One commenter stated that consistent with the statutory scheme for
ozone laid out in section 182, and given the severity of the health
risks associated with PM2.5, EPA must require offsets of at
least 1.15:1 for PM2.5 precursors in ``moderate''
nonattainment areas, and must increase the offset ratio in ``serious''
nonattainment areas or in areas that request extensions of their
attainment deadlines. As mentioned previously, we do not believe that
subpart 2 of the Act (which includes section 182) has any relevance to
PM2.5 or its precursors. Subpart 2 is specific to ozone. In
addition, we are implementing the PM2.5 program under
subpart 1. Nevertheless, under the Act, we believe that a State may
require higher offset ratios if it determines that they are necessary
to achieve reasonable further progress. For the reasons discussed
previously with respect to direct PM2.5, we do not believe
that it is appropriate for us to set higher offset ratios for
PM2.5 precursors on a national basis.
    Two commenters requested that we make clear in the final rule that
an increase in precursor emissions need only be offset once, even if
the increase triggers nonattainment NSR under, for example, both the
ozone and PM2.5 programs. We agree with these commenters and
are clarifying that a precursor emissions increase only needs to be
offset once. A permit applicant will not, for example, need to obtain
two sets of offsets for NOX emissions if NOX is
regulated as a precursor both for ozone and PM2.5 in the
area. The NOX precursor emissions need only be offset once
in accordance with the applicable

ratio. To the extent a higher ratio applies for ozone under subpart 2,
the applicant would have to obtain offsets at the higher ratio.
However, when the offset ratios are the same, both requirements can be
met with a single set of NOX offsets.
4. Is interpollutant trading allowable to comply with offset
requirements?
    In this final rule, we are allowing limited interpollutant trading
for purposes of offsets only (and not netting) under the
PM2.5 NA NSR program. Specifically, the final rules allow
interpollutant trading only based on a trading ratio established in the
SIP as part of the attainment demonstration approved for a specific
nonattainment area, on a statewide basis, or in a regional, multi-state
program. This differs from our proposal in that the final rules do not
allow interpollutant trading on a case-by-case basis as part of an
individual NA NSR permitting process. For the purpose of offsets in the
NA NSR program for PM2.5, the final rules allow reductions
in direct PM2.5 emissions to offset precursor emissions
increases, emissions reductions of one precursor to offset emissions
increases of another precursor, and reductions in precursor emissions
to offset direct PM2.5 emissions increases.
    We have completed a technical assessment to develop preferred
interpollutant trading ratios that may be used for the purposes of
PM2.5 offsets, where appropriate. The preferred ratios were
generated with a PM2.5 response surface modeling (RSM)
approach based on the EPA's Community Multi-Scale Air Quality (CMAQ)
model. This RSM approach allows one to distinguish the impact of direct
and precursor emissions from particular source groupings on total
PM2.5 concentrations within nine specific urban areas and
broadly across U.S. regions. This approach was recently applied by the
Agency to inform development of potential PM2.5 control
strategies as part of the Regulatory Impact Assessment (RIA) for the
final PM2.5 NAAQS.\14\ Based on results from the RSM, we
determined the distribution of predicted ratios for urban areas and
regions across the country and developed the preferred ratios with a
goal to be environmentally protective. The technical approach with
details on data and modeling inputs are fully described in a technical
memo to the docket, ``Details on Technical Assessment to Develop
Interpollutant Trading Ratios for PM2.5 Offsets.'' \15\ Use
of the preferred ratios is recommended by EPA but not mandatory, and we
do not intend to preclude the opportunity for a local demonstration of
trading ratios on a case-by-case basis and public input into that
process.
---------------------------------------------------------------------------

    \14\ A full description of this approach is available in the
technical support document at http://www.epa.gov/scram001/reports/
pmnaaqs_tsd_rsm_all_021606.pdf and in the docket for this
rulemaking, Docket ID No. EPA-HQ-OAR-2003-0062.
    \15\ Available in the docket for this rulemaking, Docket ID No.
EPA-HQ-OAR-2003-0062.
---------------------------------------------------------------------------

    Our work here and in other recent PM2.5 assessments
clearly show that the relative efficacy of emissions reductions varies
across pollutants and that a ton of direct PM2.5 is
generally more effective than a ton of precursor emissions in reducing
overall PM2.5 concentrations. For the purposes of reporting
information here, we define the ``East'' to be the 37 States either
completely or in part east of 100 degrees west longitude. ``West''
would include the remaining 11 western-most States in the continental
United States. We found the following relationships between pollutants
in developing the preferred trading ratios:

    1. NOX to SO2; SO2 to
NOX: Our assessment indicated potential disbenefits of
reducing NOX (i.e., reducing NOX tons in urban
areas may increase overall PM2.5 concentrations) in the
eastern United States and urban areas in the western United States.
Due to the possibility of these disbenefits and the high degree of
variability in the observed NOX to SO2 ratios
or SO2 to NOX ratios across urban areas, we
are not defining preferred ratios involving trades between these
precursors but will rely upon a local demonstration to determine the
appropriate trading ratios.
    2. NOX to Primary PM2.5; Primary
PM2.5 to NOX: Based on a local demonstration
that NOX reductions are beneficial in reducing
PM2.5 concentrations (i.e., no disbenefits from
NOX reductions as noted previously), our assessment
indicates that the preferred trading ratio is 200 to 1
(NOX tons for PM2.5 tons) or 1 to 200
(PM2.5 tons for NOX tons) for areas in the
eastern United States, and 100 to 1 (NOX tons for
PM2.5 tons) or 1 to 100 (PM2.5 tons for
NOX tons ) for areas in the western United States.
    3. SO2 to Primary PM2.5; Primary
PM2.5 to SO2: We have determined a nationwide
preferred ratio of 40 to 1 (SO2 tons for PM2.5
tons) or 1 to 40 (PM2.5 tons for SO2) for
trades between these pollutants. We recognize there is spatial
variability here between urban and regionally located sources of
these pollutants that can be addressed through a local demonstration
to determine an area-specific relationship, as appropriate.

    We recommend that States use these hierarchies and trading ratios
in their interpollutant trading programs to provide consistency and
streamline the trading process. As indicated by our work and findings,
it is appropriate to establish acceptable trading ratios for
interpollutant trading for PM2.5 NSR offsets. If States
elect to use EPA's recommended trading ratios, they may rely on EPA's
technical work and a presumption that such ratios will be approvable by
EPA absent a credible showing that EPA's trading ratios are not
appropriate for that location. If States choose to develop their own
hierarchies/trading ratios, they will have to substantiate by modeling
and/or other technical demonstrations of the net air quality benefit
for PM2.5 ambient concentrations, and such a trading program
will have to be approved by EPA.
    We acknowledge that the relationship between pollutants can vary
across geographic areas. Thus, local demonstrations, to determine
trading ratios, will need to address a number of local factors
including, but not limited to, the following:

    1. The relative magnitude of emissions of direct
PM2.5 and precursor gases (e.g., SO2 and
NOX) within the geographic area of interest.
    2. The relative contribution to local PM2.5
nonattainment of directly emitted PM2.5 and individual
precursors from the various sources or source categories under
consideration as part of a potential interpollutant trade.
    3. The meteorological conditions and topography of the area,
which result in different source-receptor relationships across
pollutants within the local area.

    We have adopted this approach to capture the flexibility advantages
of interpollutant trading, while remaining mindful of the limitations
of existing air quality models. We believe that the regional-scale
models used for area-wide attainment demonstrations have sufficient
accuracy to establish an overall equivalence ratio for a nonattainment
area. However, we do not believe that available models can accurately
determine the effects of interpollutant trades at a single source. In
addition, permit-by-permit modeling demonstrations are extremely
resource intensive, only to yield limited results. For these reasons,
the final rules only allow a State to develop its own interpollutant
trading rule for inclusion in its SIP, based on a technical
demonstration for a specific nonattainment area. We will not accept
case-by-case demonstrations on an individual source permit basis.
    The flexibility provided by this policy allows sources to select
the most cost-effective manner to obtain the offsets necessary to
ensure that PM2.5 air quality improves. This will be
particularly beneficial where offsets for one particular pollutant are
scarce in a particular area, as is often the case for direct
PM2.5 emissions and SO2.

