSAPR trading
programs, which includes all units covered under this final rule.
Consistent with these existing requirements, the monitoring system
certification deadline by which monitors are installed and certified
for compliance use under the CSAPR NOX Ozone Season Group 3
Trading Program generally will be May 1, 2021, the beginning of the
first control period in this final rule, with potentially later
deadlines for units that commence commercial operation less than 180
days before that date. Units already in compliance with monitoring
system certification requirements for the Group 2 trading program will
not have to undertake any additional activities to certify their
monitoring systems for the Group 3 trading program. Similarly, Group 3
units will not have to undertake additional activities to update any
facility account demographic information. All account demographic
information of current Group 2 facility accounts will be transitioned
to the Group 3 trading program, including an account's designated
representative, alternate designated representative, and any agents.
The first period in which emission reporting is required under the new
Group 3 trading program will be the quarter that includes May 1, 2021,
(i.e., the second quarter of the year that covers April, May, and
June). These monitoring and reporting requirements and deadlines are
analogous to the current deadlines under the CSAPR NOX Ozone
Season Group 2 Trading Program.
    Under 40 CFR part 75, a unit has several options for monitoring and
reporting, including the use of a CEMS; an excepted monitoring
methodology based in part on fuel-flow metering for certain gas- or
oil-fired peaking units; low-mass emissions monitoring for certain non-
coal-fired, low emitting units; or an alternative monitoring system
approved by the Administrator through a petition process. In addition,
sources can submit petitions to the Administrator for alternatives to
individual monitoring, recordkeeping, and reporting requirements
specified in 40 CFR part 75. Each CEMS must undergo rigorous initial
certification testing and periodic quality assurance testing
thereafter, including the use of relative accuracy test audits and 24-
hour calibrations. In addition, when a monitoring system is not
operating properly, standard substitute data procedures are applied and
result in a conservative estimate of emissions for the period involved.
    Further, 40 CFR part 75 requires electronic submission of quarterly
emissions reports to the Administrator, in a format prescribed by the
Administrator. The reports will contain all of the data required
concerning ozone season NOX emissions.
    Units currently subject to the CSAPR NOX Ozone Season
Group 2 Trading Program are required to monitor and report
NOX emissions in accordance with 40 CFR part 75, so covered
sources in the Group 3 trading program will simply continue the same
monitoring and reporting practices as required by 40 CFR part 75 under
the Group 2 trading program.
7. Recordation of Allowances
    EPA is establishing a schedule for recording allocations of
vintage-year 2021 CSAPR NOX Ozone Season Group 3 allowances
to ensure that affected sources are allocated vintage year 2021
allowances as soon as practicable and well before the 2021 ozone season
compliance deadline (June 1, 2022). EPA is also establishing a schedule
for recording allocations of vintage-year 2022 CSAPR NOX
Ozone Season Group 3 allowances that accommodates sources' expectation
to receive these allowance allocations soon after the publication of
this final rule while also ensuring that states have the opportunity to
develop and submit to EPA SIP revisions concerning allocations of
allowances for vintage year 2022 and later.
    Specifically, allocations to existing units for the first control
period outlined in this final rule (i.e. the 2021 ozone season) will be
recorded by July 29, 2021. EPA will also record allocation of vintage
year 2022 allowances by this deadline for all units except those in
states that provided to EPA, by June 29, 2021, a letter indicating an
intent to submit a SIP revision that, if approved, would substitute
state-determined allocations for the default allocations determined by
EPA for the 2022 control period. The deadline for states to submit to
EPA such SIP revisions will be September 1, 2021. If a state that
notified EPA of its intent to submit a SIP revision fails to submit
such a SIP by the SIP submission deadline, EPA will record vintage year
2022 FIP allocations to the sources in the state no later than
September 15, 2021. No later than March 1, 2022, EPA will record the
SIP allocations of vintage year 2022 Group 3 allowances for states with
approved SIP revisions. By this same deadline, EPA will record the FIP
allocations of vintage year 2022 Group 3 allowances for states whose
SIP revisions are not approved by EPA.
    The recordation deadline for vintage year 2021 allowances to
existing units is anticipated to be approximately 11 months before the
date by which sources are required to hold allowances sufficient to
cover their emissions for that first control period (June 1, 2022, as
discussed above). This schedule allows sources ample time to engage in
allowance trading activities consistent with their preferred compliance
strategies. EPA will record vintage year 2023 and 2024 Group 3
allowance allocations to existing units by July 1, 2022, and vintage
year 2025 and 2026 Group 3 allowance allocations by July 1, 2023. By
July 1 of each year after 2023, EPA will record Group 3 allowance
allocations to existing units for the control period in the third year
after the year of recordation. The recordation deadlines will apply to
recordation of both allocations based on the default allocation
provisions and allocations provided by states pursuant to approved SIP
revisions.
    As an exception to all of the recordation deadlines that would
otherwise apply, EPA will not record any allocations of Group 3
allowances in a source's compliance account unless that source has
complied with the requirements to surrender previously allocated 2021-
2024 Group 2 allowances. The surrender requirements are necessary to
maintain the previously established levels of stringency of the Group 2
trading program for the states and sources that remain subject to that

program under this final rule. EPA finds that it is reasonable to
condition the recordation of Group 3 allowances on compliance with the
surrender requirements because the condition will spur compliance and
will not impose an inappropriate burden on sources. EPA considers
establishment of this condition, which will facilitate the continued
functioning of the Group 2 trading program, to be an appropriate
exercise of the Agency's authority under CAA section 301 (42 U.S.C.
7601) to prescribe such regulations as are necessary to carry out its
functions under the Act.
    EPA notes that recording allocations to existing units generally
three years in advance under the new Group 3 trading program represents
a change from the historical recordation schedules for allocations to
existing units under the other CSAPR trading programs, which have
generally provided for such allocations to be recorded four years in
advance. In this action, EPA is revising the recordation schedules
under the other CSAPR trading programs, as well as the similarly
structured Texas SO2 Trading Program, so as to generally
record allocations to existing units three years in advance. This
change will take effect with allocations for the 2025 control periods,
which will be recorded by July 1, 2022, instead of by July 1, 2021. The
reason for the change is the discovery of a timing conflict in all the
CSAPR trading programs between the requirement to record four years in
advance and the separate provisions governing allocations to existing
units that have ceased operations. Under those separate provisions, EPA
is unable to determine whether some existing units are entitled to
continue to receive their allowance allocations more than three years
in advance, and thus EPA does not have the information necessary to
record all the allocations four years in advance. Further discussion of
this revision to the schedule for recording allocations to existing
units is provided in section VII.C.8.a.
    With respect to allocations of allowances from the new unit set-
asides and Indian country new unit set-asides, in previous control
periods under the existing CSAPR trading programs, EPA has recorded
these allocations in two rounds, by August 1 of the control period and
by February 15 of the year following the control period. In this
action, EPA is adopting a new one-round process for determining
allocations from the new unit set-asides and Indian country new unit
set-asides, and consistent with that revised allocation process,
starting with allocations for the 2021 control periods,\212\ EPA will
record all allocations from these set-asides as of May 1 in the year
following the control period, in both the Group 3 trading program and
the existing CSAPR trading programs, and both where the allocations are
determined by EPA and where the allocations are provided by states
pursuant to approved SIP revisions. Further discussion is provided in
sections VII.C.3.c and VII.C.8.b.
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    \212\ EPA proposed and requested comment on implementing the
revisions as of the 2023 and 2021 control periods, respectively. No
comments were received, and EPA is simplifying the regulations by
implementing the revisions as of the 2021 control period. For
further discussion, see section VII.C.8.b.
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8. Conforming Revisions to Regulations for Existing Trading Programs
    As discussed elsewhere in this preamble, in most respects, but not
in every respect, the provisions of the CSAPR NOX Ozone
Season Group 3 Trading Program at subpart GGGGG of 40 CFR part 97
parallel the provisions that have applied for control periods through
2020 under the other CSAPR trading programs \213\ at subparts AAAAA
through EEEEE of part 97 established in the CSAPR rulemaking and the
CSAPR Update and, to a somewhat lesser extent, the provisions of the
similarly structured Texas SO2 Trading Program established
at subpart FFFFF of part 97. This section discusses the provisions of
the new Group 3 trading program that differ from the provisions that
have applied under the existing CSAPR trading programs, beyond the
provisions discussed in section VII.C.4. addressing the transition to
the new Group 3 trading program. This section also discusses various
minor corrections and clarifications to the regulations.
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    \213\ The existing CSAPR trading programs and their respective
subparts of 40 CFR part 97 are: CSAPR NOX Annual Trading
Program (subpart AAAAA), CSAPR NOX Ozone Season Group 1
Trading Program (subpart BBBBB), CSAPR SO2 Group 1
Trading Program (subpart CCCCC), CSAPR SO2 Group 2
Trading Program (subpart DDDDD), and CSAPR NOX Ozone
Season Group 2 Trading Program (subpart EEEEE).
---------------------------------------------------------------------------

