6560-50-P

ENVIRONMENTAL PROTECTION AGENCY

40 CFR Part 51

[EPA-HQ-OAR-2003-0079, FRL-8256-8]

RIN 2060-AO00

Phase 2 of the Final Rule to Implement the 8-Hour Ozone National Ambient
Air Quality Standard –Notice of Reconsideration

AGENCY:  Environmental Protection Agency (EPA).

ACTION:  Final notice of reconsideration.

SUMMARY:  On December 19, 2006, EPA published, as a proposed rule, a
notice of reconsideration for several aspects of the November 29, 2005,
Phase 2 of the final rule to implement the 8-hour ozone national ambient
air quality standard (NAAQS).  These issues relate to nitrogen oxide
(NOx) reasonably available control technology (RACT) for electric
generating units (EGUs) in Clean Air Interstate Rule (CAIR) states and
to certain new source review (NSR) provisions.  The notice of
reconsideration was published as a result of a petition for
reconsideration which had been submitted by the Natural Resources
Defense Council.  In this action, EPA summarizes and responds to
comments received in response to the notice of reconsideration, and EPA
announces its final actions taken in response to these comments.

	As a result of this reconsideration process, EPA is changing the
deadline for states in the CAIR region to submit EGU NOx RACT SIPs
subpart 2 ozone nonattainment areas classified as moderate and above.
EPA is also modifying its guidance on the issue of NOx RACT for EGUs in
CAIR states.

DATES:  This final rule is effective on [insert date 30 days after
publication in the Federal Register]

ADDRESSES:  The EPA has established a docket for this action under
Docket ID No. EPA-HQ-OAR-2003-0079.  All documents in the docket are
listed in   HYPERLINK "http://www.regulations.gov"  www.regulations.gov
.  Although listed in the index, some information is not publicly
available, i.e., CBI or other information whose disclosure is restricted
by statute.  Certain other material, such as copyrighted material, is
not placed on the Internet and will be publicly available only in hard
copy form.  Publicly available docket materials are available either
electronically in www.regulations.gov or in hard copy at the EPA Docket
Center (Air Docket), EPA/DC, EPA West, Room 3334, 1301 Constitution
Ave., N.W., Washington, D.C.  The Public Reading Room is open from 8:30
a.m. to 4:30 p.m., Monday through Friday, excluding legal holidays.  The
telephone number for the Public Reading Room is<PHONE_NUMBER>.

FOR FURTHER INFORMATION CONTACT: For further information on the issue
relating to NOx RACT for EGU sources in CAIR States, contact Mr. William
L. Johnson, Office of Air Quality Planning and Standards, U.S.
Environmental Protection Agency, (C539-01) Research Triangle Park, NC
27711, phone number<PHONE_NUMBER>, fax number (919) 54l-0824 or by e-mail
at   HYPERLINK<EMAIL_ADDRESS><EMAIL_ADDRESS>or Mr. John Silvasi, Office of Air Quality
Planning and Standards, U.S. Environmental Protection Agency, (C539-01),
Research Triangle Park, NC 27711, phone number (919) 54l-5666, fax
number (919) 54l-0824 or by e-mail at<EMAIL_ADDRESS> For further
information on the NSR issues discussed in this notice, contact Mr.
David Painter, Office of Air Quality Planning and Standards, (C504-03),
U.S. EPA, Research Triangle Park, North Carolina 27711, telephone number
(919) 541-5515, fax number<PHONE_NUMBER>, e-mail:
<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION:

I.  General Information

A. Does This Action Apply to Me?

1.  Issue on Determination of CAIR/RACT Equivalency for NOx EGUs

	Entities potentially affected by the subject rule for this action
include States (typically State air pollution control agencies), and, in
some cases, local governments that develop air pollution control rules,
in the region affected by the CAIR.  The EGUs are also potentially
affected by virtue of State action in SIPs that implement provisions
resulting from final rulemaking on this action; these sources are in the
following groups:

Industry group	SICa	NAICSb

Electric Services	492	221111, 221112, 221113, 221119, 221121, 221122

a Standard Industrial Classification.

b North American Industry Classification System.

2.  NSR Issues

	Entities potentially affected by the subject rule for this action
include sources in all industry groups. The majority of sources
potentially affected are expected to be in the following groups:

Industry group	SICa	NAICSb

Electric Services	492	221111, 221112, 221113, 221119, 221121, 221122

Petroleum Refining	291	324110

Industrial Inorganic Chemicals	281	325181, 325120, 325131, 325182,
211112, 325998, 331311, 325188

Industrial Organic Chemicals	286	325110, 325132, 325192, 325188, 325193,
325120,  325199

Miscellaneous Chemical Products	289	325520, 325920, 325910, 325182,
325510

Natural Gas Liquids	132	211112

Natural Gas Transport	492	486210, 221210

Pulp and Paper Mills	261	322110, 322121, 322122, 322130

Paper Mills	262	322121, 322122

Automobile Manufacturing	371	336111, 336112, 336211, 336992, 336322,
336312, 336330, 336340, 336350, 336399, 336212, 336213

Pharmaceuticals	283	325411, 325412, 325413, 325414

a Standard Industrial Classification.

b North American Industry Classification System.

Entities potentially affected by the subject rule for this action also
include State, local, and Tribal governments that are delegated
authority to implement these regulations.

B. How Is This Notice Organized?

The information presented in this notice is organized as follows:

I. 	General Information

A.	Does This Action Apply To Me?

B. 	How Is This Notice Organized?

II. 	Background

A.  	NOx RACT for EGUs in CAIR States

1.  	Phase 2 Ozone Implementation Rule

2.	Petition for Reconsideration.

B.  	Submission Date for EGU RACT SIPs for States in CAIR Regions

1.  	Phase 2 Ozone Implementation Rule

2.  	Notice of Reconsideration

C.  	NSR Issues

1. 	Our previous and final rules.

2.  	Petition for Reconsideration.

III. 	This Action

A.	NOx RACT for EGUs in CAIR States

1.  	Final Action

2.  	Response to Comments

B.	Submission Date for EGU RACT SIPs for States in CAIR Regions

1.  	Final Action

2.  	Response to Comments

C.   	Provisions of Final Rule Addressing the Criteria for Emission
Reduction Credits from Shutdowns and Curtailments

1.  	Major Source NSR Criteria for Emission Reduction Credits (ERC) from
Shutdowns and Curtailments

2.  	Legal Basis for Changes to Criteria for Emission Reduction Credits
from Shutdowns and Curtailments

3.  	Reconsideration of Emission Reduction Credits Final Rule Language
and Request for Public Comments

4.	Comments and Responses for Emission Reduction Credits Issues

D.   	Applicability of Appendix S, Section VI

1.  	Changes to Applicability of Appendix S, Section VI

2.  	Legal Basis for Changes to Applicability of Appendix S and the
Transitional NSR Program

3.  	Reconsideration of Appendix S, Section VI Final Rule Amendments

4.	Comments and Responses for Appendix S, Section VI

IV. 	Statutory and Executive Order Reviews

A. 	Executive Order 12866:  Regulatory Planning and Review

B. 	Paperwork Reduction Act

C. 	Regulatory Flexibility Act (RFA)

D. 	Unfunded Mandates Reform Act

E. 	Executive Order 13132:  Federalism

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

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

H. 	Executive Order 13211:  Actions Concerning Regulations That
Significantly Affect Energy Supply, Distribution, or Use

I. 	National Technology Transfer and Advancement Act

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

K. 	Congressional Review Act

L.  	Judicial Review

II.  Background

A.  NOx RACT for EGUs in CAIR states

1. Phase 2 Ozone Implementation Rule

In the Phase 2 Rulemaking to implement the 8-hour ozone NAAQS (Phase 2

Rule), EPA determined that EGU sources complying with rules implementing
the CAIR requirements meet ozone NOx RACT requirements in states where
all required CAIR emissions reductions are achieved from EGUs only.  We
noted that the CAIR establishes a region-wide NOx emissions cap,
effective in 2009, at a level that, assuming the reductions are achieved
from EGUs, would result in EGUs installing emission controls on the
maximum total capacity on which it is feasible to install emission
controls by that date.  In addition, the CAIR’s 2015 NOx cap will
eliminate all NOx emissions from EGUs that are highly cost effective to
control.  The 2009 cap represents an interim step toward that end.   In
the Phase 2 Rule, EPA also explained that requiring source-specific RACT
controls on EGUs in nonattainment areas would not reduce total NOx
emissions below the levels that would be achieved under CAIR alone and
that it could result in more costly emission reductions.  For these and
other reasons detailed in the Phase 2 Rule, EPA concluded that EGUs
subject to the CAIR NOx controls meet the definition of RACT for NOx (in
all states that obtain all required CAIR NOx emission reductions from
EGU emission reductions).  EPA said it was making this finding for all
areas in the CAIR region, such that states need not submit RACT analyses
for sources subject to CAIR that are in compliance with a FIP or SIP
approved as meeting CAIR.  EPA noted that a state has discretion to
define RACT to require greater emission reductions than specified in EPA
guidance and also to require beyond-RACT NOx reductions from any source
it deems reasonable to provide for timely attainment of the ozone
standards.

2.  Petition for Reconsideration.

	The EPA received a petition for reconsideration of the final Phase 2
Rule from the NRDC.  This petition raised several objections to EPA’s
determination that, in certain circumstances, EGUs in CAIR states may
satisfy the NOx RACT requirement for ozone if they comply with rules
implementing the CAIR.  Specifically, NRDC argued that:

The EPA unlawfully and arbitrarily failed to seek public comment on the
final rule's determination that the CAIR satisfies NOx RACT
requirements.

The EPA’s CAIR-RACT determinations are unlawful and arbitrary because
EPA’s action illegally abrogates the Act’s RACT requirements.

The EPA granted NRDC’s petition by letter of June 21, 2006.

In a notice of proposed reconsideration dated December 19, 2006, EPA
announced the initiation of the reconsideration process and requested
additional public comment on the issues raised by the petition.  In this
notice, EPA also explained and requested comment on the additional
technical analyses it conducted to assess the determination that
compliance with rules implementing CAIR may satisfy the NOx RACT
requirement for certain EGUs.  EPA included in the docket a background
document explaining that technical analysis.

B.  Submission Date For EGU RACT SIPs for States in CAIR Region

1. Phase 2 Ozone Implementation Rule

	The Phase 2 Rule established September 15, 2006 as the deadline for the
submission of RACT SIPs for moderate and above subpart 2 areas.  EPA
explained that, since some states might rely on the submittal of SIP
revisions meeting the CAIR (i.e., the CAIR SIP) to also satisfy RACT for
some sources, it was extending the submittal date to 27 months after
designations to be consistent with the date for submittal of the CAIR
SIPs.  For subpart 1 areas requesting an attainment date more than five
years after designation, the rule provides that the State shall submit
the RACT SIP for each area with its attainment demonstration that
requests to extend the attainment date.

2. Petition for Reconsideration

In the notice of proposed reconsideration dated December 19, 2006, EPA
proposed to postpone the submission date for the portion of the 8-hour
ozone SIP that addresses NOx RACT for EGUs in the CAIR region pending
reconsideration.  EPA proposed a new submission date of June 15, 2007
and requested comments on that date.

C.  NSR Issues

1.  Our previous proposed and final rules

	The major NSR provisions in the November 29, 2005 Phase 2 rulemaking
were proposed as part of two different regulatory packages.  On July 23,
1996 (61 FR 38250), we proposed changes to the major NSR program,
including codification of the requirements of part D of title I of the
1990 CAA Amendments for major stationary sources of volatile organic
compounds (VOC), NOx, particulate matter having a nominal aerodynamic
diameter less than or equal to 10 microns (PM10), and CO.  On June 2,
2003 (68 FR 32802), we proposed a rule to implement the 8-hour ozone
NAAQS.  In the 2003 action, we proposed a rule to identify the statutory
requirements that apply for purposes of developing SIPs under the CAA to
implement the 8-hour ozone NAAQS (68 FR 32802).  We did not propose
specific regulatory language for implementation of NSR under the 8-hour
NAAQS.  However, we indicated that we intended to revise the
nonattainment NSR regulations to be consistent with the rule for
implementing the 8-hour ozone NAAQS (68 FR 32844).  On April 30, 2004
(69 FR 23951), we published a final rule that addressed classifications
for the 8-hour NAAQS.  The April 2004 rule also included the NSR
permitting requirements for the 8-hour ozone standard, which necessarily
follow from the classification scheme chosen under the terms of subpart
1 and subpart 2.

	In 1996, we proposed to revise the regulations limiting offsets from
emissions reductions due to shutting down an existing source or
curtailing production or operating hours below baseline levels
(“shutdowns/curtailments”).  We proposed substantive revisions in
two alternatives that would ease, under certain circumstances, the
existing restrictions on the use of emission reduction credits from
source shutdowns and curtailments as offsets.

	In 1996, we proposed to revise 40 CFR 52.24 to incorporate changes made
by the 1990 CAA Amendments related to the applicability of construction
bans (61 FR 38305).  To clarify our intent, our proposed 8-hour ozone
NAAQS implementation rule in June 2003 explained that section 52.24(k)
remained in effect and would be retained.  In that action, we also
proposed that we would revise section 52.24(k) to reflect the changes in
the 1990 CAA Amendments (68 FR 32846).  On June 2, 2003 (68 FR 32802),
we explained implementation of the major NSR program under the 8-hour
ozone NAAQS during the SIP development period, and proposed flexible NSR
requirements for areas that expected to attain the 8-hour NAAQS within 3
years after designation.