    We received a large number of comments on this issue representing a
wide variety of viewpoints. Several commenters supported flexible
interpollutant trading at ratios established either on an area-wide
basis or permit by permit. They often pointed out the economic and
administrative benefits of flexibility in the program, especially in
areas where offsets for some pollutants will be difficult to obtain.
One commenter asserted that such flexibility is essential to the
ability of enterprises to be able to expand as the PM2.5
NAAQS is implemented, especially in the program's early years. Another
commenter suggested allowing such trading on an equal basis, without
the ``unnecessary complication'' of interpollutant offset ratios.
    Many commenters argued against allowing interpollutant trading for
offsets. These commenters commonly pointed out that direct
PM2.5 emissions typically have a more local impact, while
the impact of precursor emissions are farther afield. A number of
commenters pointed out the complex atmospheric chemistry of secondary
particulate formation and the shortcomings of the air quality models
currently available to perform a detailed PM2.5 formation
assessment, specifically that local-scale models are not sufficiently
accurate and regional-scale models do not have the resolution to show
local impacts adequately. According to two commenters, trading
precursors for direct PM2.5 emissions raises serious
environmental justice concerns due to the localized impacts of direct
PM2.5 emissions. These commenters also asserted that the
equivalence between precursors would vary spatially and temporally,
making it extremely difficult to assess, and that PM2.5
precursors also differ in their impacts on other air pollution
problems, such as direct health and welfare impacts of SO2
and NOX; and formation of ozone, acid deposition, and
reactive nitrogen deposition.
    We also received comments opposing allowing interpollutant trading
for netting purposes, on the basis that the resulting program would be
very staff-intensive apart from the difficulty of demonstrating through
modeling the net air quality benefit of a single source trade. We
concur with these commenters and are not allowing interpollutant
trading for netting purposes at this time.
    A number of commenters supported some types of trades, but not
others. Most frequently, these commenters favored allowing reductions
in direct PM2.5 emissions to offset precursor emissions
increases. One commenter suggested a hierarchy as follows: Direct
PM2.5 emissions, SO2, NOX, ammonia,
and VOC. That is, a pollutant should be allowed as an offset for a
pollutant ranked lower, but not the reverse (e.g., reductions in direct
PM2.5 emissions could be used to offset increases in any of
the listed pollutants, SO2 emissions reductions could offset
NOX increases, etc.).
    As previously noted, this rule allows interpollutant and
interprecursor trading of offsets according to a SIP-approved trading
program. To be approved, the trading program must either adopt EPA's
recommended trading ratios or be backed up by regional-scale modeling
that demonstrates a net air quality benefit using appropriate overall
offset ratios for such trades for a specified nonattainment area,
State, or multi-State region. There is considerable uncertainty about
the relationship of precursor and direct PM2.5 emissions to
localized ambient PM2.5 concentration both spatially and
temporally. Given the uncertainty as to localized adverse and
beneficial effects, we have opted for program flexibility. We believe
this is necessary, in part, because of the shortage of available
offsets for some pollutants, particularly direct PM2.5
emissions and SO2, in many areas.

H. How will the transition to the PM2.5 PSD requirements
occur?

1. Background
    On October 23, 1997, after the NAAQS for PM2.5 was
originally promulgated, we issued a guidance document entitled
``Interim Implementation for the New Source Review Requirements for
PM2.5,'' John S. Seitz, EPA. As noted in that guidance,
section 165 of the Act suggests that PSD requirements become effective
for a new NAAQS upon the effective date of the NAAQS. Section 165(a)(1)
of the Act provides that no new or modified major source may be
constructed without a PSD permit that meets all of the section 165(a)
requirements with respect to the regulated pollutant. Moreover, section
165(a)(3) provides that the emissions from any such source may not
cause or contribute to a violation of any NAAQS. Also, section
165(a)(4) requires BACT for each pollutant subject to PSD regulation.
    The 1997 guidance stated that sources should continue to use
implementation of a PM10 program as a surrogate for meeting
PM2.5 NSR requirements until certain difficulties were
resolved, primarily the lack of necessary tools to calculate the
emissions of PM2.5 and related precursors, the lack of
adequate modeling techniques to project ambient impacts, and the lack
of PM2.5 monitoring sites. With this final action and
technical developments in the interim, these difficulties have largely
been resolved.
2. Transition for ``Delegated States''
    The Federal PSD program is contained in 40 CFR 52.21. This section
is the Federal implementation plan for areas lacking an approved PSD
program. We implement this program in Indian country and some U.S.
territories, but for the most part we have delegated implementation of
40 CFR 52.21 to those States without approved PSD programs (typically
referred to as ``delegated States''). Except as provided in the
grandfathering provisions that follow, these final rules go into effect
and must be implemented beginning on the effective date of this rule,
July 15, 2008 in all areas subject to 40 CFR 52.21, including the
delegated States.
    Consistent with 40 CFR 52.21(i)(1)(x), wherein EPA grandfathered
sources or modifications with pending permit applications based on PM
from the PM10 requirements established in 1987, EPA will
allow sources or modifications who previously submitted applications in
accordance with the PM10 surrogate policy to remain subject
to that policy for purposes of permitting if EPA or its delegate
reviewing authority subsequently determines the application was
complete as submitted. This is contingent upon the completed permit
application being consistent with the requirements pursuant to the EPA
memorandum entitled ``Interim Implementation of New Source Review
Requirements for PM2.5'' (Oct. 23, 1997) recommending the
use of PM10 as a surrogate for PM2.5.
Accordingly, we have added 40 CFR 52.21(i)(1)(xi) to reflect this
grandfathering provision.
3. Transition for ``SIP-Approved States''
    The requirements for State PSD programs are contained in 40 CFR
51.166. Most States have developed PSD programs according to these
requirements, which we have approved into each State's implementation
plan. States with PSD programs approved under 40 CFR 51.166 are called
``SIP-approved States.''
    States with SIP-approved PSD programs that require amendments to
incorporate these final NSR rule changes for PM2.5 will need
time to accomplish these SIP amendments. For example, a State may need
to amend its existing regulations to add the specific significant
emissions rate for PM2.5 or a designated precursor. In our
December 31, 2002 Federal Register notice

promulgating other changes to the NSR program, we explained that the
Act does not specifically address the timeframe by which States must
submit SIP revisions when we revise the PSD and NA NSR rules. We
nonetheless looked to section 110(a)(1) to guide our decision to
require States to adopt and submit plan revisions within 3 years from
when we publish changes in the Federal Register. We codified this
approach in the PSD regulations at 40 CFR 51.166(a)(6)(i) and applied
this same timeframe to State NA NSR programs through that final rule
action. 64 FR 80241. This rule follows our established approach for
determining when States must adopt and submit revised SIPs following
changes to the NSR regulations, but does not revise otherwise
applicable SIP submittal deadlines. Accordingly, we are requiring
States with SIP-approved PSD programs to submit revised PSD programs
and revised NA NSR programs for PM2.5 (see section V.I.)
within 3 years from the date of this action.\16\
---------------------------------------------------------------------------

    \16\ In our proposal, we proposed April 5, 2008 as a deadline
for States to comply with the revised nonattainment NSR and PSD
requirements in this rule. However, in light of the time it has
taken to complete this final rule, expecting States to submit
required SIP revisions consistent with this final rule by April 5,
2008 is no longer practical or fair. Nevertheless, States are still
currently required to implement a PSD program for PM2.5,
and we still expect States to fulfill the SIP infrastructure
requirements of CAA section 110(a)(2), including the PSD program
requirements, by April 5, 2008. We believe these PSD program
requirements are currently met by implementing the transitional PSD
program for PM2.5 described in this preamble (a.k.a. the
PM10 surrogate policy). In accordance with a Consent
Decree in Environmental Defense and American Lung Ass'n v. Johnson,
No. 1:05CV00493 (D.D.C. June 15, 2005), EPA must determine by
October 5, 2008 whether each State has submitted the SIP revisions
for the PM2.5 PSD program required under section
110(a)(2) of the Act. This rulemaking does not change the specific
guidance we previously provided to States on what they should submit
by April 5, 2008 to comply with section 110(a)(2).
---------------------------------------------------------------------------

    During this SIP development period, the PM2.5 NAAQS must
still be protected under the PSD program in such States. We are
finalizing our proposed option 1 that if a SIP-approved State is unable
to implement a PSD program for the PM2.5 NAAQS based on
these final rules, the State may continue to implement a
PM10 program as a surrogate to meet the PSD program
requirements for PM2.5 pursuant to the 1997 guidance
mentioned previously. Under option 1 for SIP-approved States, we had
proposed two additional requirements. These were to require sources to
demonstrate that emissions from construction or operation of the
facility will not cause or contribute to a violation of the
PM2.5 NAAQS and to include condensable PM emissions in
determining major NSR applicability and control requirements. We are
not finalizing either of these additional requirements of our proposed
option 1. We have dropped the requirement for demonstrating compliance
with the PM2.5 NAAQS in order to maintain consistency in the
application of the existing surrogate policy across the PSD program
during the interim period. Since in the final rule we are otherwise
allowing SIP-approved States to continue with the existing
PM10 surrogate policy to meet the PSD requirements for
PM2.5, partially implementing the PM10 surrogate
policy in this manner would be confusing and difficult to administer.
Thus, to ensure consistent administration during the transition period,
we have elected to maintain our existing PM10 surrogate
policy which only recommends as an interim measure that sources and
reviewing authorities conduct the modeling necessary to show that
PM10 emissions will not cause a violation of the
PM10 NAAQS as a surrogate for demonstrating compliance with
the PM2.5 NAAQS. Also as discussed previously in section
V.E, we are not requiring condensable emissions to be fully integrated
into the PM2.5 program until the end of the transition
period to validate test methods discussed in section V.E of this
preamble.
    In our proposal, we offered two additional options for the SIP
development period in States with SIP-approved PSD programs. Under
option 2, we would have updated the 1997 guidance to reflect the
provisions in these final rules and allowed States to run a
PM2.5 program pursuant to this updated guidance.
Alternatively under option 2, we would have amended appendix S and 40
CFR 52.24 so that the PSD requirements of 40 CFR 52.21 would govern the
issuance of major NSR permits during the SIP development period.
Finally, under option 3, we would have allowed a State to request
delegation of just the Federal PM2.5 PSD program in 40 CFR
52.21 in that State. A State that otherwise had a SIP-approved PSD
program could have requested delegation for PM2.5 by
informing us that it did not intend to submit a PSD SIP for
PM2.5 in the immediate future.
    We received several comments supporting option 1, although some of
these commenters requested that we not require condensable emissions to
be included until the concerns with test methods were resolved. One of
these commenters favored continuing to implement the PM10
program as a surrogate under the 1997 guidance to provide clarity and
certainty to the permitting agency and regulated community. The
commenter indicated that PM2.5 inventories and methods for
estimating emission rates are rudimentary and may even be nonexistent
in some cases, which would make permitting onerous.
    A few commenters opposed option 1. One of these commenters
indicated that we should not continue outdated policy (i.e., the 1997
NSR guidance) because it does not address the PM2.5 problem,
cannot be implemented in some States, and does not incorporate
precursor emissions.
    Four commenters expressed support for option 2. Three of these
suggested that we issue updated guidance to incorporate these PSD
requirements for PM2.5, while one preferred that we revise
appendix S to point to the requirements of 40 CFR 52.21. We received
one comment in favor of option 3 and three opposed.
    Two commenters supported approaches different from our options. One
of these commenters requested that the interim framework should, at a
minimum, ensure that any new or modified project that exceeds
thresholds use BACT. The commenter also suggested that we require
offsets for projects approved before the other protective elements of
the full PSD program are in place to ensure that there is no
significant deterioration in air quality. Another commenter stated that
none of the proposed options were viable for their State. The commenter
requested that we allow States to continue their existing PM10 program
as a surrogate for PM2.5, without caveat.
    As noted previously, we are finalizing proposed option 1, without
the requirement of demonstrating compliance with the PM2.5 NAAQS or the
requirement to include condensable emissions. We believe that our final
rule is reasonable for the following reasons. First, PM10 will act as
an adequate surrogate for PM2.5 in most respects, because all new major
sources and major modifications that would trigger PSD requirements for
PM2.5 would also trigger PM10 requirements because PM2.5 is a subset of
PM10. Second, both of the precursors designated in the final rule--SO2
and NOX (presumptively)--are already regulated under State NSR programs
for other criteria pollutants. Thus, those precursors will be subject
to NSR through those other programs. We do not believe that the other
options or suggestions offer significant advantages that outweigh the
utility and ease of implementation of this approach.
    States may include grandfathering provisions similar to the ones
EPA

