ton and because Delaware does not currently participate in the original
CSAPR NOX ozone-season allowance trading program, the EPA is
not proposing to promulgate a FIP for Delaware to be included in this
rule. However, as this assessment has only considered reductions
available at EGUs by 2017, the EPA cannot at this time conclude that
Delaware does not have reductions available on a longer timeframe or
from other emission sectors. Accordingly, the EPA cannot conclude at
this time that Delaware does not significantly contribute to
nonattainment or interfere with maintenance at downwind receptors to
which it is linked. The EPA will evaluate additional reduction
potential from Delaware in a future rulemaking to address the 2008
ozone standard. The EPA seeks comment on not including Delaware in the
proposed FIPs.
    The EPA's EGU NOX reduction assessment also shows nearly
zero reductions available in Wisconsin in 2017 at the proposed $1,300
per ton cost threshold. However, Wisconsin currently participates in
the original CSAPR NOX ozone-season emissions trading
program and Wisconsin's original CSAPR NOX ozone emissions
budget is greater than its projected base case emissions. The EPA
proposes to update Wisconsin's emissions budgets because not doing so
would mean that Wisconsin, which is found to contribute above 1% to
downwind ozone problems, could increase emissions above its base case
level. The EPA proposes to determine ozone season NOX
control requirements for Wisconsin to reduce interstate ozone transport
for the 2008 ozone NAAQS based on the reduction potential quantified
from pollution control measures that are cost-effective at the $1,300
per ton level. For Wisconsin, based on modeling for this proposal, this
level is similar to its projected base-case level. The EPA seeks

comment on the proposed FIP for Wisconsin.
    The EPA also requests comment as to whether the EPA should treat
Delaware and Wisconsin in the same manner with respect to their
inclusion or exclusion from the ozone-season trading program with
respect to the 2008 ozone NAAQS. For example, the EPA requests comment
as to whether both Delaware and Wisconsin should be included in the
ozone-season trading program with budgets on the reduction potential
quantified from pollution control measures that are cost-effective at
$1,300 per ton,. EPA also requests comment as to whether both states
should instead be excluded from the ozone-season trading program.

E. Quantifying State Emissions Budgets

    The proposed emissions budgets reflect remaining EGU emissions
after upwind states achieve the emission reduction obligations defined
in section VI of this proposal.
    In the original CSAPR proposal, the EPA set proposed emissions
budgets by using an approach that considered monitored state-level heat
input and modeled state-level emissions rates. However, for the CSAPR
final rule, the EPA set budgets using only the modeling results from
CSAPR's uniform cost assessment. For this rule, the EPA proposes to set
emissions budgets by considering monitored heat input and modeled
emissions rates, similar to the original CSAPR proposal. The EPA seeks
comment on all aspects of quantifying state emissions budgets
reflecting upwind obligations, including alternative metrics to heat
input, such as generation.
    The EPA proposes to quantify state emissions budgets using the
minimum of calculated EGU emissions budgets using the state-level EGU
NOX emission rates that correspond to the upwind state
reductions identified above using a uniform cost threshold of $1,300
per ton or 2014 monitored historic emissions.
    The proposed approach for translating this EGU NOX
reduction potential into emissions budgets is a four step process.
First, the EPA would use the resulting 2018 state-level modeled EGU
NOX emissions rate (lbs/mmBtu) from the IPM $1,300 per ton
uniform cost assessment. The state-level rate is calculated as the
total emissions from affected sources within the state, divided by the
total heat input from these sources. Second, the EPA proposes to
multiply this modeled state-level emissions rate by 2014 monitored
historic state-level heat input. Multiplying the projected state-level
emissions rate by historical heat input yields state-specific ozone
season EGU NOX emissions for 2018. Third, the EPA proposes
to add an adjustment to account for differences in unit availability
between the IPM 2018 run year and 2017, yielding state-specific ozone
season EGU NOX emissions for 2017. Finally, the EPA then
proposes EGU emissions budgets as the minimum of this calculated 2017
emission level or 2014 historic monitored emissions.
    This proposed approach reflects the EGU NOX reduction
potential described above and grounds the EPA's quantification of
emissions budgets in historical data. The proposed EGU NOx ozone-season
emissions budgets calculated using this approach can be found in Table
VI.E-1. Tables VI.E-2 and VI.E-3 provide the EGU NOX ozone-
season emissions budgets reflecting EGU NOX mitigation
available for 2017 at $500 per ton and $3,400 per ton, respectively.

            Table VI.E-1--Proposed EGU NOX Ozone-Season Emissions Budgets, Reflecting EGU NOX Mitigation Available for 2017 at $1,300 per Ton
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                2017 EGU NOX
                                                                 2014 emissions    2018 $1,300/ton   2014 Heat Input   2017 adjustment    Ozone-season
                             State                                   (tons)         emission rate        (MMBtu)        (tons) \100\    emissions budget
                                                                                (lbs/MMBtu)                                              (tons)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama.......................................................            21,075             0.049       410,477,094                 0             9,979
Arkansas......................................................            18,135             0.074       185,511,093                51             6,949
Illinois......................................................            17,520             0.062       388,382,456                 9            12,078
Indiana.......................................................            40,247             0.126       447,417,615                 0            28,284
Iowa..........................................................            13,857              0.11       151,989,571                 0             8,351
Kansas........................................................            12,297              0.12       154,921,650                 0             9,272
Kentucky......................................................            33,896             0.102       380,694,315             2,169            21,519
Louisiana.....................................................            18,278             0.097       326,662,000                17            15,807
Maryland......................................................             4,026              0.05        86,239,563             2,669             4,026
Michigan......................................................            25,065             0.112       307,723,171             1,836            19,115
Mississippi...................................................            10,229             0.069       172,406,970                 0             5,910
Missouri......................................................            31,235             0.086       330,006,788             1,210            15,323
New Jersey....................................................             2,746             0.036       112,887,439                 0             2,015
New York......................................................             5,547             0.038       235,619,397                 0             4,450
North Carolina................................................            16,759             0.078       315,255,877                 0            12,275
Ohio..........................................................            32,181             0.073       457,251,027                 0            16,660
Oklahoma......................................................            16,215             0.144       236,715,186               154            16,215
Pennsylvania..................................................            44,551             0.057       508,608,673                 0            14,387
Tennessee.....................................................             8,057             0.056       196,132,311                 0             5,481
Texas.........................................................            58,492             0.079     1,474,773,212                33            58,002
Virginia......................................................             9,695             0.076       179,324,728                 0             6,818
West Virginia.................................................            29,420             0.084       317,087,558                 0            13,390
Wisconsin.....................................................             9,087             0.054       205,305,933                 0             5,561
                                                               -----------------------------------------------------------------------------------------
    23 State Region...........................................           478,610  ................     7,581,393,627  ................           311,867
--------------------------------------------------------------------------------------------------------------------------------------------------------

             Table VI.E-2--Proposed EGU NOX Ozone-Season Emissions Budgets, Reflecting EGU NOX Mitigation Available for 2017 at $500 per Ton
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                2017 EGU NOX
                                                                 2014 emissions     2018 $500/ton    2014 heat input   2017 adjustment    ozone-season
                             State                                   (tons)         emission rate        (MMBtu)        (tons) \101\    emissions budget
                                                                                (lbs/MMBtu)                                              (tons)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama.......................................................            21,075             0.058       410,477,094                 0            11,886
Arkansas......................................................            18,135             0.075       185,511,093                51             7,038
Illinois......................................................            17,520             0.062       388,382,456                23            12,144
Indiana.......................................................            40,247              0.15       447,417,615                 0            33,483
Iowa..........................................................            13,857             0.113       151,989,571                 0             8,614
Kansas........................................................            12,297              0.12       154,921,650                 0             9,278
Kentucky......................................................            33,896             0.149       380,694,315             4,463            32,783
Louisiana.....................................................            18,278             0.097       326,662,000                17            15,861
Maryland......................................................             4,026              0.05        86,239,563             2,672             4,026
Michigan......................................................            25,065             0.131       307,723,171             1,836            22,022
Mississippi...................................................            10,229             0.071       172,406,970                 0             6,083
Missouri......................................................            31,235             0.086       330,006,788             1,123            15,380
New Jersey....................................................             2,746             0.036       112,887,439                 0             2,016
New York......................................................             5,547             0.039       235,619,397                 0             4,607
North Carolina................................................            16,759             0.078       315,255,877                 0            12,278
Ohio..........................................................            32,181             0.088       457,251,027                 0            20,194
Oklahoma......................................................            16,215             0.156       236,715,186               154            16,215
Pennsylvania..................................................            44,551              0.15       508,608,673                 0            38,270
Tennessee.....................................................             8,057             0.056       196,132,311                 0             5,520
Texas.........................................................            58,492             0.083     1,474,773,212                 0            58,492
Virginia......................................................             9,695             0.078       179,324,728                 0             6,955
West Virginia.................................................            29,420             0.145       317,087,558                 0            22,932
Wisconsin.....................................................             9,087             0.054       205,305,933                 0             5,588
                                                               -----------------------------------------------------------------------------------------
    23 State Region...........................................           478,610  ................     7,581,393,627  ................           371,665
--------------------------------------------------------------------------------------------------------------------------------------------------------

            Table VI.E-3--Proposed EGU NOX Ozone-Season Emissions Budgets, Reflecting EGU NOX Mitigation Available for 2017 at $3,400 per Ton
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                2017 EGU NOX
                                                                 2014 emissions    2018 $3,400/ton   2014 heat input   2017 adjustment    ozone-season
                             State                                   (tons)         emission rate        (MMBtu)        (tons) \102\    emissions budget
                                                                                (lbs/MMBtu)                                              (tons)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Alabama.......................................................            21,075             0.048       410,477,094                 0             9,931
Arkansas......................................................            18,135             0.065       185,511,093                51             6,101
Illinois......................................................            17,520             0.062       388,382,456                 0            11,992
Indiana.......................................................            40,247             0.123       447,417,615                 0            27,585
Iowa..........................................................            13,857             0.107       151,989,571                 0             8,118
Kansas........................................................            12,297              0.12       154,921,650                 0             9,259
Kentucky......................................................            33,896             0.099       380,694,315             2,169            20,945
Louisiana.....................................................            18,278             0.094       326,662,000                17            15,378
Maryland......................................................             4,026              0.05        86,239,563             2,523             4,026
Michigan......................................................            25,065             0.108       307,723,171             1,978            18,624
Mississippi...................................................            10,229             0.064       172,406,970                 0             5,487
Missouri......................................................            31,235             0.083       330,006,788             1,500            15,240
New Jersey....................................................             2,746             0.036       112,887,439                 0             2,011
New York......................................................             5,547             0.037       235,619,397                 0             4,391
North Carolina................................................            16,759             0.068       315,255,877                 0            10,705
Ohio..........................................................            32,181             0.073       457,251,027                 0            16,637
Oklahoma......................................................            16,215             0.137       236,715,186               146            16,215
Pennsylvania..................................................            44,551             0.056       508,608,673                 0            14,358
Tennessee.....................................................             8,057             0.056       196,132,311                 0             5,449
Texas.........................................................            58,492             0.076     1,474,773,212               100            55,864
Virginia......................................................             9,695             0.065       179,324,728                 0             5,834
West Virginia.................................................            29,420             0.078       317,087,558                 0            12,367
Wisconsin.....................................................             9,087             0.054       205,305,933                 0             5,511
                                                               -----------------------------------------------------------------------------------------
    23 State Region...........................................           478,610  ................     7,581,393,627  ................           302,028
--------------------------------------------------------------------------------------------------------------------------------------------------------

