Number range CHAPTER 6560-50-P

**ENVIRONMENTAL PROTECTION AGENCY**

**40 CFR Parts 51 and 96**

**\[OAR 2003-0053; FRL B \]**

**RIN 2060 -**

**Rule to Reduce Interstate Transport of Fine Particulate Matter and
Ozone (Clean Air Interstate Rule): Reconsideration**

**AGENCY:** Environmental Protection Agency (EPA).

**ACTION:** Final Notice of Reconsideration.

**SUMMARY:** On May 12, 2005, EPA published in the [Federal
Register]{.underline} the final \"Rule to Reduce Interstate Transport of
Fine Particulate Matter and Ozone\" (Clean Air Interstate Rule or CAIR).
The CAIR requires certain upwind States to reduce emissions of nitrogen
oxides (NOx) and/or sulfur dioxide (SO2) that significantly contribute
to nonattainment of, or interfere with maintenance by, downwind States
with respect to the fine particle and/or 8-hour ozone national ambient
air quality standards (NAAQS). Subsequently, EPA received 12 petitions
for reconsideration of the final rule. On December 2, 2005, EPA
published a notice of its decision to grant reconsideration of four
issues raised in the petitions for reconsideration, and granted an
additional opportunity for public comment. On December 29, 2005, EPA
published a notice of its decision to grant reconsideration of an
additional issue raised by a petition for reconsideration, and again
granted an additional opportunity for public comment. In this notice,
EPA is announcing its final decisions on the five specific issues
addressed in the December 2005 notices.

**FOR FURTHER INFORMATION CONTACT**: For general questions concerning
today's action, please contact Carla Oldham, U.S. EPA, Office of Air
Quality Planning and Standards, Air Quality Strategies and Standards
Division, Mail Code C504-03, Research Triangle Park, NC 27711, phone
number (919) 54l-3347, e-mail address <oldham.carla@epa.gov>. For
questions concerning the analyses described in section III of this
notice, please contact Chitra Kumar, U.S. EPA, Office of Atmospheric
Programs, Clean Air Markets Division, Mail Code 6204J, 1200 Pennsylvania
Avenue, NW., Washington, DC, 20460, telephone (202) 343-9128, e-mail
address <kumar.chitra@epa.gov>. For legal questions, please contact
Sonja Rodman, U.S. EPA, Office of General Counsel, Mail Code 2344A, 1200
Pennsylvania Avenue, NW., Washington, DC, 20460, telephone 202-564-4079,
e-mail address <rodman.sonja@epa.gov>.

**SUPPLEMENTARY INFORMATION:**

Number range CHAPTER**Does this Action Apply to Me?** The CAIR does not
directly regulate emissions sources. Instead, it requires States to
develop, adopt, and submit SIP revisions that would achieve the
necessary SO2 and NOx emissions reductions, and leaves to the States the
task of determining how to obtain those reductions, including which
entities to regulate.

**How Can I Get Copies of This Document and Other Related Information?**

1\. *Docket.* EPA has established a docket for action related to the
CAIR under Docket ID No. EPA-HQ-OAR-2003-0053. All documents in the
docket are listed in the
[www.regulations.gov](http://www.regulations.gov/) index. Although
listed in the index, some information is not publicly available, e.g.,
CBI or other information whose disclosure is restricted by statute.
Certain other material, such as copyrighted material, will be publicly
available only in hard copy. Publicly available docket materials are
available either electronically in
[www.regulations.gov](http://www.regulations.gov/) or in hard copy at
the EPA Docket Center (Air Docket), EPA/DC, EPA West, Room B102, 1301
Constitution Ave., NW, Washington, DC. The Public Reading Room is open
from 8:30 a.m. to 4:30 p.m., Monday through Friday, excluding legal
holidays. The telephone number for the Public Reading Room is (202)
566-1744.

2\. *Electronic Access.* You may access this Federal Register document
electronically through the EPA Internet under the "Federal Register"
listings at <http://www.epa.gov/fedrgstr/>. In addition, the EPA has
established a website for the CAIR at
[http://www.epa.gov/cleanairinterstaterule](http://www.epa.gov/cleanairinterstate)
or more simply
[http://www.epa.gov/cair/](http://www.epa.gov/interstateairquality/).