	In the final regulations, we included several revisions to the
regulations governing the nonattainment NSR programs mandated by section
110(a)(2)(C) and part D of title I of the CAA.  First, we codified
requirements added to part D of title I of the CAA in the 1990
Amendments related to permitting of major stationary sources in areas
that are nonattainment for the 8-hour ozone, particulate matter (PM),
and carbon monoxide (CO) NAAQS.  Second, we revised the criteria for
crediting emissions reductions credits from shutdowns and curtailments
as offsets.  Third, we revised the regulations for permitting of major
stationary sources in nonattainment areas in interim periods between
designation of new nonattainment areas and EPA’s approval of a revised
SIP.  Also, we changed the regulations that impose a moratorium (ban)
prohibiting construction of new or modified major stationary sources in
nonattainment areas where the State fails to have an implementation plan
meeting all of the requirements of part D.

	2.  Petition for reconsideration

The NRDC petition for reconsideration raised two objections to the major
NSR aspects of the Phase 2 rulemaking:

    Allowing sources to use pre-permit application emission reductions
as offsets if they occur “after the last day of the base year for the
SIP planning process”; and

Changes to Section VI of Appendix S, which is the section allowing for
waiver of nonattainment major NSR requirements in certain circumstances.

The EPA granted the petition by letter of June 21, 2006 and, on December
19, 2006, EPA published, as a proposed rule, a notice of
reconsideration.  This action presents the comments we received upon the
proposal, our responses to the comments and our decisions on whether to
amend the current regulation in response to the public comments.

III.  This Action

A.  NOx RACT for EGUs in CAIR states

1.  Final Action

In response to comments received during the reconsideration process, EPA
in this action modifies its guidance regarding when compliance with the
CAIR may satisfy NOx RACT requirements for EGUs in CAIR states.  EPA
believes it is appropriate for the CAIR states, under the conditions
outlined in this action, to presume, in general, that EGU NOx RACT
requirements are satisfied through implementation of the CAIR program.
Further, in this action EPA makes a determination that in certain areas
compliance with the CAIR is sufficient to satisfy the NOx RACT
requirement for EGUs covered by the CAIR program.  The areas covered by
this determination are those where EPA’s December 2006 emissions
analysis shows that the CAIR is projected to achieve greater emissions
reductions than application of source-by-source RACT within the
nonattainment area or state.  For areas where EPA’s emissions analysis
does not clearly demonstrate that the CAIR program is projected to
achieve greater emissions reductions than source-by source RACT, this
action establishes a separate presumption that compliance with CAIR, in
certain circumstances, satisfies NOx RACT requirements for EGUs in any
area subject to CAIR.  As explained below, states may rely initially on
this presumption whether or not the aforementioned CAIR-RACT
determination applies.

More specifically, in this action, EPA determines that compliance by
EGUs with an EPA-approved CAIR SIP or a CAIR FIP satisfies the
nonattainment area NOx RACT requirements in CAA sections 172(c)(1) and
182(f) if: (1) the EGU is located in a state where all required CAIR
emission reductions are achieved from EGUs only; and (2) the emissions
analysis presented by EPA in the December 16, 2006 notice of proposed
reconsideration shows that the CAIR will achieve greater or equal annual
and ozone-season emissions reductions than source-by-source RACT in the
relevant nonattainment area.  EPA also determines that compliance by
EGUs with an EPA-approved CAIR SIP or a CAIR FIP satisfies the NOx RACT
requirements for OTR states in sections 184(b) and 182(f) if: (1) the
EGU is located in a state where all required CAIR emission reductions
are achieved from EGUs only; and (2) the emissions analysis presented by
EPA in the December 16, 2006 notice of reconsideration shows that the
CAIR will achieve greater or equal annual and ozone-season emissions
reductions than source-by-

source RACT in the relevant OTR state.  The determination for OTR states
is separate from the determination for nonattainment areas within the
OTR states. This means that the conditions of the determination may be
met for an OTR state, in its entirety, but a particular nonattainment
within the State may not meet the conditions of the determination based
on the results of the EPA’s emissions analysis.

In their RACT SIP submissions, states choosing to rely on a
determination that compliance with the CAIR satisfies NOx RACT
requirements for EGUs, should document their reliance on the
determination.

In areas covered by the CAIR that do not meet the conditions outlines in
the preceding paragraph, EPA still believes it is appropriate for these
areas to presume that compliance with the CAIR will satisfy the NOx RACT
requirements for EGUs if all required CAIR reductions in that state are
achieved by EGUs only.  States may rely on this presumption in the first
instance regardless of whether the relevant nonattainment area or OTR
state is covered by the aforementioned determination.  In their RACT SIP
submissions, states choosing to rely on this presumption should document
their reliance on the presumption.  This presumption is rebuttable and
the State’s documentation of reliance on this presumption must provide
additional justification if necessary.

These final positions are based on a number of factors previously
identified in the Phase 2 Rule, and in the December 2006 notice of
proposed reconsideration. In evaluating RACT for EGUs, EPA believes it
is appropriate to consider the special attributes of EGUs, including the
unique interrelated nature of the power supply network, and the
facilities’ compliance with rules implementing the CAIR.  EPA also
asserts that the term “reasonable” in RACT may be construed to allow
consideration of the air quality impact of required emissions reductions
from region-wide cap-and-trade programs such as the CAIR NOx trading
programs.

Due to the nature of regional emissions transport, EPA believes that a
combination of local and broader regional reductions, such as those
driven by the CAIR requirements for EGUs, will achieve a more effective
and economically efficient air quality improvement in nonattainment
areas than application of source-by-source RACT.  This is consistent
with EPA’s recognition in our 1986 emissions trading policy that a
“bubble” approach has a number of advantages including faster
compliance with RACT limits and earlier reductions.  EPA does not
interpret the RACT provisions of CAA section 172(c)(1) to preclude
states’ use of a cap-and-trade approach as a means of achieving RACT
reductions from existing sources, and believes such an approach is
consistent with Congresses’ express authorization to auction emission
rights in section 172(c)(6).  Many ozone nonattainment areas are
projected to achieve significant NOx reductions under the CAIR program
and EPA does not believe that requiring source-specific RACT controls on
specified EGUs in nonattainment areas would reduce total NOx emissions
from sources covered by CAIR below the region-wide levels that will be
achieved under CAIR alone.  The region-wide CAIR NOx EGU emissions cap
for 2009 was established based on the maximum total capacity on which
EPA believes it is possible to install controls by that date.  So by
design, the 2009 CAIR region-wide NOx emissions cap for EGUs represents
the most reductions that are reasonable to achieve in the CAIR region by
that date.  Because the CAIR achieves more annual and summer season EGU
NOx emission reductions overall across the CAIR region than
source-by-source application of RACT, EPA believes this will result in
more region-wide air quality improvements than application of RACT in
the absence of the CAIR.  As explained in greater detail in the preamble
to the CAIR rule, the CAIR is projected to improve ozone air quality
across much of the eastern half of the country, including many current
and projected future nonattainment areas.  70 FR 25254-25255 (May 12,
2005).  The CAIR is projected to improve air quality in all of the 40
projected 2010 nonattainment counties, and in all 22 of the projected
2015 nonattainment counties, that were identified in the CAIR rule
modeling.  The modeling also showed air quality improvement in numerous
counties projected to be in attainment.

For most EGUs in the CAIR region, based on the conclusions explained
here, states may rely on EPA’s determination that RACT requirements
for these sources are satisfied by compliance with the CAIR.  However,
this determination applies only to EGUs in states achieving all required
CAIR reductions from EGUs, except as noted below.  As explained in the
preamble to the Phase 2 Rule, if only part of the CAIR reductions are
required from EGUs, and the balance of the reductions obtained from
non-EGU sources, then the stringency of the CAIR EGU control would be
diminished to some extent (an amount that cannot be determined until a
state submits a SIP indicating which sources are participating in the
program).  Therefore, in these cases, the rationale for our conclusions
(either determinations or presumptions) that these sources satisfy the
RACT requirement would not necessarily apply.

EPA determined in the final Phase 2 Rule that sources complying with the
requirements of the NOx SIP Call trading system meet their ozone NOx
RACT obligations.  A state that elects to bring its NOx SIP Call non-EGU
sources into the CAIR ozone season trading program may under certain
conditions continue to rely on the determination that RACT is met for
EGU sources covered by a CAIR NOx trading program.  It may rely on this
presumption if and only if the state retains a summer season EGU budget
under the CAIR that is at least as restrictive as the EGU budget that
was set in the state(s NOx SIP call SIP.  Therefore, if the summer
season EGU budget under CAIR is at least as restrictive as the budget in
the NOx SIP Call SIP, and if non-EGU sources after 2008 continue to be
subject to a SIP requirement that regulates those non-EGU sources
equally or more stringently than the state’s current rules meeting the
NOx SIP Call, then those EGUs are meeting a level of control at least as
stringent as RACT.

In addition, as we noted in the Phase 2 Rule, a state has discretion to
define RACT to require greater emission reductions than specified in EPA
guidance and also to require beyond-RACT NOx reductions from any source
(including sources covered by the CAIR or NOx SIP Call programs), and
has an obligation to demonstrate attainment of the 8-hour ozone standard
as expeditiously as practicable.  In certain areas, states may decide to
require NOx controls based on more advanced control technologies as
necessary to provide for attainment of the ozone standards.

Based upon South Coast Air Quality Mgt District v. EPA (No. 04-1200)
(D.C. Cir. 2006), the status of nonattainment classifications for 8-hour
ozone nonattainment areas is unclear at this time.  EPA has petitioned
the court for rehearing of this issue.  However, until this issue is
resolved, there will be continuing uncertainty regarding which areas
must submit RACT SIPs separate from attainment demonstrations.
Currently, all areas classified under subpart 2 as moderate or higher,
and areas classified under subpart 1 that are planning to request an
attainment date that extends beyond April 2009 are required to submit a
RACT SIP separate from attainment demonstrations.  EPA is unable to
determine at this time if any areas in addition to those included in the
cited emissions analysis will be required to submit separate RACT SIPs.
Based on the outcome of EPA’s petition for rehearing, EPA may review
and revise, as appropriate, the determinations made in this action.

2.  Response to Comments

a.  Comment:  Commenters argue that the Clean Air Act (CAA) calls for
State Implementation Plans (SIPs) to provide for “such reductions in
emissions from existing sources in the nonattainment area as may be
obtained through adoption” of RACT.  Therefore, they argue, each
particular affected source in a non-attainment area is required by law
to have the lowest emission limitation it is capable of meeting.  One
commenter says that the CAA does not give EPA the option of requiring
CAIR or some other strategy in lieu of RACT, and that by deeming CAIR
controls to be equivalent to RACT, EPA is seeking to insulate
uncontrolled or poorly controlled EGUs in current or future
nonattainment areas from cost effective controls that would qualify as
RACT.  Another commenter says that EPA's NOx Supplement to the General
Preamble (57 FR 55620, Nov. 25, 1992) concludes that it is "permissible
under the statute for individual sources to have greater or lesser
emissions reductions so long as the area wide average emission rates
associated with a RACT level of NOx emission controls [are] met."  They
argue that it is consistent with the Act for EPA and states to determine
that compliance with an area-wide emission trading program may
constitute RACT in lieu of source-by-source emission control
requirements.  The commenter adds that neither the  CAA's language nor
EPA's 1989 statement [44 FR 53762] defining RACT supports the arguments
in the petition for reconsideration that emission controls must be
installed on all major stationary sources in a nonattainment area, nor
is there anything in these documents that indicates that the rule's CAIR
= NOx RACT provision is illegal.  The commenter notes that Congress's
choice of the phrase “reasonably available” bespeaks its intention
that the EPA exercise discretion in determining which control measures
must be implemented.

Response: As explained in the preamble to the Phase 2 Rule, EPA
disagrees with the commenters’ assertion that RACT necessarily
requires every major source to install controls.  See 70 FR 71656.  To
the contrary, EPA allows states to demonstrate that RACT is met by
groups of sources.  For example, the NOx Supplement to the General
Preamble, November 25, 1992 (57 FR 55625) permits states to “allow
individual owners/operators in the nonattainment area . . . to have
emission limits which result in greater or lesser emission limits so
long as the area wide average emission rates . . . are met on a
Btu-weighted average.”  The General Preamble also “encourage[s]
states to structure their RACT requirements to inherently incorporate an
emissions averaging concept (i.e., installing more stringent controls on
some units in exchange for lesser control on others).”  This approach
was based on EPA’s conclusion that it was permissible under the CAA
for individual sources to have “greater or lesser emission reductions
so long as the area wide average emissions rates” associated with a
RACT level of NOx emissions control were met.

In addition, EPA does not believe that requiring source-specific RACT
controls on EGUs in nonattainment areas will reduce total NOx emissions
from EGU sources covered by the CAIR below the levels that would be
achieved under the CAIR alone.  EPA also believes that EGU
source-specific RACT would result in more costly emission reductions on
a per ton basis. The combination of EGU source specific RACT and the
CAIR emissions cap would not reduce the collective total emissions from
EGUs covered by the CAIR, but would likely achieve the same total
emissions reductions as the CAIR alone, in a more costly way.