VII. Implementation Using the Existing CSAPR NOX Ozone-
Season Allowance Trading Program and Relationship to Other Rules

A. Background

    This section describes implementing and enforcing the budgets
quantified in section VI. In the 4-step CSAPR methodology previously
described, once emission reduction potential is quantified into
emissions budgets, the remaining step is to identify an approach for
ensuring that such reductions occur and are enforceable. As discussed
previously, EPA is proposing implement the budgets to address the 2008
ozone NAAQS using the existing CSAPR trading program that allows
limited interstate trading among states participating in the ozone-
season trading program. The EPA proposes to revise the existing
budgets, developed to address transport as to the 1997 ozone NAAQS,
where necessary to reflect the additional reductions that the EPA
identified as necessary to address transport as to the 2008 NAAQS. The
EPA will implement the trading program in each affected state through
the issuance of a FIP.
---------------------------------------------------------------------------

    \100\ The entire 2017 Adjustment listed is not used in
calculating for Maryland and Oklahoma because it would push their
budget above their 2014 emissions.
    \101\ The entire 2017 Adjustment listed is not used in
calculating for Maryland, Oklahoma, and Texas because it would push
their budget above their 2014 emissions.
    \102\ The entire 2017 Adjustment listed is not used in
calculating for Maryland and Oklahoma because it would push their
budget above their 2014 emissions.
---------------------------------------------------------------------------

    In electing to propose to implement these near-term EGU reductions
for the 2008 ozone standard using the existing CSAPR trading
infrastructure, the EPA considered the many significant advantages of
continuing to use the existing CSAPR program, including the ease of
transition to the new budgets, the economic and administrative
efficiency of trading approaches, and the flexibility afforded to
sources regarding compliance.
    The EPA also considered views expressed by some stakeholders that a
complementary short-term (e.g., 30-day) rate-based limit would ensure
that control measures adopted to meet the revised budgets continue to
operate over time. Some stakeholders have observed, for example, that
some existing SCR and SNCR units may not have operated in recent years
because CAIR allowance prices are below the operating costs of the
controls. The EPA notes that in such cases, the CAIR emissions budgets
that states were required to meet to address significant contribution
for the 1997 NAAQS were in fact still being met. The EPA will also
evaluate power sector behavior for 2015, the first year of CSAPR
implementation, and provide that assessment for the final rule. The EPA
expects that certain aspects of this proposal will alleviate some of
these concerns. In particular, this proposal is aimed at establishing
new, lower emissions budgets that are calculated based on a uniform
cost that is reflective of, among other things, operating those
controls. Furthermore, as described later in this notice, we are
proposing adjustments to the CSAPR regulations that, if adopted, would
address the role that the banked allowances may play in allowance
prices. For these reasons, the EPA does not believe that including a
short-term complementary rate-based limit in the proposed FIPs is
necessary. Nevertheless, we invite comment on the need for such an
approach and, from commenters arguing that it is needed, we invite
suggestions for calculating it.
    As explained in greater detail in section IV, under CAA sections
110(a)(1) and 110(a)(2), each state is required to submit a SIP that
provides for the implementation, maintenance, and enforcement of each
primary or secondary NAAQS. According to section 110(a)(2)(D)(i)(I),
the SIP for each state, regardless of a state's designation status for
the relevant NAAQS, must prohibit sources or other types of emissions
activity from emitting any air pollutant in amounts that will
``contribute significantly to nonattainment'' of the standard in a
downwind state or ``interfere with maintenance'' of the standard in a
downwind state. Section IV also explains in detail that the EPA is
obligated to promulgate FIPs when we find that a state fails to submit
a complete SIP or the EPA disapproves a SIP submittal.
    The EPA recognizes that several states included in this proposal
have submitted transport SIPs to address the 2008 ozone standard that
the EPA is reviewing, and it is possible that additional states may
submit SIPs in the future. As explained in section IV above, the EPA
may only finalize FIPs for states where FIP authority exists; that is,
for states where either the EPA found that the state failed to submit a
complete transport SIP or where the EPA has disapproved a transport SIP
submittal for that state. The EPA intends to finalize these proposed
FIPs together in a single action and, to the greatest extent possible,
the EPA intends to take final action on SIP submittals currently before
the agency prior to finalizing this proposal. In the event that a state
plans to revise its SIP or submit a SIP prior to any final rule,
contact your regional office to alert the EPA.
    By this action, the EPA is proposing federal implementation plans
with respect to the 2008 ozone NAAQS for each state potentially covered
by this rule. Section VI above describes the EPA's approach to defining
state-level EGU emissions budgets that represent the EGU emissions
remaining after reducing that state's significant contribution to
downwind nonattainment and/or interference with maintenance. The EPA is
proposing to implement these EGU emissions budgets in the FIPs through
the CSAPR EGU NOX ozone-season trading program.
    When the EPA finalized CSAPR in 2011 under the good neighbor
provision of the CAA to reduce emissions of SO2 and
NOX from power plants in eastern states, the rule put in
place regional trading programs to quickly and cost-effectively address
pollution that affects air quality in downwind states. The EPA
envisioned that the methodology could be used to address transport
concerns under other existing NAAQS and future NAAQS revisions. See 76
FR 48211 and 48246, August 8, 2011. Accordingly, the EPA proposes to
use the CSAPR ozone-season trading program and related provisions as
codified under 40 CFR part 97, subpart BBBBB and section 52.38, as
amended in this proposal, to implement the proposed EGU NOX
ozone-season emissions budgets for the 2008 ozone NAAQS. This program
will be initially implemented in each state through a FIP.
    In this notice, the EPA proposes that the first control period for
the requirements is the 2017 ozone season. A covered state would be
required to demonstrate compliance with FIP requirements for each
subsequent ozone season until it submits, and the EPA approves, a SIP
or the EPA promulgates another federal rule replacing the FIP.
    The EPA notes that the compliance flexibility provided by the CSAPR
NOX ozone-season trading program allows sources to
demonstrate compliance by holding allowances and does not prescribe
unit-specific and technology-specific NOX mitigation. In
other words, while the EPA quantified EGU NOX reductions
resulting from mitigation strategies such as operating or installing
(or upgrading to) state-of-the-art combustion controls, no particular
reduction strategy is required for any specific unit because the Act
only requires that an upwind state's aggregate emissions neither
significantly contribute to nonattainment nor interfere with
maintenance of the NAAQS in a downwind state.

    In practice, the EGU emissions budgets that the EPA is proposing in
this action are achievable for each of the 23 states through operating
existing SCR and SNCR controls, installing or upgrading to state-of-
the-art combustion controls, or shifting generation to low-
NOX emitting units. The EPA believes that this proposed rule
provides sufficient lead time to implement these control strategies by
the 2017 ozone season. For the EPA's assessment of the feasibility of
controls for 2017, refer to section VI above and the EGU NOX
Reduction TSD in the docket for this proposal.\103\
---------------------------------------------------------------------------

    \103\ The EPA notes that a state can instead require non-EGU
NOX emission reductions through a SIP, if they choose to
do so.
---------------------------------------------------------------------------

    In this section of the preamble, the following topics are
addressed: FIP requirements and key elements of the CSAPR trading
programs; participation in the CSAPR NOX ozone-season
trading program with a new budget; source monitoring and reporting;
replacing the FIP with a SIP; title V permitting; and the relationship
of this proposed rule to existing programs (NOX SIP Call,
CSAPR trading programs, Clean Power Plan (CPP), and other ozone
transport programs).

B. FIP Requirements and Key Elements of the CSAPR Trading Programs

    The original CSAPR establishes an NOX ozone-season
allowance trading program that allows covered sources within each state
to trade allowances with other sources within the same trading group.
Pursuant to the CSAPR NOX ozone-season trading program,
sources are required to hold one allowance for each ton of
NOX emitted during the ozone season. We propose to use that
same regional trading program, with adjusted budgets and certain
additional revisions described below, as the compliance remedy for the
proposed FIPs to address the 2008 ozone NAAQS. The first control period
for this updated CSAPR NOX ozone-season trading program is
proposed to begin with the 2017 ozone season, on May 1, 2017.
    In this section, the EPA is proposing to use the existing
NOX ozone-season allowance trading system that was
established under CSAPR in 40 CFR part 97, subpart BBBBB, to implement
the emission reductions identified and quantified in the FIPs for this
action.
1. Applicability
    In this proposed rule, the EPA would maintain the applicability
provisions in the final CSAPR rule for the NOX ozone-season
trading program (see 40 CFR 97.504).
    Under the general applicability provisions of the CSAPR final rule,
a covered unit is any stationary fossil-fuel-fired boiler or combustion
turbine serving at any time on or after January 1, 2005, a generator
with nameplate capacity exceeding 25 MW producing electricity for sale,
with the exception of certain cogeneration units and solid waste
incineration units (see 76 FR 48273, August 8, 2011, for a discussion
on applicability in the final CSAPR rule). The EPA is not proposing any
changes to this provision.
2. State Budgets
    This proposal includes revisions to 40 CFR 97.510 to reflect new
budgets for states covered under this proposal as delineated in section
VI above. This includes the NOX ozone-season trading
budgets, new unit set-asides, and Indian country new unit set-asides
for 2017 and beyond, described in further detail below.
    For states already covered by the original CSAPR ozone-season
program, the EPA proposes to update CSAPR EGU NOX ozone-
season budgets to reflect obligations to reduce interstate transport to
address the 2008 ozone standard. For states that are newly brought into
the CSAPR ozone-season program because emissions from the states
significantly contribute to nonattainment or interfere with maintenance
of the 2008 ozone NAAQS in a downwind state (i.e., Kansas based on
information used to develop this proposal), the proposal includes an
EGU NOX ozone-season emissions budget. For states currently
in the CSAPR ozone-season trading program, but not identified as
contributing to interstate ozone transport for the 2008 NAAQS (i.e.,
Georgia based on information used to develop this proposal),
participation in CSAPR would continue unchanged pursuant to their
previously-defined obligation (budget) with respect to the 1997 ozone
NAAQS.
    The EPA proposes to establish reduced or new ozone-season emissions
budgets for the 23 eastern states affected by the transport rule for
the 2008 ozone NAAQS. The EPA proposes to implement these emissions
budgets by allocating allowances to sources in those states equal to
the proposed budgets for compliance starting in 2017. The EPA will
establish allowance allocations for the existing units in each state
through this rulemaking. Portions of the state budgets will be set
aside for new units, and the EPA will use the existing processes set
forth in the CSAPR regulations to annually allocate allowances to the
new units in each state from the new unit set-asides. For states that
are currently in the CSAPR ozone-season program, but are not affected
under this proposed transport rule for the 2008 ozone NAAQS (i.e.,
Georgia based on information used to develop this proposal), the EPA
will maintain the state's budget as finalized in the original CSAPR
rulemakings.
3. Allocations of Emission Allowances
    Pursuant to the CSAPR trading program regulations, a covered source
is required to hold sufficient allowances to cover the emissions from
all covered units at the source during the control period for the
NOX ozone season. The EPA assesses compliance with these
allowance-holding requirements at the source (i.e., facility) level.
    This section explains that the EPA proposes to allocate a state's
budget to existing units and new units in that state by applying the
same allocation approach as finalized in CSAPR, based on a unit's
historical heat input and its maximum historical emissions (see 76 FR
48284, August 8, 2011). This section also describes allocation for
Tribes, the new unit set-asides and Indian country new unit set-asides
in each state, allocations to units that are not operating; and the
recordation of allowance allocations in source compliance accounts.
A. Allocations for Existing Units
    The EPA proposes to implement each state's EGU NOX
ozone-season emissions budget in the trading program by allocating the
number of emission allowances to sources within that state, equivalent
to the tonnage of that specific state budget, as shown in section VI.
For these 23 states, the EPA would allocate allowances under each
state's budget to covered units in that state. The portion of a state
budget allocated to existing units in that state is the state budget
minus the new unit set-aside and minus the Indian country new unit set-
aside. The new unit set-asides are portions of each budget reserved for
new units that might locate in each state or in Indian country in the
future. For the existing source level allocations, see the TSD called,
``Existing Source Level Allocations for the 2008 NOX Ozone-
season Rule FIPs,'' in the docket for this rulemaking. The methodology
used to allocate allowances to individual units in a particular state
has no impact on that state's budget.
    For the purpose of allocations, an ``existing unit'' in CSAPR is
one that commenced commercial operation prior to January 1, 2010. For
the 23 states included in this proposed rulemaking for the 2008 ozone
NAAQS, the EPA proposes to identify an ``existing unit''