**Outline**

I. Background

II\. Today's Action

III\. Discussion of Issues

A. SO2 Allocation Methodology in the CAIR Model Trading Rules

B. Fuel Adjustment Factors Used to Set State NOx Budgets

C. PM2.5 Modeling for Minnesota

D. Inclusion of Florida in the CAIR Region for Ozone

E. Impact on CAIR Analyses of D.C. Circuit Decision in [New York v.
EPA]{.underline}

IV\. Statutory and Executive Order Reviews

A. Executive Order 12866: Regulatory Planning and Review

B. Paperwork Reduction Act

C. Regulatory Flexibility Act

D. Unfunded Mandates Reform Act

E. Executive Order 13132: Federalism

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

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

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

I. National Technology Transfer Advancement Act

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

K. Congressional Review Act

L. Judicial Review

**I. Background**

On May 12, 2005, the EPA (Agency or we) published the final \"Rule to
Reduce Interstate Transport of Fine Particulate Matter and Ozone\"
(Clean Air Interstate Rule or CAIR)(70 FR 25162). In this action, EPA
found that 28 States and the District of Columbia contribute
significantly to nonattainment of, and interfere with maintenance by,
downwind States with respect to the NAAQS for fine particles (PM2.5)
and/or 8-hour ozone. The CAIR requires these upwind States to revise
their State implementation plans (SIPs) to include control measures to
reduce emissions of SO2 and/or NOx. Sulfur dioxide is a precursor to
PM2.5 formation and NOx is a precursor to PM2.5 and ozone formation. By
reducing upwind emissions of SO2 and NOx, CAIR will assist downwind
PM2.5 and 8-hour ozone nonattainment areas in achieving the NAAQS.

The CAIR implements the \"good neighbor\" provision of the Clean Air Act
(CAA), section 110(a)(2)(D), which establishes State obligations to
address interstate transport of pollution. The EPA conducted extensive
air modeling to determine the extent to which emissions from certain
upwind States were impacting downwind nonattainment areas. All States
found to contribute significantly to downwind PM2.5 nonattainment and
maintenance problems are included in the CAIR region for PM2.5 and are
required to reduce annual emissions of SO2 and NOx. All States found to
contribute significantly to downwind 8-hour ozone nonattainment and
maintenance problems are included in the CAIR region for ozone and are
required to reduce NOx emissions during the 5-month ozone season
(May-September). The CAIR establishes regional emission reduction
requirements for annual SO2 and NOx emissions and seasonal NOx
emissions. The reduction requirements are based on performance of
control technologies which are known to be highly cost effective for
reducing emissions of electric generating units (EGUs). The first phase
of NOx reductions starts in 2009 Number range CHAPTER(covering
2009-2014) and the first phase of SO2 reductions starts in 2010
(covering 2010-2014). The second phase of both SO2 and NOx reductions
starts in 2015 Number range CHAPTER(covering 2015 and thereafter).

Number range CHAPTEREach State covered by CAIR may independently
determine which emission sources to control, and which control measures
to adopt. States that choose to base their programs on emissions
reductions from EGUs may allow their EGUs to participate in an
EPA-administered cap and trade program. The CAIR includes model rules
for multi-State cap and trade programs for annual SO2 and NOx emissions,
and seasonal NOx emissions. States may choose to adopt these rules to
meet the required emissions reductions in a flexible and highly
cost-effective manner. To learn more about the CAIR and its impacts, the
reader is encouraged to read the preamble to the CAIR (70 FR 25162; May
12, 2005).

The CAIR was promulgated through a process that involved significant
public participation. The EPA published a notice of proposed rulemaking
on January 30, 2004 (69 FR 4566) and a supplemental notice of
supplemental proposed rulemaking on June 10, 2004 (69 FR 32684). The EPA
also published a notice of data availability on August 6, 2004 (69 FR
47828). The Agency held public hearings on the January 2004 proposed
rule on February 25 and 26, 2004, and an additional hearing on the
supplemental proposal on June 3, 2004. In addition, the EPA received
thousands of comments on the proposals. We responded to all significant
public comments in the preamble to the final rule and in the final
response to comments document available in the CAIR docket (Docket No.
OAR-2003-0053-2172).