    To clarify and facilitate administration of the regulations for all
of EPA's trading programs in 40 CFR part 97, and to maintain their
parallel nature to the extent possible, EPA is amending the regulations
for the existing trading programs to reflect certain revisions as noted
in the sections of this preamble describing the new Group 3 trading
program. Section VII.C.8.a. addresses the revisions discussed in
section VII.C.7. to address a timing conflict in the current
regulations for all of the existing programs. Section VII.C.8.b.
addresses the revisions discussed in sections VII.C.3.c and VII.C.3.d
to simplify and improve the process for allocating allowances from the
new unit set-asides and Indian country new unit set-asides under the
existing CSAPR programs. Section VII.C.8.c. addresses additional minor
revisions and corrections. EPA received no adverse comment regarding
any of these conforming revisions or corrections.
    In this action, EPA did not reopen or request comment on the
regulations for any of the existing trading programs in 40 CFR part 97,
subparts AAAAA through FFFFF, except with respect to specific revisions
to these subparts identified in this section, as well as the revisions
to the regulations for the Group 2 trading program discussed in section
VII.C.4. that address the transition from the Group 2 trading program
to the Group 3 trading program.
a. Resolution of Timing Conflict Between Certain Existing Provisions
    Consistent with the provisions of the new CSAPR trading program
finalized in this action, EPA is amending the regulations for the
existing CSAPR trading programs and the Texas SO2 Trading
Program to resolve a timing conflict between the provisions that set
deadlines for recordation of allowances allocated to existing units and
the provisions that govern allocations of allowances to units that have
ceased operation for the control periods in at least two consecutive
years. The recordation provisions in all of the trading programs
generally have required EPA to record allocations of allowances to
existing units four years in advance of the control periods for which
the allowances are being allocated. For example, on July 1, 2020, EPA
recorded allocations to most existing units of allowances for use in
the 2024 control periods for all the existing trading programs.
However, other provisions of all the trading programs require EPA not
to record allocations to existing units that do not operate for two
consecutive control periods, starting with the fifth control period
after the first control period in which the unit did not operate. For
example, if a unit that would otherwise receive allocations as an
existing unit does not operate in the 2019 and 2020 control periods,
the unit will continue to receive allocations for the control periods
in 2019 through 2023 but will no longer be entitled to receive
allocations for control periods in 2024 and thereafter. These two sets
of timing requirements are in conflict, as demonstrated by the examples
just presented: as of the July 1, 2020,

deadline to record allocations for the 2024 control periods, EPA could
not yet know whether any units that did not operate in 2019 might
resume operation later in 2020, and EPA therefore could not yet know
whether all such units would lose their eligibility to receive
allocations for the 2024 control periods or not.\214\
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    \214\ Because the 4-years-in-advance recordation schedule was
phased in, the conflict with the provision addressing units that
have ceased operation did not affect recordation activities under
any CSAPR program until 2018. To date, EPA has addressed the
conflict by deferring recordation of allocations to certain units
past the applicable recordation deadlines until all information
needed to determine whether the units are entitled to receive the
allocations becomes available.
---------------------------------------------------------------------------

    To address the timing conflict described above, EPA is amending the
regulations for each of the CSAPR trading programs and the Texas
SO2 Trading Program to generally require recordation of
allowances allocated to existing units to take place three years rather
than four years in advance of the control period for which allowances
are being allocated. Returning to the examples above, if these
amendments had been in effect with respect to allocations for the
control periods in 2024, EPA would not have been required to record
allocations for the 2024 control period until July 1, 2021, by which
time complete information on all units' operations in 2019 and 2020
will be available. Relatedly, for states that determine allocations of
allowances to their sources under approved SIP revisions, EPA is
amending the deadlines by which the states must submit the allocations
to EPA for recordation. Under the amended deadlines, the states'
submissions are due three years instead of four years before the
applicable control period.\215\
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    \215\ Because states' deadlines for submission of SIP revisions
under the CSAPR regulations are based on the deadlines by which they
must submit their subsequent state-determined allowance allocations,
in some circumstances the revision to the deadline for submitting
allowance allocations will also effectively extend the deadline for
such a SIP revision. See, e.g., 40 CFR 52.38(a)(4)(ii), (a)(5)(vi).
---------------------------------------------------------------------------

    The amended recordation and submission schedules will be effective
beginning with recordation of allocations for control periods in 2025
and will apply to EPA's schedule for recording not only the allocations
determined by EPA under the federal CSAPR trading programs but also the
allocations determined by states or EPA under state CSAPR trading
programs that are similarly recorded by EPA. EPA believes these
amendments address the timing conflict in the existing trading program
regulations in a manner that is as consistent as possible with the
other provisions of the regulations, because while the amendments alter
the point in time at which trading program participants receive
allowances, the amendments will not alter the quantities of allowances
received by any participant in any of the existing trading programs. In
contrast, the only two other simple options for resolving the timing
conflict--either shortening the period of non-operation that would
cause a unit to lose its allocation from two years to one year or
lengthening the period for which non-operating units would retain their
allowance allocations from five years to six years--would cause changes
in the amounts of allowances received by some trading program
participants, and some stakeholders might view those changes as
inequitable or undesirable for other policy reasons.
    Further details on the specific regulatory provisions that are
affected by the revisions are provided in section IX.D. of the
preamble.
b. Modifications to NUSA Provisions
    Consistent with the provisions of the new CSAPR trading program in
this action for ozone season emissions of NOX from sources
in Group 3 states, EPA is amending the regulations for the existing
CSAPR trading programs governing allocations of allowances to units
from NUSAs and Indian country NUSAs to reduce the potential for
inequitable outcomes and to clarify and simplify the regulations. In
order to ensure maximum consistency across all participants in the
trading programs, the amendments will govern EPA's administration of
the integrated trading programs not only under FIPs but also under
approved SIPs where the NUSA allocation procedures are specified in
provisions of the federal CSAPR trading programs in 40 CFR part 97 that
have been incorporated into the SIP by reference.
    The regulations applicable to control periods through 2020 under
the existing CSAPR trading programs have provided for a two-round
allocation process. For purposes of the first round, a unit was
generally eligible to receive allocations from the NUSA for its state
regardless of when it commenced commercial operation, as long as either
no allocation of allowances to the unit as an existing unit was
previously determined \216\ or the unit was no longer entitled to
receive its previously determined allocation as an existing unit. The
first-round allocations were calculated during the control period at
issue and were proportional to the eligible units' emissions during the
preceding control period, up to the amount of allowances available in
the NUSA. EPA performed preliminary calculations and published a notice
by June 1, provided an opportunity for objections, and then adjusted
the calculations as necessary, issued a final notice, and recorded the
allocations by August 1 of the control period.
---------------------------------------------------------------------------