included in the transition requirements for 40 CFR 52.21.

I. How will the transition to the PM2.5 NA NSR requirements occur?

1. Background
    The requirements for State NA NSR programs are contained in 40 CFR
51.165. All States with nonattainment areas have developed NA NSR
programs according to these requirements, which we have approved into
each State's implementation plan. However, as noted previously, it
takes time for a State to amend its SIP when it must make changes to
its NA NSR program. According to the provisions of 40 CFR 52.24(k),
during such an interim period when a State lacks an approved NA NSR
program for a particular pollutant, appendix S of 40 CFR part 51
applies for NA NSR permitting.
    Section 172(c)(5) of the Act requires that States issue major NSR
permits for construction and major modifications of major stationary
sources in any nonattainment area. Thus, since the PM2.5 nonattainment
designations became effective on April 5, 2005, States are now required
to issue major NSR permits that address the section 173 NA NSR
requirements for PM2.5.
    On the date that the PM2.5 nonattainment designations took effect
(April 5, 2005), we issued guidance to address implementation of the NA
NSR program pending the completion of this action to develop
implementation rules for PM2.5. See memorandum from Stephen D. Page,
Director, Office of Air Quality Planning and Standards to Regional Air
Directors, ``Implementation of New Source Review Requirements in PM2.5
Nonattainment Areas'' (April 5, 2005).
    Our current guidance permits States to implement a PM10 NA NSR
program as a surrogate to address the requirements of NA NSR for the
PM2.5 NAAQS. A State's surrogate major NSR program in PM2.5
nonattainment areas may consist of either the implementation of the
State's SIP-approved NA NSR program for PM10 or implementation of a
major NSR program for PM10 under the authority in 40 CFR part 51,
appendix S.
2. Transition
    With this finalization of the new PM2.5 NSR implementation
requirements under 40 CFR 51.165, States now have the necessary tools
to implement a NA NSR program for PM2.5. After the effective date of
the amended rule (that is, July 15, 2008, States will no longer be
permitted to implement a NA NSR program for PM10 as a surrogate for the
PM2.5 NA NSR requirements. Most States will then need to implement a
transitional PM2.5 NA NSR program under appendix S (as amended in this
rulemaking action) until EPA approves changes to a State's SIP-approved
NA NSR program to reflect the new requirements under 40 CFR 51.165. At
this time, we do not believe it is appropriate to allow grandfathering
of pending permits being reviewed under the PM10 surrogate program in
nonattainment areas, mainly because of a State's obligations to
expedite attainment and the fact that we had not established a similar
precedent for transitioning from PM to PM10.
    The NA NSR provisions in a State's existing SIP-approved NA NSR
program would also apply in areas designated as nonattainment for the
PM2.5 NAAQS if the SIP-approved regulations contain a generic
requirement to issue part D permits in areas designated as
nonattainment for any criteria pollutant and do not otherwise need to
be amended to incorporate the changes finalized in this action. States
belonging to the following categories will need to revise their NA NSR
regulations and submit them to EPA for incorporation into the SIP
within 3 years from the date of this action \17\:
---------------------------------------------------------------------------

    \17\ As discussed earlier, we are following the precedent we
established in our 2002 rule for NA NSR program revisions to allow
States adequate time to adopt these revisions. For practical and
fairness reasons, we are not requiring the NA NSR elements of this
rule to be submitted by April 5, 2008, as we had proposed. However,
the States are still required to submit nonattainment plans for
PM2.5 (including NA NSR programs) on April 5, 2008. We believe this
requirement is satisfied by implementing the transitional NA NSR
program for PM2.5 (a.k.a. the PM10 surrogate policy) described in
our April 5, 2005 guidance, or, if submitted after the effective
date of this rule, implementing Appendix S as revised in this rule.
This rulemaking does not change the specific guidance we previously
provided to States on what they should submit to EPA by April 5,
2008 to comply with nonattainment area requirements under Part D.
---------------------------------------------------------------------------

     States that have nonattainment regulations which need to
be amended to incorporate the new PM2.5 requirements.
     States that have designated nonattainment areas for PM2.5
and their nonattainment NSR regulations specifically list the areas in
which NA NSR applies (i.e., the list does not include the designated
nonattainment areas for PM2.5).
     States that have not previously had nonattainment areas
but now have nonattainment areas for PM2.5.
    These States will have to implement a transitional NA NSR
permitting program for PM2.5 pursuant to 40 CFR 52.24(k) and appendix S
until their existing part D SIPs are revised to meet these new PM2.5
NSR requirements under 40 CFR 51.165.
3. Implementation of NSR Under the ``Emissions Offset Interpretative
Ruling'' (40 CFR Part 51, Appendix S) With Revisions
    In general, appendix S requires new or modified major sources to
meet LAER and obtain sufficient offsetting emissions reductions to
assure that a new major source or major modification of an existing
major source will not interfere with the area's progress toward
attainment. Readers should refer to appendix S for a complete
understanding of these and other appendix S requirements. In this
action, we are finalizing our proposed revisions to appendix S to
include provisions necessary to implement a transitional NA NSR program
for PM2.5, including significant emissions rates applicable to major
modifications for PM2.5 and, as appropriate, precursors. Additionally,
since we are finalizing interpollutant trading provisions in the NSR
rules at 40 CFR 51.165, we are also amending appendix S to allow
interpollutant trading for PM2.5. Appendix S applies directly to new
and modified major stationary sources. In accordance with the
requirements of section 110(a)(2)(c) of the Act, we believe that the
majority of States have the legal authority to issue permits consistent
with these requirements under an existing SIP-approved permitting
program. Nonetheless, at least one State has reported that it lacks the
legal authority to issue permits implementing the requirements of
appendix S under its existing permitting rules.
    If a State is unable to apply the requirements of appendix S, we
will act as the reviewing authority for the relevant portion of the
permit. We believe that it is appropriate for EPA to issue the
preconstruction permits in such circumstances. Congress amended the Act
in 1990 to remove the requirements that would have applied a
construction ban in areas that lacked a SIP-approved part D permit
program. Thus, we believe that it is consistent with Congressional
intent that either the State or EPA issues construction permits for
those projects meeting the applicable criteria during the interim
period. See the preamble of the proposal for this rule for more detail
on the legal basis for requiring States to issue NA NSR permits
pursuant to appendix S during the SIP development period (70 FR 66045-
46).
    We received three comments supporting the issuance of NA NSR
permits under appendix S during the SIP development period. Two of
these

commenters expected States generally to be able to do so, while one
suggested that EPA issue such permits because States will lack the
authority to do so without protracted rule revisions. One of these
commenters also suggested that we revise appendix S to authorize
interprecursor trading during the transition period, believing that the
paucity of existing direct PM2.5 emissions and SO2 offsets likely will
make business expansion in PM2.5 nonattainment areas from now until at
least April 2008 impossible unless this is done. One commenter
suggested that we suspend the 2005 PM2.5 NSR guidance which allows use
of PM10 emissions as a surrogate for PM2.5 emissions in PM2.5
nonattainment areas when we adopt the final PM2.5 implementation rules,
while three other commenters requested continued implementation of that
guidance during the interim period.
    As noted previously, this final action will require States to amend
their NA NSR programs consistent with the amended rules at 40 CFR
51.165. During the SIP development period, where they have legal
authority to do so, States must issue NA NSR permits under appendix S
(as revised for purposes of the PM2.5 program). To address one of the
points raised by commenters, we are amending appendix S to allow
interpollutant trading for PM2.5 in this final rule. Where a State
determines that it does not have legal authority to issue such permits,
we will act as the reviewing authority. As of the effective date of
this action, the 2005 PM2.5 NSR guidance on use of PM10 emissions as a
surrogate for PM2.5 emissions will remain in effect only for PSD in the
SIP-approved States during the SIP development period. In the delegated
PSD States and in nonattainment areas, the new PM2.5 requirements will
apply immediately on the effective date of this final action.