Following publication of the final rule, the Administrator received
twelve petitions requesting reconsideration of certain aspects of the
final CAIR. These petitions were filed pursuant to section 307(d)(7)(B)
of the CAA. Under this provision, the Administrator is to initiate
reconsideration proceedings if the petitioner shows that an objection is
of central relevance to the rule and either that it was impracticable to
raise the objection to the rule within the public comment period, or
that the grounds for the objection arose after the end of the public
comment period but before the time for seeking judicial review had
expired. The petitions for reconsideration of the CAIR asked EPA to
reconsider several specific aspects of the final rule, and many of the
petitions made similar requests. By letters dated August 1, 2005, EPA
granted reconsideration of the definition of "electric generating unit"
or "EGU" as it relates to solid waste incinerators (and particularly
municipal waste incinerators).[^1] The EPA explained that the issue
would be addressed in the proposed rule signed the same day. That
proposed rule, entitled \"Rulemaking on Section 126 Petition from North
Carolina to Reduce Interstate Transport of Fine Particulate Matter and
Ozone; Federal Implementation Plans to Reduce Interstate Transport of
Fine Particulate Matter and Ozone; Revisions to the Clean Air Interstate
Rule; Revisions to the Acid Rain Program; Proposed Rule,\" was published
on August 24, 2005 (70 FR 49708). In that proposal, EPA reconsidered the
definition of "EGU" in the final CAIR as it relates to solid waste
incinerators (70 FR at 49738). We proposed revisions to the definition
of "EGU" and requested comment on that issue.

On December 2, 2005, EPA published a notice of its decision to grant
reconsideration of four additional issues presented in the petitions for
reconsideration, and solicited public comment on those issues. On
December 29, 2005, EPA published a notice of its decision to grant
reconsideration of one additional issue raised by petition for
reconsideration, and again solicited public comment on that issue. In
those two notices EPA did not propose any modifications to the final
CAIR, as we did not believe that any of the information that had been
submitted demonstrated that EPA\'s final decisions in the CAIR
rulemaking were erroneous or inappropriate.

The EPA requested comment only on the issues specifically described in
Section III of each December 2005 notice. We did not reconsider or
re-open for further comment any other provisions in the CAIR.

The EPA also received three limited requests to stay CAIR. The
implementation of the CAIR in limited geographic areas pending
resolution of this reconsideration process. One petitioner requested a
stay of implementation of the CAIR in the State of Florida, and one
petitioner requested a stay of implementation of the CAIR in the State
of Minnesota, and one petitioner requested a stay of CAIR for a limited
subset of affected sources. By letter dated August 1, 2005, EPA declined
to stay implementation of the CAIR in Florida.[^2]

Finally, in addition to petitions for reconsideration, fourteen
petitions for judicial review of the final rule were filed with the U.S.
Court of Appeals for the District of Columbia.[^3] The fourteen cases
have been consolidated into a single case, [State of North Carolina v.
EPA]{.underline} (No. 05-1244) (D.C. Cir). Many of the parties who
petitioned EPA for reconsideration of the CAIR also petitioned for
judicial review of the rule.

**II.** **Today's Action**

This notice addresses the five specific issues upon which we granted
reconsideration and solicited comment in the December 2, 2005 and
December 29, 2005 notices. Today's action is one of three actions EPA is
taking today to resolve all remaining issues relating to the petitions
for reconsideration of CAIR.

This notice takes action only with respect to the five issues identified
in the December 2005 notices. In those notices, we announced our
decision to grant reconsideration and solicited comments on the specific
issues to be reconsidered. We did not, however, propose any changes to
the CAIR or re-open for comment any other issues determined in the CAIR.
In this action, we take final action on the five issues identified in
the notices of reconsideration and respond to comments received during
the reconsideration process. The first issue addressed in the December
2, 2005 notice relates to analyses done by EPA to address petitioner\'s
claims regarding alleged inequities arising from the application of the
SO2 allowance allocation approach to be used by States choosing to
participate in the EPA-administered SO2 trading program. The second
issue relates to EPA\'s use of specific fuel adjustment factors to
establish NOx budgets for each State. The third issue relates to
modeling inputs used by EPA to determine whether emissions from
Minnesota should be included in the CAIR region for PM2.5. The fourth
issue relates to EPA\'s determination that the State of Florida should
be included in the CAIR region for ozone. The issue raised in the
December 29, 2005 notice relates to the potential impact of a recent
judicial opinion, [New York v. EPA]{.underline}, 413 F.3d 3 (D.C. Cir.
2005), certain analyses done for the CAIR relating to the identification
of highly cost-effective controls and the timing of CAIR deadlines. [New
York v. EPA]{.underline}, 413 F.3d 3 (D.C. Cir. 2005) was decided on
June 24, 2005 \-- after the final CAIR was published but before the time
for judicial review of the rule had run. Each issue is described in
greater detail in Section III of this notice.