Further, EPA’s analysis for the CAIR shows the CAIR program will
result in EGUs installing emission controls on the maximum total
capacity on which it is feasible to install emission controls by the
2009 date.  (70 FR 22515-22225)  The CAIR budgets are based on the level
of emissions that can be achieved through the application of highly
cost-effective controls to EGUs in the CAIR region.  Due to feasibility
constraints, EPA required a phased approach for achieving highly cost
effective emissions reduction.  For NOx, the first phase starts in 2009
(covering 2009-2014); the second phase of NOx reductions begins in 2015
(covering 2015 and thereafter). (70 FR 71621).  We also noted in the
June 2, 2003 CAIR proposal that we considered highly-cost effective
controls for NOx for EGUs and non-EGUs that were used to establish the
statewide NOx emission caps in the NOx SIP call to constitute a greater
level of control than RACT (68 FR 32839).

EPA also disagrees with the comment arguing that EPA is seeking to
insulate uncontrolled or poorly controlled EGUs in current or future
nonattainment areas from cost effective controls that would qualify as
RACT.  The final rule does not displace the RACT requirement for any
sources.  Instead, EPA is exercising its authority to interpret the
section 172, 182, and 184 RACT requirements for purposes of implementing
the 8-hour ozone standards.  For the reasons described in this section,
we believe that states can rely on EPA’s conclusion that compliance
with a CAIR FIP or SIP, meeting certain requirements, will satisfy the
EGU NOx RACT requirement in certain areas.

	Moreover, EPA has predicted that the majority of large coal-fired
utilities will install advanced control technologies under the CAIR
because the larger and higher emitting sources offer opportunities to
obtain the most cost-effective emissions reductions.  EPA expects that
the largest-emitting sources will be the first to install NOx control
technology and that such control technology will gradually be installed
on progressively smaller-emitting sources until the ultimate emissions
cap is reached.

b. Comment:   Several commenters argue that EPA's determination that
CAIR may be equivalent to RACT would illegally substitute controls on
sources outside of ozone nonattainment areas for controls on sources
within each nonattainment area.  The commenters argue that reductions
must occur within the nonattainment area.  They also argue that EGUs in
nonattainment areas may have significant NOx emissions if they are not
meeting a minimum level of NOx control, and that the rule does not
guarantee that any RACT level controls would actually be installed in a
CAIR state.  Thus, one commenter argues, the non-CAIR states and the
public will bear the cost of EGUs not installing RACT controls and
continuing nonattainment of the NAAQS.  The commenter also argues that
the public residing in nonattainment areas would continue to suffer from
the emissions from those EGUs located in the CAIR state portion of the
nonattainment area that purchase and use allowances for compliance
instead of installing controls.  Another commenter argues that CAIR is a
cap-and-trade program which cannot guarantee that a reasonable level of
control will be installed where most needed.  On the other hand, other
commenters emphasize that CAIR achieves greater overall emissions
reductions across the CAIR region than would be achieved through the
implementation of source-specific RACT controls.

Response:   In this action, EPA has determined that EGU sources
complying with rules implementing the CAIR requirements meet ozone NOx
RACT requirements in states where all required CAIR emissions reductions
are achieved from EGUs only and EPA’s emissions analysis in the
December 16, 2006 notice of reconsideration shows that CAIR will achieve
greater or equal reductions than source-by-source RACT in the relevant
nonattainment area (for CAA section  172 and 182  requirements) or the
relevant OTR state (for CAA 184  requirements).  For nonattainment areas
and OTR states not covered by this determination, states may still
presume that compliance with CAIR will satisfy the NOx RACT requirement
for EGUs if all CAIR reductions are achieved by EGUs.  These states will
have the option of providing additional analysis to support this
presumption.  This presumption is rebuttable and the state’s
documentation of reliance on this presumption must address any
information available that would undermine this presumption.

As explained in greater detail above, EPA believes that it is
appropriate for states that achieve all CAIR NOx reductions from EGUs to
consider, when evaluating RACT for EGUs, the special attributes of EGUs
including the unique interrelated nature of the power supply network,
and the facilities’ compliance with rules implementing the CAIR.  EPA
also believes that the term, “reasonable” in RACT may be construed
to allow consideration of the air quality impact of required emissions
reductions from region-wide cap-and-trade programs such as the CAIR NOx
trading programs. The region-wide CAIR NOx emissions cap for 2009 was
established based on the maximum total capacity on which it was possible
to install controls by that date.  So by design, the 2009 CAIR
region-wide NOx emissions cap for EGUs represents the most reductions
that are reasonable to achieve in that timeframe.

	EPA acknowledges that the RACT mandate applies in specific geographic
areas and determines that, in certain circumstances, the specific RACT
requirements in CAA sections 172, 182 and 184 are satisfied by
compliance with CAIR rules.  As a practical matter, in most
nonattainment areas, the actual emissions reductions projected to occur
under CAIR are greater than the projected reductions from application of
source-by-source RACT.  Further, in this action, EPA provides that the
determination that compliance with CAIR rules satisfies NOx RACT
requirements can only apply if the technical analysis presented by EPA
in the December 16, 2006 notice of reconsideration shows that CAIR will
achieve greater or equal annual and ozone-season emissions reductions
than source-by-source RACT in the relevant nonattainment area or OTR
state.  Also, note that the determination for an OTR state and a
nonattainment area within that State must be make separately, i.e., the
determination may apply for an OTR state but not for a particular
nonattainment area in that State, based on results of the technical
analysis.

	In addition, the comments suggesting that EGUs many not meet a
“minimum level of NOx control” and that the rule does not guarantee
that any “RACT level controls” would actually be installed in a CAIR
state, appear to assume that to satisfy RACT, each individual source
must achieve a specific level of control .  As explained below, EPA
disagrees with this assumption.  Further, in states that achieve all
CAIR reductions from EGUs, requiring source-specific RACT on EGUs and
compliance with rules implementing CAIR would not achieve greater
collective total emissions reductions from EGUs covered by the CAIR and
the collective reductions would likely be achieved at a higher overall
cost.

c.  Comment:  Several commenters challenged EPA’s suggestion that the
CAIR will achieve greater reductions than RACT.  These commenters argued
that the suggestion that the CAIR will achieve greater reductions
without RACT is unsupportable.  EPA, they argue, can and must require
RACT reductions on top of CAIR reductions.  Not doing so ignores the
possibility that requiring both RACT and the CAIR will produce faster
RFP and earlier attainment than the CAIR alone.

Response:  EPA’s emissions analyses prepared for the December 2006
notice of proposed reconsideration generally show that the CAIR will
achieve greater EGU NOx emission reductions across the CAIR region and
also in most of the designated  nonattainment areas and OTR states, than
would be achieved by requiring EGUs in these areas to meet a specific
level of NOx control deemed to be RACT.   The analyses  show that the
CAIR obtains equal or greater summer season emission reductions than
source-by-source RACT in 13 out of 18 specific nonattainment areas in
the CAIR region, and in 2 out of 8 OTR states.  It also shows that CAIR
obtains equal to or greater annual emission reductions than
source-by-source RACT in 15 out of 18 specific nonattainment areas in
the CAIR region and in 5 out of 8 OTR states.  The docket contains a
Technical Support Document describing the analysis.

EPA also disagrees with the commenter’s assertion that EPA can and
must require RACT reductions on top of the CAIR reductions.  While EPA
agrees that the RACT requirement, and the requirement to address ozone
transport under CAA section 110(a)(2)(d) are separate requirements, EPA
asserts that the Act does not specify that these are additive or
mutually exclusion requirements.  As such EPA has determined that the
CAIR may satisfy, under certain conditions, both requirements.

As previously explained, requiring source-by-source RACT as an
additional constraint on EGU control strategy in the CAIR, in certain
areas would mean that controls would not necessarily be placed on the
sources for which it is most cost-effective to control.  The result
would be the same emission reductions area wide, but at higher cost.
Further, by design, the 2009 CAIR region-wide NOx emissions cap for EGUs
represents the most reductions that are reasonable to achieve.
Consequently, EPA does not believe that further controls could be
considered reasonably available.

Finally, as we have also previously noted, states have an overarching
obligation to provide such controls as are necessary to attain the 8
hour ozone standard as expeditiously as practical.  At a minimum, this
must include application of RACT to major sources, but may also require
beyond-RACT NOx reductions from any source (including sources covered by
the CAIR or NOx SIP Call programs).  In certain areas, states may
determine that NOx controls based on more advanced control technologies
are necessary to provide for timely attainment of the ozone standards.

d. Comment:  Several commenters argue that the EPA’s analyses to
support its determination that the CAIR may satisfy certain RACT
requirements are flawed because they rely on improper assumptions.  The
commenter notes that EPA’s technical analysis relies on a number of
assumptions regarding source conduct, allowance pricing, and the like.
One Commenter argues that the 1992 and 1994 agency guidance referred to
by EPA is outdated and not consistent with RACT controls being imposed
by states today.  Another commenter stated that new controls have been
developed in the 14 years since the early RACT guidance was issued.
These controls such as selective catalytic reduction (SCR) and selective
non-catalytic reduction (SNCR) will give a level of control beyond what
EPA assumed 14 years ago.  One commenter claimed that there are many new
controls being studied that can reduce NOx emissions at a fraction of
the cost assumed in the CAIR rulemaking.  These new controls, which the
commenter asserts would fall under RACT, are a refinement of existing
combustion control technologies, along with injection of an inexpensive
reagent in the boiler.

Response:  EPA believes the technical analyses are based on reasonable
assumptions.  EPA’s views on NOx RACT were set forth in the “NOx
Supplement to the General Preamble,” November 25, 1992 (57 FR 55620).
In that document, EPA determined that in the majority of cases, RACT
will result in an overall level of control equivalent to specified
maximum allowable emission rates (in pounds of NOx per million Btu) for
certain specified electric utility boilers.  Section 4.6 of the NOx
Supplement to the General Preamble (57 FR 55625) noted in part, “In
general, EPA considers RACT for utilities to be the most effective level
of combustion modification reasonably available to an individual unit.
This implies low NOx burners, in some cases with overfire air and in
other instances without overfire air; flue gas recirculation; and
conceivably some situations with no control at all.”  The assumptions
in EPA’s technical analysis are consistent with this guidance.

EPA assumed that RACT is represented by combustion controls for EGUs
defined as: 1) low NOx burners with overfire air for wall-fired units;
and 2) low NOx coal-and-air nozzles with close–coupled and separated
overfire air for tangentially-fired units.  For oil and gas steam EGUs,
the RACT-level of control was assumed to be 0.20 pounds of NOx per
million BTU for tangentially-fired gas or oil burning and 0.30 for
wall-fired gas or oil burning.  As EPA’s CAIR technical analysis has
shown, and as previously noted the CAIR requires, the installation of
NOx controls on the maximum capacity on which it is feasible to install
such controls by 2009.  Therefore, additional controls are not
“reasonably available.”

	EPA does not restrict individual states from requiring EGU NOx control
levels more stringent than what EPA has determined is RACT in order to
achieve compliance with the ozone NAAQS.  EPA believes more stringent
levels of NOx control (represented by SCR and SNCR) are beyond RACT.
The fact that some states may chose to require controls that go beyond
RACT to attain the ozone standards does not necessarily mean that this
level of control should be considered RACT.

e. Comment:  EPA received several comments regarding the cost of RACT.
These commenters argue that states have adopted RACT requirements for
ozone precursors with costs per ton in excess of the $900/ton control
cost estimated for the CAIR.  The commenter argues that the EGU sector
can make reasonably effective emission reductions up to a $4500/ton
threshold.  Further, commenters state that in connection with the
adoption of the 1997 ozone and PM NAAQS, the President issued a
memorandum indicating EPA’s agreement with control costs of up to
$10,000 per ton as being within the reasonable range.   One commenter
also points out that the Washington DC-MD-VA region has required RACT
with costs of approximately $4,000-$10,000 per ton.

Response:  EPA believes the assumptions in its technical analysis
regarding the controls that would be considered RACT (if RACT were to be
applied on a source-by-source basis) are reasonable.  This level of
control is consistent with EPA’s past NOx RACT guidance [see “NOx
Supplement to the General Preamble,” November 25, 1992 (57 FR 55620)].
 EPA considers the combustion modification guidance from the early
1990’s to express what is RACT for NOx control of EGUs considering
technical feasibility and cost.

In making a general determination of what controls are representative of
RACT, EPA does not necessarily recommend the highest level of stringency
that is imposed by any state.  However, EPA does not restrict states
from imposing controls with relatively high costs if the states
determine they are necessary to attain the ozone NAAQS.  EPA cautions
that if all states choose to impose beyond RACT controls on all EGUs by
2009 it could create shortages of labor and materials that would
substantially increase the cost of compliance or make it infeasible to
meet the 2009 deadline.  EPA’s analysis shows that the CAIR achieves
the maximum level of control that is feasible by 2009 on a region-wide
basis.

f. Comment:  Several commenters argue that EPA's technical analysis
shows that at least some nonattainment areas would achieve greater
emission reduction with implementation of source by source RACT than
with CAIR.  They argue that, in these areas, CAIR would not be
“equivalent” to RACT for EGUs.