    \216\ A determination that a unit should be allocated zero
allowances is considered an allocation. See, e.g., 40 CFR 97.402
(definition of ``allocate or allocation'').
---------------------------------------------------------------------------

    If any allowances remained in the NUSA for a given state after the
first round, EPA carried out a second round, for which eligibility was
limited to units that commenced commercial operation in the year of the
control period at issue or the preceding year. The second-round
allocations were calculated early in the year after the year of the
control period at issue (very shortly after the January 30 deadline for
submission of emissions data for October through December) and were
proportional to the positive differences, if any, between the eligible
units' emissions during the control period at issue and the amounts of
any allocations the units received in the first round, up to the
remaining amount of allowances available in the NUSA. Any allowances
remaining after the second round were allocated to existing units in
the state in proportion to their previous allocations. EPA made a
preliminary identification of eligible units and published a notice by
December 15, provided an opportunity for objections, and then performed
the calculations, issued a final notice, and recorded the allocations
by February 15 following the year of the control period, two weeks
before the then-applicable March 1 allowance transfer deadline.
    As indicated in the description above, the previous procedures had
the potential to produce inequitable results, where some units could
receive allowances in the first round (based on their emissions in the
preceding control period) that exceeded the amounts needed to cover
their emissions during the control period at issue, while other units
that commenced operation more recently might not receive any allowances
in either the first round (because the units had no covered emissions
in the preceding control period) or the second round (because the NUSA
may have been exhausted in the first round). Further, based on the
experience of administering the two-round NUSA allocation process since
2015, EPA believes the previous procedures were unnecessarily complex
and caused confusion for some market participants.

    To simplify the NUSA allocation process and eliminate the potential
inequities noted, EPA is amending the regulations for the existing
CSAPR programs to replace the previous two-round NUSA allocation
process with a one-round process that will allocate allowances to all
eligible units in proportion to their emissions in the control period
at issue. The amended provisions will be effective beginning with NUSA
allocations for the control periods in 2021. Under the procedures,
which apply to both NUSAs and Indian country NUSAs, EPA will perform
preliminary calculations and issue a notice by March 1 of the year
after the control period at issue, one month after the January 30
deadline for submission of the required emission data. After providing
an opportunity for objections, EPA will make any necessary adjustments,
issue a final notice, and record the allowances by May 1. To
accommodate this process, the amendments also extend the allowance
transfer deadline (i.e., the date by which all covered sources must
hold allowances in their compliance accounts sufficient to cover their
emissions during the preceding control period) by three months, from
March 1 of the year following the control period to June 1. In
coordination with the revised recordation deadlines, EPA is also
extending the deadline for states to submit to EPA their state-
determined allocations for new units from July 1 in the year of the
control period to April 1 in the year following the control period.
Finally, although the Texas SO2 Trading Program does not
have NUSA provisions, in order to minimize unnecessary differences
between the deadlines for analogous provisions in that program and the
CSAPR programs, EPA is also revising the Supplemental Allowance Pool
recordation deadline and the allowance transfer deadline under the
Texas SO2 Trading Program to May 1 and June 1, respectively,
of the year after the control period. Like the amendments to the NUSA
provisions, the amendments to the deadlines described in this paragraph
would apply for purposes of EPA's administration of the integrated
trading programs under both FIPs and approved SIPs.
    The revisions to the NUSA allocation procedures also allow for
related simplification of the CSAPR trading programs' assurance
provisions. Under the assurance provisions that have applied for
control periods through 2020, when emissions in a state for a given
control period exceed the state's assurance level, if there are any
units in the state that operated during the control period but that did
not receive an actual allowance allocation either as an existing unit
or from the NUSA, the regulations require EPA to publish a notice
calling for the owners and operators of such units to submit certain
information which EPA would use to determine imputed allowance
allocations for the units. EPA then would use the imputed allowance
allocations for these units, together with the actual allowance
allocations for other units, to apportion responsibility for the
assurance level exceedance among the owners and operators of all the
state's units. Under the amendments to the NUSA allocation process, all
units that have covered emissions during any control period will
receive allocations either as an existing unit or from the NUSA, making
the procedures for determining imputed allocations unnecessary.
Accordingly, EPA is simplifying the assurance provisions for all of the
existing CSAPR trading programs by removing the requirement for EPA to
issue the additional notice just discussed, starting with the 2021
control periods.\217\ EPA is also revising the date as of which the
``common designated representative'' for a group of sources is
determined for purposes of the assurance provisions from April 1 to
July 1 of the year following the control period, preserving that date's
current position of being one month after the allowance transfer
deadline. This revision maintains the existing coordination between
these two regulatory deadlines and applies to all the existing CSAPR
trading programs, whether administered under FIPs or approved SIPs, as
well as the Texas SO2 Trading Program.
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    \217\ There are currently no analogous provisions in the Texas
SO2 Trading Program.
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    EPA is making the changes to the NUSA allocation provisions,
assurance provisions, and related deadlines effective as of the 2021
control period. EPA proposed to make the changes effective as of the
2023 control period, which is the first control period by which it
would have been possible for states to fully replace the FIP
requirements established in this action with a SIP revision. However,
EPA also specifically requested comment on implementing the changes as
of the 2021 control period. Having received no comment opposing the
substance of the proposed revisions and no comment favoring
implementation as of the 2023 control period, EPA is finalizing the
amendments as of the 2021 control period in order to simplify the
programs and clarify the regulations to the greatest extent possible.
    Further details on the specific regulatory provisions that are
affected by the revisions are provided in section IX.D. of the
preamble.
c. Minor Corrections and Clarifications to Existing Regulations
    EPA is implementing a small number of additional minor corrections
and clarifications to the NUSA provisions in the existing CSAPR trading
programs. First, EPA is amending the provisions that address the
disposition of allowances that are determined to have been allocated
incorrectly and that consequently are recalled and added to the NUSA
for reallocation. The regulations that have applied through the 2020
control periods provided for the recalled allowances to be reallocated
through the NUSA allocation process for the same control period for
which the allowances were originally allocated incorrectly. Because
some corrections may occur after the NUSA allocation process for a
control period has already been completed, EPA is revising these
provisions to also allow the recalled allowances to be reallocated as
part of the NUSA allocation process for a subsequent control period.
    Second, EPA is correcting the specific numbers of allowances
identified as the NUSA amounts for several states under the existing
CSAPR programs established in the CSAPR rulemaking.\218\ Following the
promulgation of the CSAPR regulations in August 2011, EPA issued two
rules revising the amounts of the emissions budgets, NUSAs, and Indian
country NUSAs for several states.\219\ Subsequent to these rule
revisions, EPA recalculated the allocations to individual existing
units and published a notice of data availability establishing the new
allocations.\220\ However, because of rounding differences, in certain
instances the sum of the recalculated allocations to the individual
units in a state plus the amounts identified in the regulations for the
NUSA and Indian country NUSA for the state does not exactly equal the
state budget.\221\ In this