EPA also is taking two additional actions relating to the petitions for
reconsideration of CAIR. First, EPA is sending nine separate letters to
the petitioners with outstanding requests for reconsideration. These
letters address their requests that EPA reconsider the following ten
issues: (1) the 0.2ug/m3 threshold used to determine if a state's
emissions contribute significantly to PM2.5 nonattainment and
maintenance problems in downwind states (multiple requests for
reconsideration arguing both that the threshold is too high and that it
is two low); (2) the inclusion of the full state of Florida in the CAIR
region for PM2.5 (two requests for reconsideration challenging EPA's
decision to determine significant contribution on a statewide basis);
(3) the inclusion of the full state of Texas in the CAIR region for
PM2.5 (two requests for reconsideration challenging EPA's decision to
determine significant contribution on a statewide basis); (4) the NOx
budget allocated to the State of Connecticut (two requests for
reconsideration); (5) the treatment of previously allocated 2009 NOx
Budget Trading Program allowances; (6) the SO2 retirement ratio for
Title IV allowances as applied to units that receive, through 2009,
"bonus" allocations under section 405(a)(2) of the Clean Air Act; (7)
the phase I NOx compliance date of 2009; (8) EPA's interpretation of the
"interfere with maintenance" prong of section 110 of the Clean Air Act;
(9) the method used to identify downwind nonattainment areas; and (10)
the creation of a compliance supplement pool for the annual NOx trading
program. Finally, the petitions for reconsideration contain two
outstanding requests to stay CAIR: one asking for CAIR to be stayed in
the state of Minnesota and one asking that CAIR be stayed only for the
subset of sources that has either already received 2009 NOx Budget
Trading Program allowances or is currently receiving "bonus" allowances
under section 405(a)(2) of Title IV of the Clean Air Act.

EPA has carefully considered each of these requests for reconsideration.
We have concluded that reconsideration of these issues is not warranted
under section 307(d)(7)(B) of the Clean Air Act. EPA is therefore
denying all remaining requests for reconsideration. In addition, EPA is
denying the remaining requests to stay CAIR. These decisions are fully
explained in the letters to petitioners which are available in the CAIR
docket (EPA-HQ-OAR-2005-0053).

In a separate action signed today, EPA is taking final action on the
request for reconsideration discussed in the August 1, 2005 [Federal
Register]{.underline} notice. This action is taken as part of our final
action responding to North Carolina's section 126 petition and
promulgating Federal implementation plans for all states in the CAIR
regions. In that action, we also take final action on the request
reconsider EPA's treatment in CAIR of solid waste incinerators
(particularly municipal waste combustors), and finalize the revisions to
the definition of "EGU" proposed in response to that request. This
action, titled "Rulemaking on Section 126 Petition from North Carolina
to Reduce Interstate Transport of Fine Particulate Matter and Ozone;
Federal Implementation Plans to Reduce Interstate Transport of Fine
Particulate Matter and Ozone; Revisions to the Clean Air Interstate
Rule; Revisions to the Acid Rain Program,"[^4] will be published shortly
in the [Federal Register]{.underline}.

**III. Discussion of Issues**

**A. SO2 Allowance Allocation (& State Budget) Approach in the CAIR
Model Trading Rules**

As noted above, EPA decided to grant reconsideration on six issues
related to the final CAIR. The first of these issues relates to the SO2
allocation approach in the CAIR model rules. EPA received one petition
for reconsideration that asked EPA to reconsider the SO2 allocation
approach to be used by States participating in the EPA-administered CAIR
SO2 trading program. This petitioner argued that the SO2 allowance
allocation approach is unreasonable and inequitable. The petitioner
argued that the approach is unreasonable because other approaches would
be more appropriate. According to the petitioner, the approach is
inequitable because it results in owners of units that have historically
lower emission rates being forced to buy allowances from historically
higher emitting units that install new emission controls. The petitioner
asked EPA to establish a different approach. As described in the Notice
of Reconsideration, EPA does not agree with petitioner\'s conclusions
about this issue. EPA continues to believe that the approach selected is
reasonable for the reasons explained in the CAIR final rule and further
discussed below. Furthermore, numerous opportunities for public comment
on this issue were provided, and a full discussion of the allowance
allocation options occurred during the rule development process.
Nonetheless, given the intense public interest in this issue, EPA
decided to grant the petition for reconsideration insofar as it raised
issues regarding alleged inequities resulting from the application of
EPA's SO2 allowance allocation approach.

In the Notice of Reconsideration, EPA announced its decision to
reconsider this issue and solicited additional public input. EPA also
solicited comment on additional analyses it conducted in response to the
petition for reconsideration concerning the impact of the SO2 allowance
allocation approach adopted in the CAIR model trading rule. This
additional analysis compared the SO2 allocation approach in CAIR to
various alternatives EPA also considered during the rulemaking process.
In response to comment on the Notice of Reconsideration, EPA has further
refined some of its analyses and carefully considered the arguments of
the petitioner. EPA continues to believe that these analyses show that
EPA's selected approach to SO2 allowance allocations is appropriate,
given the objectives of CAIR and other relevant considerations.
Moreover, EPA believes that the approach produces a reasonable result,
not the inequities alleged by the petitioner. Therefore, in this Notice
of Final Action on Reconsideration notice, EPA is not altering the
approach taken in CAIR for SO2 allowance allocation. EPA's response to
public comments on the analyses presented in the Notice of
Reconsideration and further discussion of the petitioner's concerns are
provided below (and in the accompanying Technical Support Document and
Response to Comment document).