as one that commenced commercial operation prior to January 1, 2015.
EPA has updated information on affected units that have commenced
commercial operation prior to January 1, 2015 (currently defined either
as existing units or as new units pursuant to the current CSAPR
regulations) that would allow these units to be considered existing
units for purposes of allocations and would allow new unit set-asides
to be fully reserved for any future new units in affected states or
Indian country. The EPA is not proposing to change the January 1, 2010
date for states that remain in the original CSAPR and are not affected
by the changes proposed here (i.e., Georgia with respect to the CSAPR
NOX ozone-season allowances and all states with respect to
CSAPR SO2 or NOX annual allowances); thus, the
only allowance allocations that are proposed to be changed in this
rulemaking for any units under any of the CSAPR trading programs are
allocations of NOX ozone-season allowances from budgets that
are proposed to be revised in this proposed rule.
    The EPA proposes to follow the original CSAPR methodology for
distributing, or allocating, emission allowances to existing units
based on the unit's share of the state's heat input, limited by the
unit's maximum historical emissions. This approach uses the highest
three of the last five years to establish the heat input baseline for
each unit, and constrains the unit-level allocations so as not to
exceed the maximum historical baseline emissions during 2007-2014. As
discussed in the original CSAPR final rule (see 76 FR 48288-9, August
8, 2011), the EPA finds no advantage or disadvantage in this approach
that would penalize those units that have already invested in cleaner
fuels or other pollution reduction measures. The EPA considers this
allocation approach to be fuel-neutral, control-neutral, transparent,
based on reliable data, and similar to allocation methodologies
previously used in the NOX SIP Call and Acid Rain Program.
The EPA requests comments on following the CSAPR approach for existing
unit allocations in states covered by this proposed rule as to the 2008
ozone NAAQS.
    For states that have EPA-approved abbreviated SIP revisions
adopting a different allocation methodology for sources located within
the state for CSAPR for the 2017 ozone season and beyond, those
provisions would address the allocation of revised NOX
ozone-season emissions budgets established under this proposed rule,
provided that the SIP revision includes not only specific allocations
given the total state budget expected at the time of the SIP revision,
but also a methodology for determining allocations from any given total
state budget. For states that have EPA-approved full SIP revisions, the
EPA proposes to use the EPA-approved allocation provisions of the
state's SIP revision to allocate allowances to sources in that
particular state using the revised emissions budget proposed to address
interstate ozone transport for the 2008 NAAQS, again provided that the
SIP includes not only specific allocations but a methodology for
determining allocations from any given total state budget.
    Further, where the state regulation approved as a full or
abbreviated SIP revision does not contain an allocation methodology but
the materials submitted by the state to support EPA's approval of that
regulation as a SIP revision contain the state's allocation method,
described in an unambiguous manner, the EPA seeks comment on using that
state-approved methodology to determine the allocations of allowances
to sources in the state under the FIPs established in this proposed
rule. These possible approaches could prevent a state from needing to
submit another SIP revision to implement the same allocation provisions
under this proposed rule that the state has already implemented under
CSAPR before adoption of this proposed rule.
    For all other states, the EPA proposes to use the allocation method
previously finalized in the final CSAPR rulemaking as discussed in this
section. These provisions would not prevent any state (one with an EPA-
approved SIP revision or without) from submitting an alternative
allocation methodology under this proposed rule for later compliance
years. EPA requests comment on this modified allocation approach for
states with EPA-approved SIP revisions under the current rule.
b. Allocations for New Units
    For the purpose of allocations, CSAPR identifies a ``new unit'' as
one that commenced commercial operation on or after January 1, 2010,
and provides a methodology for allocating emission allowances to new
units from new unit set-asides in each state and to new units that
locate in Indian country. See 76 FR 48290-48294 (Aug. 8, 2011), for
more information. The FIPs that EPA is proposing will incorporate a
trading program in which EPA is proposing to define a covered unit as a
``new unit'' if it commences commercial operation on or after January
1, 2015; if it becomes covered by meeting applicability criteria
subsequent to January 1, 2015; if it relocates into a different state
covered by this FIP; or if it was an ``existing'' covered unit that
stopped operating for 2 consecutive years but resumes commercial
operation at some point thereafter. To the extent that states seek
approval of SIPs with different allocation provisions than EPA, these
SIPs may seek to define new units differently.
    The EPA further proposes that its trading program will make
allocations to each state for new units (the new unit set-aside) equal
to a basic minimum 2 percent of the total state budget, plus the
projected amount of emissions from planned units in that state (for
instance, if planned units in state A are projected to emit 3 percent
of the state's NOX ozone-season emissions budget, then the
new unit set-aside for the state would be set at 5 percent, consisting
of the basic minimum 2 percent plus an additional 3 percent for planned
units). See 76 FR 48292. New units may receive allocations starting
with the first year they are subject to the allowance-holding
requirements of the rule. If unallocated to new units, set-asides are
redistributed to unretired existing units before the compliance
deadline. The EPA requests comments on following the CSAPR approach for
new unit allocations under this proposal. (For more detail on the CSAPR
new unit set-aside provisions, see 40 CFR 97.511(b) and 97.512.)
    The EPA notes that applying the CSAPR approach using the data for
this proposal results in a new-unit set-aside for New Jersey that is
greater than 50% of the total proposed EGU NOX ozone-season
emissions budget for the state. This result is influenced by the EPA's
projected emissions rates for new units that are anticipated to come
online within states. The EPA seeks comment on these data, which are
available in the IPM documentation in the docket for this proposal.
Further, the EPA seeks comment on whether additional data should be
considered--for example, reported NOX emission rates of
recently constructed new NGCC units in each state.

   Table VII.B-1--Proposed EGU NOX Ozone-Season New-Unit Set-Aside Amounts, Reflecting Proposed EGU Emissions
                                                 Budgets (tons)
----------------------------------------------------------------------------------------------------------------
                                                   Proposed EGU
                                                   NOX emissions   New-unit set-   New-unit set-  Indian country
                      State                           budgets      aside amount    aside amount      set-aside
                                                      (tons)         (percent)        (tons)      amount  (tons)

----------------------------------------------------------------------------------------------------------------
Alabama.........................................           9,979               2             205
Arkansas........................................           6,949               2             141
Illinois........................................          12,078               5             591
Indiana.........................................          28,284               2             565
Iowa............................................           8,351               5             419               8
Kansas..........................................           9,272               3             281               9
Kentucky........................................          21,519               3             647
Louisiana.......................................          15,807               4             628              16
Maryland........................................           4,026              12             485
Michigan........................................          19,115               2             382              19
Mississippi.....................................           5,910              10             590               6
Missouri........................................          15,323               2             314
New Jersey......................................           2,015              57           1,151
New York........................................           4,450               2              93               4
North Carolina..................................          12,275               2             248              12
Ohio............................................          16,660               2             337
Oklahoma........................................          16,215               2             325              16
Pennsylvania....................................          14,387               7           1,017
Tennessee.......................................           5,481               2             109
Texas...........................................          58,002               5           2,910              58
Virginia........................................           6,818              27           1,844
West Virginia...................................          13,390               2             268
Wisconsin.......................................           5,561               2             121               6
                                                 ---------------------------------------------------------------
    23 State Region.............................         311,867  ..............          13,671             154
----------------------------------------------------------------------------------------------------------------

c. Allocations for Tribes and New Units in Indian Country
    Tribes are not required to submit tribal implementation plans.
However, as explained in the EPA's regulations outlining Tribal Clean
Air Act authority, the EPA is authorized to promulgate FIPs for Indian
country as necessary or appropriate to protect air quality if a tribe
does not submit and get EPA approval of a tribal implementation plan.
See 40 CFR 49.11(a); see also 42 U.S.C. 7601(d)(4). For this proposed
ozone rule, there are no existing affected units in Indian country in
the states affected by this rule.
    Under the current rule, allowances to possible future new units
locating in Indian country are allocated by the EPA from an Indian
country new unit set-aside established for each state with Indian
country. (See 40 CFR 97.511(b)(2) and 97.512(b).) Because states
generally have no SIP authority in reservation areas of Indian country
and other areas of Indian country over which a tribe or EPA has
demonstrated that a tribe has jurisdiction, the EPA continues to
allocate such allowances to sources locating in such areas of Indian
country within a state even if the state submits a SIP to replace the
FIP. (40 CFR 52.38(b)(5)(v) and (vi) and 52.38(b)(6).) The EPA reserves
0.1 percent of the total state budget for new units in Indian country
within that state (5 percent of the basic 2 percent new unit set-aside
prior to any increase in a state's new unit set-aside amount for
planned units). Unallocated allowances from a state's Indian country
new unit set-aside are returned to the state's new unit set-aside and
allocated according to the methodology described above. The EPA
requests comment on following the CSAPR approach for new unit
allocations in such areas of Indian country under the transport rule
for the 2008 ozone NAAQS.
d. Units That Do Not Operate and the New Unit Set-Aside
    The EPA proposes to continue to apply for purposes of this proposed
rule the existing CSAPR provision under which a covered unit that does
not operate for a period of two consecutive years will receive
allowance allocations for a total of up to five years of non-operation.
40 CFR 97.511(a)(2). Starting in the fifth year after the first year of
non-operation, allowances allocated to such units will instead be
allocated to the new unit set-aside for the state in which the non-
operating unit is located. This approach allows the new unit set-asides
to grow over time. The EPA requests comment on retaining this timeline
for allowance allocation for non-operating units or changing the
allowance allocation for non-operating units to, for instance, two
years or three years, in which case allowances would revert to the new
unit set-aside in the second or third year after the first of two
consecutive years of non-operation of a unit.
4. Variability Limits, Assurance Levels, and Penalties
    In the original CSAPR, the EPA developed assurance provisions,
including variability limits and assurance levels (with associated
compliance penalties), to assure that each state will meet its
pollution control obligations and to accommodate inherent year-to-year
variability in state-level EGU operations.
    The original CSAPR budgets, and the updated CSAPR emissions budgets
proposed in this notice, reflect EGU operations in an ``average year.''
However, year-to-year variability in EGU operations occurs due to the
interconnected nature of the power sector and from changing weather
patterns, demand growth, or disruptions in electricity supply from
other units or from the transmission grid. Recognizing this, the FIP
includes variability limits, which define the amount by which state
emissions may exceed the level of the budgets in a given year to
account for this variability in EGU operations. A

state's budget plus its variability limit equals a state's assurance
level, which acts as a cap on each state's NOX emissions
during a control period (that is, during the May-September ozone season
in the case of this rule).
    To establish the variability limits in the original CSAPR, the EPA
analyzed historical state-level heat input variability as a proxy for
emissions variability, assuming constant emission rates. (See 76 FR
48265, August 8, 2011.) The variability limits for ozone-season
NOX in the original CSAPR were calculated as 21 percent of
each state's budget, and these variability limits were then codified in
40 CFR 97.510 along with the state budgets. Applying the CSAPR
approach, the EPA proposes to set new variability limits applying the
same 21 percent figure as determined in the original CSAPR to this
proposed rule's budgets. The EPA proposes that the same 21% figure is
appropriate to use because variability in state-level heat input across
a multi-year period is expected to be relatively consistent around
long-term trends. The EPA seeks comment on this approach. Table VII.B-2
shows the proposed EGU NOX ozone-season emissions budgets,
variability limits, and assurance levels for each state.