J. Does major NSR apply to PM2.5 precursors during the SIP development
period?

    As discussed previously in section V.A, we have taken final action
on NSR applicability for PM2.5 precursors. Specifically, we have
designated SO2 as a national precursor to PM2.5 in all areas, NOX as a
``presumed-in'' precursor in all areas, VOC as a ``presumed-out''
precursor in all areas, and ammonia as a ``presumed-out'' precursor.
Thus, States have the option of excluding NOX as a precursor by
demonstrating that NOX emissions are not a significant contributor to
ambient PM2.5 concentrations in a particular area. In addition, States
have the option of identifying VOC and/or ammonia as precursor(s) by
demonstrating that emissions of VOC and/or ammonia are a significant
contributor in an area, and thus should be subject to major NSR.
    In the proposal, during the SIP development period, we proposed
that SO2 should be treated as a regulated PM2.5 precursor as of the
effective date of this final rule since there is no doubt about its
status as such in any area and proposed to defer NSR applicability for
NOX until a State SIP submittal so that if a State elected to submit
information to rebut the presumption that NOX is a regulated PM2.5
precursor, the State would have an opportunity to do so in its SIP
submittal. We also proposed that VOCs and ammonia would not be treated
as PM2.5 precursors during the interim period because they are presumed
not to be precursors until they have been demonstrated to be through a
State's SIP submittal.
    A few commenters supported staying the applicability of NSR to all
precursors during the interim period. However, two of these supporters
suggested that EPA establish mechanisms for interpollutant trading for
offsets during the interim period so that increases in direct PM2.5
emissions can be offset with SO2 or NOX emissions reductions. Another
supporter noted that their State cannot impose obligations on NSR
applicants until those obligations are established in State regulations
or statutes. Another indicated that this delay would allow States the
time to develop experience and knowledge in establishing local
photochemical models and to performance test their accuracy.
    Two commenters opposed staying NSR applicability for any
precursors. They believe that this would make attainment more
difficult. One commenter suggested that SO2 should be designated as a
precursor during the interim period, and another suggested the same for
SO2 and NOX.
    Based on the comments, we have been persuaded that SIP-approved PSD
States will not have the authority to regulate PM2.5 precursors before
they have amended their SIPs to incorporate these requirements in
attainment areas. Thus, in order to allow time for these States to
revise their regulations to incorporate such requirements, this final
action does not require regulation of SO2 or NOX as precursors to PM2.5
under PSD until the SIP development period ends. In addition, we are
allowing SIP-approved PSD States to continue with the existing PM10
surrogate policy to meet the PSD requirements for PM2.5. However, for
delegated PSD States, SO2 and NOX are regulated as precursors from the
effective date of this rule. However, these States or EPA have the
option of excluding NOX as a precursor by demonstrating that NOX
emissions are not a significant contributor to ambient PM2.5
concentrations in a particular area.
    For nonattainment areas, the transitional program pursuant to
appendix S will apply on the effective date of this action. Under
appendix S, SO2 will be regulated as a precursor in all nonattainment
areas for PM2.5. However, unlike in the proposal, NOX will not be
regulated as a precursor for PM2.5 because we believe it is appropriate
to give States the opportunity to determine whether NOX emissions are a
significant contributor to the ambient PM2.5 problem, and to make the
appropriate demonstration in their SIP. Finally, for States determining
that VOC and/or ammonia are PM2.5 precursors under their SIPs, we will
approve their definition of ``significant emissions rate'' for each
precursor based on an appropriate demonstration.

K. Are there any Tribal concerns?

    Some Tribal areas may be designated as nonattainment, in part
because of pollution that is transported from surrounding State lands.
Tribal representatives have advocated for additional flexibility to
address nonattainment problems caused by transported pollution, such as
a pool of available NSR offset set-asides (which we expect would come
from State offset pools or banks), because they have limited ability to
generate offsets on their own. Tribal representatives have raised these
and other concerns in discussions on implementation of the 8-hour ozone
and PM2.5 standards, and in comments on the 8-hour ozone implementation
rule. We requested comment on whether emissions offset set-asides,
possibly generated by innovative measures to promote additional
emissions reductions, are an appropriate method to help level the
playing field for the Tribes and support economic development in Tribal
areas. We also requested comment on ways in which States may help
provide the Tribes access to offsets from non-Tribal areas. We received
no comments on these issues.
    We recently proposed Tribal NSR rules. See 71 FR 48696, August 21,
2006. They include a NA NSR rule, which refers to appendix S for its
substantive requirements, and a minor NSR rule. In recognition of the
concerns mentioned above, we have proposed and sought comments on
options for obtaining offset relief in that proposal.

We will address these issues in the context of that rule.

L. What are the requirements for minor NSR for PM2.5?

    Pursuant to section 110(a)(2)(C) of the Act, States must have a
minor source permitting program. This applies to new and modified
stationary sources that are not considered major for a criteria
pollutant or a precursor for a criteria pollutant. Prior to this
action, States were required to include the following pollutants in
their minor NSR program:
     VOC,
     SO2,
     NOX,
     CO,
     PM10, and
     Lead (Pb).
    Based on this action, States must now amend their minor source
programs to include direct PM2.5 emissions and precursor emissions in
the same manner as included for purposes of PM2.5 major NSR.

M. Rural Transport Areas

    In the proposal for the Clean Air Fine Particle Implementation Rule
and this NSR implementation rule for PM2.5, we considered the option of
classifying some nonattainment areas as transport areas that suffer
from overwhelming transport, and of developing NA NSR rules specific to
such areas. However, the final implementation rule does not include the
rural transport classification. Consequently, no NA NSR rules have been
developed or finalized in this rule.

VI. Statutory and Executive Order Reviews

A. Executive Order 12866: Regulatory Planning and Review

    Under Executive Order (EO) 12866 (58 FR 51735, October 4, 1993),
this action is a ``significant regulatory action'' because it is likely
to raise novel legal or policy issues arising out of legal mandates,
the President's priorities, or the principles set forth in the
Executive Order. Accordingly, EPA submitted this action to the Office
of Management and Budget (OMB) for review under EO 12866 and any
changes made in response to OMB recommendations have been documented in
the docket for this action.

B. Paperwork Reduction Act

    The information collection requirements in this rule have been
submitted for approval to the OMB under the Paperwork Reduction Act, 44
U.S.C. 3501 et seq. The information collection requirements are not
enforceable until OMB approves them. The Information Collection Request
(ICR) document prepared by EPA has been assigned OMB Control Number
2060-0003 (EPA ICR No. 1230.21).
    To achieve the purposes of the major NSR program, certain records
and reports are necessary for the State or local agency (or the EPA
Administrator in non-delegated States), for example, to: (1) Confirm
the compliance of status of stationary sources, identify any stationary
sources not subject to the rules, and identify stationary sources
subject to the rules; and (2) ensure that the stationary source control
requirements are being achieved. The information would be used by EPA
or State enforcement personnel to (1) identify stationary sources
subject to the rules, (2) ensure that appropriate control technology is
being properly applied, and (3) ensure that the emission control
devices are being properly operated and maintained on a continuous
basis.
    This final NSR rule does not create new information collection
requirements, but rather expands the coverage of the existing
requirements of the major NSR program. Specifically, the rule changes
finalized in this action add PM2.5 to the list of air pollutants that
must be addressed in the major NSR program, and the companion proposal
adds certain elements that are necessary for a complete PM2.5 NSR
program. This change is unlikely to increase significantly the number
of NSR permits that must be issued, but may add to the analyses that
sources and Federal, State, and local reviewing authorities must
conduct as part of the construction permit application and review
process.
    We expect the rule changes finalized in this action to increase the
burden associated with major NSR permitting for tracking new emissions
of PM2.5 against increments; collecting ambient air quality monitoring
data for existing PM2.5 concentrations; reviewing the effects of PM2.5
emissions on soils and vegetation, as well as on air quality related
values in Class I areas; determining the appropriate best available
control technology or lowest achievable emission rate; and/or obtaining
offsets. At the same time, there would be a reduction in burden
directly associated with the revocation of the annual increment for
PM10, which is proposed in the proposed rule.
    Over the 3-year period covered by the ICR, we estimate an average
annual burden increase of about 39,000 hours (about 8 percent) and $4.3
million (about 10 percent) for all industry entities that would be
affected by this final NSR rule. For the same reasons, we also expect
the final rule to increase burden for the State and local authorities
reviewing permit applications when fully implemented. In addition,
there would be additional burden for State and local agencies to revise
their SIPs to incorporate the proposed changes. We estimate the
combined increase in burden to average about 16,000 hours and $700,000
annually for all State and local reviewing authorities, which is less
than 13 percent.
    Burden means the total time, effort, or financial resources
expended by persons to generate, maintain, retain, or disclose or
provide information to or for a Federal agency. This includes the time
needed to review instructions; develop, acquire, install, and utilize
technology and systems for the purposes of collecting, validating, and
verifying information, processing and maintaining information, and
disclosing and providing information; adjust the existing ways to
comply with any previously applicable instructions and requirements;
train personnel to be able to respond to a collection of information;
search data sources; complete and review the collection of information;
and transmit or otherwise disclose the information.
    An agency may not conduct or sponsor, and a person is not required
to respond to a collection of information unless it displays a
currently valid OMB control number. The OMB control numbers for EPA's
regulations in 40 CFR are listed in 40 CFR part 9. When this ICR is
approved by OMB, the Agency will publish a technical amendment to 40
CFR part 9 in the Federal Register to display the OMB control number
for the approved information collection requirements contained in this
final rule.

C. Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) generally requires an agency
to prepare a regulatory flexibility analysis of any rule subject to
notice and comment rulemaking requirements under the Administrative
Procedure Act or any other statute unless the Agency certifies that the
rule will not have a significant economic impact on a substantial
number of small entities. Small entities include small businesses,
small organizations, and small governmental jurisdictions.
    For purposes of assessing the impacts of this proposed rule on
small entities, ``small entity'' is defined as: (1) A small business as
defined by the Small Business Administration's regulations at 13 CFR
121.201; (2) a small governmental jurisdiction that is a government or
a city, county, town,

school district or special district with a population of less than
50,000; and (3) a small organization that is any not-for-profit
enterprise which is independently owned and operated and is not
dominant in its field.
    After considering the economic impacts of this final rule on small
entities, I certify that this rule will not have a significant economic
impact on a substantial number of small entities. The requirements of
this final rule apply only to new major stationary sources or major
modifications of existing major stationary sources. This final rule
does not create any new requirements under the major NSR program, but
simply expands the program to cover an additional pollutant, referred
to as PM2.5. There is no reason to expect that the rule will
significantly or uniquely affect small businesses, organizations, or
governments (few, if any, of which act as reviewing authorities
pursuant to this final rule).

D. Unfunded Mandates Reform Act

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public
Law 104-4, establishes requirements for Federal agencies to assess the
effects of their regulatory actions on State, local, and tribal
governments and the private sector. Under section 202 of the UMRA, we
generally must prepare a written statement, including a cost-benefit
analysis, for proposed and final rules with ``Federal mandates'' that
may result in expenditures to State, local, and tribal governments, in
aggregate, or to the private sector, of $100 million or more in any 1
year. Before promulgating an EPA rule for which a written statement is
needed, section 205 of the UMRA generally requires us to identify and
consider a reasonable number of regulatory alternatives and adopt the
least costly, most cost-effective, or least burdensome alternative that
achieves the objectives of the rule. The provisions of section 205 do
not apply when they are inconsistent with applicable law. Moreover,
section 205 allows us to adopt an alternative other than the least-
costly, most cost-effective, or least-burdensome alternative if the
Administrator publishes with the final rule an explanation of why that
alternative was not adopted. Before we establish any regulatory
requirements that may significantly or uniquely affect small
governments, including tribal governments, we must have developed under
section 203 of the UMRA a small government agency plan. The plan must
provide for notifying potentially affected small governments, enabling
officials of affected small governments to have meaningful and timely
input in the development of our regulatory proposals with significant
Federal intergovernmental mandates, and informing, educating, and
advising small governments on compliance with the regulatory
requirements.
    We have determined that this rule does not contain a Federal
mandate that may result in expenditures of $100 million or more for
State, local, and tribal governments, in the aggregate, or the private
sector in any 1 year. The final rule does not add any new requirements
to the NSR program; it simply expands the program to cover
PM2.5 in addition to the several other pollutants already
defined as regulated NSR pollutants. (Technically, the rule also
subjects the precursors to PM2.5 to the NSR program.
However, these precursors (SO2, NOX, and VOC) are
already subject to the existing NSR program.) As discussed previously
in section VI.B on the Paperwork Reduction Act, the expansion of the
NSR program to cover PM2.5 will only marginally increase the
expenditures of State, local, and tribal governments and the private
sector on the program. Thus, this action is not subject to the
requirements of sections 202 and 205 of the UMRA.
    The EPA has determined that this rule contains no regulatory
requirements that might significantly or uniquely affect small
governments. As noted previously, this rule does not create any new
requirements under the major NSR program, but simply expands the
program to cover an additional pollutant (PM2.5). There is
no reason to expect that the rule will significantly or uniquely affect
small governments, few if any of which act as reviewing authorities.

E. Executive Order 13132--Federalism

    Executive Order 13132, entitled ``Federalism'' (64 FR 43255, August
10, 1999), requires us to develop an accountable process to ensure
``meaningful and timely input by State and local officials in the
development of regulatory policies that have federalism implications.''
``Policies that have federalism implications'' is defined in the
Executive Order to include regulations that have ``substantial direct
effects on the States, on the relationship between the national
government and the States, or on the distribution of power and
responsibilities among the various levels of government.''
    This final rule does not have federalism implications. It will not
have substantial direct effects on the States, on the relationship
between the national government and the States, or on the distribution
of power and responsibilities among the various levels of government,
as specified in Executive Order 13132. Pursuant to the terms of
Executive Order 13132, it has been determined that this proposed rule
does not have ``federalism implications'' because it does not meet the
necessary criteria. Thus, the requirements of section 6 of the
Executive Order do not apply to this proposed rule.
    In the spirit of Executive Order 13132, however, and consistent
with our policy to promote communications between us and State and
local governments, we specifically solicited comment on the proposed
rule from State and local officials.

F. Executive Order 13175--Consultation and Coordination With Indian
Tribal Governments

    Executive Order 13175, entitled ``Consultation and Coordination
with Indian Tribal Governments'' (65 FR 67249, November 9, 2000),
requires EPA to develop an accountable process to ensure ``meaningful
and timely input by Tribal officials in the development of regulatory
policies that have Tribal implications.'' This final rule does not have
``Tribal implications'' as defined in Executive Order 13175. This rule
concerns the NSR requirements for State and tribal implementation
plans. The CAA provides for States to develop plans to regulate
emissions of air pollutants within their jurisdictions. The Tribal Air
Rule (TAR) under the CAA gives Tribes the opportunity to develop and
implement CAA programs such as programs to attain and maintain the
PM2.5 NAAQS, but it leaves to the discretion of the Tribe
the decision of whether to develop these programs and which programs,
or appropriate elements of a program, they will adopt.
    Although Executive Order 13175 does not apply to this rule, EPA did
reach out to Tribal leaders and environmental staff in developing this
rule. From 2001-2004, the EPA supported a National Designations
Workgroup to provide a forum for tribal professionals to give input to
the designations process. In 2006, EPA supported a national ``Tribal
Air call'' which provides an open forum for all Tribes to voice
concerns to EPA about the NAAQS implementation process, including the
PM2.5 NAAQS. In these meetings, EPA briefed call
participants and Tribal environmental professionals gave input as the
rule was under development. Furthermore, in December 2005, EPA sent
individualized letters to all federally recognized Tribes about the
proposal to give Tribal leaders the opportunity for consultation.
    This final rule does not have Tribal implications as defined by
Executive

Order 13175. It does not have a substantial direct effect on one or
more Indian Tribes, since no Tribe has implemented a CAA program to
attain the PM2.5 NAAQS at this time. The EPA notes that even
if a Tribe were implementing such a plan at this time, while the rule
might have Tribal implications with respect to that Tribe, it would not
impose substantial direct costs upon it, nor would it preempt Tribal
law.
    Furthermore, this rule does not affect the relationship or
distribution of power and responsibilities between the Federal
government and Indian Tribes. The CAA and the TAR establish the
relationship of the Federal government and Tribes in developing plans
to attain the NAAQS, and this rule does nothing to modify that
relationship. As this rule does not have Tribal implications, Executive
Order 13175 does not apply.

G. Executive Order 13045--Protection of Children From Environmental
Health and Safety Risks

    Executive Order 13045, entitled ``Protection of Children from
Environmental Health Risks and Safety Risks'' (62 FR 19885, April 23,
1997), applies to any rule that: (1) Is determined to be ``economically
significant'' as defined under Executive Order 12866; and (2) concerns
an environmental health or safety risk that we have reason to believe
may have a disproportionate effect on children. If the regulatory
action meets both criteria, the Agency must evaluate the environmental
health or safety effects of the planned rule on children, and explain
why the planned regulation is preferable to other potentially effective
and reasonably feasible alternatives considered by the Agency.
    This final rule is not subject to the Executive Order because it is
not economically significant as defined in Executive Order 12866, and
because the Agency does not have reason to believe the environmental
health or safety risks addressed by this action present a
disproportionate risk to children. This rule does not impose any new
requirements under the NSR program. However, in expanding the major NSR
program to address PM2.5, we believe that this rule will
serve to reduce environmental health risks to all citizens, including
children, because one of the basic requirements of the major NSR
program is that new and modified major stationary sources must not
cause or contribute to air quality in violation of the NAAQS.

H. Executive Order 13211--Actions That Significantly Affect Energy
Supply, Distribution, or Use

    This rule is not a ``significant energy action'' as defined in
Executive Order 13211, ``Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use'' (66 FR 28355
(May 22, 2001)) because it is not likely to have a significant adverse
effect on the supply, distribution, or use of energy. The final rule
does not add any new requirements to the major NSR program; it simply
expands the program to cover PM2.5 in addition to the
several other pollutants already defined as regulated NSR pollutants.
Although the major NSR program may apply to energy supply and
distribution companies that build or significantly modify major sources
of regulated NSR pollutants, we believe that any increase in
expenditures for obtaining NSR permits that may result from this rule
will be marginal rather than significant.