[Title IV and CAIR]{.underline}

The CAIR model SO2 trading program relies on the use of title IV SO2
allowances for compliance with the allowance-holding requirements of
CAIR. Title IV SO2 allowances have already been allocated on a
unit-by-unit basis in perpetuity, based on formulas set forth in
sections 405 and 406 of the Clean Air Act (CAA), which EPA implemented
through final regulations issued in 1998 (See 42 U.S.C. 7651d and 7651e;
and 18 CFR 73.10(b)). The statutory formulas for allocation of title IV
SO2 allowances were based on unit data for 1985-1987 and, for some
units, data for years up to 1995. For the title IV SO2 trading program,
each allowance authorizes one ton of SO2 emissions.

For the CAIR SO2 trading program, SO2 reductions will be achieved by
generally requiring CAIR sources to retire more than one title IV
allowance of 2010 and later vintages of allowances for each ton of SO2
emissions in 2010 and thereafter. Specifically, each title IV SO2
allowance issued for 2009 or earlier will be used for compliance by CAIR
sources at a ratio of one allowance per ton of SO2 emissions and would
authorize one ton of SO2 emissions. Each title IV allowance of vintage
2010 through 2014 will be used for compliance under CAIR at a two-to-one
ratio and authorize 0.5 tons of SO2 emissions. Each title IV allowance
of vintage 2015 and later will be used at a 2.86-to-1 ratio and
authorize 0.35 tons of SO2 emissions. See discussion in the preamble to
the final CAIR in section VII (70 FR 25255-25273) and section IX (70 FR
25290-25291).

[Response to Comments on EPA's Statutory Authority]{.underline}

Several commenters expressed support of EPA's chosen allocation
approach, arguing that EPA was entirely within its legal authority to
use title IV allowances to implement the SO2 trading program under CAIR.
These commenters generally argued that EPA's use of title IV allowances
to implement CAIR reductions was necessary to maintain the viability of
the program and continued confidence in cap-and-trade programs.

A few commenters on the Notice of Reconsideration assert that EPA has
exceeded its statutory authority under title IV of the CAA by tying CAIR
SO2 allocations to title IV allowances. In addition, a few commenters
argue that EPA's final CAIR SO2 allocation approach unlawfully limits
States' discretion under section 110 of the CAA to determine how to meet
their "good neighbor" obligations and to meet national ambient air
quality standards. These same concerns were also raised during the CAIR
rulemaking process and EPA provided a detailed justification for its use
of title IV allowances under CAIR, including direct responses to these
comments in the CAIR preamble (70 FR 25290-96)**.** EPA maintains that
its approach of using title IV allowances in the CAIR SO2 trading
program and imposing an allowance-retirement requirement on States that
do not adopt the CAIR SO2 trading program is within its statutory
authority and is a reasonable exercise of that authority. Additionally,
there is nothing in section 110 of the CAA that would bar the use of
title IV allowances to accomplish attainment goals under 110(a)(2)(d).

One commenter suggests that EPA's SO2 allocation approach using title IV
allowances is in violation of CAA section 110(a)(2)(D) because it
distributes allowances among States in a way that would effectively
result in different emissions rates among States, and different
resulting control costs. The commenter then cites section 102(a) of the
CAA, arguing that the provision "directs EPA to promote the development
of air pollution control laws at the state and local level that are as
'uniform' from jurisdiction to jurisdiction as practicable." The
commenter then proceeds to argue that EPA's use of title IV allowance
allocations for SO2 allowance allocations under CAIR violates this
notion of parity without reason and is therefore unlawful.