 Table VII.B-2--Proposed EGU NOX Ozone-Season Emissions Budgets Reflecting EGU NOX Mitigation Available for 2017
                       at $1,300 per Ton, Variability Limits, and Assurance Levels (Tons)
----------------------------------------------------------------------------------------------------------------
                                                             EGU NOX ozone-                      EGU NOX ozone-
                           State                            season emissions     Variability    season assurance
                                                                 budgets           limits            levels
----------------------------------------------------------------------------------------------------------------
Alabama...................................................             9,979             2,096            12,075
Arkansas..................................................             6,949             1,459             8,408
Illinois..................................................            12,078             2,536            14,614
Indiana...................................................            28,284             5,940            34,224
Iowa......................................................             8,351             1,754            10,105
Kansas....................................................             9,272             1,947            11,219
Kentucky..................................................            21,519             4,519            26,038
Louisiana.................................................            15,807             3,319            19,126
Maryland..................................................             4,026               845             4,871
Michigan..................................................            19,115             4,014            23,129
Mississippi...............................................             5,910             1,241             7,151
Missouri..................................................            15,323             3,218            18,541
New Jersey................................................             2,015               423             2,438
New York..................................................             4,450               935             5,385
North Carolina............................................            12,275             2,578            14,853
Ohio......................................................            16,660             3,499            20,159
Oklahoma..................................................            16,215             3,405            19,620
Pennsylvania..............................................            14,387             3,021            17,408
Tennessee.................................................             5,481             1,151             6,632
Texas.....................................................            58,002            12,180            70,182
Virginia..................................................             6,818             1,432             8,250
West Virginia.............................................            13,390             2,812            16,202
Wisconsin.................................................             5,561             1,168             6,729
                                                           -----------------------------------------------------
    Region cap............................................           311,867            65,493  ................
----------------------------------------------------------------------------------------------------------------

    The assurance provisions include penalties that are triggered when
the state emissions as a whole exceed its assurance level. The original
CSAPR provided that a state that exceeds its assurance level in a given
year is assessed a total of 3-to-1 allowance surrender on the excess
tons. Each excess ton above the assurance level must be met with one
allowance for normal compliance plus two additional allowances to
satisfy the penalty. The penalty is designed to deter state-level
emissions from exceeding assurance levels. This was referred to in the
original CSAPR as air quality-assured trading that accounts for
variability in the electricity sector but also ensures that the
necessary emission reductions occur within each covered state. If a
state does not exceed its assurance level, no penalties are incurred by
any source. Establishing assurance levels with compliance penalties
therefore responds to the court's holding in North Carolina requiring
the EPA to assure that sources in each state were required to eliminate
emissions that significantly contribute to nonattainment and interfere
with maintenance of the NAAQS in another state.\104\
---------------------------------------------------------------------------

    \104\ 531 F.3d at 908.
---------------------------------------------------------------------------

    To assess the penalty under the assurance provisions, the EPA
evaluates whether any state's total EGU emissions in a control period
exceeded the state's assurance level, and if so, the EPA then
determines which owners and operators of units in the state will be
subject to an allowance surrender requirement based on each source's
emissions as compared to its unit-level assurance level. Since a single
designated representative (DR) often represents multiple sources, the
EPA evaluates which groups of units at the common DR level had
emissions exceeding the respective common DR's share of the state
assurance level, regardless of whether the individual source had enough
allowances to cover its emissions during the control period. This
provision is triggered only if two criteria are met: (1) The group of
sources and units with a common DR are located in a state where the
total state EGU emissions for a control period exceed the state
assurance level; and (2) that group with the common DR had emissions
exceeding the respective DR's share of the state assurance level.
    For more information on the CSAPR assurance provisions see 76 FR
48294 (August 8, 2011).
5. Implementation Approaches for Transitioning the Existing CSAPR
NOX Ozone-Season Program To Address Transport for a Newer
NAAQS
    Consistent with the original CSAPR approach, EPA proposes that in
this updated rulemaking, EGUs would be

able to trade NOX ozone-season emission allowances among
units within the state and across state boundaries, with emissions and
use of allowances limited by the assurance provisions. The following
sections describe approaches to transition the existing CSAPR program
designed for the 1997 ozone NAAQS to address interstate ozone transport
for the 2008 ozone NAAQS.
    A primary focus of this section is the extent to which allowances
created to address interstate transport with respect to the 1997 ozone
NAAQS, reflecting emissions budgets at $500 per ton, are fungible with
allowances created under this proposal to address interstate transport
for the 2008 ozone NAAQS, reflecting emissions budgets at $1,300 per
ton. The EPA proposes that these implementation tools are not
presumptively equivalent, given that they were developed to address
ozone transport under different NAAQS and using different cost
thresholds. However, as further discussed below, the EPA is proposing
approaches under which allowances allocated under budgets established
to address the 1997 NAAQS could be used for compliance for addressing
interstate transport for the 2008 NAAQS, subject to specific
limitations. The EPA is also taking comment on several other approaches
for addressing the transition from a program in which all budgets were
established based on an integrated analysis using a single control cost
threshold to address the 1997 NAAQS to a program with a mix of budgets
established in independent analyses using different control cost
thresholds, in some cases to address the 1997 NAAQS and in other cases
to address the 2008 NAAQS.
a. Use of CSAPR Ozone-season Trading Program Bank in the Transport Rule
for the 2008 Ozone NAAQS Trading Program
    Since CSAPR was promulgated in 2011, the U.S. electric sector has
undergone considerable transformation primarily due to economic and
market forces precipitated by the natural gas boom. For example, Henry
Hub natural gas prices reached below $2.00 per million BTU in 2012 and
were in the $2.00-$3.00 range for most of 2012. These prices are below
the level initially anticipated when establishing the phase 1 and 2
budgets, and have made the operation of lower emitting units more
competitive, putting more downward pressure on emissions. There has
also been turnover in the power generation fleet as newer, lower
emitting sources replace older, higher emitting sources, putting
further downward pressure on emissions. Approximately 28.5 GW of coal
units retired from the fleet between 2012 and June of 2015. In
addition, demand growth has slowed; a majority of U.S. states have
implemented renewable portfolio standards and other energy efficiency
programs; and high-efficiency building designs, residential energy
conservation, roof-top solar, and other forms of distributed generation
have grown. In combination, these factors have significantly reduced
EGU NOX emissions between 2012 and 2015.
    As a result of protracted litigation, CSAPR implementation was
delayed by three years, from 2012 to 2015. Due to this delay, combined
with the market forces and changes that took place during that
timeframe, expectations are that total banked allowances for the CSAPR
ozone-season trading program could be in excess of 210,000 tons by the
start of the 2017 ozone-season compliance period, which is more than
twice the emission reduction potential estimated at the $1,300 per ton
control level described in section VI above. This number was estimated
by comparing recent measured emission levels to the original CSAPR
NOX ozone-season phase 1 emissions budgets, assuming EGU
emissions in CSAPR NOX ozone-season states for 2015 and 2016
would continue at 2014 levels.\105\
---------------------------------------------------------------------------

    \105\ This data analysis relies on 40 CFR part 75 emissions
reporting data as available in EPA Air Markets Program Data
available at http://ampd.epa.gov/ampd/.
---------------------------------------------------------------------------

    The use of allowance banks generally provide a glide path for
sources required to meet more stringent emission limits in later years
and accommodate year-to-year variability in operation. However,
allowing unrestricted use of the large number of banked allowances for
compliance with this proposed rule could result in regional 2017 ozone
season NOX emissions that exceed the collective state
budgets quantified in this rulemaking to address transported air
pollution with respect to the 2008 ozone standard. While the assurance
provisions included in CSAPR do limit the ultimate amount of pollution
that may occur in these states in 2017 (i.e., no matter how large an
allowance bank may exist, only a portion of that bank may be used in a
state in any given year without exceeding the assurance levels and
incurring penalties), unrestricted use of the bank in this situation
could allow emissions to exceed the state budgets, up to the assurance
level, year after year.
    As described in CSAPR, the flexibility provided by the assurance
provisions is not designed to be used repeatedly, year after year.
Rather, the use of banked allowances is intended to be limited by
binding emissions budgets such that drawing down the bank in one year
is only possible because of actions taken to build up the bank in a
previous year. Moreover, a relatively large allowance bank that enables
emissions budgets to be exceeded year after year may encourage sources
to postpone emission reductions that would be more timely in the 2017
timeframe in order to align reductions with the downwind area
attainment dates for the 2008 ozone NAAQS.
    The EPA is proposing and taking comment on a range of options for
how to treat the use of banked 2015 and 2016 CSAPR NOX
ozone-season allowances by units in the 23 states with new or updated
budgets in this proposal. The use of banked allowances by states that
are not included in the proposed FIPs to address ozone transport under
the 2008 NAAQS (i.e., Georgia for CSAPR NOX ozone-season
program and all states for CSAPR SO2 and NOX
annual programs) would not be affected by these options.
    The EPA is proposing that allowances issued for compliance in 2015
and 2016 under CSAPR may be used for compliance under the updated CSAPR
from 2017 forward in order to smooth implementation in the first few
years under the new budgets. However, the EPA is proposing to impose
certain limits on the use of these banked allowances starting in 2017.
Specifically, the EPA is proposing that sources in the 23 states with
new or updated budgets in this proposal may use all of their banked
allowances, but at a tonnage authorization level significantly lower
than one ton per allowance. This would be realized through a surrender
ratio greater than one pre-2017 allowances (vintage 2015 or 2016) to
cover one ton of NOX emitted in 2017 and each year
thereafter. The surrender ratio, such as four-for-one or two-for-one,
would require more than one pre-2017 banked allowance to be used for
each ton of ozone season NOX emitted in 2017 and beyond.
This would have the dual effect of carrying over the banked allowances
into the new program to promote program continuity, while also
recognizing the environmental objectives of the updated ozone NAAQS for
2008 and the corresponding new state emission budgets designed to help
move air quality towards compliance with that NAAQS standard. A
surrender ratio would respect the flexibility of sources to operate at
their assurance levels in the program's early years, but would reduce
the ability for the collective EGU fleet to repeatedly