Response:  In this action we are determining that compliance with CAIR
satisfies NOx RACT requirements for EGUs in areas where EPA’s
emissions analysis shows that CAIR is projected to achieve greater
emissions reductions than application of source-by-source RACT.  As
explained above, other areas may still rely on the presumption that
compliance with the CAIR satisfies NOx RACT requirements in certain
circumstances.  This presumption is rebuttable and the State may choose
to provide supporting analyses and will have to respond to any comments
received during the comment period that address  the presumption.

g. Comment:  One commenter suggested that EPA adopt the Ozone Transport
Commission’s (OTC) approach to cap-and-trade programs where RACT was
applied first.  Thus, the cap-and-trade program operates in an
environment that assumes RACT is in force, not in lieu of RACT.  Another
commenter argued that an effective attainment strategy requires both
area wide programs like CAIR and nonattainment area specific program
such as source-by-source RACT on EGUs.  Thus, the commenter argues that
in its technical analysis, EPA should have looked at CAIR + RACT versus
RACT, rather than CAIR alone versus RACT.

Response:  The supplemental technical analysis prepared by EPA for the
reconsideration proposal was designed to analyze whether compliance with
a SIP or FIP meeting the requirements of CAIR may also satisfy the NOx
RACT requirement for certain EGUs.  Thus, it was appropriate for EPA to
compare the reductions under CAIR alone with the reductions that would
be achieved by another possible method of satisfying RACT requirements
(i.e. the application of source-by-source RACT controls).  The
comparison that the commenter suggests should have been prepared would
not have shed light on the question the analysis sought to answer,
namely whether compliance with CAIR satisfies the nonattainment program
requirement in question.

In addition, as noted above, by design, the 2009 CAIR region-wide NOx
emissions cap for EGUs represents the most reductions that are
reasonable to achieve.   Further, as explained in the reconsideration
notice, source-specific control requirements layered on top of the
overall allowance-based emissions cap might affect the temporal
distribution of emissions or the spatial distribution of emissions but
would not affect total allowed emission in the CAIR region.  EPA expects
that, under the CAIR trading programs the largest-emitting EGU sources
(and those with the most cost effective reductions available) will be
the first to install NOx control technology.  If states were to require
smaller-emitting EGU sources in nonattainment areas to meet
source-specific RACT requirements, they would likely use labor and other
resources that would otherwise be used for emission controls on larger
sources and the cost of achieving the regional reductions would be
greater on a per ton basis.

h. Comment:  One commenter argues that EPA’s determination that
compliance with the CAIR, in some circumstances, satisfies NOx RACT
requirements for EGUs will create inequality between CAIR states and
bordering non-CAIR states.  They argue that EPA’s determination
creates an inequity where the geographic boundary of a nonattainment
area crosses state lines from a CAIR state into a non-CAIR state.  In
the CAIR state portion of the non-attainment area, EPA would allow
compliance with CAIR rules to satisfy NOx RACT for EGUs while in the
non-CAIR state portion of the nonattainment area NOx RACT for EGUs would
still be a source-specific requirement.

Response:   Since sources in non-CAIR states are not subject to rules
implementing the CAIR emission reduction requirements, those states
naturally could not rely on compliance with those rules to show that the
NOx EGU RACT requirements has been satisfied.  The fact that the
non-CAIR states may use a different method to show that the same RACT
requirement has been met does not create an inequity between states.
Further, none of the nonattainment areas covered by the EPA’s
determination that compliance with CAIR rules satisfies certain NOx RACT
requirements (i.e. those for which our technical analysis shows that
CAIR provides equal or greater annual and ozone-season emissions
reductions than source-by-source RACT) lie across the boundary of two
states, one of which is a CAIR state and the other of which is a
non-CAIR state.

j. Comment:  EPA received several comments arguing that EPA’s
determination that CAIR may satisfy the EGU NOx RACT requirements for
some areas is improper because the purpose of RACT is not the same as
the purpose served by the CAIR.  The commenters argue that the purpose
of the CAIR is to address interstate transport of NOx from EGUs that
contributes to nonattainment in downwind states, while the RACT
requirement is intended to reduce emissions within a nonattainment area.
 They argue that RACT is intended to reduce emissions in nonattainment
areas by requiring emission control technologies to be installed at
particular sources, where CAIR does not require such emission controls.
The commenter asserts that the CAIR is not intended as an attainment
strategy.

Response:  We find the attempt by commenters to characterize CAIR as a
strategy to address only regional pollution transport as overly
simplistic.  The EPA analyses for the CAIR show that there are
significant emissions reductions and air quality benefits projected for
individual nonattainment areas as a result of NOx reductions across the
multistate CAIR region.  The Clean Air Act does not prevent states from
properly crediting measures that achieve multiple objectives (e.g.
regional transport and local nonattainment).  Moreover, CAA section
110(a)(2)(D) requires SIPs to contain adequate provisions to assure that
sources in the state do not contribute significantly to nonattainment in
any other state.  The CAIR rule is an integral element in meeting the
states’ section 110 attainment obligations.  Accordingly, it is
reasonable to incorporate this consideration in determining what
measures qualify as RACT.  Even though the CAIR may have been initially
designed to get regional reductions, if it produces the most reductions
that are feasible it can also represent RACT for subject areas.

j. Comment: One commenter says the EPA ignores the impact on non-EGU
sources of its determination that compliance with the CAIR may satisfy
the RACT requirement for certain EGUs.  The commenter argues that states
may be required to impose more costly controls on non-EGUs to make up
for lost reductions due to the failure to impose RACT on EGUs.

Response: As explained above, EPA disagrees with the commenters’
assertion that EPA’s determination that compliance with the CAIR may
satisfy NOx RACT requirements for EGUs constitutes “failure to impose
RACT on EGUs.”   Nothing in the final rule displaces the RACT
requirement for EGUs. Further, CAIR will achieve widespread SO2 and NOx
emission reductions from EGUs and will provide significant air quality
benefits for ozone and PM2.5 nonattainment areas.  In developing
attainment SIPs and identifying Reasonably Available Control Measures
(RACM), states will need to consider additional cost-effective and
reasonable controls on all sources to reach attainment as expeditiously
as practicable.  States must also consider the economic feasibility of
implementing a given control measure, and EPA has determined that the
CAIR will result in EGUs installing controls on the maximum total
capacity on which it’s feasible to do so by 2009 in the CAIR region.
Further, EPA acknowledges that to achieve attainment as expeditiously as
practicable, some states may need to adopt control measures for some
sources which cost more per ton than the controls on EGUs, but which are
still considered to be reasonable and cost-effective.  Because of
facility-specific factors (e.g. input costs in the geographic area and
the facility’s ability to sustain the cost), EPA does not believe it
would be appropriate to establish a threshold of control effectiveness
(e.g. dollars per ton) based on control of EGUs and apply this threshold
to all source categories.

k.  Comment:  Another commenter argues that states such as Illinois may
be forced to require additional emission reductions, including
application of RACT within their nonattainment areas, that must be
achieved earlier than CAIR reductions. They argue that these additional
controls on non-EGU sources will be very costly and that EGUs are
usually the largest and most easily controlled NOx sources in a
nonattainment area.  More specifically, they note that there are 15
coal-fired boilers in two ozone nonattainment areas in Illinois, none of
which have installed SCRs.  EPA projects that only two of those units
will install SCRs in response to CAIR.  However, based on that
projection, the Chicago area will not meet the 8-hour standard by 2010.

Response:  Just because the RACT requirement results in relatively less
control on one source category compared to another is no reason why the
RACT determination for a source category is invalid, since the two
categories may be sufficiently dissimilar so as to render a comparison
irrelevant.  RACT represents only such technology as is reasonably
available, not all controls that may be necessary to attain as
expeditiously as practicable.  The State is still required to
demonstrate attainment as expeditiously as practicable and has the
discretion to choose in its public process how to apportion
responsibility for emission reductions to meet that requirement.

l. Comment:  Several commenters, all associated with electric power
companies, agreed that CAIR will likely achieve the same emissions
controls as RACT, but in a more cost effective manner.  One commenter
points out that CAIR will achieve substantially more area wide emission
reductions that source-by-source RACT controls, and says this is true in
most nonattainment areas also.  The commenter points out that in the few
areas where source-by-source RACT is projected to produces greater
emission reductions than CAIR under EPA’s conservative analysis, the
differences are relatively small.

Response:  EPA agrees that CAIR will achieve the same or lower NOx
emissions over the CAIR area than source-by-source RACT and that it will
achieve these NOx reductions in the most cost effective manner.

m. Comment:  Several commenters addressed the contention in EPA’s
analysis that CAIR will result in EGUs installing controls on the
maximum total capacity on which it is feasible to do so by 2009.  One
commenter agreed with this contention and noted that further controls
will be installed by 2015.  Another commenter says that this contention
is contradicted by a 2004 analysis conducted by the Institute of Clean
Air Companies (ICAC) which concluded that labor is available to install
2015 CAIR levels of reduction by 2010.  If CAIR 2015 controls are closer
to RACT, they argue, “EPA’s implication that RACT requirements on
EGUs in the CAIR regions would not achieve more reductions than those
achieved by CAIR by 2010 is incorrect.  However, another commenter says
that CAIR requires controls as quickly as they can be practically
installed given the constraints of specialized labor needed for this
type of construction.

Response:  EPA considered a number of analyses related to boilermaker
labor availability provided by various commenters, including the 2004
Institute of Clean Air Companies analysis, when it prepared the Clean
Air Interstate Rule (CAIR) which was published May 12, 2005 (70 FR
25162).  EPA prepared its own technical analysis as part of the CAIR
development, and decided as a result of its analysis that the dates in
the final CAIR rule of January 1, 2009 for phase I for NOx controls,
January 1, 2010 for phase II SO2 controls and 2015 for phase 2 controls
for both NOx and SO2 were appropriate based on projected labor
availability.  The EPA’s analysis shows that the amount of additional
NOx emissions control that will be obtained under the CAIR in 2015 is
infeasible to obtain in 2009, when RACT emission reductions under the
8-hour ozone NAAQS must be implemented.  EPA believes it has set the
2009 CAIR NOx cap at a level that, assuming the reductions are achieved
from EGUs, would result in EGUs installing emission controls on the
maximum total capacity on which it is feasible to install emission
controls by that date.  Thus, in that timeframe controls beyond CAIR
cannot be considered “reasonably available”.  The EPA analysis,
titled “Boilermaker Labor Analysis and Installation Timing”, March
2005, has been placed in the docket for the CAIR rule, docket number
EPA-HQ-OAR-2003-0053, document number EPA-HQ-OAR-2003-0053-2092.  This
issue is also discussed in the preamble to the CAIR rule under the
heading “Schedule for Implementing SO2 and NOx Emissions Reductions
Requirements for PM2.5 and Ozone” starting at 70 FR 25215.  EPA
concluded that its analysis rather than the ICAC analysis of feasibility
is correct and EPA believes it is still the most credible analysis
addressing the issue.

n. Comment:  Several commenters argue that the economic test for CAIR is
different from that for RACT.  CAIR requires only "highly cost effective
controls," whereas RACT requires economically feasible controls.  Thus,
the commenters conclude, more controls “pass the economic test”
under RACT than under CAIR

Response: EPA believes that the emission reductions achieved by CAIR,
while still highly cost effective, also represent the level of control
that is economically and technologically feasible as RACT for EGUs in
states that achieve all their emission reductions from EGUs.  The CAIR
final rulemaking established a region-wide NOx emissions cap, effective
in 2009, at a level that, assuming the reductions are achieved from
EGUs, would result in EGUs installing emission controls on the maximum
total capacity on which it is feasible to install emission controls by
that date.  Further, EPA does not believe that requiring source-specific
RACT controls on EGUs in nonattainment areas would reduce total NOx
emissions from EGU sources covered by the CAIR below the levels that
would be achieved under the CAIR alone.  The most expensive controls
available, which might be chosen for BACT or LAER, are not always
justified as RACT.  States have the flexibility to require such controls
as part of their attainment strategy if they find such controls are
reasonable and necessary to achieve attainment of the ozone NAAQS as
expeditiously as practicable.

o. Comment:  One commenter argued that the time frames for the CAIR and
the RACT requirement are different.  This commenter says RACT is
required within 30 months of when the RACT SIP is due which would
require controls to be installed by the 2009 ozone season, but that
CAIR sources have until 2010 or 2015.

Response:  As explained in the final CAIR rule (70 FR. 25,226), the
first phase of CAIR NOx emissions  cap starts in 2009, not in 2010 as
the commenter states.  For states affected by the CAIR annual NOx
emission reduction requirements, the first phase cap begins on January
1, 2009.  For states affected only by the CAIR ozone season NOx emission
reduction requirements, the first phase starts May 1, 2009.   EPA
believes it has set the 2009 CAIR NOx cap at a level that, assuming the
reductions are achieved from EGUs, would result in EGUs installing
emission controls on the maximum total capacity on which it is feasible
to install emission controls by that date.

p. Comment:  EPA received comments arguing that states are not free to
require more control on EGUs, as EPA suggests, since the law in many
states prohibits state air agencies from being more stringent that
federal law.  One survey found the 26 state agencies (of 50 respondents)
and 9 local agencies (of 42 respondents) reported being precluded from
adopting more stringent requirements than the federal government.  A
commenter said that the “CAIR equals RACT” determination removes
state authority and obligation to impose NOx RACT requirements for some
of the largest NOx sources in their nonattainment areas.