EPA disagrees with the commenter's interpretation of these two CAA
provisions. First, nothing in section 110(a)(2)(D) indicates how EPA
should allocate allowances under a cap-and-trade program. Second, in
developing an approach for achieving highly cost-effective emission
reductions, EPA utilized a regional trading program rather than
State-specific control programs, such that concerns about EPA requiring
one State to be a "better" neighbor than another in terms of addressing
contributions to non-attainment are not relevant. Third, section 102(a)
of the CAA indicates that "The Administrator shall...encourage the
enactment of improved and, so far as practicable in the light of varying
conditions and needs, uniform State and local laws relating to the
prevention and control of air pollution". As is discussed throughout
this section of the CAIR Notice of Final Action on Reconsideration, the
existence of title IV creates a set of conditions where it is not
"practicable" to create a new set of allowance allocations for SO2 for
the purposes of CAIR. Finally, the use of the phrase "The Administrator
shall encourage" in section 102(a) indicates that this provision is in
no way a directive that requires the Agency to obtain any specific
result during its rulemakings. Finally, the use of a cap-and-trade
program assures that the marginal cost paid for a ton of emission
reduction should be close to the observed allowance price, assuring a
uniform marginal cost from State to State.

[SO2 Allocation Options Discussed in CAIR]{.underline}

EPA considered and analyzed a variety of SO2 allowance allocation
methodologies during the CAIR rulemaking process. After careful
analysis, EPA decided to use the allocation approach chosen by Congress
in title IV of the Clean Air Act. EPA also considered the following
alternative approaches, which are explained in the final CAIR Corrected
Response to Significant Public Comments on the Proposed Clean Air
Interstate Rule, Corrected April 2005 (Docket Number OAR-2003-0053):

-   Allocations based on historic tons of actual emissions from more
    recent years,

-   Allocations based on heat input (with alternatives based on heat
    input from all fossil generation, and heat input from coal- and
    oil-fired generation only) and

-   Allocations based on electricity output (with alternatives based on
    all generation and all fossil-fired generation).

In addition to these alternatives, EPA has analyzed other heat
input-based allocation approaches in the reconsideration process,
explained below. Each allocation approach suggested by the petitioner
and other commenters during the CAIR rulemaking and reconsideration
process has advantages and disadvantages for different companies and
States. However, as explained in the CAIR final rule, EPA believes that
the approach used in the final CAIR rule is the most appropriate among
the alternatives for several reasons.

First, EPA believes -- based on strong policy and air quality concerns
-- that it is necessary to use the existing title IV allowances in order
to preserve the viability and emissions reductions of the highly
successful title IV program. The disruption of the title IV SO2 trading
program will also potentially result in increased emissions outside of
the CAIR region starting in 2010 because, with title IV allowances
having little or no value, the title IV program will no longer constrain
SO2 emissions in those States. Further, if title IV allowances are not
used for compliance in the CAIR SO2 trading program, the likely result
will be: a significant surplus of title IV allowances; a collapse of the
price of title IV allowances; and a title IV SO2 trading program that,
contrary to Congressional intent, no longer provides incentives to
minimize emissions control costs and encourage pollution prevention and
innovation.

If EPA adopts an approach that does not preserve the structure of the
title IV allowance market and the value of those allowances, the
confidence in the cap-and-trade policy instrument and allowance markets
in general, and in the CAIR cap-and-trade programs in particular, would
likely decline. Such an outcome could result in a reduced willingness of
the owners of sources in cap-and-trade programs to invest in control
technologies that would generate excess allowances for sale, or to
purchase allowances for compliance, for fear that the rules might
change. If owners were to ignore the incentives provided by
cap-and-trade in such a manner, efficiency and cost-savings provided by
these programs would be lost. The preservation of title IV allowances
for use in CAIR, then, is integral to the viability and effectiveness of
both title IV and the CAIR trading programs. [See]{.underline}
discussion in preamble to the final CAIR in section IX (70 FR
25293-25295).

Second, EPA relied on the permanent allocation methodology established
by Congress in title IV for purposes of reducing SO2 emissions. Congress
chose a policy of not revisiting and revising these allocations and,
apparently, believed that its allocation methodology for title IV
allowances would be appropriate for future time periods.

Third, title IV allowance allocations provide a logical and well
understood starting point from which additional electric generation unit
(EGU) SO2 emission reductions can be achieved for Acid Rain units, which
account for over 90 percent of the SO2 emissions from CAIR EGUs.

Finally, in response to comments on the proposed CAIR, EPA performed an
analysis comparing the title IV methodology to other methodologies. At
the outset, EPA notes that the objective of CAIR is not to ensure that
each State receives the maximum amount of SO2 allowances possible under
any approach. The goal of CAIR is to achieve the SO2 emissions
reductions through the region-wide budgets. As EPA has noted, selecting
the most appropriate SO2 allowance allocation approach for CAIR has
required addressing a number of different considerations. The policy and
air quality concerns specific to the CAIR SO2 trading program and noted
by EPA above necessitate that EPA implement the CAIR SO2 program using
the existing structure of title IV. Nevertheless, EPA has analyzed the
impact of using title IV allocations on States relative to other
possible allocation approaches.