exceed the emissions budget year after year.
    Finally, EPA believes a surrender ratio is appropriate as it
reflects the fact that tighter budgets will put upward pressure on
allowance value in the future. Therefore, fewer allowances will be
needed to reach the same value of a current allowance holding, making a
surrender ratio a natural complement to carrying over the value of the
banked allowances in a program where more stringent emission budgets
are replacing less stringent emission budgets.
    EPA is proposing a surrender ratio greater than one-for-one, such
as two-for-one or four-for-one. For analytic purposes in this
rulemaking, it reflects the four-for-one surrender ratio to illustrate
one potential surrender ratio. However, in the final rule, EPA would
update this assumption to reflect the surrender ratio finalized.
    This ratio of four or two banked allowances to one ton of emissions
is derived from the ratio of the anticipated allowance bank in 2017
(approximately 210,000 allowances) to the ozone season variability
limit (i.e., the difference between the sum of the emissions budgets
for all 23 states and the sum of the assurance levels for all 23
states; approximately 60,000 tons) or the ozone season variability
limit multiplied by two (120,000 tons), rounded to the nearest whole
number. The EPA identified this approach to limit the emissions impact
of using banked allowances to the magnitude of all states emitting up
to their assurance levels for one or two years. The variability limit
respects the upper bound variation in emissions and load EPA would
expect in any given year. Thus, the carryover of banked allowances
equal to one or two years' worth of variability limits provides the
affected fleet with the ability to accommodate potential variation from
the mean in its load and emission patterns in the first years of the
program, while balancing the need to ensure that emissions are reduced,
on average, to the level of the budgets and within the assurance levels
in subsequent years.
    The EPA believes that a surrender ratio approach provides a means
for the existing CSAPR EGU NOX ozone-season allowances to
retain some value, while appropriately mitigating the potential adverse
impact of the allowance bank on the emission-reducing actions needed
from affected units in states with obligations to address interstate
transport for the 2008 ozone NAAQS. The EPA seeks comment on a
surrender ratio approach and on the use of a ratio, such as two-for-one
or four-for-one, and whether an alternative ratio would be appropriate.
    The EPA is also soliciting comment on another approach that we
believe could achieve these same goals (i.e., valuing the anticipated
CSAPR allowance bank while promoting near-term emission reductions).
Under this alternative approach, the EPA would issue fewer allowances
than the tons quantified in state budgets for the 23 states affected by
this rulemaking in the first three years of program implementation
(i.e. 2017, 2018, and 2019). This approach recognizes that 2015 and
2016 allowances are available to sources for compliance and would allow
use of those banked CSAPR NOX ozone allowances at a one-to-
one turn-in ratio (i.e., one allowance is surrendered for one ton of
emissions). By reducing overall allocations for a period of time, the
impact of states using those banked allowances on emission levels would
be mitigated.
    The EPA seeks comment on what percentage (below 100 percent) of
allowances to issue, and over what number of years, under this
alternative approach. As a specific example, the EPA seeks comment on
implementing this approach in a manner such that the EPA would issue
allowances to sources within each of the 23 states with updated budgets
under this proposal at a level of 85 percent of the proposed emissions
budgets for the first three years that the new budgets are effective.
Using the proposed EGU NOX ozone-season emissions budget of
9,979 tons for Alabama as an example, this would mean issuing
approximately 8,482 allowances for each of the 2017 through 2019
(inclusive) control periods (and the full budget for each subsequent
control period). Applying this approach to all 23 states with updated
budgets under this proposal (which sum to 312,824 allowances) would
mean that EPA would issue approximately 266,900 allowances across those
states in each of the 2017, 2018, and 2019 control periods. EGUs in
those states would be able to use allowances from the anticipated
210,000 allowance bank in addition to allowances issued for these years
in order to comply with the updated CSAPR emission requirements.
Allocating approximately 266,900 allowances for the first three years
of the updated requirements would, based on current estimates, result
in approximately 47,000 banked allowances used for compliance each
year. This would leave approximately 70,000 banked allowances, which is
roughly equivalent to the regional variability limit (i.e., the
difference between the states' collective emissions budgets and their
collective assurance levels). As under the illustrative four-for-one
surrender ratio option, the remaining amount of banked allowances that
would remain after using this initial reduced allocation is
approximately the amount of banked allowances that would allow all
states to emit up to their assurance levels for one year.
    The EPA also seeks comment on what other percentages of the budget
and time-frames could be appropriately used to implement this
alternative approach. As in the specific example above, the EPA would
seek a combination of time and recordation percentage such that the
ultimate influence of the anticipated allowance bank is limited to
approximately the regional variability limit (i.e., the difference
between the collective emissions budgets and the collective assurance
levels).
    Under either approach, the EPA would conduct unit-level allowance
allocations in the same manner as described above, such that each
unit's share of its state's total allowances issued is determined by
that allocation approach whether the EPA issues allowances in the full
amount of the state budget with a surrender ratio for banked allowances
or in a lesser amount to address the potential effect of the allowance
bank (as entertained in this alternative on which we are inviting
comment). In other words, the effect of this alternative approach would
be to reduce unit-level allowance allocations in those years in a
proportional manner (e.g., all unit-level allowance allocations would
decrease by the same percentage as the reduction in total allowances
issued below that state's budget).
    Additionally, the EPA is soliciting comment on less and more
restrictive approaches to address use of the CSAPR EGU NOX
ozone allowance bank. Specifically, the EPA seeks comment on: (1)
Allowing banked 2015 and 2016 CSAPR NOX ozone allowances to
be used for compliance with the proposed budgets for the 2008 ozone
NAAQS starting in 2017 at a 1-to-1 ratio, or (2) completely disallowing
the use of banked 2015 and 2016 CSAPR NOX ozone allowances
for compliance with the proposed budgets for the 2008 ozone NAAQS
starting in 2017. The EPA is also soliciting comment on whether and how
the assurance provision penalty might be increased, in conjunction with
any of the above approaches, to address the relationship of the
allowance bank to emissions occurring under this revised program from
2017 onward.

B. Use of CSAPR NOX Ozone-Season Allowances From States
Addressing the 1997 Ozone NAAQS for Compliance in States Addressing the
2008 Ozone NAAQS

    Consistent with the original CSAPR, EGUs covered by the seasonal
NOX budget trading program that will be incorporated into
these proposed FIPs are able to trade NOX ozone-season
emission allowances among units within the state and across state
boundaries, with emissions and the use of allowances limited by the
assurance provisions.
    The EPA is considering how to transition allowance trading between
the group of states that are in the CSAPR NOX ozone-season
program with respect to the 1997 ozone NAAQS but will not have updated
emissions budgets proposed in this action (e.g., Georgia based on this
proposal) and the group of states for which the EPA is proposing to
establish new or lower budgets to address the 2008 ozone NAAQS in this
action.
    The EPA believes that, where appropriate and feasible, continuity
of programs is important, particularly for market-based and other power
sector regulations, as this sector makes long-term investment and
operational decisions. However, CSAPR allowances issued under budgets
established to address the 1997 ozone NAAQS using a $500 per ton cost
threshold in one state may not be appropriately valued to reduce
interstate ozone transport in another state for the 2008 NAAQS under
this proposal where budgets are being established using a $1,300 per
ton cost threshold. In the original CSAPR rulemaking, the EPA discussed
the concern that allowing unrestricted trading between groups of states
whose budgets were established using different cost thresholds would
impact whether the necessary emission reductions would be achieved
within each state.\106\ The assurance provisions used in CSAPR provide
some assurance that emission reductions will occur within each state,
but in the CSAPR rulemaking the EPA acknowledged concerns that the
assurance provisions alone may not be sufficient. Consistent with those
previously acknowledged concerns, the EPA is proposing in this
rulemaking not to allow these two groups of states to trade without
some additional assurances that the emission reductions will be
appropriately achieved within each state.
---------------------------------------------------------------------------

    \106\ 76 FR at 48263-64.
---------------------------------------------------------------------------

    However, because of the relatively small size of the group of
states with budgets set using the $500 per ton cost threshold, the EPA
is not proposing to prohibit altogether trading between the two groups
in this instance. The EPA does not expect that a single state (i.e.,
Georgia) would drastically influence emission reductions in the other
23 states covered by this proposed rule. EPA is instead proposing to
permit trading between the two groups of ozone states subject to
certain restrictions on trading. In particular, the EPA is proposing to
require that sources in states addressing the 2008 ozone NAAQS under
this proposal may use allowances issued in states only addressing the
1997 ozone NAAQS via the CSAPR trading programs (e.g., Georgia) at a
rate of 2.5 allowances for each ton of NOX emitted. The EPA
proposes a ratio of 2.5-to-1 in order to align with the ratio of the
cost of ozone season EGU NOX reduction promulgated in the
original CSAPR (i.e., $500 per ton) to the cost proposed for this
rulemaking (i.e., $1,300 per ton). The EPA proposes this restriction as
sufficient, in conjunction with the assurance provisions, to protect
the needed reductions in the 23 states addressing interstate transport
for the 2008 ozone NAAQS. The EPA requests comments on this approach.
The EPA also seeks comment on using a different ratio than 2.5-to-1,
and on using the same ratio as the ratio for the use of banked
allowances, whether that ratio is 4-to-1 as proposed or a different
ratio.
    The EPA is also seeking comment on allowing trading without
distinction between the particular NAAQS (1997 ozone NAAQS or 2008
ozone NAAQS) for which an upwind state has obligations to reduce
transported pollution, and subject only to the constraints of the CSAPR
assurance provisions with no additional restrictions. The EPA is
soliciting comment on whether and how the assurance provision penalty
might be increased in conjunction with this approach.
    Alternatively, the EPA is seeking comment on separating compliance
between groups of upwind states under each NAAQS, whereby the use of
NOX ozone-season emission allowances from one group (e.g.,
sources in states only covered for the 1997 ozone NAAQS) would be
disallowed for compliance use by units in the other group (e.g.,
sources in states covered for the 2008 ozone NAAQS), similar to the
existing separation between the CSAPR SO2 Group 1 and CSAPR
SO2 Group 2 programs.

C. Use of CSAPR NOX Ozone-season Allowances Between States With
Different Control Stringencies Addressing the 2008 Ozone NAAQS

    As discussed in Section VI of this proposal, the EPA notes that the
evaluation of EGU NOX requirements for the final rule could
show one or more states fully addressing their good neighbor obligation
based on ozone season NOX control requirements represented
by one cost level while one or more other states have ozone season
NOX control requirements based on a more stringent cost
level. In this situation, the EPA proposes that it would quantify
requirements for these different groups of states based on different
uniform control stringencies. However, CSAPR allowances issued under
budgets established using a one cost threshold (e.g., $1,300 per ton)
in one state may not be appropriately valued to reduce interstate ozone
transport in another state where budgets might be established using
different cost threshold (e.g., $3,400 per ton). Consistent with the
previous discussion (regarding allowances issued in states continuing
to address the 1997 ozone NAAQS under budgets established using $500
per ton threshold), the EPA is proposing to permit trading between
these groups of states subject to certain restrictions on trading. In
particular, the EPA is proposing to require that sources in states with
emissions budgets established using the more stringent cost thresholds
(e.g., $3,400 per ton) may use allowances issued in states with
emissions budgets established using the less stringent cost thresholds
(e.g., $1,300 per ton) at a rate of allowances for each ton of
NOX emitted based on the ratio of these cost thresholds. For
example, states with emissions budgets established using $3,400 per ton
could use allowances at a rate of approximately 2.5-to-1 in order to
align with the ratio of the relevant cost thresholds. The EPA requests
comments on allowing the states to trade with the proposed restrictions
on the use of allowances by sources in states controlled using the more
stringent cost threshold.
    The EPA is also seeking comment on allowing trading without
distinction between the particular cost thresholds for which an upwind
state has obligations to reduce transported pollution, and subject only
to the constraints of the CSAPR assurance provisions with no additional
restrictions. The EPA is also soliciting comment on whether and how the
assurance provision penalty might be

increased in conjunction with this approach.
    Alternatively, the EPA is seeking comment on separating compliance
between groups of upwind states under each cost threshold, whereby the
use of NOX ozone-season emission allowances from one group
(e.g., sources in states with allowances issued using the more
stringent cost threshold) would be disallowed for compliance use by
units in the other group, similar to the existing separation between
the CSAPR SO2 Group 1 and CSAPR SO2 Group 2
programs.