I. National Technology Transfer and Advancement Act

    As noted in the proposed rule, section 12(d) of the National
Technology Transfer and Advancement Act of 1995 (NTTAA), Public Law No.
104-113, 12(d) (15 U.S.C. 272 note) directs us to use voluntary
consensus standards (VCS) in our regulatory and procurement activities
unless to do so would be inconsistent with applicable law or otherwise
impractical. The VCS are technical standards (e.g., materials
specifications, test methods, sampling procedures, and business
practices) developed or adopted by one or more voluntary consensus
bodies. The NTTAA directs us to provide Congress, through annual
reports to OMB, with explanations when we do not use available and
applicable VCS.
    This final rule does not involve technical standards. Therefore, we
did not consider the use of any VCS.

J. Executive Order 12898--Federal Actions to Address Environmental
Justice in Minority Populations and Low-Income Populations

    Executive Order 12898 (59 FR 7629 (Feb. 16, 1994)) establishes
Federal executive policy on environmental justice. Its main provision
directs Federal agencies, to the greatest extent practicable and
permitted by law, to make environmental justice part of their mission
by identifying and addressing, as appropriate, disproportionately high
and adverse human health or environmental effects of its programs,
policies, and activities on minorities and low-income populations in
the United States.
    The EPA has determined that this final rule will not have
disproportionately high and adverse human health or environmental
effects on minority or low-income populations because it will have the
effect of improving air quality. While it does not impose any new
requirements under the major NSR program, we believe that this rule, in
expanding the NSR program to address PM2.5, will serve to
reduce adverse human health and environmental effects for all citizens,
including minorities and low-income populations.

K. Congressional Review Act

    The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the
Small Business Regulatory Enforcement Fairness Act of 1996, generally
provides that before a rule may take effect, the agency promulgating
the rule must submit a rule report, which includes a copy of the rule,
to each House of the Congress and to the Comptroller General of the
United States. The EPA will submit a report containing this rule and
other required information to the U.S. Senate, the U.S. House of
Representatives, and the Comptroller General of the United States prior
to publication of the rule in the Federal Register. A major rule cannot
take effect until 60 days after it is published in the Federal
Register. This action is not a ``major rule'' as defined by 5 U.S.C.
804(2). The rules affected by this action will be effective July 15,
2008.

L. Petitions for Judicial Review

    Under section 307(b)(1) of the Act, petitions for judicial review
of this action must be filed in the United States Court of Appeals for
the District of Columbia Circuit by July 15, 2008. Filing a petition
for reconsideration by the Administrator of this final rule does not
affect the finality of this rule for the purposes of judicial review
nor does it extend the time within which a petition for judicial review
may be filed, and shall not postpone the effectiveness of such rule or
action. This action may not be challenged later in proceedings to
enforce its requirements. See Act section 307(b)(2).

M. Determination Under Section 307(d)

    The PSD portions of this rulemaking, which implements part C of
title I of the Act, are subject to the procedural requirements in
section 307(d) of the Act. See section 307(d)(1)(J). In addition,
pursuant to section 307(d)(1)(V) of the Act, the Administrator
determines that the NA

NSR portions of this action should also be subject to the provisions of
section 307(d) to ensure consistency. All of the procedural
requirements of section 307(d), e.g., docketing, hearing, and comment
periods, have been complied with during the course of this rulemaking.

VII. Statutory Authority

    The statutory authority for this action is provided by sections
101, 110, 165, 169, 172, 173, 301, and 302 of the Act as amended (42
U.S.C. 7401, 7410, 7475, 7479, 7502, 7503, 7601, and 7602). This
rulemaking is also subject to section 307(d) of the Act (42 U.S.C.
7407(d)).

List of Subjects

40 CFR Part 51

    Environmental protection, Administrative practices and procedures,
Air pollution control, Intergovernmental relations.

40 CFR Part 52

    Environmental protection, Administrative practices and procedures,
Air pollution control, Intergovernmental relations.

    Dated: May 8, 2008.
Stephen L. Johnson,
Administrator.

0
For the reasons stated in the preamble, title 40, chapter I of the Code
of Federal Regulations is amended as follows.

PART 51--[AMENDED]

0
1. The authority citation for part 51 continues to read as follows:

    Authority: 23 U.S.C. 101; 42 U.S.C. 7401-7671q.

Subpart I--[Amended]

0
2. Section 51.165 is amended as follows:
0
a. By revising paragraph (a)(1)(x)(A);
0
b. By removing the word ``or'' at the end of paragraph
(a)(1)(xxxvii)(B);
0
c. By revising paragraph (a)(1)(xxxvii)(C);
0
d. By adding paragraph (a)(1)(xxxvii)(D);
0
e. By redesignating paragraphs (a)(9)(i) through (iii) as paragraphs
(a)(9)(ii) through (iv), respectively, and adding new paragraph
(a)(9)(i);
0
f. By removing from newly redesignated paragraph (a)(9)(iii) the
reference to ``paragraph (a)(9)(i)'' and adding in its place
``paragraph (a)(9)(ii)''; and
0
g. By adding paragraph (a)(11).

Sec.  51.165  Permit requirements.

    (a) * * *
    (1) * * *
    (x)(A) Significant means, in reference to a net emissions increase
or the potential of a source to emit any of the following pollutants, a
rate of emissions that would equal or exceed any of the following
rates:

Pollutant Emission Rate

Carbon monoxide: 100 tons per year (tpy)
Nitrogen oxides: 40 tpy
Sulfur dioxide: 40 tpy
Ozone: 40 tpy of volatile organic compounds or nitrogen oxides
Lead: 0.6 tpy
PM10: 15 tpy
PM2.5: 10 tpy of direct PM2.5 emissions; 40 tpy
of sulfur dioxide emissions; 40 tpy of nitrogen oxide emissions unless
demonstrated not to be a PM2.5 precursor under paragraph
(a)(1)(xxxvii) of this section
* * * * *
    (xxxvii) * * *
    (C) Any pollutant that is identified under this paragraph
(a)(1)(xxxvii)(C) as a constituent or precursor of a general pollutant
listed under paragraph (a)(1)(xxxvii)(A) or (B) of this section,
provided that such constituent or precursor pollutant may only be
regulated under NSR as part of regulation of the general pollutant.
Precursors identified by the Administrator for purposes of NSR are the
following:
    (1) Volatile organic compounds and nitrogen oxides are precursors
to ozone in all ozone nonattainment areas.
    (2) Sulfur dioxide is a precursor to PM2.5 in all
PM2.5 nonattainment areas.
    (3) Nitrogen oxides are presumed to be precursors to
PM2.5 in all PM2.5 nonattainment areas, unless
the State demonstrates to the Administrator's satisfaction or EPA
demonstrates that emissions of nitrogen oxides from sources in a
specific area are not a significant contributor to that area's ambient
PM2.5 concentrations.
    (4) Volatile organic compounds and ammonia are presumed not to be
precursors to PM2.5 in any PM2.5 nonattainment
area, unless the State demonstrates to the Administrator's satisfaction
or EPA demonstrates that emissions of volatile organic compounds or
ammonia from sources in a specific area are a significant contributor
to that area's ambient PM2.5 concentrations; or
    (D) PM2.5 emissions and PM10 emissions shall
include gaseous emissions from a source or activity which condense to
form particulate matter at ambient temperatures. On or after January 1,
2011 (or any earlier date established in the upcoming rulemaking
codifying test methods), such condensable particulate matter shall be
accounted for in applicability determinations and in establishing
emissions limitations for PM2.5 and PM10 in
nonattainment major NSR permits. Compliance with emissions limitations
for PM2.5 and PM10 issued prior to this date
shall not be based on condensable particulate matter unless required by
the terms and conditions of the permit or the applicable implementation
plan. Applicability determinations made prior to this date without
accounting for condensable particulate matter shall not be considered
in violation of this section unless the applicable implementation plan
required condensable particulate matter to be included.
* * * * *
    (9)(i) The plan shall require that in meeting the emissions offset
requirements of paragraph (a)(3) of this section, the ratio of total
actual emissions reductions to the emissions increase shall be at least
1:1 unless an alternative ratio is provided for the applicable
nonattainment area in paragraphs (a)(9)(ii) through (a)(9)(iv) of this
section.
* * * * *
    (11) The plan shall require that in meeting the emissions offset
requirements of paragraph (a)(3) of this section, the emissions offsets
obtained shall be for the same regulated NSR pollutant unless
interprecursor offsetting is permitted for a particular pollutant as
specified in this paragraph. The plan may allow the offset requirements
in paragraph (a)(3) of this section for direct PM2.5
emissions or emissions of precursors of PM2.5 to be
satisfied by offsetting reductions in direct PM2.5 emissions
or emissions of any PM2.5 precursor identified under
paragraph (a)(1)(xxxvii)(C) of this section if such offsets comply with
the interprecursor trading hierarchy and ratio established in the
approved plan for a particular nonattainment area.
* * * * *

0
3. Section 51.166 is amended as follows:
0
a. By revising paragraphs (b)(23)(i) and (b)(49)(i);
0
b. By removing the word ``or'' at the end of paragraph (b)(49)(iii);
0
c. By adding and reserving paragraph (b)(49)(v);
0
d. By adding paragraph (b)(49)(vi); and
0
e. By revising paragraphs (i)(5)(ii) and (i)(5)(iii).

Sec.  51.166  Prevention of significant deterioration of air quality.