EPA's analysis indicates that the use of title IV allowances in the CAIR
SO2 trading program has a reasonable result ([See]{.underline} CAIR
Corrected Response to Comments, section X.A.26, Docket #:
EPA-HQ-OAR-2003-0053-2172). This analysis compares State budgets (as a
percent of the total CAIR regional budget) calculated based on title IV
allowances with State budgets calculated using the other suggested SO2
allocation approaches. In more than two-thirds of CAIR States (which
account for about 80 percent of the total heat input in the CAIR region
from 1999-2002), the use of title IV allowances results in each State
having neither the highest nor the lowest percentage of the region-wide
SO2 budget, but instead, a percentage that is well within the range of
percentages that the States would receive under all of the alternative
options considered. For example, Ohio's trading budget for 2010 under
EPA's method is 333,520 tons, which is about 9 percent of the CAIR
region trading budget of 3,619,196 tons.[^5] If Ohio's budget were
calculated based on historic tons of emissions, it would receive
approximately 12 percent of the total CAIR budget. If Ohio's budget were
calculated based on output, it would receive approximately 5 percent of
the total CAIR budget. The allocation approach based on title IV, thus,
provides Ohio with a budget in the middle of the range of the options
analyzed. EPA recognizes, of course, that the relative impact of
allocations based on title IV allowances as compared to alternative
approaches will vary among States and individual companies. However,
each alternative allocation approach would disadvantage some States or
companies relative to another alternative allowance allocation approach.
EPA must, nevertheless, select a method for SO2 allowance allocation and
must be sensitive to competing considerations.

In summary, EPA\'s use of title IV allowances in the CAIR SO2 trading
program is supported by: (1) EPA\'s determination that this approach is
necessary to maintain the efficacy of the title IV program and prevent
erosion of confidence in cap-and-trade programs in general; and (2)
EPA\'s analysis showing that the allocations resulting from this
approach are reasonable. Nevertheless, as a part of this
reconsideration, EPA performed additional analyses, explained below, to
evaluate the SO2 allocation approach in the final CAIR in light of the
petitioner's concerns.

[Equitability of CAIR SO2 Allocation Approach]{.underline}

While the petitioner stated that the CAIR final allocation approach is
"inequitable" because lower emitting units would buy allowances from
higher emitting units that install emission controls, it is unclear why
such a result would actually be inequitable. On the contrary, the owner
of each of the units involved would be choosing to adopt the most
economic compliance strategy in light of the unit's emission control
costs and the market value of allowances. The ability of the owners to
make such choices reflects the flexibility provided by a cap-and-trade
program, its inherent cost-effectiveness, and its promotion of
least-cost compliance for all program participants.

[Response to Comments on the Equitability of CAIR SO2 Allocation
Approach]{.underline}

One commenter argued that EPA should use the same metrics and
methodologies used to evaluate NOx allowance allocation approaches to
evaluate SO2 allowance allocation approaches. The commenter suggests
that the metrics by which EPA assessed NOx allocations included (1)
whether the EPA method avoids penalizing coal-fired generation units
that already have installed emissions controls and (2) whether, relative
to the alternative allocation approaches, the EPA method better
minimizes for each State the disparity between allowances provided and
projected emissions, and argued that EPA cites these rationales in
justifying its chosen NOx allocation approach. This commenter also
suggests that EPA's use of title IV allowances penalizes new units and
independent power producers (IPPs) and results in large wealth transfers
from low-emitting to high-emitting States.

While EPA agrees that the Agency considered these factors (among several
others)in choosing its allocation approach under the CAIR NOx trading
programs, EPA does not fully agree with the commenter's characterization
of EPA's considerations. EPA believes that the commenter has omitted
some of the significant context and caveats that were included in the
discussion of NOx allocations and the use of fuel adjustment factors in
the reconsideration notice, as well as a number of other factors that
EPA must consider, particularly in the context of SO2 allocations.
First, EPA noted in the June 10, 2004 Supplemental Notice of Proposed
Rulemaking and in the reconsideration notice that, "in contrast to
*allocations based on historic emissions*, the factor would also not
penalize coal-fired plants that have already installed pollution
controls" (69 FR 32869, 70 FR 72276, emphasis added). This language
explains that allocations using historic heat input adjusted for fuel
type, while providing additional allowances to coal-fired units that
will likely install controls under CAIR, would not simultaneously
penalize coal-fired units that had already made investments in emissions
controls. An approach based on historic emissions, on the other hand,
would also provide additional allowances to units that would likely have
to install controls, but would simultaneously penalize units that had
already done so. While EPA makes this argument in support of its chosen
approach for NOx allocations, the Agency does not raise this point to
establish a criterion for evaluating allowance allocation approaches.
Rather, it simply notes that its chosen approach for NOx allocations can
provide an advantage to one set of coal-fired units without
disadvantaging another set of coal-fired units.