D. Summary of Proposed Allowance Surrender Ratios

    As discussed in sections a. and b. above, the EPA proposes that in
this updated rulemaking, EGUs would be able to trade NOX
ozone-season emission allowances among units within the state and
across state boundaries, with emissions and use of allowances limited
by the assurance provisions. However, the EPA is proposing to impose
certain additional limits on the use of allowances starting in 2017 for
EGUs in the 23 states with updated budgets in this proposal. Table VII-
2 summarizes the limits on the proposed use for CSAPR NOX
ozone-season allowances.\107\
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    \107\ In the regulatory text revisions for this proposal, the
proposed limits discussed here are described in terms of the
``tonnage equivalent'' of an allowance. In the case of 2015 or 2016
vintage allowances used for compliance in a control period in 2017
or later, where 4 allowances would be needed for each ton of
emissions, each such allowance would have a tonnage equivalent of
0.25 tons per allowance (\1/4\ = 0.25). In the case of 2017 or later
allowances from a state with an original CSAPR budget used for
compliance by a unit in a state with an updated budget based on the
2008 ozone NAAQS, where 2.5 allowances would be needed for each ton
of emissions, each such allowance would have a tonnage equivalent of
0.40 tons per allowance (\1/2.5\ = 0.40). In a case where one
allowance is needed for each ton of emissions, such allowances would
have a tonnage equivalent of one ton per allowance. See proposed 40
CFR 97.524(f) in the regulatory text for this proposal.
[GRAPHIC] [TIFF OMITTED] TP03DE15.001

6. Compliance Deadlines
    As discussed in sections II.A., III.B., and IV.A., the proposed
rule would require NOX reductions from sources starting May
1, 2017, to ensure that reductions are made as expeditiously as
practicable to assist downwind states' attainment and maintenance of
the 2008 ozone NAAQS. The compliance deadline is coordinated with the
attainment deadline for the relevant NAAQS and the proposed rule
includes provisions to assure that all necessary reductions occur at
sources within each individual state.
    In section VI above, the EPA explains that this is an adequate and
reasonable time for sources to plan for compliance and operate
necessary controls.
    For states for which EPA has already established a FIP requiring
their units to participate in the CSAPR NOX ozone-season
trading program because of transport obligations under the 1997 ozone
NAAQS, no CFR changes are necessary to accommodate this

compliance deadline. The EPA proposes to amend the regulatory text in
40 CFR 97.506(c)(3) to reflect the 2017 start of compliance obligations
for units in states that were not previously subject to the CSAPR
NOX ozone-season trading program (e.g., Kansas). The EPA
also proposes to amend various FIP provisions in 40 CFR part 52 to
indicate the start and end of compliance obligations under the FIPs for
sources in states added to the trading program under this proposed rule
(e.g., Kansas) or removed from the trading program in response to the
D.C. Circuit's remand of certain NOX ozone-season emissions
budgets (e.g., Florida and South Carolina).
7. Monitoring and Reporting and the Allowance Management System
    Monitoring and reporting in accordance with the provisions of 40
CFR part 75 are required for all units subject to the CSAPR
NOX ozone-season trading programs and would also be required
for all units covered under the proposed transport rule for the 2008
ozone NAAQS requirements. The EPA proposes that the monitoring
certification deadline by which monitors are installed and certified
for compliance use generally would be May 1, 2017, the beginning of the
first compliance period proposed in this rule, with potentially later
deadlines for units that commence commercial operation after July 1,
2016. Similarly, the EPA proposes that the first calendar quarter in
which quarterly emission reporting is required would generally be the
quarter including May 1, 2017. These deadlines are analogous to the
current deadlines under CSAPR but are delayed by two years to reflect
the fact that this rule's initial implementation year would be two
years later than the existing CSAPR programs' initial implementation
year.
    Under part 75, a unit has several options for monitoring and
reporting, namely the use of a CEMS; an excepted monitoring methodology
based in part on fuel flow metering for certain gas- or oil-fired
peaking units; low-mass emissions monitoring for certain non-coal-
fired, low emitting units; or an alternative monitoring system approved
by the Administrator through a petition process. In addition, sources
can submit petitions to the Administrator for alternatives to specific
CSAPR and part 75 monitoring, recordkeeping, and reporting
requirements. Each CEMS must undergo rigorous initial certification
testing and periodic quality assurance testing thereafter, including
the use of relative accuracy test audits (RATAs) and 24-hour
calibrations. In addition, when a monitoring system is not operating
properly, standard substitute data procedures are applied and result in
a conservative estimate of emissions for the period involved.
    Further, part 75 requires electronic submission of a quarterly
emissions report to the Administrator, and in a format prescribed by
the Administrator. The report would contain all of the data required
concerning ozone season NOX emissions.
    Units currently subject to CSAPR NOX ozone-season or
CSAPR NOX annual trading program requirements monitor and
report NOX emissions in accordance with part 75, so most
sources would not have to make any changes to monitoring and reporting
practices. In fact, only units in Kansas currently subject to the CSAPR
NOX annual trading program but not the CSAPR NOX
ozone-season trading program would need to start newly reporting ozone
season NOX mass emissions. These emissions are already
measured under the annual program, so the change would be a minor
reporting modification. Units in the following states monitor and
report NOX emissions under the CSAPR NOX ozone-
season trading program and would continue to do so without change under
the CSAPR ozone update for the 2008 NAAQS: Alabama, Arkansas, Illinois,
Indiana, Iowa, Kentucky, Louisiana, Maryland, Michigan, Mississippi,
Missouri, New Jersey, New York, North Carolina, Ohio, Oklahoma,
Pennsylvania, Tennessee, Texas, Virginia, West Virginia, and Wisconsin.
8. Recordation of Allowances
    The EPA proposes to update the deadlines by which EPA would record
allowances for the CSAPR NOX ozone-season trading program
for the compliance periods in the years from 2017 through 2022. The
proposed new dates would amend the recordation deadlines in 40 CFR
97.521 as shown in the proposed regulatory text amendments at the end
of this proposal. The existing recordation provisions require EPA to
record either FIP-based (i.e., governed by part 97) or SIP-based
allocations for 2017 and 2018 by July 1, 2016. The EPA proposes to
delay this deadline to December 1, 2016. The extension would allow EPA
to finalize any changes to the state budgets for the 2017 compliance
period before recording 2017 allowances. This would prevent the need to
take back allowances that were recorded under existing budgets in cases
where state budgets are reduced. The extended deadline would still
allow allocations to be recorded five months prior to the start of the
2017 compliance period, giving affected units time to make compliance
plans. Compliance true-up for the 2017 ozone season occurs after
December 1, 2017, so affected sources would have more than a year from
the extended recordation deadline to ensure they hold enough allowances
for 2017 ozone season compliance. The EPA is taking comment on this new
deadline for 2017 and 2018 allowance allocation recordation. The EPA is
also taking comment on whether the provision to delay 2017 and 2018
allocation recordation should be finalized ahead of final action on
this full proposal if this proposal is not finalized before July 1,
2016.
    The EPA is also proposing to extend the existing deadlines for
recording CSAPR NOX ozone-season allowances for the 2019 and
2020 compliance periods and for the 2021 and 2022 compliance periods
each by one year, to July 1, 2018, and July 1, 2019, respectively. The
purpose of these proposed deadline extensions is to provide time for
states to submit SIP revisions to modify or replace the FIPs proposed
in this rulemaking on schedules comparable to the schedules for the SIP
revision options that the states have under the current CSAPR
regulations. The EPA seeks comment on extending these recordation
deadlines as discussed.

C. Submitting a SIP

    As noted earlier in this section VIII, states may replace the FIP
with a SIP at any time if approved by the EPA. ``Abbreviated'' and
``full'' SIP options continue to be available. An ``abbreviated SIP''
allows a state to submit a SIP that would modify allocation provisions
in the NOX budget trading program that is incorporated into
FIP to allow the state to substitute its own allocation provisions. A
second approach, referred to as a full SIP, allows a state to adopt a
trading program meeting certain requirements that would allow sources
in the state to continue to use the EPA-administered trading program
through an approved SIP, rather than a FIP. In addition, as under
CSAPR, EPA proposes to provide states with an opportunity to adopt
state-determined allowance allocations for existing units for the
second compliance period under this proposed rule--in this case, the
2018 compliance period--through streamlined SIP revisions. See 76 FR
48208 at 48326-48332 (August 8, 2011) for additional discussion on full
and abbreviated SIP options and 40 CFR 52.38(b).

1. 2018 SIP Option
    As under CSAPR, the EPA proposes to allow a state to submit a SIP
revision establishing allowance allocations for existing units for the
second year of the new requirements, 2018, to replace the FIP-based
allocations. The process would be the same as under the current rule
with deadlines shifted roughly 2 years--i.e., a state would submit a
letter to EPA by November 15, 2016 indicating its intent to submit a
complete SIP revision by April 1, 2017. The SIP would provide in an
EPA-prescribed format a list of existing units and their allocations
for the 2018 control period. If a state does not submit a letter of
intent to submit a SIP revision, FIP allocations would be recorded by
December 1, 2016. If a state submits a timely letter of intent but
fails to submit a SIP revision, FIP allocations would be recorded by
April 1, 2017. If a state submits a timely letter of intent followed by
a timely SIP revision that is approved, the approved SIP allocations
would be recorded by October 1, 2017.
2. 2019 and Beyond SIP Option
    For the 2019 control period and later, EPA proposes that the SIP
submittal deadline be delayed one year, until December 1, 2017, from
the current deadline. The deadline to then submit state allocations for
2019 and 2020 would be June 1, 2018 and the deadline to record those
allocations would be July 1, 2018. Under the proposed new deadlines, a
state could submit a SIP revision for 2021 and beyond control periods
by December 1, 2018, with state allocations due June 1, 2019, and
allocation recordation by July 1, 2019. For 2019 control period and
later, SIPs can be full or abbreviated SIPs. An allocation methodology
approved in an abbreviated SIP submitted for 2017 under the existing
CSAPR regulations could also apply under the proposed new rule in 2017
and 2018. See section III of this preamble and 76 FR 48208 at 48326-
48332 (August 8, 2011) for additional discussion on full and
abbreviated SIP options and 40 CFR 52.38(b).
3. SIP Revisions That Do Not Use the CSAPR Trading Program
    For a transport SIP revision that does not use the CSAPR
NOX ozone-season trading program, EPA would evaluate the
transport SIP based on the particular control strategies selected and
whether the strategies as a whole provide adequate and enforceable
provisions ensuring that the emission reductions will be achieved. The
SIP revision at a minimum should include the following general
elements: (1) A comprehensive baseline 2017 statewide NOX
emission inventory (which includes growth and existing control
requirements), which should be consistent with the 2017 emission
inventory the EPA would use when finalizing this rulemaking to
calculate the required state budget; (2) a list and description of
control measures to satisfy the state emission reduction obligation and
a demonstration showing when each measure would be in place to meet the
2017 compliance date; (3) fully-adopted state rules providing for such
NOX controls during the ozone season; (4) for EGUs greater
than 25 MWe and large boilers and combustion turbines with a rated heat
input capacity of 250 mmBtu per hour or greater, Part 75 monitoring,
and for other units, monitoring and reporting procedures sufficient to
demonstrate that sources are complying with the SIP; and (5) a
projected inventory demonstrating that state measures along with
federal measures will achieve the necessary emission reductions in time
to meet the 2017 compliance deadline.\108\ The SIPs must meet the
requirements for public hearing, be adopted by the appropriate board or
authority, and establish by a practically enforceable regulation or
permit a schedule and date for each affected source or source category
to achieve compliance. Once the state has made a SIP submission, the
EPA will evaluate the submission(s) for completeness. The EPA's
criteria for determining completeness of a SIP submission are codified
at 40 CFR part 51, appendix V.
---------------------------------------------------------------------------

    \108\ The EPA notes that the SIP is not required to include
modeling.
---------------------------------------------------------------------------