One commenter said that the petition for reconsideration ignores the
point that, entirely apart from what emission controls are deemed RACT,
states must require emission controls as necessary to attain the NAAQS
as expeditiously as practicable.  Thus a state has discretion to require
beyond-RACT NOx reductions.

Response:  There are no provisions in the CAA or federal law that
prohibit state governments from imposing requirements more stringent
than federal law.  EPA recognizes, nonetheless, that some states have
voluntarily chosen to adopt such limits.  All states, regardless of
whether such limits have been adopted, are required by section 172 of
the CAA to attain the ozone NAAQS as expeditiously as practicable.
Thus, requirements that are determined by the state to be necessary to
attain as expeditiously as practicable with reasonably available control
measures, are in fact required by federal law and cannot be considered
more stringent than federal requirements.  In this action, EPA has
decided that it will accept a determination that NOx RACT for EGUs is
satisfied by compliance with rules implementing CAIR in a state that
achieves all CAIR emission reductions from EGUs and where EPA’s
technical analysis presented in the December 16, 2006 notice of
reconsideration shows that CAIR will achieve greater or equal annual and
ozone-season emissions reductions than source-by-source RACT in the
relevant nonattainment area (or for section 184 requirements, the
relevant OTR state).  If a state chooses to rely on this determination,
it will not be required to perform NOx RACT analyses for sources in the
relevant nonattainment area or OTR state that are subject to a CAIR NOx
trading program.  Nonattainment areas and OTR states that cannot rely on
this determination, may still initially presume that CAIR will satisfy
the NOx RACT requirements if all CAIR reductions are achieved by EGUs.
Under this presumption, states are free to conduct case-by-case RACT
determinations at their discretion.  Further, the requirement to attain
the NAAQS as expeditiously as practicable is distinct from the analysis
of what specific emission controls are deemed RACT for a particular
source.  Thus, all states have discretion to require beyond-RACT NOx
reductions if necessary to comply with the requirements of CAA section
172.

q. Comment: One commenter argues that EPA attempts to stretch §172
(c)’s definition of “reasonable,” when EPA states that it believes
that the term “reasonable” in RACT may be construed to allow
consideration of the air quality impact of required emissions reduction
from a region-wide cap-and-trade program such as CAIR.  Another
commenter argues that EPA's theory that the term "reasonable" is
ambiguous and ignores the statutory language which only speaks to RACT,
with the term reasonably modifying the word available.  The commenter
said that it is not reasonable for EPA to interpret reasonable to apply
in one manner for EGUs and a wholly different manner for other sources.

Response:  EPA disagrees with commenter’s assertion that EPA
interprets the term “reasonable” to apply in one manner for EGUs and
in a different manner for other sources.  Section 172(c)(1) of the CAA
requires that nonattainment plans shall provide for the implementation
of all reasonably available control measures as expeditiously as
practicable.  EPA has previously stated that reasonable control measures
can include area wide averaging programs. (See NOx Supplement to the
General Preamble, November 25, 1992 (57 FR 55620)).  EPA’s
determination that the term “reasonable” in RACT may be construed to
allow consideration of the air quality impact of required emissions
reduction from a region-wide cap-and-trade program such as CAIR is
consistent with past practice and appropriate for the reasons explained
in this notice.

Further, in determining a level of control which EPA recommends as RACT,
EPA studies a variety of sources and controls and determines what level
of control is applicable in the industry across a wide variety of
sources at a reasonable cost.  States are free to tailor this RACT
guidance to the particular situation confronting individual sources in
that state.  Each permitting agency determines for each source or
source-category in the state, the specific controls that constitute
RACT.  Thus, the precise requirements applied to ensure that RACT is met
may differ from source to source and source-category to source-category.

EPA’s determination that, in certain circumstances, compliance with
CAIR will satisfy the RACT requirement for EGUs in most CAIR states,
does not, as petitioner suggests, reinterpret the term RACT as it
applies to EGUs.  Instead, EPA has determined that the existing RACT
requirement is satisfied by compliance with a rule implementing the CAIR
requirements, if and only if a state achieves all its reductions from
EGUs and the EPA’s technical analysis presented in the notice of
reconsideration shows that CAIR will achieve greater or equal reductions
for annual and ozone-season emission reductions than source-by-source
RACT in the relevant nonattainment area or OTR state.  If a state
achieves all of its CAIR emission reductions from EGUs then the
emissions of other source categories in the state are not controlled by
the CAIR rule.  Thus, it would be impossible for EPA to make a similar
determination that they have met their RACT requirements through
compliance with CAIR.

r. Comment:  EPA received several comments on whether the U.S. Court of
Appeals for the D.C. Circuit decision in South Coast Air Quality
Management District v. EPA, (No. 04-1200) (D.C. Cir. 2006), will affect
the issues in the Ozone Phase 2 Rule that are currently under
reconsideration.  Specifically, commenters suggested that the South
Coast decision may affect EPA’s analysis and conclusions regarding
whether compliance with rules implementing CAIR may satisfy NOx RACT for
EGUs in certain circumstances.  One commenter argued that the decision
would affect the validity of the supplemental technical analysis
discussed in the December 2006 notice of reconsideration.  This
commenter argued that the analysis would be affected since, as a result
of the South Coast decision, certain areas may be moved from subpart 1
to subpart 2 nonattainment classifications.  Another commenter urged
that there be no further delay as a result of that ruling and argued
that the issues being considered in the reconsideration of phase 2 are
not affected by the South Coast decision.  Another commenter argued that
based on that decision, EPA cannot use its discretionary powers to
replace source-specific provisions of the CAA such as RACT that were
designed to achieve specific air quality goals with trading programs
such as CAIR that were designed for other specific air quality goals.

Response:  EPA disagrees with the comment to the extent it suggests EPA
is seeking to replace the RACT requirement with CAIR.  The final rule
does not displace the RACT requirement for any sources.  EPA also
disagrees with the comment to the extent it suggests that EPA’s
interpretation of the RACT requirements in sections 172(c)(1), 182(f)
and 184(b) is inconsistent with the South Coast decision.  Further, on
March 22, 2007, EPA filed a petition for panel rehearing of the South
Coast decision and thus the full impact of that decision cannot yet be
assessed.  At this time, EPA is unable to determine which areas, if any,
in addition to those included in the analysis will be required to submit
separate RACT SIPs.   However, as indicated above in footnote 8,
region-wide emissions reductions from the CAIR are projected to be
significantly greater than reductions that would be projected to occur
from application of source-by-source RACT, such that the possible
movement of areas designated in the phase 1 rule as subpart 1 to subpart
2 area designations is not expected to alter the conclusion that the
CAIR achieves greater emission reductions in the region than
source-by-source RACT.  In addition, as previously discussed, EPA is
limiting the scope of its determination that compliance with the CAIR
satisfies NOx RACT requirements.  This determination applies in areas
where EPA’s emissions analysis in the December 16, 2006 notice of
reconsideration shows that the CAIR will achieve greater or equal annual
and ozone-season emissions reductions than source-by-source RACT.

B.  Submission Date for EGU NOx RACT SIPs for states in the CAIR Region

1. Final Action

In this action, EPA also extends the deadline for the submission, by
states in the CAIR region, of EGU NOx RACT SIPs for moderate and above
subpart 2 areas.  Specifically, EPA has determined that states subject
to the requirements of CAIR shall submit NOx RACT SIPs for EGUs no later
than the due date for the area’s attainment demonstration (prior to
any reclassification under section 181(b)(3)) for the 8-hour ozone NAAQS
or [insert date 30 days after publication in the Federal Register]
whichever comes later.  EPA is therefore changing the deadline in 40 CFR
51.912(a)(2) as it applies to that portion of the RACT SIPs addressing
EGU NOx emissions in the CAIR region.  EPA is not changing the deadline
in 40 CFR 51.912(c)(2) that applies to RACT SIP submittals for subpart 1
areas that request an attainment date that extends beyond April 2009,
since those RACT SIPs are already due with the area’s attainment
demonstration by June 15, 2007.

EPA decided to extend the deadline for the submission of these EGU NOx
RACT SIPs because of the continuing uncertainty regarding the required
content of such SIPs and to avoid promulgating a retroactive deadline.
The Administrative Procedures Act generally prohibits retroactive
rulemaking.  In this case, EPA also determined that it would not be
reasonable to enact a retroactive deadline because it would only serve
to potentially expose states to fines and suits for failure to make SIP
revisions even though they previously faced substantial ambiguity
regarding the required content of the SIP submissions.  See Sierra Club
v. Whitman, 285 F.3d 63, 68 (D.C. Cir. 2002).

EPA recognizes that significant uncertainty regarding the EGU NOx RACT
SIPs for states in the CAIR region was created by its decision to grant
NRDC's petition for reconsideration. It was for this reason that, in the
December 2006 notice of reconsideration, EPA proposed to extend the
September 15, 2006 deadline to June 15, 2007 for this source category.
This new deadline affects only moderate 8-hour ozone nonattainment areas
in the CAIR region and only the portion of the RACT SIPs that covers
EGUs.  EPA is aware that uncertainty regarding area classifications, and
hence the requirement for RACT SIPs was created by South Coast v. EPA,
in which the court decided to vacate EPA's nonattainment
classifications.  These classifications determine, among other things,
which nonattainment areas must submit RACT SIPs separate from their
attainment demonstrations under the Phase 2 Rule.  EPA does not believe
it would be reasonable to retain the September 15, 2006 deadline for
submission of the EGU NOx RACT SIPs for states in the CAIR region since
this date has now passed and the uncertainty regarding the required
content of these SIPs has not been resolved.  This final action removes
the uncertainty created by the decision to grant reconsideration.  The
uncertainty regarding the classifications will be eliminated either by
the reclassification of certain areas by EPA, or by a decision of the
Court on rehearing not to vacate some or all of the original
classifications.  The due date for attainment demonstrations is tied to
the date of  the classification, and for any classifications that are
upheld on rehearing, the attainment demonstrations for moderate areas
will continue to be due on June 15, 2007.  Because the classifications
also determine what areas must submit RACT SIPs, and in light of the
passage of time during this reconsideration process, EPA believes that
the EGU RACT SIP submittal deadlines for states in the CAIR region
should now also be linked to the deadline for submitting attainment
demonstrations.  EPA recognizes that for many areas this deadline may be
June 15, 2007 – a date prior to the effective date of this rule.  EPA
also recognizes that CAA section 172(b) requires states to make all
nonattainment SIP submissions within 3 years of designation (i.e. by
June 15, 2007).  Nonetheless, to avoid creating a retroactive deadline
and because of the continuing uncertainty regarding the classifications,
EPA has decided to require the submission of EGU NOx RACT SIPs on the
due date for the area's attainment demonstration under its original
classification for the 8-hour standard, or the effective date of this
rule, whichever is later.

2. Response to Comments

a. Comment: Several commenters opposed the extension of the EGU NOx RACT
SIP submittal deadline. One commenter argued that EPA has no authority
to extend the due date for RACT SIPs for EGUs to June 15, 2007 because
section 182 of the CAA requires submittal of RACT SIPs within 2 years of
designation.  Other commenters urged EPA to finalize a rule that would
expedite SIP submittals.

Response: Section 182 does not explicitly provide that RACT SIPs must be
submitted a certain number of months after an area is designated
nonattainment for the 8-hour ozone NAAQS.  EPA interprets the comment to
suggest that the final rule contains requirements similar to the VOC
RACT requirements in section 182(b)(2)(C), which must be submitted to
the Administrator by two years after November 15, 1990 (the date of
enactment of the CAA Amendments of 1990).  Therefore, the argument goes,
the RACT SIPs must similarly be submitted within two years of the
nonattainment designation, or June 15, 2006.  In the final Phase 2 Rule,
we determined that because some states might rely on the submittal of
SIP revisions meeting the CAIR to also satisfy RACT for some sources, it
was reasonable to extend the RACT submittal date to September 15, 2006
to correspond to the required date for submitting CAIR SIPs.   This date
has now passed, and for the reasons explained in section III.B.1 of this
notice, EPA does not believe it would be appropriate to finalize this
rule with a retroactive deadline.

b. Comment: Other commenters supported the extension at least until June
15, 2007 and some argued a longer extension may be necessary given the
uncertainties regarding classifications created by the decision in South
Coast v. EPA.

Response:  As discussed in section III.B.1 of this notice, the RACT SIP
submittal date in the final rule reflects EPA’s recognition that the
South Coast v. EPA decision has created some uncertainty about which
areas, by virtue of their classification, would be required to address
RACT requirements and in what timeframe.