* * * * *
    (b) * * *
    (23)(i) Significant means, in reference to a net emissions increase
or the potential of a source to emit any of the following pollutants, a
rate of emissions that would equal or exceed any of the following
rates:

Pollutant and Emissions Rate

Carbon monoxide: 100 tons per year (tpy)
Nitrogen oxides: 40 tpy
Sulfur dioxide: 40 tpy
Particulate matter: 25 tpy of particulate matter emissions. 15 tpy of
PM10 emissions
PM2.5: 10 tpy of direct PM2.5 emissions; 40 tpy
of sulfur dioxide emissions; 40 tpy of nitrogen oxide emissions unless
demonstrated not to be a PM2.5 precursor under paragraph
(b)(49) of this section
Ozone: 40 tpy of volatile organic compounds or nitrogen oxides
Lead: 0.6 tpy
Fluorides: 3 tpy
Sulfuric acid mist: 7 tpy
Hydrogen sulfide (H2S): 10 tpy
Total reduced sulfur (including H2S): 10 tpy
Reduced sulfur compounds (including H2S): 10 tpy
Municipal waste combustor organics (measured as total tetra-through
octa-chlorinated dibenzo-p-dioxins and dibenzofurans): 3.2 x 10-
-6 megagrams per year (3.5 x 10-6 tons per year)
Municipal waste combustor metals (measured as particulate matter): 14
megagrams per year (15 tons per year)
Municipal waste combustor acid gases (measured as sulfur dioxide and
hydrogen chloride): 36 megagrams per year (40 tons per year)
Municipal solid waste landfill emissions (measured as nonmethane
organic compounds): 45 megagrams per year (50 tons per year)
* * * * *
    (49) * * *
    (i) Any pollutant for which a national ambient air quality standard
has been promulgated and any pollutant identified under this paragraph
(b)(49)(i) as a constituent or precursor to such pollutant. Precursors
identified by the Administrator for purposes of NSR are the following:
    (a) Volatile organic compounds and nitrogen oxides are precursors
to ozone in all attainment and unclassifiable areas.
    (b) Sulfur dioxide is a precursor to PM2.5 in all
attainment and unclassifiable areas.
    (c) Nitrogen oxides are presumed to be precursors to
PM2.5 in all attainment and unclassifiable areas, unless the
State demonstrates to the Administrator's satisfaction or EPA
demonstrates that emissions of nitrogen oxides from sources in a
specific area are not a significant contributor to that area's ambient
PM2.5 concentrations.
    (d) Volatile organic compounds are presumed not to be precursors to
PM2.5 in any attainment or unclassifiable area, unless the
State demonstrates to the Administrator's satisfaction or EPA
demonstrates that emissions of volatile organic compounds from sources
in a specific area are a significant contributor to that area's ambient
PM2.5 concentrations.
* * * * *
    (v) [Reserved.]
    (vi) Particulate matter (PM) emissions, PM2.5 emissions,
and PM10 emissions shall include gaseous emissions from a
source or activity which condense to form particulate matter at ambient
temperatures. On or after January 1, 2011 (or any earlier date
established in the upcoming rulemaking codifying test methods), such
condensable particulate matter shall be accounted for in applicability
determinations and in establishing emissions limitations for PM,
PM2.5 and PM10 in PSD permits. Compliance with
emissions limitations for PM, PM2.5 and PM10
issued prior to this date shall not be based on condensable particular
matter unless required by the terms and conditions of the permit or the
applicable implementation plan. Applicability determinations made prior
to this date without accounting for condensable particular matter shall
not be considered in violation of this section unless the applicable
implementation plan required condensable particular matter to be
included.
* * * * *
    (i) * * *
    (5) * * *
    (ii) The concentrations of the pollutant in the area that the
source or modification would affect are less than the concentrations
listed in paragraph (i)(5)(i) of this section; or
    (iii) The pollutant is not listed in paragraph (i)(5)(i) of this
section.
* * * * *

0
4. Appendix S to Part 51 is amended as follows:
0
a. By revising paragraphs II.A.10(i) and II.A.31;
0
b. By revising paragraph IV.A, Condition 3;
0
c. By redesignating paragraphs IV.G.1 through IV.G.3 as paragraphs
IV.G.2 through IV.G.4, respectively, and adding new paragraph IV.G.1;
0
d. By removing from newly redesignated paragraph IV.G.3 the reference
to ``paragraph IV.G.1'' and adding in its place ``paragraph IV.G.2'';
and
0
e. By adding paragraph IV.G.5.

Appendix S to Part 51--Emission Offset Interpretative Ruling

* * * * *
    II. * * *
    A. * * *
    10. (i) Significant means, in reference to a net emissions
increase or the potential of a source to emit any of the following
pollutants, a rate of emissions that would equal or exceed any of
the following rates:

Pollutant and Emissions Rate

Carbon monoxide: 100 tons per year (tpy)
Nitrogen oxides: 40 tpy
Sulfur dioxide: 40 tpy
Ozone: 40 tpy of volatile organic compounds or nitrogen oxides
Lead: 0.6 tpy
Particulate matter: 25 tpy of particulate matter emissions
PM10: 15 tpy
PM2.5: 10 tpy of direct PM2.5 emissions; 40
tpy of sulfur dioxide emissions
* * * * *
    31. Regulated NSR pollutant, for purposes of this Ruling, means
the following:
    (i) Nitrogen oxides or any volatile organic compounds;
    (ii) Any pollutant for which a national ambient air quality
standard has been promulgated;
    (iii) Any pollutant that is identified under this paragraph
II.A.31(iii) as a constituent or precursor of a general pollutant
listed under paragraph II.A.31(i) or (ii) of this Ruling, provided
that such constituent or precursor pollutant may only be regulated
under NSR as part of regulation of the general pollutant. Precursors
identified by the Administrator for purposes of NSR are the
following:
    (a) Volatile organic compounds and nitrogen oxides are
precursors to ozone in all ozone nonattainment areas.
    (b) Sulfur dioxide is a precursor to PM2.5 in all
PM2.5 nonattainment areas; or
    (iv) Particulate matter (PM) emissions, PM2.5
emissions and PM10 emissions shall include gaseous
emissions from a source or activity which condense to form
particulate matter at ambient temperatures. On or after January 1,
2011 (or any earlier date established in the upcoming rulemaking
codifying test methods), such condensable particulate matter shall
be accounted for in applicability determinations and in establishing
emissions limitations for PM, PM2.5 and PM10
in permits issued under this ruling. Compliance with emissions
limitations for PM, PM2.5 and PM10 issued
prior to this date shall not be based on condensable particulate
matter unless required by the terms and conditions of the permit or
the applicable implementation plan. Applicability determinations
made prior to this date without accounting for condensable
particulate matter shall not be

considered in violation of this section unless the applicable
implementation plan required condensable particulate matter to be
included.
* * * * *
    IV. * * *
    A. * * *
    Condition 3. Emission reductions (offsets) from existing sources
\5\ in the area of the proposed source (whether or not under the
same ownership) are required such that there will be reasonable
progress toward attainment of the applicable NAAQS.\6\ Except as
provided in paragraph IV.G.5 of this Ruling (addressing
PM2.5 and its precursors), only intrapollutant emission
offsets will be acceptable (e.g., hydrocarbon increases may not be
offset against SO2 reductions).
    \5\ Subject to the provisions of paragraph IV.C of this Ruling.
    \6\ The discussion in this paragraph is a proposal, but
represents EPA's interim policy until final rulemaking is completed.
* * * * *
    G. Offset ratios.
    1. In meeting the emissions offset requirements of paragraph
IV.A, Condition 3 of this Ruling, the ratio of total actual
emissions reductions to the emissions increase shall be at least 1:1
unless an alternative ratio is provided for the applicable
nonattainment area in paragraphs IV.G.2 through IV.G.4.
* * * * *
    5. Interpollutant offsetting. In meeting the emissions offset
requirements of paragraph IV.A, Condition 3 of this Ruling, the
emissions offsets obtained shall be for the same regulated NSR
pollutant unless interpollutant offsetting is permitted for a
particular pollutant as specified in this paragraph IV.G.5. The
offset requirements of paragraph IV.A, Condition 3 of this Ruling
for direct PM2.5 emissions or emissions of precursors of
PM2.5 may be satisfied by offsetting reductions of direct
PM2.5 emissions or emissions of any PM2.5
precursor identified under paragraph II.A.31 (iii) of this Ruling if
such offsets comply with an interprecursor trading hierarchy and
ratio approved by the Administrator.
* * * * *

PART 52--[AMENDED]

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

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

Subpart A--[Amended]

0
6. Section 52.21 is amended as follows:
0
a. By revising paragraphs (b)(23)(i) and (b)(50)(i);
0
b. By removing the word ``or'' at the end of paragraph (b)(50)(iii);
0
c. By adding and reserving paragraph (b)(50)(v);
0
d. By adding paragraphs (b)(50)(vi) and (i)(1)(xi);
0
e. By revising paragraph (i)(5)(ii); and
0
f. By adding paragraph (i)(5)(iii).

Sec.  52.21  Prevention of significant deterioration of air quality.