    For further information on replacing a FIP with a SIP, see the
discussion in the final CSAPR rulemaking (76 FR 48326, August 8, 2011).
The EPA requests comment on what types of additional information and
guidance would be helpful and stands ready to assist states in SIP
development.
4. Submitting a SIP To Participate in CSAPR for States Not Included in
This Proposal
    The EPA believes that there could be circumstances where a state
that is not obligated to reduce NOX emissions in order to
eliminate significant contribution to nonattainment or interference
with maintenance of ozone standards in another state (such as Florida
or South Carolina for purposes of this proposal) may wish to
participate in the NOX ozone-season trading program in order
to serve a different regulatory purpose. For example, the state may
have a pending request for redesignation of an area to attainment that
relies on participation in the trading program as part of the state's
demonstration that emissions will not exceed certain levels, or the
state may wish to rely on participation in the trading program for
purposes of a SIP revision to satisfy certain obligations under the
Regional Haze Rule. The EPA seeks comment on whether the EPA should
revise the CSAPR regulations to allow the EPA to approve a SIP revision
in which a state seeks to participate in the NOX ozone-
season trading program for a purpose other than addressing ozone
transport obligations.
    Further, the EPA seeks comment on the conditions that should apply
to any such approval in order to ensure that the state's participation
is consistent with the trading program's ability to achieve the
program's objectives with respect to interstate transport of ozone
pollution. The EPA believes that the primary conditions for
consideration in this circumstance would be the level of the state
emissions budget and what, if any, limitations would be placed on the
use of allowances issued to the sources in that state by sources in
other states.
    The EPA specifically seeks comment on whether a presumption of
approvability of such a SIP revision should arise, without limitations
on the use of corresponding allowances for compliance by sources within
that state or in other states, if the state would adopt as part of the
SIP revision a NOX ozone-season emissions budget no higher
than the emissions budgets that the EPA finalizes under this rule. For
example, based on this proposal, an emissions budget that reflects EGU
NOX mitigation strategies represented by a uniform cost of
$1,300 per ton. The EPA notes that such emissions budgets could be
developed using the data and analysis used to establish the emissions
budgets for this rule.
    EPA also specifically seeks comment on whether a presumption of
approvability of such a SIP revision should arise, with limitations on
the use of allowances issued to the state's sources analogous to the
limitations proposed for allowances issued to Georgia's units in this
proposed rule, if the state would adopt as part of the SIP revision a
NOX ozone-season emissions budget no higher than the base
case ozone season NOX emissions that EPA projected for the
state in the analysis used to establish the emissions budgets for this
proposed rule.
    The EPA also specifically seeks comment on whether, in the case of
a state previously subject to the CSAPR NOX ozone-season
trading program (e.g., Florida or South Carolina), a

presumption of approvability of such a SIP revision should arise at an
emissions level higher than the state's base case emissions in the
analysis used to establish the emissions budgets for this proposed
rule--for example, an emissions level equal to the state's previously
promulgated CSAPR budget--subject to the imposition of trading
limitations on allowances issued to the state's units analogous to the
limitations proposed for allowances issued to Georgia's units in this
proposal.
    Finally, the EPA also seeks comment on whether a state whose
allowances would otherwise be subject to limitations on use analogous
to the limitations proposed for allowances issued to Georgia's units in
this proposed rule could avoid those limitations by adopting in a SIP
revision a more stringent budget reflecting emission levels at higher
dollar per ton emission reduction costs comparable to the dollar per
ton emission reduction costs used to establish the budgets for other
states in this proposed rule.

D. Title V Permitting

    This proposed rule, like CSAPR, does not establish any permitting
requirements independent of those under title V of the CAA and the
regulations implementing title V, 40 CFR parts 70 and 71.\109\ All
major stationary sources of air pollution and certain other sources are
required to apply for title V operating permits that include emission
limitations and other conditions as necessary to assure compliance with
the applicable requirements of the CAA, including the requirements of
the applicable State Implementation Plan. CAA sections 502(a) and
504(a), 42 U.S.C. 7661a(a) and 7661c(a). The ``applicable
requirements'' that must be addressed in title V permits are defined in
the title V regulations (40 CFR 70.2 and 71.2 (definition of
``applicable requirement'')).
---------------------------------------------------------------------------

    \109\ Part 70 addresses requirements for state title V programs,
and part 71 governs the federal title V program.
---------------------------------------------------------------------------

    The EPA anticipates that, given the nature of the units subject to
this transport rule and given that many of the units covered here are
already subject to CSAPR, most of the sources at which the units are
located are already subject to title V permitting requirements. For
sources subject to title V, the interstate transport requirements for
the 2008 ozone NAAQS that would be applicable to them under the final
FIPs will be ``applicable requirements'' under title V and therefore
will need to be addressed in the title V permits. For example,
requirements concerning designated representatives, monitoring,
reporting, and recordkeeping, the requirement to hold allowances
covering emissions, the assurance provisions, and liability will be
``applicable requirements'' to be addressed in the permits.
    Title V of the CAA establishes the basic requirements for state
title V permitting programs, including, among other things, provisions
governing permit applications, permit content, and permit revisions
that address applicable requirements under final FIPs in a manner that
provides the flexibility necessary to implement market-based programs
such as the trading programs established by CSAPR and updated by this
proposed ozone interstate transport rule. 42 U.S.C. 7661a(b).
    In CSAPR, EPA established standard requirements governing how
sources covered by the rule would comply with title V and its
regulations.\110\ 40 CFR 97.506(d). Under this proposed rule, EPA
proposes that those same requirements would continue to apply to
sources already in the CSAPR NOX Ozone-season Trading
Program and to any newly covered sources that have been added to
address interstate transport of the 2008 ozone NAAQS. For example, the
title V regulations provide that a permit issued under title V must
include ``[a] provision stating that no permit revision shall be
required under any approved . . . emissions trading and other similar
programs or processes for changes that are provided for in the
permit.'' 40 CFR 70.6(a)(8) and 71.6(a)(8). Consistent with these
provisions in the title V regulations, in CSAPR, EPA included a
provision stating that no permit revision is necessary for the
allocation, holding, deduction, or transfer of allowances. 40 CFR
97.506(d)(1). This provision is also included in each title V permit
for a covered source. The EPA proposes to maintain its approach under
CSAPR that allowances can be traded (or allocated, held, or deducted)
without a revision to the title V permit of any of the sources
involved.
---------------------------------------------------------------------------

    \110\ EPA also issued a guidance document and template that
includes instructions describing how to incorporate the CSAPR
applicable requirements into a source's title V permit. http://www.epa.gov/airtransport/CSAPR/pdfs/CSAPR_Title_V_Permit_Guidance.pdf.
---------------------------------------------------------------------------

    Similarly, the EPA is also proposing to maintain that sources in
the CSAPR NOX Ozone-season Trading Program can continue to
use the title V minor modification procedure to change their approach
for monitoring and reporting emissions, in certain circumstances.
Specifically, sources may use the minor modification procedure so long
as the new monitoring and reporting approach is one of the prior-
approved approaches under CSAPR (i.e., approaches using a continuous
emission monitoring system, an excepted monitoring system under
appendices D and E to part 75, a low mass emissions excepted monitoring
methodology under 40 CFR 75.19, or an alternative monitoring system
under subpart E of part 75), and the permit already includes a
description of the new monitoring and reporting approach to be used.
See 40 CFR 97.506(d)(2); 40 CFR 70.7(e)(2)(i)(B) and 40 CFR
71.7(e)(1)(i)(B). As described in our 2015 guidance, we suggest in our
template that sources may comply with this requirement by including a
table of all of the approved monitoring and reporting approaches under
the rule, and the applicable requirements governing each of those
approaches. Inclusion of the table in a source's title V permit
therefore allows a covered unit that seeks to change or add to their
chosen monitoring and recordkeeping approach to easily comply with the
regulations governing the use of the title V minor modification
procedure.
    Under CSAPR, in order to employ a monitoring or reporting approach
different from the prior-approved approaches discussed above, unit
owners and operators must submit monitoring system certification
applications to the EPA establishing the monitoring and reporting
approach actually to be used by the unit, or, if the owners and
operators choose to employ an alternative monitoring system, to submit
petitions for that alternative to the EPA. These applications and
petitions are subject to EPA review and approval to ensure consistency
in monitoring and reporting among all trading program participants. The
EPA's responses to any petitions for alternative monitoring systems or
for alternatives to specific monitoring or reporting requirements are
posted on the EPA's Web site.\111\ EPA proposes to maintain the same
approach in this proposed rule.
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    \111\ http://www2.epa.gov/airmarkets/part-75-petition-responses.
---------------------------------------------------------------------------

    Consistent with the EPA's approach under CSAPR, the applicable
requirements resulting from this proposed FIP would be incorporated
into covered sources' existing title V permits either pursuant to the
provisions for reopening for cause (40 CFR 70.7(f) and 40 CFR 71.7(f))
or the standard permit renewal provisions (40

CFR 70.7(c) and 71.7(c)).\112\ For sources newly subject to title V
that will also be covered sources under the final FIPs, the initial
title V permit issued pursuant to 40 CFR 70.7(a) should address the
final FIP requirements.
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    \112\ A permit is reopened for cause if any new applicable
requirements (such as those under a FIP) become applicable to a
covered source with a remaining permit term of 3 or more years. If
the remaining permit term is less than 3 years, such new applicable
requirements will be added to the permit during permit renewal. See
40 CFR 70.7(f)(1)(I) and 71.7(f)(1)(I).
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    As in CSAPR, the approach to title V permitting under the proposed
FIPs imposes no independent permitting requirements and should reduce
the burden on sources already required to be permitted under title V
and on permitting authorities.

E. Relationship to Other Emission Trading and Ozone Transport Programs

1. Interactions With Existing CSAPR \113\ Annual Programs, Title IV
Acid Rain Program, NOX SIP Call, Section 176A Petition, and
Other State Implementation Plans
---------------------------------------------------------------------------

    \113\ The CSAPR Annual Programs are referred to in regulations
as the Transport Rule NOX Annual Trading Program (40 CFR
97.401-97.435), the Transport Rule SO2 Group 1 Trading
Program (40 CFR 97.601-97.635) and the Transport Rule SO2
Group 2 Trading Program (40 CFR 97.701-97.735).
---------------------------------------------------------------------------

a. CSAPR Annual Programs
    Nothing in this proposal affects any CSAPR NOX annual or
CSAPR SO2 Group 1 or CSAPR SO2 Group 2
requirements. The CSAPR annual requirements were premised on the 1997
and 2006 PM2.5 NAAQS that are not being addressed in this
rulemaking. The CSAPR NOX annual trading program and the
CSAPR SO2 Group 1 and Group 2 trading programs remain in
place and will continue to be administered by the EPA.
    The EPA acknowledges that, in addition to the ozone budgets
discussed above, the D.C. Circuit has remanded for reconsideration the
CSAPR SO2 budgets for Alabama, Georgia, South Carolina, and
Texas. EME Homer City II, 795 F.3d at 138. This proposal does not
address the remand of these CSAPR phase 2 SO2 emissions
budgets. The EPA intends to address the remand of the phase 2
SO2 annual emissions budgets separately.
b. Title IV Interactions
    This proposed rule if adopted would not affect any Acid Rain
Program requirements. Any Title IV sources that are subject to
provisions of this proposed rule would still need to continue to comply
with all Acid Rain provisions. Acid Rain Program SO2 and
NOX requirements are established independently in Title IV
of the Clean Air Act, and will continue to apply independently of this
proposed rule's provisions. Acid Rain sources will still be required to
comply with Title IV requirements, including the requirement to hold
Title IV allowances to cover SO2 emissions at the end of a
compliance year.
c. NOX SIP Call Interactions
    States affected by both the NOX SIP Call and any final
CSAPR ozone update for the 2008 NAAQS will be required to comply with
the requirements of both rules. This proposed rule requires
NOX ozone season emission reductions from EGUs greater than
25 MW in nearly all NOX SIP Call states and at levels
greater than required by the NOX SIP Call. Therefore, this
proposed rule would satisfy the requirements of the NOX SIP
Call for these large EGU units.
    The NOX SIP Call states used the NOX Budget
Trading Program to comply with the NOX SIP Call requirements
for EGUs serving a generator with a nameplate capacity greater than 25
MW and large non-EGUs with a maximum rated heat input capacity greater
than 250 MMBTU/hr. (In some states, EGUs smaller than 25 MW were also
part of the NBP as a carryover from the Ozone Transport Commission
NOX Budget Trading Program.) When the EPA promulgated CAIR,
it allowed states to modify that program and include all NOX
Budget Trading Program units in the CAIR NOX Ozone-season
Trading Program as a way to continue to meet the requirements of the
NOX SIP Call for these sources.
    In CSAPR, however, the EPA allowed states to expand applicability
of the trading program to EGUs smaller than 25 MW but did not allow the
expansion of applicability to include large non-EGU sources. The reason
for excluding large non-EGU sources was largely that emissions from
these sources were generally much lower than the budget amount and
there was concern that surplus allowances created as a result of an
overestimation of baseline emissions and subsequent shutdowns (since
1999 when the NOX SIP Call was promulgated) would prevent
needed reductions by the EGUs to address significant contribution to
downwind air quality impacts.
    Since then, states have had to find appropriate ways to continue to
show compliance with the NOX SIP Call, particularly for
large non-EGUs.\114\ Most states that included such sources in CAIR are
still working to find suitable solutions.\115\
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    \114\ CSAPR generally satisfies NOX SIP Call
requirements for EGUs in most affected states because the CSAPR cap
is lower than the EGU portion of the NOX SIP Call
emission levels.
    \115\ Affected sources continue to report ozone season emissions
using part 75 as required by the NOX SIP Call and
emissions in most states cannot (or are not likely to) exceed
NOX SIP Call non-EGU budget levels.
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    Therefore, the EPA is taking comment on whether to allow any
NOX SIP Call state affected by this proposed rule to
voluntarily submit a SIP revision at a budget level that is
environmentally neutral to address the state's NOX SIP Call
requirement for ozone season NOX reductions. The SIP
revision could include a rule to expand the applicability of the CSAPR
NOX ozone-season trading program to include all
NOX Budget Trading Program units. Analysis shows that these
units (mainly large non-EGU boilers, combustion turbines, and combined
cycle units with a maximum rated heat input capacity greater than 250
mmBtu/hr) continue to emit well below their portion of the
NOX SIP Call budget. In order to ensure that the necessary
amount of EGU emission reductions occur for this proposed rule, the
corresponding state ozone-season emissions budget amount could be
increased by the lesser of the highest ozone season NOX
emissions (in the last 3-5 years) \116\ from those units or the
relevant non-EGU budget under the NOX SIP Call, and this
small group of non-EGUs could participate in the CSAPR ozone-season
trading program. The environmental impact would be neutral using this
approach, and hourly reporting of emissions under part 75 would
continue. This approach would address requests by states for help in
determining an appropriate way to address the continuing NOX
SIP Call requirement as to non-EGU sources. EPA proposes that if this
option is finalized that the variability limits established for EGUs be
unchanged as a result of including these non-EGUs. The assurance
provisions would apply to EGUs, and emissions from non-EGUs would not
affect the assurance levels.
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    \116\ EPA requests comment on the appropriate time period for
this determination.
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    The NOX SIP Call generally requires that states choosing
to rely on large EGUs and large non-EGUs for meeting NOX SIP
Call emission reduction requirements must establish a NOX
mass emissions cap on each source and require part 75, subpart H
monitoring. As an alternative to source-by-source NOX mass
emission caps, a state may impose NOX emission rate limits
on each source and use maximum operating capacity for estimating
NOX mass emissions or may rely on other requirements that
the state demonstrates to be equivalent to either the NOX
mass