  SEQ CHAPTER \h \r 1 C.   Provisions of Final Rule Addressing the
Criteria For Emission Reduction Credits From Shutdowns And Curtailments

1.  Major Source NSR Criteria For Emission Reduction Credits (ERC) From
Shutdowns And Curtailments

	The November 29, 2005 Phase 2 rule removed the requirement that a State
must have an approved attainment plan before a source may use
pre-application credits from shutdowns or curtailments as offsets.  It
also revised the availability of creditable offsets, consistent with the
requirements of section 173 of the CAA.  We revised the provisions at 40
CFR 51.165(a)(3)(ii)(C) and appendix S concerning emission reduction
credits generated from shutdowns and curtailments as proposed in
Alternative 2 of the 1996 proposal, with one exception.  Alternative 2
of the 1996 proposal provided that, in order to be creditable, the
shutdown of an existing emission unit or curtailing of production or
operating hours must have occurred after the “most recent emissions
inventory.”   As described in prior notices referenced herein, a
public comment raised concerns about usage of this terminology.  Upon
consideration of various aspects of the terminology, we amended the
rules at 40 CFR 51.165(a)(3)(C)(1) and Appendix S paragraph IV.C.3. to
specify the cutoff date after which the shutdown or curtailment of
emissions must occur as “the last day of the base year for the SIP
planning process.”  In our responses to comments below, we further
detail our rationale supporting this change.    As explained previously,
this regulatory language is consistent with our previous guidance on how
emission reduction credits from shutdowns and curtailments are used in
attainment planning.  The base year inventory includes actual emissions
from existing sources and would not normally reflect emissions from
units that were shutdown or curtailed before the base year, as these
emissions are not "in the air."  To the extent that these emission
reduction credits are to be considered available for use as offsets and
are thus “in the air” for purposes of demonstrating attainment, they
must be specifically included in the projected emissions inventory used
in the attainment demonstration along with other growth in emissions
over the base year inventory.  This step assures that emissions from
shutdown and curtailed units are accounted for in attainment planning.
As with the prior rules, reviewing authorities thus retain the ability
to consider a prior shutdown or curtailment to have occurred after the
last day of the base year if emissions that are eliminated by the
shutdown or curtailment are emissions that were accounted for in the
attainment demonstration.  However, in no event may credit be given for
shutdowns that occurred before August 7, 1977, a provision carried over
from the previous regulation.  See 40 CFR 51.165(a)(3)(C)(1)(ii)  and 40
CFR Part 51 Appendix S Paragraph IV.C.3.

2.  Legal Basis For Changes To Criteria For Emission Reduction Credits
From Shutdowns And Curtailments

	The revisions made to the rules governing use of emissions reductions
from shutdowns/curtailments as offsets were warranted by the more
detailed attainment planning and sanction provisions of the 1990 CAA
Amendments.  These provisions specifically address air quality concerns
in nonattainment areas lacking EPA-approved attainment demonstrations.
As a threshold matter, we noted (See 70 FR 71677, November 29, 2005)
that CAA section 173 does not mandate the prior restrictions on shutdown
credits, specifically, the requirement to have an approved attainment
demonstration before shutdown credits may be allowed.  (See 48 FR 38742,
38751; August 25, 1983).  Rather, in promulgating these restrictions in
1989, EPA recognized that it had a large degree of discretion under the
CAA to shape implementing regulations, as well as the need to exercise
that discretion such that offsets are consistent with reasonable further
progress (RFP) as required in CAA section 173.  (See 54 FR 27286, 27292;
June 28, 1989).  Originally, EPA believed that areas without approved
attainment demonstrations lacked adequate safeguards to ensure that
shutdown/curtailment credits would be consistent with RFP.  We thus
subjected those areas to more restrictive requirements to ensure a link
between the new source and the source being shutdown/curtailed (that is,
shutdown/curtailment must occur after the application for a new or
modified major source is filed).

	The 1990 CAA Amendments changed the considerations involved.  For areas
subject to subpart 2 of CAA Part D, Congress emphasized the emission
inventory requirement in section 172(c)(3) as a fundamental tool in air
quality planning (See Section 182(a)(1).  Congress also added new
provisions keyed to the inventory requirement, including specific
reduction strategies (e.g., section 182(b)(3) and (4) (regarding
gasoline vapor recovery and motor vehicle inspection and maintenance
programs))  and “milestones” that measure progress toward attainment
from the base year emissions inventory or subsequent revised inventories
(See section 182(b)(1)).  Subpart 4 sets forth specific reduction
strategies and milestones for attainment of the PM10 standards.
Additionally, there are now several adverse consequences where States
fail to meet the planning or emissions reductions requirements of the
CAA.  For example, the CAA contains mandatory increased new source
offset sanctions at a 2:1 ratio where the Administrator finds that a
State failed to submit a required attainment demonstration (See section
179).  In areas that are subject to subpart 2 and subpart 4, failure to
attain the air quality standard by the attainment deadline results in
the area being bumped up to a higher classification (see sections
181(b)(2) and 188(b)(2)).  Additional regulatory requirements are
imposed as a result of the higher classification (see, e.g., section
182(c), (d), and (e), and section 189(b)).  These statutory changes
justify shifting the focus of the prior regulations from individual
offset transactions between a specific new source and shutdown source
and towards a systemic approach.  Considering the changes to the 1990
CAA Amendments, we now believe that continuing the prohibition on the
use of shutdown/curtailment credits generated in a nonattainment area
that is without an approved attainment demonstration is not warranted.
We believe that use of emission reduction credits from
shutdowns/curtailments will be consistent with RFP towards attainment
under CAA section 173, even in the absence of an approved attainment
demonstration, if the shutdown or curtailment occurs after the last day
of the base year for the SIP planning process or is included in the
projected emissions inventory used to develop the attainment
demonstration.  From an air quality planning perspective, emissions from
the shutdown source actually impacted the measurements of air quality
used in determining the nonattainment status of an area.  Therefore,
emissions reductions from such source shutdowns/curtailments are actual
emissions reductions, and their use as emission offsets at a ratio of
1:1 or greater is consistent with RFP towards improved air quality as
set forth in CAA section 173(a)(1)(A) provided they are included in the
baseline emissions inventory.

3.  Reconsideration of Emission Reduction Credits Final Rule Language
and Request for Public Comments

In its January 30, 2006, petition for reconsideration, NRDC requested
that EPA reconsider provisions in the final Phase 2 Rule that pertain to
ERC.  NRDC argued that EPA failed to present portions of the rule’s
“shutdown-curtailment offset provisions” and accompanying rationales
to the public for comment.  In our December 19, 2006 proposal for
reconsideration we presented our opinion that the basis for the ERC
provisions of the final rule was adequately provided in the November 29,
2005 rule and in earlier actions leading to that rule.    Petitioners
asserted in their request for reconsideration that certain aspects of
our clarifying amendments to the ERC provisions of the final rule were
not a logical outgrowth of the ERC provisions we proposed.   While
disagreeing, we nonetheless presented certain changes made in the
November 29, 2005 final rule for additional public comment as requested
by the petitioners.  Concerning emission reduction credits, our proposal
for reconsideration drew twelve public comments.  Of those comments,
eight supported the rules as now written.  Among those opposed were the
petitioners, who continued presentation of the concerns leading to
today’s notice.  Detailed discussion and analysis of arguments raised
by all of the commenters is given below.

4.  Comments and Responses for Emission Reduction Credits Issues

	Two commenters objected to the inclusion of NSR program elements into
the same action as the requirements for the implementation of the
eight-hour ozone standard.  Our response to that concern is that we
considered it more efficient to combine the two actions.  We observed in
70 FR 71672 that we did not propose specific regulatory language for
implementation of NSR under the 8-hour NAAQS.  However, we indicated
that we had intended to revise the nonattainment NSR regulations to be
consistent with the rule for implementing the 8-hour ozone NAAQS.  We
found it expeditious to address these and other NSR matters in the same
regulatory package as the phase 2 ozone rule.  In the future, any
combination of actions affecting multiple aspects of an overall program
would be considered in light of the pros and cons of doing so at that
time.  In this instance, coordination of distinct program elements was a
primary concern.

a.  Comments on Emission Reduction Credits and Emissions Inventories.

In the January 30, 2006, NRDC petition for reconsideration, Earthjustice
argued on behalf of NRDC that EPA failed to present portions of the
rule’s “shutdown-curtailment offset provisions” and accompanying
rationales to the public for comment.  The petitioners asserted in their
request for reconsideration that certain aspects of our clarifying
amendments to the ERC provisions of the final rule were not a logical
outgrowth of the ERC provisions we proposed on July 23, 1996 proposal.
First, they identified the change in language regarding when shutdowns
and curtailments must have occurred in order to be creditable.  The
proposed language (alternative 2) said that shutdowns and curtailments
could be credited “if such reductions occurred after the last day of
the baseline year of the most recent base year emissions inventory used
(or to be used) in the plan.” In the final rule, after considering
comments, we changed the language to say that such reductions could be
credited if they occurred “after the last day of the base year for the
SIP planning process.”  Earthjustice objected to this change because,
in their view, the final rule “allows offsets from pre-application
shutdowns and curtailments even in the absence of an emission inventory
for the attainment plan.”  While we believe the ERC provisions in the
final rule were a logical outgrowth of the proposal, we nevertheless
granted their request for reconsideration with respect to this
particular language change, as indicated in the December 19, 2006,
notice.  The NRDC/Earthjustice petition also contained a second
argument, which was that the final rule “could allow pre-baseline
reductions from shutdowns or curtailments to be used as post-baseline
offsets.”  This argument hinged on the second sentence of
§51.165(a)(3)(C)(1)(ii), which now provides that “a reviewing
authority may choose to consider a prior shutdown or curtailment to have
occurred after the last day of the base year if the projected emissions
inventory used to develop the attainment demonstration explicitly
includes the emissions from such previously shutdown or curtailed
emission units.”  While we did not specifically open this issue for
reconsideration, we nevertheless address related comments below.   For
the purpose of providing potential commenters context and clarity, we
included the full language of §51.165(a)(3)(C)(1) and Appendix S
paragraph IV.C.3 in our December 19, 2006 notice of reconsideration.

In its comments upon our proposal for reconsideration, Earthjustice
essentially repeated the points made in the NRDC/Earthjustice petition,
stating that the final ERC provisions “would allow use of such
pre-application offsets before the state even knows the degree of
emission reductions needed to assure RFP, and before the state has even
developed a baseline emission inventory.” Earthjustice also pursued
the second issue, stating that “the proposed rule further violates the
Act to the extent that it allows the source to claim offsets from
reductions that occurred prior to the baseline year for the attainment
demonstration.”   In addition, Earthjustice offered broad comments
that relate to aspects of the ERC provisions that pre-dated the Phase II
rule.  We will examine those comments after first addressing the
discrete issues that were the subject of the reconsideration proposal.

As summarized above, the first concern raised by NRDC/Earthjustice in
the petition for reconsideration was with the replacement of the
terminology “most recent emissions inventory” as used in the July
23, 1996 proposal (61 FR 38250) with the terminology ”the last day of
the base year for the SIP planning process.” Alternative 2 of the 1996
proposal provided that, in order to be creditable, the shutdown of an
existing emission unit or curtailing of production or operating hours
must have occurred after the “most recent emissions inventory.”  We
agreed with a commenter on the 1996 proposal who found the phase “most
recent emissions inventory” confusing.  In particular, that prior
commenter believed this language could be read as meaning that the base
year for the purpose of determining emissions that may be used as
creditable offsets would continue to shift.  The prior commenter noted
that it would be more accurate to state that the base year emissions
inventory is the starting point and all creditable emissions reductions
must result from the shutdown or curtailment of emissions that have been
reported in the base year inventory or a subsequent emissions inventory.
 (For the 8-hour ozone NAAQS, the base year is 2002. )  We agreed with
the prior commenter that the terminology “most recent emissions
inventory” was not desirable and revised §51.165(a)(3)(C)(1) and
Appendix S paragraph IV.C.3.  Accordingly, specifying the cutoff date
after which the shutdown or curtailment of emissions must occur as
“the last day of the base year for the SIP planning process.”

Eight commenters voiced support for the ERC language as promulgated on
November 29, 2005, and offered further comment on our December 19, 2006
proposal.  In general, the commenters noted the important role assigned
by Congress to the usage of emissions inventories for air quality
planning.  The commenters were supportive of the availability of ERC as
a tool for factoring managed growth into the planning process.  As a
whole, these commenters supported the change from the language “most
recent emissions inventory” as proposed July 23, 1996 to the final
“the last day of the base year for the SIP planning process.”
Speaking directly to the language that was the subject of the December
19, 2006 proposal, several commenters remarked that ERC should not be
lost every time an inventory is updated.  One observed that losing ERC
due to a moving target cannot be directly tied to attainment planning.
Another commenter found EPA’s rationale to be reasonable and saw no
merit to the petition.  This opinion was echoed by yet another commenter
who found no new information in the petition for reconsideration to
support changing the promulgated ERC rule.  Several of the commenters
supporting the cutoff date for ERC as being the last day of the base
year for the SIP planning process went on to express opinions about
implementation of the provision.  A State air pollution control agency
said that emissions included in the base year inventory will also be
included in a modeled attainment demonstration.  Their experience has
been that emissions go down while ERC are employed.  We agree with the
commenters regarding the important role of emissions inventories in air
quality planning and the retention of ERCs. There is no good rationale
to support the removal of ERC as a consequence to updating of inventory.
 We provided a detailed rationale for our own conclusion at 70 FR
71676-71677.