* * * * *
    (b) * * *
    (23)(i) Significant means, in reference to a net emissions increase
or the potential of a source to emit any of the following pollutants, a
rate of emissions that would equal or exceed any of the following
rates:

Pollutant and Emissions Rate

Carbon monoxide: 100 tons per year (tpy)
Nitrogen oxides: 40 tpy
Sulfur dioxide: 40 tpy
Particulate matter: 25 tpy of particulate matter emissions
PM10: 15 tpy
PM2.5: 10 tpy of direct PM2.5 emissions; 40 tpy
of sulfur dioxide emissions; 40 tpy of nitrogen oxide emissions unless
demonstrated not to be a PM2.5 precursor under paragraph
(b)(50) of this section
Ozone: 40 tpy of volatile organic compounds or nitrogen oxides
Lead: 0.6 tpy
Fluorides: 3 tpy
Sulfuric acid mist: 7 tpy
Hydrogen sulfide (H2S): 10 tpy
Total reduced sulfur (including H2S): 10 tpy
Reduced sulfur compounds (including H2S): 10 tpy
Municipal waste combustor organics (measured as total tetra-through
octa-chlorinated dibenzo-p-dioxins and dibenzofurans): 3.2 x 10 \-6\
megagrams per year (3.5 x 10 \-6\ tons per year)
Municipal waste combustor metals (measured as particulate matter): 14
megagrams per year (15 tons per year)
Municipal waste combustor acid gases (measured as sulfur dioxide and
hydrogen chloride): 36 megagrams per year (40 tons per year)
Municipal solid waste landfills emissions (measured as nonmethane
organic compounds): 45 megagrams per year (50 tons per year)
* * * * *
    (50) * * *
    (i) Any pollutant for which a national ambient air quality standard
has been promulgated and any pollutant identified under this paragraph
(b)(50)(i) as a constituent or precursor for such pollutant. Precursors
identified by the Administrator for purposes of NSR are the following:
    (a) Volatile organic compounds and nitrogen oxides are precursors
to ozone in all attainment and unclassifiable areas.
    (b) Sulfur dioxide is a precursor to PM2.5 in all
attainment and unclassifiable areas.
    (c) Nitrogen oxides are presumed to be precursors to
PM2.5 in all attainment and unclassifiable areas, unless the
State demonstrates to the Administrator's satisfaction or EPA
demonstrates that emissions of nitrogen oxides from sources in a
specific area are not a significant contributor to that area's ambient
PM2.5 concentrations.
    (d) Volatile organic compounds are presumed not to be precursors to
PM2.5 in any attainment or unclassifiable area, unless the
State demonstrates to the Administrator's satisfaction or EPA
demonstrates that emissions of volatile organic compounds from sources
in a specific area are a significant contributor to that area's ambient
PM2.5 concentrations.
* * * * *
    (v) [Reserved.]
    (vi) Particulate matter (PM) emissions, PM2.5 emissions
and PM10 emissions shall include gaseous emissions from a
source or activity which condense to form particulate matter at ambient
temperatures. On or after January 1, 2011 (or any earlier date
established in the upcoming rulemaking codifying test methods), such
condensable particulate matter shall be accounted for in applicability
determinations and in establishing emissions limitations for PM,
PM2.5 and PM10 in PSD permits. Compliance with
emissions limitations for PM, PM2.5 and PM10
issued prior to this date shall not be based on condensable particular
matter unless required by the terms and conditions of the permit or the
applicable implementation plan. Applicability determinations made prior
to this date without accounting for condensable particular matter shall
not be considered in violation of this section unless the applicable
implementation plan required condensable particular matter to be
included.
* * * * *
    (i) * * *
    (1) * * *
    (xi) The source or modification was subject to 40 CFR 52.21, with
respect to PM2.5, as in effect before July 15, 2008, and the
owner or operator submitted an application for a permit under this
section before that date consistent with EPA recommendations to use
PM10 as a surrogate for PM2.5, and the
Administrator subsequently determines that the application as submitted
was complete with respect to the PM2.5 requirements then in
effect, as interpreted in the EPA memorandum entitled ``Interim
Implementation of New Source Review Requirements for PM2.5''
(October 23, 1997). Instead, the requirements of paragraphs (j) through

(r) of this section, as interpreted in the aforementioned memorandum,
that were in effect before July 15, 2008 shall apply to such source or
modification.
* * * * *
    (5) * * *
    (ii) The concentrations of the pollutant in the area that the
source or modification would affect are less than the concentrations
listed in paragraph (i)(5)(i) of this section; or
    (iii) The pollutant is not listed in paragraph (i)(5)(i) of this
section.
* * * * *
[FR Doc. E8-10768 Filed 5-15-08; 8:45 am]

BILLING CODE 6560-50-P


[Federal Register Volume 83, Number 195 (Tuesday, October 9, 2018)]
[Notices]
[Pages 50721-50722]
[FR Doc No: 2018-21784]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-84344; File No. SR-CBOE-2018-056]

Self-Regulatory Organizations; Cboe Exchange, Inc.; Order
Approving a Proposed Rule Change To Adopt Rule 6.57, Risk-Weighted
Asset (``RWA'') Packages

October 2, 2018.

I. Introduction

    On August 8, 2018, the Cboe Exchange, Inc. (the ``Exchange'' or
``Cboe Options'') filed with the Securities and Exchange Commission
(the ``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposal to adopt Rule 6.57, Risk-Weighted Assets (``RWA'')
Transactions. The proposed rule change was published for comment in the
Federal Register on August 23, 2018.\3\ The Commission did not receive
any comment letters on the proposed rule change. This order approves
the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 83870 (August 17,
2018), 83 FR 42725 (August 23, 2018) (``Notice'').
---------------------------------------------------------------------------

II. Description of the Proposed Rule Change

    As described in more detail in the Notice,\4\ the Exchange proposes
to adopt Rule 6.57 to provide a mechanism for Cboe Options market
makers to submit an on-floor risk-weighted asset package (``RWA
Package'') \5\ in the SPX trading crowd for the purpose of reducing
risk-weighted asset (``RWA'') exposure in

open SPX positions across numerous series. RWA Packages may be executed
in the SPX crowd on the trading floor if they meet certain conditions
specified in Rule 6.57, including that they be initiated for the
account(s) of a Cboe Options market maker, result in a change in
beneficial ownership, and include a certification concerning the
attributable net reduction of RWA.\6\
---------------------------------------------------------------------------

    \4\ See id.
    \5\ An RWA Package is a set of SPX options positions with at
least: 50 options series; 10 contracts per options series; and
10,000 total contracts. See id. at 42726.
    \6\ See id. at 42726-27.
---------------------------------------------------------------------------

    Further, Rule 6.57(c) sets forth a trading procedure that requires
the entering firm to submit a list of the individual SPX options
series, their size, and any net debit or credit bid price received, as
well as contact information for the order.\7\ Cboe will thereafter post
a list of the individual components of the RWA Package, the proposed
net price for the RWA Package (if available), the contact information,
and the time at which the two-hour request-for-quote period (``RFQ
Period'') concludes.\8\
---------------------------------------------------------------------------

    \7\ See id. at 42727.
    \8\ See id. The Exchange believed that this two-hour period was
sufficient to allow members to review, price, and bid/offer for the
RWA Package, because the RWA Package will be available in an
electronic format and the Exchange believed that firms had access to
electronic systems that will aid them in evaluating and pricing the
SPX positions contained in an RWA Package. See id.
---------------------------------------------------------------------------

    Rule 6.57(c) further specifies that the response that represents
the best bid or offer on a net debit or credit basis for the RWA
Package has priority.\9\ In the event that equal bids or offers are
received, the first RFQ response at the best bid or offer on a net
debit or credit basis for the RWA Package has priority.\10\ If
executed, the representing party must report the details of the
execution to the Exchange.\11\
---------------------------------------------------------------------------

    \9\ See id.
    \10\ See id. at 42727.
    \11\ See id.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act,\12\ and the
rules and regulations thereunder applicable to a national securities
exchange.\13\ In particular, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act,\14\ which
requires, among other things, that the rules of a national securities
exchange be designed to remove impediments to and perfect the mechanism
of a free and open market and a national market system, and, in
general, to protect investors and the public interest and that the
rules are not designed to permit unfair discrimination between
customers, issuers, brokers, or dealers.
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78f.
    \13\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
    \14\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The proposed rule change is designed to remove impediments to and
perfect the mechanism of a free and open market and a national market
system by providing a mechanism to facilitate the reduction of SPX
options positions and concomitant RWA.\15\ Specifically, the Exchange
represented that such a mechanism would help market makers to continue
to provide critical liquidity in the options market by reducing RWA to
comply with ``bank capital regulations that . . . are negatively
impacting the ability of [market makers] clearing through bank-
affiliated clearing firms to provide liquidity.'' \16\ In reducing RWA,
bank-affiliated clearing firms will be able to clear more market maker
activity during periods of increased volume and volatility.\17\ In
turn, market makers may be better able to continue quoting during those
periods, lessening the risk of market dislocations or excess volatility
that could occur if market makers needed to reduce their quoting
activity during such periods to the detriment of investors.
---------------------------------------------------------------------------

    \15\ See Notice, supra note 3, at 42726, 42730.
    \16\ Id. at 42726.
    \17\ See id.
---------------------------------------------------------------------------

    Further, with respect to trading, the Exchange's rule is based on
Rule 6.49A, which establishes a similar process for on-floor transfers,
but improves upon that rule by adding certifications to assure
compliance and increases transparency by electronically disseminating
the list of series in a proposed RWA Package. All Cboe members will be
given notice of and the ability to participate in the RWA Package
trading process.
    Finally, the Commission notes the narrow scope of proposed Rule
6.57. The proposed rule change would apply only to SPX options, which
are particularly impacted by current bank-capital regulations, and any
transaction must result in a net reduction of RWA. Furthermore, the
proposed rule change is only effective for a limited term, ending two
years from the approval date.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\18\ that the proposed rule change (SR-CBOE-2018-056) be, and
hereby is, approved.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
---------------------------------------------------------------------------

    \19\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-21784 Filed 10-5-18; 8:45 am]
 BILLING CODE 8011-01-P