final action, EPA is adjusting the amounts of the NUSAs identified in
the regulations for control periods in future years up or down by the
amount needed to eliminate the rounding differences. The sizes of the
NUSA adjustments range from 1 to 17 allowances. These revisions do not
affect the amounts of any state emissions budgets.
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    \218\ This revision affects the CSAPR NOX Annual,
NOX Ozone Season Group 1, SO2 Group 1, and
SO2 Group 2 trading programs established in the CSAPR
rulemaking but does not affect the CSAPR NOX Ozone Season
Group 2 trading program established in the CSAPR Update rulemaking.
    \219\ See 77 FR 10324 (February 21, 2012); 77 FR 34830 (June 12,
2012).
    \220\ See 79 FR 71674 (December 3, 2014).
    \221\ To date, EPA has addressed the rounding differences
through the NUSA administration process by allocating whatever
amounts of allowances remain in the states' budgets after
allocations to existing units instead of allocating the specific
amounts of allowances stated as the amounts of the states' NUSAs in
the regulations. Thus, the amendments simply clarify the regulations
and bring them into conformance with current practice.
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    Third, EPA is adding provisions to the regulations for each of the
existing CSAPR trading programs addressing the disposition of
allowances held in the compliance accounts of sources in states that
are no longer covered by those programs. Under the added provisions,
EPA would identify or, if necessary, establish a general account
controlled by each such source's owners and operators and would
transfer any such allowances to that general account. The added
provisions parallel analogous provisions that were proposed and are
being finalized in this action to address the disposition of any CSAPR
NOX Ozone Season Group 2 allowances that may remain in the
compliance accounts of sources in states covered by the new CSAPR
NOX Ozone Season Group 3 trading program after the various
procedures governing conversion or recall of such allowances have been
carried out.
    Finally, EPA is making non-substantive revisions to the sections of
the existing CSAPR trading program regulations that set forth the
amounts of the budgets, new unit set-asides, and variability limits.
The revisions clarify the regulations by indicating the specific
control periods when such amounts no longer apply to the sources in a
given state because the state's sources are no longer required to
participate in that trading program.
    Further details on the specific regulatory provisions that would be
affected by the revisions are provided in section IX.D. of the
preamble.

D. Submitting a SIP

    States may replace a FIP with a SIP under the Clean Air Act at any
time if the SIP is approved by EPA, see CAA section 110(c)(1)(B). EPA
has established certain specialized provisions for replacing FIPs with
SIPs within all of the CSAPR trading programs, including the use of so-
called ``abbreviated SIPs'' and ``full SIPs,'' see 40 CFR 52.38(a)(4)
and (5) and (b)(4), (5), (8), and (9); 40 CFR 52.39(e), (f), (h), and
(i). Under the new or amended FIPs for the 12 states whose sources are
required to participate in the new CSAPR NOX Ozone Season
Group 3 Trading Program, ``abbreviated'' and ``full'' SIP options
continue to be available. An ``abbreviated SIP'' allows a state to
submit a SIP revision that would establish state-determined allowance
allocation provisions replacing the default FIP allocation provisions
but leaves the remaining FIP provisions in place. A ``full SIP'' allows
a state to adopt a trading program meeting certain requirements that
would allow sources in the state to continue to use the EPA-
administered trading program through an approved SIP revision, rather
than a FIP. In addition, as under the CSAPR and the CSAPR Update, EPA
is providing states with an opportunity to adopt state-determined
allowance allocations for existing units for the second control period
under this rule--in this case, the 2022 control period--through
streamlined SIP revisions. See 76 FR 48326-48332 for additional
discussion on full and abbreviated SIP options and 40 CFR 52.38(b).
1. SIP Option To Modify 2022 Allocations
    As under the CSAPR and the CSAPR Update, EPA is allowing a state to
submit a SIP revision establishing allowance allocations for existing
units in the state for the second control period of the new
requirements, in 2022, to replace the EPA-determined default
allocations. This process is the same as the process used at the start
of other CSAPR trading programs but with updated deadlines, i.e., a
state must submit a letter to EPA by June 29, 2021 indicating its
intent to submit a complete SIP revision by September 1, 2021. The SIP
would provide in an EPA-prescribed format a list of existing units and
their allocations for the 2022 control period. If a state does not
submit a letter of intent to submit a SIP revision, the EPA-determined
default allocations will be recorded by July 29, 2021. If a state
submits a timely letter of intent but fails to submit a SIP revision,
the EPA-determined default allocations will be recorded by September
15, 2021. If a state submits a timely letter of intent followed by a
timely SIP revision that is approved, the approved SIP allocations will
be recorded by March 1, 2022.
2. SIP Option To Modify Allocations in 2023 and Beyond
    For the 2023 control period and later, states in the CSAPR
NOX Ozone Season Group 3 Trading Program can modify the EPA-
determined default allocations with an approved SIP revision. The SIP
submittal deadline is December 1, 2021. The deadline for states to
submit state-determined allocations beginning with the 2023 and 2024
control periods under an approved SIP would be June 1, 2022, and the
deadline for EPA to record those allocations would be July 1, 2022.
Similarly, a state can submit a SIP revision beginning with control
periods in 2025 and beyond by December 1, 2022, with state allocations
for the 2025 and 2026 control periods due June 1, 2023, and EPA
recordation of the allocations by July 1, 2023. For the 2023 control
period and later, SIPs can be full or abbreviated SIPs. As discussed in
section VII.F.3. below, states will also have the option to expand
applicability to include EGUs between 15 MWe and 25 MWe or, in the case
of states subject to the NOX SIP Call, large non-EGU boilers
and combustion turbines. Inclusion of the large non-EGUs would serve as
a mechanism to address the state's outstanding regulatory obligations
under the NOX SIP Call with respect to those sources, and
the state would be allowed to allocate a defined quantity of additional
Group 3 allowances because of the expanded set of sources. See above
and 76 FR 48326-48332 for additional discussion on full and abbreviated
SIP options and 40 CFR 52.38(b).
3. SIP Revisions That Do Not Use the New Group 3 Trading Program
    States can submit SIP revisions to replace the FIP that achieve the
necessary emission reductions but do not use the CSAPR NOX
Ozone Season Group 3 Trading Program. For a transport SIP revision that
does not use the CSAPR NOX Ozone Season Group 3 Trading
Program, EPA would evaluate the transport SIP based on the particular
control strategies selected and whether the strategies as a whole
provide adequate and enforceable provisions ensuring that the necessary
emission reductions (i.e., reductions equal to or greater than what the
Group 3 trading program will achieve) will be achieved. In order to
best ensure its approvability, the SIP revision should include the
following general elements: (1) A comprehensive baseline 2021 statewide
NOX emission inventory (which includes existing control
requirements), which should be consistent with the 2021 emission
inventory that EPA used to calculate the required state budget in this
final action (unless the state can explain the discrepancy); (2) a list
and description of control measures to satisfy the state emission
reduction obligation and a demonstration showing when each measure
would be in place to meet the 2021 and successive control periods; (3)
fully-adopted state rules providing for such NOX controls
during