One commenter expressed appreciation of the specific clarifications we
provided with regard to the ability to credit pre-emissions inventory
shutdowns and curtailments if those emissions were included in the
baseline SIP emission inventory.  The commenter noted that this shutdown
and curtailment policy provides incentive to remove old equipment
without modern controls or to control emissions from such units with new
technology or practically enforceable permit limits. The ban on the use
of shutdowns and curtailments was counter-productive to improving air
quality as it provided an incentive to keep older and higher emitting
sources operating. The commenter opined that given the paucity of NOx
emissions reduction opportunities in certain nonattainment areas, the
new rule represents sound public policy by providing an incentive for
sources that want to build or install new emissions equipment to
purchase and or control NOx-emitting equipment at other sources that
might have little incentive to reduce their emissions otherwise. Also,
since an offset generates net emissions reductions because greater than
one-to-one offset ratios are required for NSR permitting in these areas,
such offsets do not interfere with attainment.  We strongly agree with
this commenter.  The chosen approach to ERC should not encourage
owner/operators to continue operating old inefficient equipment solely
for the purpose of having those emissions available for credits at the
time of a permit application.  Establishing programmatic incentives to
delay emission reductions that make good business sense (but are not
otherwise required) is detrimental to the goal of achieving attainment
as expeditiously as possible.

Some comments were received upon the mechanics of implementing ERC
provisions.  A State air pollution control agency said that since
curtailments, by definition, are temporary, the EPA also needs to review
the procedures it employs for allowing sources to use emissions
reductions from curtailments as offset credits to ensure that the
emissions reductions from the curtailments are real, federally
enforceable, quantifiable and surplus.  The commenter thought emissions
might resume at a later point in time after the curtailment ends and
expressed concern about adequate tracking of both the generation and use
of these emission reductions to ensure that the use of such credits
would be discontinued as soon as the curtailment ends. According to the
commenter, EPA also needs to ensure that prior to the end of the
curtailment, other emission reductions are available to offset the
increase in emissions that occur when the source recommences operation.
The commenter recommends that in order to ensure consistency on a
regional and national basis, EPA should perform a detailed evaluation of
the current procedures used by its regional offices for reviewing and
approving the use of emissions reductions from curtailments as emissions
offsets.  Another State air pollution control agency thought the term
“explicit” should be clarified. The second agency opined that it may
be appropriate to explicitly include a line item in the projected
emissions inventory on expected use of pre base year shutdown and
curtailment emission reduction credits. They thought it should not be
necessary to list separately each company that shutdown or curtailed
operations in the projected emissions inventory.  The second commenter
went on to note that not all ERC in its inventory were actually used and
that they have a schedule for retiring unused credits.  This commenter
expressed the opinion that we should avoid basing requirements of the
permitting program on an inventory, which is designed for planning
purposes.

Our interpretation of the two sets of comments referenced in the
preceding paragraph is that they generally argue for opposite outcomes.
We believe that emission inventories should be sufficiently detailed
that the contributions of individual sources, particularly major
sources, might be ascertained.  The depth of detail yielded by periodic
inventory updates is beyond the scope of this action.  We do think the
second commenter’s concerns as to the status of particular credits
should be addressed in the course of permitting.  Applicants should be
able to guarantee the continued existence of any credits upon which
their permits might be based.  Concerning the final point made by the
second commenter regarding use of inventories, we disagree.  The
requirements of the NSR program provide growth management tools and are
an integral part of the overall air quality attainment program.  The ERC
provisions which are the subject of this discussion are a tool to be
used by States when tailoring programs to meet their individual needs.
In the case just cited, the State has chosen to retire ERC according to
a schedule.  Used in this manner, ERC are available to encourage
owner/operators to close aging facilities more quickly than they might
should they see a need to internally “bank” their emissions for
anticipated future permit applications.  At the same time, the State has
flexibly implemented the availability of ERC to suit its planning needs.

As noted above, the Earthjustice/NRDC petition for reconsideration and
comments on the December 19, 2006 notice raised a discrete issue with
respect to the phrase “the last day of the base year for the SIP
planning process.”   Earthjustice objected to the change from the
proposed language because, in their view, the final language “would
allow use of such pre-application offsets before the state even knows
the degree of emission reductions needed to assure RFP, and before the
state has even developed a baseline emission inventory.”  We disagree
with the commenter’s suggestion that ERC may be employed with no
consideration of consequences to air quality planning.  In particular,
the regulatory language in question from §51.165(a)(3)(C)(1)(ii)
specifically conditions usage of ERC for shutdowns and curtailments that
occur prior to the cutoff date on identification of the underlying
emissions in the inventory being used to develop a particular attainment
demonstration.  Shutdowns or curtailments based on emissions that were
“in the air” during the baseline year are based on emissions that
would automatically form part of the inventory.  All emissions whose
reduction would be creditable as offsets must be at some point
incorporated into inventories employed for demonstrations of attainment.
 Any ERC, whether eventually used for offsetting or not, must be
accounted for within either the baseline inventory or within periodic
inventory updates.  Any ERC employed as offsets may be readily taken
into account during attainment planning.

The Earthjustice comments also contain the argument that the second
sentence of §51.165(a)(3)(C)(1)(ii) “violates the Act to the extent
that it allows the source to claim offsets from reductions that occurred
prior to the baseline year for the attainment demonstration.”  The
complete second sentence provides that “a reviewing authority may
choose to consider a prior shutdown or curtailment to have occurred
after the last day of the base year if the projected emissions inventory
used to develop the attainment demonstration explicitly includes the
emissions from such previously shutdown or curtailed emission units.”
In this argument the commenter cites to CAA § 173(c)(1) as containing
language precluding the offsets in question.  As discussed below, this
exception to the baseline provision predated the Phase 2 rule.  The only
change we made in the Phase 2 rule was to allow its use in a greater
range of circumstances.  This change was consistent with our overarching
action in expanding the circumstances in which pre-application shutdowns
and curtailments could be used to generate ERCs.  We did not intend to
revisit the exception as promulgated prior to the Phase 2 rule.  We note
that this exception is consistent with the policy on allowing
pre-enactment banked emissions to be credited as set forth in the 1992
General Preamble (57 FR 13553).  In that notice, we stated: “For
purposes of equity, EPA encourages States to allow sources to use
pre-enactment banked emissions reductions credits for offsetting
purposes.  States may do so as long as the restored credits meet all
other offset creditability criteria and such credits are considered by
States as part of the attainment emissions inventory when developing
their post-enactment attainment demonstration.”  We discuss CAA §
173(c)(1) further below in conjunction with our discussion of CAA §
173(a)(1)(A) and RFP.

As previously noted, portions of Earthjustice’s comments relate to
aspects of the ERC provisions that pre-dated the Phase II rule.  While
we view these issues as outside the scope of the reconsideration, we
provide background on these broader issues in order to put the Phase 2
changes into context.  We note, however, that Earthjustice had an
opportunity to comment on these longstanding provisions at the time they
were promulgated.

The concept of generating credits for later use has been a fundamental
part of the NSR program for decades.  See, for example, the “General
Preamble for Proposed Rulemaking on Approval of State Implementation
Plan Revisions for Nonattainment Areas,” 44 FR 20372 (April 4, 1979),
indicating that “the state may allow emission reductions to be banked
for later use under the [Emission Offset Interpretive] Ruling and under
the state’s preconstruction review program under Part D.”

In 1989, EPA promulgated changes to the provisions that existed at that
time regarding the extent to which source shutdowns and curtailments
were creditable as emission offsets in nonattainment areas (54 FR 27286,
June 28, 1989).  In that notice, EPA pointed out that “the Act does
not expressly mandate any particular treatment of shutdowns for offset
crediting purposes.  Rather, this question is a matter within the
administrative discretion delegated to EPA under the Act. . . . Thus,
although it is true, as noted in the proposed regulations, that section
173 requires EPA to allow the construction of new sources in
nonattainment areas where such construction will be consistent with RFP
toward attainment, EPA retains broad discretion to establish criteria
for determining when RFP has been assured” (54 FR 27292).  The version
of 5.165(a)(3)(ii)(C)(1) & (2) promulgated in that 1989 rule was the
version that remained current up until the Phase 2 revisions.  In other
words, as far back as 1989, EPA approved the concept of pre-application
shutdown credits in certain circumstances (primarily where areas had
EPA-approved attainment plans).

In the 1989 final rule, EPA also adopted, for purposes of areas with
approved attainment plans, a provision allowing permitting authorities
“to consider a prior shutdown or curtailment to have occurred after
the date of its most recent emission inventory, if the inventory
explicitly includes as current “existing” emissions the emissions
from such previously shutdown or curtailed sources” (54 FR 27295).  We
explained that absent such explicit treatment, “emissions from a new
source whose construction is premised upon such shutdowns cannot
reliably be said to be consistent with RFP.”   Our stated concern was
that if the emissions were not included in the inventory, “[i]t would
constitute ‘double counting’ of these emissions reductions to allow
their unrestricted use as shutdown offset credits by potential new
sources.”  With the inclusion of the emissions in the inventory,
however, the concern about possible double counting was eliminated.

Thus, our November 29, 2005 amendment to the ERC provisions introduced
neither the concept of credits for pre-application shutdowns and
curtailments nor the exception to the cutoff date for emissions
explicitly included in the emissions inventory.   What our November 29,
2005 amendment accomplished was to broaden the scope of these provisions
to acknowledge 1990 CAA changes that enhanced the role of inventories in
attainment planning.   In its comments Earthjustice called our attention
to CAA § 173(a)(1)(A), which they noted as requiring offsets to ensure
that total allowable emissions will be sufficiently less than total
emissions “prior to the [NSR permit] application” to ensure RFP.
They also invoked CAA §173(c)(1) as requiring that increased emissions
from a new or modified major source “shall be offset” by an equal or
greater reduction in actual emissions.  Earthjustice, however, failed to
note the final language of 173(a)(1)(A), which states that the
difference between the pre-application emissions and the
post-application emissions is to be considered together with the plan
provisions required under section 172 in determining whether the
difference represents reasonable further progress. In particular, we
note that §172(c)(3) presents the framework for non-attainment planning
and includes use of inventories in the development of non-attainment
plan provisions, into which NSR factors as a management tool.  The
inventories under §172(c)(3) are to account for actual emissions from
all sources.  We consider the inclusion of emissions associated with
pre-application shutdowns and curtailments in the inventory as “actual
emissions” to be reasonable in that they represent emissions that
would be “in the air” absent incentives to close or curtail sources.
 Reductions in these emissions thus fulfill the requirement for
reductions in actual emissions as set forth in §173(c)(1).

In light of the overall goal of RFP towards attainment, we have used our
discretion to provide an incentive for sources to retire or curtail
emissions sources early rather than continue operation of higher
emission sources until such time as permit applications might be filed
for replacement facilities.  This construction is reinforced by
§172(c)(6) which says that plans shall include necessary and
appropriate “measures, means, or techniques,” including economic
incentives such as marketable permits.  ERCs are one such economic
incentive.  Should ERC be lost every three years when inventories are
updated, their marketability would be greatly diminished.

In §172(c)(6) we see direction to construct a coordinated and cohesive
air quality management program to accomplish the goal of RFP.  The
inclusion of ERC as now allowed  in the NSR component of the program is
a viable measure entirely consistent with Congress’ direction that
implementation of § 173(a)(1)(A) be accomplished in conjunction with
the overarching requirements of §172.  The ERC in question herein are
properly tracked through required inventories built into demonstrations
of attainment.  They provide incentives for sources to reduce emissions
in advance of planned future permit applications and thereby enhance
RFP.  The credits for ERC are marketable.  To the extent they are
included as offsets in NSR permits, they lock down reductions of
emissions that might otherwise be legitimately discharged into the
atmosphere as actual emissions up to the time of the permit application.
 We consider this to be entirely consistent with the spirit and
requirements of the CAA.

b. Comments on Impact of D.C. Circuit Court of Appeals Decision on Phase
2 Rule

One commenter believes that the recent D.C. Circuit Court of Appeals
decision in South Coast Air Quality Management District v. Environmental
Protection Agency (2006 U.S. App. LEXIS 31451(D.C. Cir. 2006)) has a
direct impact on the Phase 2 Rule and the issues under review in this
reconsideration notice, particularly with respect to specific control
measures such as the NSR program.  The commenter opined that NSR program
elements included in the Phase 2 Rule are in direct conflict with this
D.C. Circuit Court opinion.  Another commenter drew an opposite
conclusion and said there is no need for further delay as a result of
that same decision.  The second commenter submits that the issues that
are subject to the proposed EPA action are not affected by the Court of
Appeals’ recent ruling in SQAQMD v. EPA, and that it is critical for
the Agency to take final action on the issues raised in the December 19,
2006 notice. The commenter’s opinion is that the Phase 2 rule
addresses new source review requirements during the transition period
until SIP revisions for the 8-hour ozone rule are adopted by
jurisdictions and approved by EPA.  This commenter said that in view of
the Court of Appeals’ opinion that many features of the Phase 1 ozone
rule are not consistent with the Act, it is unlikely that States and
regional air pollution control agencies will be able to adopt approvable
SIP revisions for some time. Thus, transitional rules affecting new
source review pursuant to the federal transitional requirements are
essential.

As discussed below, we do not believe that the issues under review in
this reconsideration are in conflict with the South Coast decision.  The
first commenter gave no specifics.  Earthjustice did provide a specific
argument concerning the impact of the Court’s decision.