emission caps or the NOX emission rate limits that assume
maximum operating capacity. Collectively, the caps or their
alternatives cannot exceed the portion of the state budget for those
sources. See 40 CFR 51.121(f)(2) and (i)(4). If the EPA were to allow a
state to expand the applicability of this proposed rule to include all
the NOX Budget Trading Program units in the CSAPR
NOX ozone-season trading program, the cap requirement would
be met through the new budget and the monitoring requirement would be
met through the trading program provisions, which require part 75
monitoring. Whether this option is finalized or not, the EPA will work
with states to ensure that NOX SIP Call obligations continue
to be met. The EPA requests comment on the voluntary inclusion of
NOX SIP Call non-EGUs in this 2008 ozone-season proposed
rule.
d. CAA Section 176A Petition To Expand the OTR
    On December 9, 2013, the EPA received a CAA section 176A petition
from the states of Connecticut, Delaware, Maryland, Massachusetts, New
Hampshire, New York, Rhode Island, and Vermont. The petition was
amended on December 12, 2013 to add the state of Pennsylvania as a
petitioning state. The petition requests that the EPA add 8 states and
the remainder of the Commonwealth of Virginia to the current Ozone
Transport Region that was established under CAA section 184.\117\ The
EPA will address this petition at a future date.
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    \117\ The named 8 states are: Illinois, Indiana, Kentucky,
Michigan, North Carolina, Ohio, Tennessee, and West Virginia.
Currently, the portion of the Commonwealth of Virginia in the OTR is
in the consolidated metropolitan statistical area that includes the
District of Columbia and northern Virginia.
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e. Other State Implementation Plans
    In this proposal, the EPA has not conducted any technical analysis
to determine whether compliance with the proposed rule would satisfy
other requirements for EGUs in any attainment or nonattainment areas
(e.g., RACT or BART). For that reason, the EPA is not now making
determinations nor establishing any presumptions that compliance with
the proposed rule satisfies any other requirements for EGUs. Based on
analyses that states conduct on a case-by-case basis, states may be
able to conclude that compliance with the proposed rule for certain
EGUs fulfills other SIP requirements.
2. Other Federal Rulemakings
a. Clean Power Plan
    On August 3, 2015, President Obama and EPA announced the Clean
Power Plan--a historic and important action on emissions that
contribute to climate change. The CPP reduces carbon pollution from the
power sector. With strong but achievable standards for power plants,
and customized goals for states to cut the carbon pollution
(CO2) that is driving climate change, the Clean Power Plan
(CPP) provides national consistency, accountability and a level playing
field while reflecting each state's energy mix.
    The Clean Air Act--under section 111(d)--creates a partnership
between EPA, states, tribes and U.S. territories--with EPA setting a
goal and states and tribes choosing how they will meet it. The CPP
follows that approach. The CPP establishes interim and final
CO2 emission performance rates and statewide goals. States
then develop and implement plans that ensure that the power plants in
their state--either individually, together or in combination with other
measures--achieve these rates or goals. States will be required to
submit a state plan, or an initial submittal with an extension request,
by September 6, 2016. Complete state plans must be submitted no later
than September 6, 2018. The interim rates and goals are assessed over
the years 2022 to 2029 and the final CO2 emission
performance rates, rate-based goals, or mass-based goals are assessed
for 2030 and after.
    Because the final deadline for states to submit complete plans
under the CPP is September 2018 and because mandatory CPP reductions do
not begin until the interim period (i.e., starting in 2022), the EPA
does not anticipate significant interactions with the CPP and the near-
term (i.e., starting in 2017) ozone season EGU NOX emission
reduction requirements under this proposal.
    However the EPA notes that actions taken to reduce CO2
emissions (e.g., deployment of zero-emitting generation) may also
reduce ozone season NOX emissions. To the extent that states
or electric utilities consider emission reduction strategies to meet
these two separate requirements--CPP and interstate ozone transport--in
a coordinated manner, they may find efficiency gains in that actions to
meet the CPP goals may also help meet interstate ozone transport
requirements.
    The EPA believes that timing flexibility provided in the CPP offers
significant benefits that allow states to develop plans that will help
achieve a number of goals, including, but not limited to: Reducing
cost, addressing reliability concerns, addressing concerns about
stranded assets, and facilitating the integration of meeting the
emission guidelines and compliance by affected EGUs with other air
quality and pollution control obligations on the part of both states
and affected EGUs.
    The EPA is also cognizant of the potential influence of addressing
interstate ozone transport on the CPP. As states and utilities
undertake the near- and longer-term planning that will be needed for
the CPP, they will have the opportunity to consider how compliance with
this proposed rule can anticipate, or be consistent with, expected
compliance strategies for the CPP. While some EGU NOX
mitigation strategies, most notably shifting generation from higher-
NOX emitting coal-fired units to lower NOX
emitting NGCC units, can potentially also reduce CO2
emissions, the EGU emissions analysis performed for this interstate
transport action does not results in a notable difference in
CO2 emissions. However, EPA's results do not preclude states
and utilities from considering these programs together. And, as the EPA
has structured the interstate transport obligations that would be
established by this proposal as requirements to limit aggregate
affected EGU emissions and the EPA is not proposing to enforce source-
specific emission reduction requirements, EGU owners have the
flexibility to plan for compliance with the interstate ozone transport
requirements in ways that are consistent with state and EGU strategies
to reduce CO2 emissions for the Clean Power Plan.
    With respect to concerns about potentially stranded investments
\118\ in NOX control equipment, the EPA's budget-setting
approach quantifies NOX reductions from upgrading combustion
controls at coal-fired units. However, CSAPR's flexible compliance does
not require that specific NOX controls be installed at any
specific facilities, and we would not expect such controls to be
installed on units that may not be economic to operate in the future.
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    \118\ A potential stranded investment is an investment in an EGU
NOX reduction strategy (e.g., combustion controls) for
which the affected EGU retires before the investment is fully
depreciated.
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b. 2015 Ozone Standard
    On October 1, 2015, the EPA strengthened the ground-level ozone
NAAQS to 70 ppb, based on extensive scientific evidence about ozone's
effects on public health and welfare. This proposed rule to update
CSAPR to address interstate emissions transport

with respect to the 2008 ozone NAAQS is a separate and distinct
regulatory action and is not meant to address the CAA's good neighbor
provision with respect to the strengthened 2015 ozone NAAQS.
    The EPA is mindful of the need to address ozone transport for the
2015 ozone NAAQS. The statutory deadline for the EPA to finalize area
designations is October 1, 2017. Further, good neighbor SIPs from
states are due on October 1, 2018. The steps taken under this proposal
to reduce interstate ozone transport, when finalized, will help states
attain and maintain the 2015 ozone NAAQS. Moreover, to facilitate the
implementation of the CAA good neighbor provision the EPA intends to
provide information regarding steps 1 and 2 of the CSAPR framework in
the fall of 2016. In particular, the EPA expects to conduct modeling
necessary to identify projected nonattainment and maintenance receptors
and identify the upwind states that contribute significantly to these
receptors.

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

    The EPA evaluated the costs, benefits, and impacts of compliance
with the proposed EGU NOX ozone-season emissions budgets
that reflect uniform NOX costs of $1,300 per ton (see
proposed emissions budgets in table VI.1). In addition, the EPA also
assessed compliance with other more and less stringent alternative EGU
NOX ozone-season emissions budgets, reflecting uniform
NOX costs of $3,400 per ton and $500 per ton, respectively
(see alternative emissions budgets in tables VI.2 and VI.3). The EPA
evaluated the impact of implementing these emissions budgets to reduce
interstate transport for the 2008 ozone NAAQS in 2017. More details for
this assessment can be found in the Regulatory Impact Analysis in the
docket for this proposed rule.
    The EPA notes that its analysis of the regulatory control scenarios
(i.e., the proposal and more and less stringent alternatives) is
illustrative in nature, in part because the EPA proposes to implement
the proposed EGU NOX emissions budgets via a regional
NOX ozone-season allowance trading program. This
implementation approach provides utilities with the flexibility to
determine their own compliance path. The EPA's assessment develops and
analyzes one possible scenario for implementing the NOX
budgets proposed by this action and one possible scenario for
implementing the more and less stringent alternatives.
    Table VIII.1 provides the projected 2017 EGU emissions reductions
for the evaluated regulatory control scenarios.

 Table VIII.1--Projected 2017 Emissions Reductions of NOX, SO2, and CO2 With the Proposed NoX Emissions Budgets
                                     and More or Less Stringent Alternatives
                                                   [TONS] \1\
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                                                                                More stringent  Less stringent
                                                                     Proposal       alternative     alternative
----------------------------------------------------------------------------------------------------------------
NOX (annual)....................................................          89,969          92,582          23,686
NOX (ozone season)..............................................          84,856          83,680          25,051
SO2 (annual)....................................................             383             425             301
CO2 (annual)....................................................         610,092         614,385         719,760
----------------------------------------------------------------------------------------------------------------
\1\ NOX and SO2 emissions are reported in English (short) tons; CO2 is reported in metric tons.

    The EPA estimates the costs associated with compliance with the
illustrative proposed regulatory control alternative to be
approximately $93 million annually. These costs represent the private
compliance cost of reducing NOX emissions to comply with the
proposal and include monitoring, recordkeeping, and reporting costs.
Table VIII.2 provides the estimated costs for the evaluated regulatory
control scenarios, including the proposal and more and less stringent
alternatives. Estimates are in 2011 dollars.

 Table VIII.2--Cost Estimates for Compliance With the Proposed NOX Emissions Budgets and More and Less Stringent
                                                  Alternatives
                                                   [2011]$ \1\
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