the ozone season; (4) for EGUs greater than 25 MWe, monitoring and
reporting under 40 CFR part 75, and for other units, monitoring and
reporting procedures sufficient to demonstrate that sources are
complying with the SIP (see 40 CFR part 51 subpart K (``source
surveillance'' requirements)); and (5) a projected inventory
demonstrating that state measures along with federal measures will
achieve the necessary emission reductions in time to meet the 2021
compliance deadline. The SIPs must meet procedural requirements under
the Act, such as the requirements for public hearing, be adopted by the
appropriate state board or authority, and establish by a practically
enforceable regulation or permit a schedule and date for each affected
source or source category to achieve compliance. Once the state has
made a SIP submission, EPA will evaluate the submission(s) for
completeness. EPA's criteria for determining completeness of a SIP
submission are codified at 40 CFR part 51 appendix V.
    For further information on replacing a FIP with a SIP, see the
discussion in the final CSAPR rulemaking (76 FR 48326).
4. No SIP Option for Additional States To Participate in the New
Trading Program
    EPA is not finalizing the proposed option that would have allowed
EPA to approve a SIP submitted by a state whose sources are required to
participate in the CSAPR NOX Ozone Season Group 1 Trading
Program (i.e., Georgia) or a state whose sources are required to
continue to participate in the CSAPR NOX Ozone Season Group
2 Trading Program (Alabama, Arkansas, Iowa, Kansas, Mississippi,
Missouri, Oklahoma, Tennessee, Texas, and Wisconsin) requiring its
sources to participate instead in the new Group 3 trading program. No
comments were received indicating interest in such an option, and
elimination of the option facilitates simplification and clarification
of several areas of the regulations. A similar option was made
available to Georgia in the CSAPR Update (with respect to the Group 2
trading program) to address possible concerns expressed by some
commenters in the CSAPR Update rulemaking that if sources in Georgia
were not allowed to trade with sources in other states, the allowances
issued to the sources in Georgia would otherwise be of limited use. See
81 FR 74504, 74588 (former 40 CFR 52.38(b)(6)). Because EPA has already
approved a SIP revision under which Georgia adopted a state program
requiring its sources to participate in the Group 1 trading program,
EPA in this action is simplifying and clarifying the regulations by
removing the option for Georgia to instead adopt a SIP instead
requiring its sources to participate in the Group 2 trading program.
Relatedly, EPA is removing the provisions in the Group 2 trading
program regulations setting forth the amounts of the emissions budget,
new unit set-aside, and variability limit that would have applied if
EPA had approved a SIP revision from Georgia's requiring the state's
sources to participate in that program as well as the provisions in the
Group 1 trading program regulations that would have converted all
remaining Group 1 allowances into amounts of Group 2 allowances.

E. Title V Permitting

    This final rule, like the CSAPR and the CSAPR Update, does not
establish any permitting requirements independent of those under Title
V of the CAA and the regulations implementing Title V, 40 CFR parts 70
and 71.\222\ All major stationary sources of air pollution and certain
other sources are required to apply for title V operating permits that
include emission limitations and other conditions as necessary to
ensure compliance with the applicable requirements of the CAA,
including the requirements of the applicable SIP. CAA sections 502(a)
and 504(a), 42 U.S.C. 7661a(a) and 7661c(a). The ``applicable
requirements'' that must be addressed in title V permits are defined in
the title V regulations (40 CFR 70.2 and 71.2 (definition of
``applicable requirement'')).
---------------------------------------------------------------------------

    \222\ Part 70 addresses requirements for state title V programs,
and Part 71 governs the federal title V program.
---------------------------------------------------------------------------

    EPA anticipates that, given the nature of the units subject to this
final rule and given that all of the units covered here are already
subject to the CSAPR Update, most if not all of the sources at which
the units are located are already subject to title V permitting
requirements. For sources subject to title V, the interstate transport
requirements for the 2008 ozone NAAQS that are applicable to them under
the new or amended FIPs would be ``applicable requirements'' under
title V and therefore must be addressed in the title V permits. For
example, requirements concerning designated representatives,
monitoring, reporting, and recordkeeping, the requirement to hold
allowances covering emissions, the assurance provisions, and liability
are ``applicable requirements'' that must be addressed in the permits.
    Title V of the CAA establishes the basic requirements for state
title V permitting programs, including, among other things, provisions
governing permit applications, permit content, and permit revisions
that address applicable requirements under final FIPs in a manner that
provides the flexibility necessary to implement market-based programs
such as the trading programs established by the CSAPR and the CSAPR
Update and this final rule. 42 U.S.C. 7661a(b); 40 CFR 70.6(a)(8) &
(10); 40 CFR 71.6(a)(8) & (10).
    In the CSAPR and the CSAPR Update, EPA established standard
requirements governing how sources covered by that rule would comply
with title V and its regulations.\223\ 40 CFR 97.506(d) and 97.806(d).
For any new or existing sources under this final rule establishing the
Group 3 trading program, identical title V compliance provisions would
apply, just as they would have in the CSAPR NOX Ozone Season
Group 2 Trading Program. For example, the title V regulations provide
that a permit issued under title V must include ``[a] provision stating
that no permit revision shall be required under any approved . . .
emissions trading and other similar programs or processes for changes
that are provided for in the permit.'' 40 CFR 70.6(a)(8) and
71.6(a)(8). Consistent with these provisions in the title V
regulations, in the CSAPR and the CSAPR Update, EPA included a
provision stating that no permit revision is necessary for the
allocation, holding, deduction, or transfer of allowances. 40 CFR
97.506(d)(1) and 97.806(d)(1). This provision is also included in each
title V permit for an affected source. This final rule maintains the
approach taken under the CSAPR and the CSAPR Update that allows
allowances to be traded (or allocated, held, or deducted) without a
revision to the title V permit of any of the sources involved.
---------------------------------------------------------------------------

    \223\ EPA has also issued a guidance document and template that
includes instructions describing how to incorporate the applicable
requirements into a source's Title V permit. https://www3.epa.gov/airtransport/CSAPR/pdfs/CSAPR_Title_V_Permit_Guidance.pdf.
---------------------------------------------------------------------------

    Similarly, this final rule would also continue to support the means
by which a source in a CSAPR trading program can use the title V minor
modification procedure to change its approach for monitoring and
reporting emissions, in certain circumstances. Specifically, sources
may use the minor modification procedure so long as the new monitoring
and reporting approach is one of the prior-approved approaches under
the CSAPR and the CSAPR Update (i.e., approaches using a

continuous emission monitoring system under subparts B and H of Part
75, an excepted monitoring system under appendices D and E to Part 75,
a low mass emissions excepted monitoring methodology under 40 CFR
75.19, or an alternative monitoring system under subpart E of part 75),
and the permit already includes a description of the new monitoring and
reporting approach to be used. See 40 CFR 97.506(d)(2) and
97.806(d)(2); 40 CFR 70.7(e)(2)(i)(B) and 40 CFR 71.7(e)(1)(i)(B). As
described in EPA's 2015 guidance, the Agency suggests in its template
that sources may comply with this requirement by including a table of
all of the approved monitoring and reporting approaches under the CSAPR
and the CSAPR Update trading programs in which the source is required
to participate, and the applicable requirements governing each of those
approaches. Inclusion of the table in a source's title V permit
therefore allows a covered unit that seeks to change or add to its
chosen monitoring and recordkeeping approach to easily comply with the
regulations governing the use of the title V minor modification
procedure.
    Under the CSAPR and the CSAPR Update, in order to employ a
monitoring or reporting approach different from the prior-approved
approaches discussed previously, unit owners and operators must submit
monitoring system certification applications to EPA establishing the
monitoring and reporting approach actually to be used by the unit, or,
if the owners and operators choose to employ an alternative monitoring
system, to submit petitions for that alternative to EPA. These
applications and petitions are subject to EPA review and approval to
ensure consistency in monitoring and reporting among all trading
program participants. EPA's responses to any petitions for alternative
monitoring systems or for alternatives to specific monitoring or
reporting requirements are posted on EPA's website.\224\ EPA maintains
the same approach in this final rule.
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    \224\ https://www.epa.gov/airmarkets/part-75-petition-responses.
---------------------------------------------------------------------------

    Consistent with EPA's approach under the CSAPR and the CSAPR
Update, the applicable requirements resulting from the new and amended
FIPs generally will have to be incorporated into affected sources'
existing title V permits either pursuant to the provisions for
reopening for cause (40 CFR 70.7(f) and 71.7(f)) or the standard permit
renewal provisions (40 CFR 70.7(c) and 71.7(c)).\225\ For sources newly
subject to title V that are affected sources under the FIPs, the
initial title V permit issued pursuant to 40 CFR 70.7(a) should address
the final FIP requirements.
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    \225\ A permit is reopened for cause if any new applicable
requirements (such as those under a FIP) become applicable to an
affected source with a remaining permit term of 3 or more years. If
the remaining permit term is less than 3 years, such new applicable
requirements will be added to the permit during permit renewal. See
40 CFR 70.7(f)(1)(I) and 71.7(f)(1)(I).
---------------------------------------------------------------------------

    As was the case in the CSAPR and the CSAPR Update, the new and
amended FIPs impose no independent permitting requirements and the
title V permitting process will impose no additional burden on sources
already required to be permitted under title V and on permitting
authorities.