According to Earthjustice, the ERC provisions in the Phase 2 rule
constitute a weakening of offset requirements and are contrary to CAA
protections limiting EPA’s discretion to provide flexibility to states
in complying with the Act’s mandates. They cite South Coast.  They
argue that the 1990 Amendments’ more explicit rate of progress targets
do not somehow relax the offset requirements for new major sources.
Further they argue that, to the contrary, the 1990 Act sets out even
more explicit offset requirements than before, making crystal clear that
such minimum offsets are required regardless of whether the Act’s rate
of progress requirements in the Act are being met. See, e.g., CAA
§§182(a)(4), (b)(5), (c)(10), (d)(2), (e)(1). Thus, according to
Earthjustice, the offset requirements are not mere subsets of the rate
of progress requirements, but distinct mandates to ensure a net cut in
emissions after the application for a new source permit. They maintain
that EPA has attempted to weaken these mandates and that such action
violates the Act’s anti-backsliding provisions, by relaxing the level
of pollution control required prior to revision of the ozone NAAQS.

In response, EPA first notes that the South Coast decision relates to a
different context.  The anti-backsliding discussion in that decision
revolved about §172(e) requirements that controls not be made less
stringent in conjunction with relaxation of national ambient air quality
standards.  The ERC changes challenged by Earthjustice are not tied to
any particular national ambient air quality standard or its revision.
Rather, they are broader programmatic changes, as noted by some of the
commenters.  Earthjustice does not identify which anti-backsliding
provisions other than section 172(e) might be implicated by this action.
 The changes to 40 CFR 51.165 do not in and of themselves modify any
requirements applicable to nonattainment areas.  Thus, even assuming
section 193, for example, is potentially applicable, this is not the
appropriate time to determine its application.  We believe the
appropriate time to determine the applicability of and compliance with
Section 193 is when a control requirement in a nonattainment area is
changed.  For States that undertake a SIP revision, we will address the
applicability of Section 193 in our future actions to approve the SIP
revisions.  Similarly, the applicability of section 110(l) would only
become an issue upon submission of a SIP revision to EPA.  We disagree
with the commenter who stated that the NSR changes are limited to the
transitional period.  The ERC changes are broader in nature, given that
they amend section 51.165 as well as Appendix S.  The extent to which
the changes to Appendix S would affect areas that were nonattainment for
the 1-hour standard is currently unclear.  In the South Coast decision,
the DC Circuit vacated certain aspects of EPA’s phase 1 rule
implementing the 8-hour ozone NAAQS.  One possible effect of the court's
vacatur of that rule is that it could require Federal, state, and local
agencies to issue NSR permits in accordance with the area's 1-hour ozone
nonattainment classification.  Were that to occur, areas that were
nonattainment for the 1-hour standard would presumably implement their
1-hour NSR SIPs rather than Appendix S, at least until EPA had
established appropriate 1-hour anti-backsliding provisions and had taken
further action with respect to the 1-hour standard

	Similarly,  Earthjustice’s argument that the ERC changes weaken  the
offset requirements in CAA §§182(a)(4), (b)(5), (c)(10), (d)(2),
(e)(1) is unconvincing.  The ERC changes do not affect the applicable
offset ratios as mandated by those statutory provisions.  They concern
the cutoff date for offsets, rather than the degree of offset required.
 As previously discussed, the inventory required in § 172(c)(3) is one
component of the nonattainment plan provisions of § 172(c).  The
components of § 172(c) are not intended to stand alone.  They
complement one another.  When we look to § 172(c)(6) we find direction
that plans include a range of “other measures, means, or
techniques,” including economic incentives, “as may be necessary or
appropriate to provide for attainment.”  ERCs are one such incentive.
As discussed in more detail above, they are fully compatible with the
provisions of sections 172 and173.  Furthermore, they do not interfere
with the specific offset ratios mandated by Congress in section 182.

Having considered the comments received, we have seen no new rationale
presented that would lead us to change the current regulatory language
describing the availability and usage of ERC.  Accordingly, we are
electing not to amend relevant rule language currently codified in the
Code of Federal Regulations.

D  SEQ CHAPTER \h \r 1 .   Applicability of Appendix S, Section VI

1.  Changes to Applicability of Appendix S, Section VI

Section VI allows new sources locating in an area designated as
nonattainment to be exempt from the requirements of Section IV.A. of
Appendix S under certain circumstances if the date for attainment has
not yet passed.  Section VI provides a management tool to provide a
limited degree of flexibility in situations where a new source would not
interfere with an area’s ability to meet an attainment deadline.  The
final Phase 2 Rule made a procedural change to limit the applicability
of appendix S, section VI to only those instances in which the
Administrator has specifically approved its use.  Although we did not
include the regulatory language to accomplish this goal in the June 2,
2003 proposal, we did clearly state our intention of doing so.  As we
noted at 68 FR 32848, section VI as worded without any amendment could
apply in any nonattainment area where the dates for attainment have not
passed as long as the source met all applicable SIP emission limitations
and would not interfere with the area’s ability to meet its attainment
date.  As codified prior to the amendment in the Final Phase 2 Rule,
section VI contained no provision conditioning its applicability on
approval by the Administrator.  We noted at proposal, however, that
States generally would not be able to show that a nonattainment area
would continue to meet its attainment date if it did not apply LAER or
offsets to major new sources and major modifications in the absence of
safeguards (68 FR 32848).

	Further, we stated in the preamble to the Phase 2 Rule that we
continued to believe, as we stated in its proposal, that States should
not interpret section VI as allowing a blanket exemption from LAER and
offsets for all major new sources and major modifications in a given
area before attainment dates have passed for that area.  Thus, in the
final rule we added a further requirement that the Administrator
independently determine and provide public notice that those
requirements have been met.  The purpose of the requirement is to assure
that States do not interpret section VI to provide a broad exemption to
all major new sources and major modifications in any nonattainment area
for which the attainment date has not passed.

2.  Legal Basis for Changes to Applicability of Appendix S and the
Transitional NSR Program

	The legal basis for Appendix S, including section VI, was discussed in
detail in section V.B.3.b. of the preamble to the final Phase 2 Rule.
We have historically recognized that the SIP development period provided
for in section 172(b) leaves a gap in part D major NSR permitting and
have determined that this gap is to be filled with an interim major NSR
program that is substantially similar to the requirements of part D,
including the LAER and offset requirements from part D, subject to a
limited exemption where the attainment deadline will be met (57 FR
18070, 18076).  This interim NSR program has been implemented to date
through Appendix S.

	The section VI exemption, as limited by the final Phase 2 Rule, is
consistent with the section 110(a)(2)(C) requirement that
preconstruction permitting is implemented “as necessary to assure that
the [NAAQS] are achieved.”  While the Phase 2 Rule did not adopt the
eligibility criteria that were proposed to ensure satisfaction of the
original section VI conditions, we did add the proposed requirement that
the Administrator determine that sources exempted from LAER and offsets
under section VI will meet those conditions, in particular,
noninterference with the attainment deadline.  Section VI also is
consistent with the exercise of our gap filling authority under section
301, as informed by the legislative history.  That is, Appendix S
reflects Congressional intent that standards equivalent to part D govern
the issuance of NSR permits, subject to a limited degree of flexibility
under conditions where attainment of the NAAQS by the attainment
deadline is assured.

3.  Reconsideration of Appendix S, Section VI Final Rule Amendments

In its January 30, 2006, petition, NRDC requested that EPA reconsider
provisions in the final Phase 2 Rule that pertain to Appendix S, section
VI.  NRDC argued that EPA failed to provide the public with an
opportunity to comment on the language of Appendix S, Section VI that
was included in the final rule.  As is the case with respect to the ERC
provisions, EPA believes that our rationale was fully explained in the
November 29, 2005 rulemaking and in earlier actions leading to that
rulemaking.  The preamble to the final rule included a lengthy
description of preceding actions in which our rationale was developed.
Further, the preamble to the final rule detailed our response to
comments pertaining to the proposal.  As noted above, what we did in the
final rule was add one provision to the already existing language of
Appendix S, section VI to limit use of Section VI to only those
instances publicly approved by the Administrator.  From our perspective,
we made the smallest change possible and achieved closure of a gap in
section VI.  As well, we continue to disagree with the petitioner’s
assertion that section VI, as amended by the Phase 2rule constitutes an
open-ended scheme to evade the strictures of Part D.  If anything, the
prior rule language could have been construed as open-ended.  The sole
intention of our language change was to close what we perceived to be a
loophole allowing just the type of outcome to which the petitioners
object.  Congress required just such closure through the provisions of
the original section 129 as included in the August 7, 1977 amendments to
the Act.  At that time, Congress made clear its opinion that it would be
the role of the Administrator to determine whether waiver of the
appendix S provisions in question might be appropriate.  The change made
to Section VI in the final Phase 2 rule providing that the Administrator
must determine whether the conditions of Section VI have been satisfied
provides a positive safeguard to prevent just the kinds of unchecked
application of its provisions as envisioned by the petitioners.

As was the case for ERC, we saw value in presenting for public comment
the changes made to Section VI of Appendix S in the final Phase 2 Rule.
Accordingly, on December 19, 2006 we requested comment on subsection C.
of Section VI of Appendix S as added in the final Phase 2 rule as
requested by the petitioners.  Concerning the new paragraph C. of
section VI, our proposal for reconsideration drew ten public comments.
Of those comments, five supported the rule amendments as now written and
five were opposed.  Among those opposed, were the petitioners and State
air pollution control agencies.  The petitioners continued presentation
of the concerns leading to this notice and were echoed, in part, by the
States.  In short, those opposing the change to section VI see it as an
opening which might be subject to abuse of discretion.  We continue to
see our change as a closing of a loophole.  Five commenters agreed with
our assessment.  Detailed discussion and analysis of arguments raised by
all of the commenters is given below.

4.  Comments and Responses for Appendix S, Section VI

We received ten comments upon the proposed section VI paragraph C
language.  A number of comments made it clear that the nature of our
addition of paragraph C for the purposes of closing a loophole and
constraining application of section VI was not completely understood.
Also, we received comments questioning the legality and existence of
Section VI along with requests for its removal from the Code of Federal
Regulations.  Such comments are outside the scope of this action.
Section VI significantly predates the Phase 2 Rule.  While it originally
applied only to secondary NAAQS, EPA revised it to include primary
standards following the 1977 Amendments (44 FR 3274, Jan. 16, 1979).
EPA made an additional revision to Section VI in 1980 in the course of
clarifying the applicability of Appendix S to sources located outside of
nonattainment areas that cause or contribute to violations (45 FR 31307,
May 13, 1980).  The version of Section VI established by that 1980
rulemaking remained current up until the effective date of EPA’s final
Phase 2 rule.  The time for challenging rules issued in 1979 and 1980 is
long past.  If commenters believe Section VI as a whole is no longer
desirable, then the appropriate vehicle for their concerns is a petition
for rulemaking.   The only matter opened for comment by the proposal for
reconsideration was the appropriateness of paragraph C.  Before
reviewing those comments which were germane to the proposal, we will
first recap the reasoning for our addition of paragraph C to section VI.

Section VI allows new sources locating in an area designated as
nonattainment to be exempt from the requirements of section IV.A. of
appendix S under certain circumstances if the date for attainment has
not yet passed.  Section VI provides a management tool to provide a
limited degree of flexibility in situations where a new source would not
interfere with an area’s ability to meet an attainment deadline.  The
final Phase 2 Rule made a procedural change to limit the applicability
of appendix S, section VI to only those instances in which the
Administrator has specifically approved its use.  Contrary to the
suggestions of comments to be discussed below, we had no intention of
expanding usage of Section VI through our addition of paragraph C.  Our
purpose in making the change was to close what we saw as a loophole and
constrain the application of Section VI.  Although we did not include
the regulatory language to accomplish this goal in the June 2, 2003
proposal, we did clearly state our intention of doing so.  As we noted
at 68 FR 32848, section VI as worded prior to our amendment could have
applied in any nonattainment area where the dates for attainment had not
passed, even if the source met all applicable SIP emission limitations
and would not have interfered with the area’s ability to meet its
attainment date.  As codified prior to the amendment in the Final Phase
2 Rule, section VI contained no provision conditioning its applicability
on approval by the Administrator.  We noted at proposal, however, that
States generally would not be able to show that a nonattainment area
would continue to meet its attainment date if it did not apply Lowest
Achievable Emission Rate (LAER) or offsets to major new sources and
major modifications in the absence of safeguards (68 FR 32848).

	Further, we stated in the preamble to the Phase 2 Rule that we
continued to believe, as we also stated in its proposal, that States
should not have interpreted section VI as allowing a blanket exemption
from LAER and offsets for all major new sources and major modifications
in a given area before attainment dates had passed for that area.  In
that proposal, we also offered for comment two broad programmatic
proposals to modify the then-existing section VI for the purpose of
providing greater flexibility. Overall, commenters considered the
programmatic options to be impracticable.  However most commenters did
express support for the flexibility provided by section VI.  For that
reason, we retained the original eligibility conditions for determining
when section VI might apply, but added the  procedural requirement that
the Administrator determine that the two previously existing conditions
of Section VI are satisfied, and that  the Administrator provide public
notice of that determination.  That requirement achieved the
proposal’s purpose of assuring that States could not interpret section
VI to provide a broad exemption to all major new sources and major
modifications in any nonattainment area for which the attainment date
has not passed.

Earthjustice/NRDC filed the petition for reconsideration leading to
today’s action and provided comment upon our proposal.  This commenter
referenced a prior comment on the proposed Phase 2 rule claiming EPA has