F. Relationship to Other Emission Trading and Ozone Transport Programs

1. Existing Trading Programs
    This final rule ends the requirements for sources in certain states
to participate in the existing CSAPR NOX Ozone Season Group
2 Trading Program with respect to emissions occurring after 2020 and
requires those same sources instead to participate in a new CSAPR
NOX Ozone Season Group 3 Trading Program with more stringent
emissions budgets with respect to those emissions.\226\ As discussed in
section VII.C.4. above, the final rule lays out certain requirements
associated with this transition, including provisions to accommodate an
effective date sometime after the start of the 2021 ozone season, two
mechanisms for the creation of limited quantities of Group 3 allowances
available for use in the new Group 3 trading program in exchange for
certain banked 2017-2020 Group 2 allowances, and the recall of 2021-
2024 Group 2 allowances previously allocated to the sources in Group 3
states. In addition, in section VII.C.8. of this document, EPA
describes certain features of the new Group 3 trading program that
differ from the current features of the other CSAPR trading programs
and that EPA is adopting as revisions to the other CSAPR trading
programs, as well as a subset of those new features adopted as
revisions to the similarly structured Texas SO2 Trading
Program. Beyond these items, nothing else in this rule affects any
requirements for any source under the CSAPR NOX Annual,
SO2 Group 1 or Group 2, or NOX Ozone Season Group
1 or Group 2 trading programs or the Texas SO2 Trading
Program. These trading programs all remain in place and will continue
to be administered by EPA.
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    \226\ The sources would remain subject to the Group 2 trading
program with respect to emissions occurring in 2020 and earlier
years and would also remain subject to various transitional
provisions in the Group 2 trading program regulations, including
both the provisions at 40 CFR 97.826(c) governing the conversion of
certain banked 2017-2020 Group 2 allowances to a limited quantity of
Group 3 allowances and the provisions at 40 CFR 97.811(d) governing
the recall of certain previously recorded 2021-2024 Group 2
allowances. See section VII.C.4.
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2. Title IV Interactions
    This final rule does not affect any Acid Rain Program requirements.
Acid Rain Program SO2 and NOX requirements are
established independently in Title IV of the Clean Air Act and will
continue to apply independently of this final rule's provisions. Acid
Rain sources will still be required to comply with Title IV
requirements, including the requirement to hold Title IV allowances to
cover SO2 emissions after the end of each annual control
period. EPA notes that the deadline by which sources affected under the
Acid Rain Program must hold Title IV allowances is not affected by this
final action and will continue to be 60 days after the end of the
control period (i.e., February 29 or March 1 of the following year).
Thus, starting with the compliance deadlines in 2022 for the control
periods in 2021, the Acid Rain Program deadline will be approximately
three months earlier than the corresponding deadline by which sources
affected under all the CSAPR trading programs and the Texas
SO2 Trading Program must hold allowances available for
compliance under those programs, which will be June 1 of the year
following the year of the control period, as discussed in sections
VII.C.5 and VII.C.8.b.
3. NOX SIP Call Interactions
    States affected by both the NOX SIP Call and this action
will be required to comply with the requirements of both rules. This
final rule requires NOX ozone season emission reductions
from EGUs larger than 25 MWe in many NOX SIP Call states and
at greater stringency than required by the NOX SIP Call.
Therefore, this final rule will achieve emission reductions sufficient
to address the emission reduction requirements of the NOX
SIP Call for these large EGUs.
    The NOX SIP Call states used the NOX Budget
Trading Program to comply with the NOX SIP Call requirements
both for EGUs serving generators with a nameplate capacity greater than
25 MWe and for large non-EGU boilers and combustion turbines with a
maximum design heat input greater than 250 mmBtu/hr. (In some states,
EGUs

serving a generator with a nameplate capacity equal to or smaller than
25 MWe were also part of the NOX Budget Trading Program as a
carryover from the Ozone Transport Commission NOX Budget
Program.) However, EPA discontinued the NOX Budget Trading
Program after 2008 when implementation of the CAIR NOX Ozone
Season Trading Program began. Since that time, states have had to find
appropriate alternative ways to continue to show compliance with the
NOX SIP Call, particularly for large non-EGUs. As one
option, EPA has allowed states to modify the applicability provisions
of the NOX ozone season trading programs established under
CAIR and later the CSAPR Update (although not the CSAPR) to include all
NOX Budget Trading Program units as a way to continue to
meet the requirements of the NOX SIP Call for these sources.
    In this action, as under CAIR and the CSAPR Update, EPA is again
allowing any NOX SIP Call state affected by this final rule
to voluntarily submit a SIP revision to expand the applicability of the
CSAPR NOX Ozone Season Group 3 Trading Program to include
all NOX Budget Trading Program units. As part of such a SIP
revision, the state would be allowed to issue additional emission
allowances capped at a level intended to preserve the stringency of the
Group 3 trading program. Analysis shows that the NOX Budget
Trading Program units (mainly large non-EGU boilers, combustion
turbines, and combined cycle units with a maximum design heat input
greater than 250 mmBtu/hr) continue to emit well below their portions
of the NOX SIP Call state budgets. In order to ensure that
the necessary amounts of EGU emission reductions occur for this final
rule, the corresponding state ozone-season emissions budget amount can
be increased by the lesser of: (1) The relevant non-EGU budget under
the NOX SIP Call or (2) the highest emissions of the
relevant set of non-EGUs in the most recent 3 years. EPA believes that
the environmental impact would be neutral using this approach, and
hourly reporting of emissions under 40 CFR part 75 would continue. This
option will address requests by states for help in determining an
appropriate way to address the continuing NOX SIP Call
requirement for large boilers and turbines. If a state elects to bring
its NOX SIP Call non-EGUs into the Group 3 trading program,
the program's assurance provisions continue to apply only to the EGUs
covered by the program, and the amounts of the variability limits and
assurance levels established for EGUs will remain unchanged.
    The NOX SIP Call generally requires that states choosing
to rely on large EGUs and large non-EGU boilers and turbines for
meeting NOX SIP Call emission reduction requirements must
establish a NOX mass emissions cap on each source and
require 40 CFR part 75, subpart H monitoring or alternative monitoring.
As an alternative to source-by-source NOX mass emission
caps, a state may impose NOX emission rate limits on each
source and use maximum operating capacity for estimating NOX
mass emissions or may rely on other requirements that the state
demonstrates to be equivalent to either the NOX mass
emission caps or the NOX emission rate limits that assume
maximum operating capacity. Collectively, the caps or their
alternatives cannot exceed the portion of the state budget for those
sources. See 40 CFR 51.121(f)(2) and (i)(1). If a state submits and EPA
approves a SIP expanding the applicability to include all of the
state's NOX Budget Trading Program units in the CSAPR
NOX Ozone Season Group 3 Trading Program, the cap
requirement would be met through the new budget and the monitoring
requirement would be met through the trading program provisions, which
require part 75 monitoring. Whether states choose to include
NOX Budget Trading Program units in the CSAPR NOX
Ozone Season Group 3 Trading Program through SIPs or not, EPA will work
with states to ensure that NOX SIP Call obligations continue
to be met.
    Comment: One commenter questioned the need to allow states to
include large non-EGUs of the types that participated in the
NOX Budget Trading Program in the Group 3 trading program
since current ozone season NOX emissions from the large non-
EGUs are a small fraction of historical emissions because many units
have retired and the remaining ones have moved away from coal as the
main fuel and are now largely natural gas-fired.
    Response: EPA is not requiring states to include non-EGUs of the
types that participated in the NOX Budget Trading program in
the Group 3 trading program. EPA continues to believe that allowing
states to include these sources in the Group 3 trading program (or for
some states, the Group 2 trading program) provides states a potentially
useful option for continued compliance with ongoing NOX SIP
Call requirements.
    Comment: A commenter questioned the methodology EPA would use to
ensure that including these sources in the Group 3 trading program
could be done in an environmentally neutral way. The commenter did not
feel EPA had explained how that would work in practice.
    Response: EPA has allowed the voluntary inclusion of these sources
in the CSAPR programs for a number of years. The methodology for
determining the amount of allowances to provide for the additional
sources is capped at the lesser of recent historical actual emissions
and the allocations from the original NOX SIP Call program.
This methodology accounts for the kinds of overall emission reductions
that have occurred as cited by the commenter and holds emissions at
actual levels, thus not allowing emissions increases from a decision by
a state to voluntarily include these sources in the new CSAPR trading
program.

VIII. Costs, Benefits, and Other Impacts of the Final Rule

    In the Regulatory Impact Analysis for the Final Revised Cross-State
Air Pollution Rule Update for the 2008 Ozone NAAQS (RIA), EPA estimated
the health and climate benefits, compliance costs, and emissions
changes that may result from the final rule for the analysis period
2021 to 2040. The estimated health and climate benefits and compliance
costs are presented in detail in the RIA accompanying this final
action. EPA notes that the estimated health and climate benefits and
compliance costs are directly associated with optimizing NOX
removal by turning on and optimizing existing idled SCRs; optimizing
existing idled selective non-catalytic reduction (SNCRs); and
installing state-of-the-art combustion controls. The estimated health
and climate benefits and compliance costs also result from a small
amount of generation shifting as the power system adjusts to the
regulatory requirements.
    EPA analyzed this final action's emission budgets, using a uniform
control stringency represented by $1,800 per ton of NOX
(2016$), as well as a more and a less stringent alternative. The more
and less stringent alternatives differ in that they set different
NOX ozone season emission budgets for the affected EGUs. The
less stringent alternative uses emission budgets that were developed
using uniform control stringency represented by $500 per ton of
NOX (2016$). The more stringent alternative uses emission
budgets that were developed using uniform control stringency
represented by $9,600 per ton of NOX (2016$). Table VIII.1
provides the projected 2021, 2025, 2030, 2035, and 2040 EGU emission
reductions for the evaluated regulatory

control alternatives.\227\ For additional information on emissions
changes, see Table 4.5 in Chapter 4 of the RIA.
---------------------------------------------------------------------------

    \227\ EPA relied on Engineering Analysis to account for changes
in NOX (annual and ozone season), SO2, and
direct PM. While this approach captures the impact of generation
shifting for NOX emissions, it does not fully capture the
impact of generation shifting for SO2 and PM in complying
with the budgets established in this final rule. In order to meet
the court-ordered timeline for this rulemaking EPA prioritized fully
capturing the impact of reductions from generation shifting on
NOX and CO2, but did not account for the
relatively small amount of SO2 and primary PM emissions
reductions that would likely occur due to generation shifting. Hence
total benefits could be higher than those reported in this RIA. EPA
relied on IPM estimates to capture changes in CO2
emissions, which fully account for the impact of generation
shifting.

  Table VIII.1--Estimated 2021, 2025, 2030, 2035, and 2040 a EGU Emissions Reductions in the 12 States of NOX,
                              SO2, and CO2 and More and Less Stringent Alternatives
                                                   [Tons] b c
----------------------------------------------------------------------------------------------------------------
                                                                                More stringent  Less stringent
                                                                    Final rule      alternative     alternative
----------------------------------------------------------------------------------------------------------------
2021:
    NOX (annual)................................................          16,000          16,000           2,000
    NOX (ozone season)..........................................          16,000          16,000           2,000
    SO2 (annual) *..............................................             (*)             (*)             (*)
    CO2 (annual, thousand metric)...............................  ..............  ..............  ..............
2025:
    NOX (annual)................................................          21,000          37,000           2,000
    NOX (ozone season)..........................................          19,000          34,000           2,000
    SO2 (annual) *..............................................             (*)             (*)             (*)
    CO2 (annual, thousand metric)...............................           5,000          14,000           4,000
2030:
    NOX (annual)................................................          16,000          27,000           2,000
    NOX (ozone season)..........................................          13,000          25,000           2,000
    SO2 (annual) *..............................................             (*)             (*)             (*)
    CO2 (annual, thousand metric)...............................           8,000          19,000           6,000
2035:
    NOX (annual)................................................          15,000          26,000           2,000
    NOX (ozone season)..........................................          13,000          25,000           2,000
    SO2 (annual) *..............................................             (*)             (*)             (*)
    CO2 (annual, thousand metric)...............................           8,000          19,000           6,000
2040:
    NOX (annual)................................................          14,000          25,000           2,000
    NOX (ozone season)..........................................          13,000          24,000           2,000
    SO2 (annual) *..............................................             (*)             (*)             (*)
    CO2 (annual, thousand metric)...............................           4,000          13,000           3,000
----------------------------------------------------------------------------------------------------------------
a The 2021-2040 emissions reductions estimates are based on IPM projections for CO2 and engineering analysis for
  annual and ozone season NOX. SO2 and PM2.5 emissions were only partially analyzed. IPM was run for the
  following years: 2021, 2023, 2025, 2030, 2035, 2040, 2045 and 2050. For more information, see Chapter 4 and
  the Ozone Transport Policy Analysis Final Rule TSD.
b NOX emissions are reported in English (short) tons; CO2 is reported in metric tons.
c In addition to no annual SO2 emissions reductions as shown in the table above, there are no annual direct
  PM2.5 emissions changes.
* There are no annual SO2 and PM2.5 emissions reductions that come from turning on SCRs and SNCRs assuming that
  nothing else changes, but EPA did not analyze the effects on SO2 and direct PM that may come from shifting
  power generation, for example from coal-fired power plants to gas-fired or other types of power plants. EPA
  does expect some changes in SO2 and PM2.5 emissions due to shifting of power generation.

    EPA analyzed ozone-season NOX emission reductions and
the associated costs to the power sector of implementing the EGU
NOX ozone-season emissions budgets in each of the 12 states
using the Integrated Planning Model (IPM) and its underlying data and
inputs. The estimates of the changes in the cost of supplying
electricity for the regulatory control alternatives are presented in
Table VIII.2. Total costs continue to change in later IPM run years as
the modeled system responds to projected demand growth and shifts in
the power sector under the illustrative scenarios. For a detailed
description of these cost trends, please see Chapter 4, Section 4.4.3
of the RIA.

  Table VIII.2--National Compliance Cost Estimates (Millions of 2016$) for the Regulatory Control Alternatives
----------------------------------------------------------------------------------------------------------------
                                                                                More-stringent  Less-stringent
                                                                    Final rule      alternative     alternative
----------------------------------------------------------------------------------------------------------------
2021-2025 (Annualized)..........................................           $10.0           $41.4          $(2.9)
2021-2040 (Annualized)..........................................            24.8            28.5            19.6
2021 (Annual)...................................................             5.1             5.2             1.6
2022 (Annual)...................................................            19.2            61.5             5.9
2023 (Annual)...................................................            19.2            61.5             5.9
2024 (Annual)...................................................             2.1             4.5          (14.9)
2025 (Annual)...................................................             1.6             4.0          (14.9)
2030 (Annual)...................................................            63.6            32.3            67.0

2035 (Annual)...................................................            18.2            41.2            14.3
2040 (Annual)...................................................             8.8           134.0            18.9
----------------------------------------------------------------------------------------------------------------
``2021-2025 (Annualized)'' reflects total estimated annual compliance costs levelized over the period 2021
  through 2025 and discounted using a 4.25 real discount rate.\228\ This does not include compliance costs
  beyond 2025. ``2021-2040 (Annualized)'' reflects total estimated annual compliance costs levelized over the
  period 2021 through 2040 and discounted using a 4.25 real discount rate. This does not include compliance
  costs beyond 2040. ``2021 (Annual)'' through ``2040 (Annual)'' costs reflect annual estimates in each of those
  years.

    Tables VIII.3 and VIII.4 report the estimated economic value of
avoided premature deaths and illness in each year relative to the
baseline along with the 95% confidence interval. In each of these
tables, for each discount rate and regulatory control alternative,
multiple benefits estimates are presented reflecting alternative ozone
and PM2.5 mortality risk estimates. For additional
information on health benefits, see Chapter 5 of the RIA.
---------------------------------------------------------------------------

    \228\ This table reports compliance costs consistent with
expected electricity sector economic conditions. An NPV of costs was
calculated using a 4.25% real discount rate consistent with the rate
used in IPM's objective function for cost-minimization. The NPV of
costs was then used to calculate the levelized annual value over a
5-year period (2021-2025) and a 20-year period (2021-2040) using the
4.25% rate as well. Table VIII.7 reports the NPV of the annual
stream of costs from 2021-2040 using 3% and 7% consistent with OMB
guidance.

  Table VIII.3--Table VIII.3. Estimated Discounted Economic Value of Ozone-Attributable Premature Mortality and
                                Illnesses for the Final Policy Scenarios in 2021
                                [95% Confidence Interval; millions of 2016$] a b
----------------------------------------------------------------------------------------------------------------
                                                                     More stringent           Less stringent
                                              Final rule              alternative              alternative
----------------------------------------------------------------------------------------------------------------
3% Discount Rate.....................  $230 ($58 to $480) \c\   $260 ($88 to $520) \c\   $22 ($6 to $47) \c\ and
                                        and $1,900 ($210 to      and $1,900 ($210 to      $190 ($20 to $490) \d\
                                        $5,000) \d\.             $5,000) \d\.
7% Discount Rate.....................  $200 ($38 to $460) \c\   $200 ($38 to $460) \c\   $20 ($4 to $45) \c\ and
                                        and $1,700 ($170 to      and $1,700 ($170 to      $170 ($17 to $440) \d\
                                        $4,500) \d\.             $4,500) \d\.
----------------------------------------------------------------------------------------------------------------
\a\ Values rounded to two significant figures. The two benefits estimates are separated by the word ``and'' to
  signify that they are two separate estimates. The estimates do not represent lower- and upper-bound estimates
  and should not be summed.
\b\ We estimated changes in annual mean PM2.5 and PM2.5 -related benefits in 2024, but not 2021. As discussed in
  Chapter 4, in 2021, the only control measure expected to be adopted for compliance in the regulatory control
  alternatives is optimization of existing SCRs, and this measure will operate only during the ozone season. As
  discussed in Chapter 3, NOX reductions in the ozone season provide minimal PM2.5 benefits since PM2.5 nitrate
  concentrations, which result from conversion of NOX emissions to nitrate, are minimal during the warmer
  temperatures during the ozone season. Conversely, the conversion of nitrates to PM2.5 is much greater in
  cooler (non-ozone season) months, and thus it becomes worthwhile to estimate PM2.5 benefits from NOX
  reductions in those months. In 2024, the presence of additional control measures that operate year-round and
  other changes in market conditions as a result of the rule lead to notable NOX reductions in the winter
  months.
\c\ Sum of ozone mortality estimated using the pooled Katsouyanni et al. (2009) and Zanobetti and Schwartz
  (2008) short-term risk estimate and the Di et al. (2017) long-term mortality risk estimate. As PM-related
  mortality quantified using risk estimates from the Di et al. (2017) and Turner et al. (2016) are within 5% of
  one another, in the interest of clarity and simplicity, we present the results estimated using the risk
  estimate from Di et al. (2017) alone.
\d\ Sum of ozone mortality estimated using the long-term risk estimate and the Di et al. (2017) long-term
  mortality risk estimate. As PM-related mortality quantified using risk estimates from the Di et al. (2017) and
  Turner et al. (2016) are within 5% of one another, in the interest of clarity and simplicity, we present the
  results estimated using the risk estimate from Di et al. (2017) alone.

  Table VIII.4--Estimated Discounted Economic Value of Avoided Ozone and PM2.5-Attributable Premature Mortality
                               and Illnesses for the Final Policy Scenario in 2024
                                [95% Confidence Interval; millions of 2016$] a b
----------------------------------------------------------------------------------------------------------------
                                                                   More stringent            Less stringent
                                           Final rule                alternative             alternative \b\
----------------------------------------------------------------------------------------------------------------
3% Discount Rate.................  $310 ($72 to $680) \c\     $530 ($130 to $1,100)     $22 ($6 to $47) \c\ and
                                    and $2,400 ($250 to        \c\ and $4,200 ($450 to   $190 ($20 to $490). \d\
                                    $6,200) \d\.               $11,000) \d\.
7% Discount Rate.................  $280 ($48 to $640) \c\     $470 ($84 to $1,100) \c\  $20 ($4 to $45) \c\ and
                                    and $2,100 ($210 to        and $3,800 ($370 to       $170 ($17 to $440). \d\
                                    $5,600) \d\.               $9,900) \d\.
----------------------------------------------------------------------------------------------------------------
\a\ Values rounded to two significant figures. The two benefits estimates are separated by the word ``and'' to
  signify that they are two separate estimates. The estimates do not represent lower- and upper-bound estimates
  and should not be summed.
\b\ No PM-attributable benefits accrue for this scenario.
\c\ Sum of ozone mortality estimated using the pooled Katsouyanni et al. (2009) and Zanobetti and Schwartz
  (2008) short-term risk estimate and the Di et al. (2017) long-term mortality risk estimate. As PM-related
  mortality quantified using risk estimates from the Di et al. (2017) and Turner et al. (2016) are within 5% of
  one another, in the interest of clarity and simplicity, we present the results estimated using the risk
  estimate from Di et al. (2017).
\d\ Sum of ozone mortality estimated using the long-term risk estimate and the Di et al. (2017) long-term
  mortality risk estimate. PM-related mortality quantified using risk estimates from the Di et al. (2017) and
  Turner et al. (2016) are within 5% of one another. In the interest of clarity and simplicity, we present the
  results estimated using the risk estimate from Di et al. (2017) alone.

    Table VIII.5 shows the estimated monetary value of the estimated
changes in CO2 emissions expected to occur over 2021-2040
for the final rule, the more-stringent alternative, and the less-
stringent alternative. EPA estimated the dollar value of the
CO2-related effects for each analysis year between 2021 and
2040 by applying the SC-CO2 estimates to the estimated
changes in CO2 emissions in the corresponding year under the
regulatory options.\229\ For additional information on climate
benefits, see Chapter 5 of the RIA.
---------------------------------------------------------------------------

    \229\ Under the baseline, CO2 emissions are projected
to rise through 2025 and then taper off through 2035 and rise during
the rest of the period, reflecting increasing demand growth,
changing generation mix patterns and the impact of retiring
capacity. CO2 emissions reductions as a result of the
modeled policies follow a similar trend, which causes total climate
benefit estimates to oscillate over time.

      Table VIII.5--Estimated Total Annual Global Climate Benefits (2021-40) from Changes in CO2 Emissions
                                               [Millions of 2016$]