Second, while the commenter is correct in noting that EPA stated in its
discussion of NOx allocations in the reconsideration approach that it is
in the public interest to attempt to minimize the disparity between
individual State budgets and projected emissions for each State, EPA did
not set this goal as one of only two primary criteria for adoption of a
given allocation strategy, as the commenter suggests. Rather, EPA notes
that "*In the absence of other considerations*, EPA believes that it is
in the public interest to reduce the disparity between the number of
allowances in a State budget and total projected State EGU emissions"
(70 FR 72276, emphasis added). As EPA has noted, equity is one of many
considerations faced by EPA in choosing an SO2 allowance allocation
approach. In particular, unlike in the case of NOx, EPA had to consider
an existing, nationwide trading program implemented by statute in the
case of SO2.

Third, as EPA discussed in the CAIR Response to Comments, while
commenters express concern that about the availability of allowances for
non-Acid Rain units, it should be noted that not all sources covered
under the Acid Rain program received allowances. By the design of the
title IV program (as outlined by Congress), because of the permanent
allocation of allowances, new units beginning commercial operation after
1995 or beginning construction after 1990 did not receive title IV
allowances. Thus, Congress recognized that, over time, new units would
be built and covered under the program, but felt it reasonable that such
units would be able to obtain title IV allowances either through the
auction or from the market. Under the auction, 250,000 title IV
allowances will be auctioned annually for the years 2012 and beyond, and
these allowances can be used for compliance with CAIR. The availability
of these allowances ensures that all sources, including new units and
non-title IV sources, will have access to a pool of allowances,
protecting them from potential exercise of market power by market
participants holding allowances. Finally, IPPs have the option of opting
in to title IV until their exemption expires in order to obtain title IV
allowances. EPA addresses other issues specific to IPPs in section VI.E
of today's CAIR FIP preamble.

Fourth, while the commenter asserts that EPA's use of title IV
allowances in the CAIR SO2 trading program will result in significant
wealth transfers from low-emitting to high-emitting States, EPA's
analysis of SO2 coverage ratios (the ratio of allowances to projected
emissions)discussed to some degree in this section and presented in the
TSD), is not suggestive of this trend. In fact, looking at the
differences in States' projected emissions and coverage ratios between
the base case and CAIR it becomes evident that both low and
high-emitting States are projected to make investments in emissions
reductions under CAIR, reducing their demand for, or freeing up
allowances for sale, in the process. States that might be categorized as
high-emitting are not guaranteed to be net sellers of allowances, and
States that might be categorized as low-emitting are not guaranteed to
be net purchasers of allowances.

Another commenter argues that smaller units would be forced to purchase
SO2 allowances from the market in order to comply with CAIR. This
commenter argues that the SO2 allowance market is not efficient and
subjects forced participants to endure an undue amount of financial
burden and/or risk. EPA believes that the commenter's claims about the
state of the SO2 allowance market are unfounded. As is discussed is
discussed in the Acid Rain Program Report (EPA 43-R-05-012, October
2005)notes that about 20,000 allowance transactions, affecting about
15.3 million allowances were recorded in the EPA Allowance Tracking
System in 2004. In addition, title IV compliance costs have been lower
than projected and allowance prices in the SO2 allowance market have
generally reflected this. Finally, as discussed earlier in this section
sources have the option of purchasing allowances directly from the
annual auction.

Further, in raising equity concerns, a couple of commenters argue for
conflicting measures of equity within their own comments. These
commenters argued that an equitable emissions allocation approach will
result in an equivalent effective emissions rate across States. These
commenters then point to EPA's chosen CAIR NOx emissions allocation
approach as an exemplary allocation approach because it limits the
disparity between individual State budgets and projected emissions.
However, the commenters fail to realize that, that approach does not
actually result in an equivalent emissions rate across States. Such a
result underscores the notion that improving equity along one metric can
actually reduce it along another.

Finally, some commenters argued that the use of title IV allowance
allocations penalizes sources who have already installed scrubbers prior
to the start of the Acid Rain Program. This is because, in general,
allowances under title IV were allocated to units that had not installed
controls at a higher rate relative to units that had installed controls.
The title IV approach, in that sense, is somewhat similar to the
approach taken for NOx under CAIR, in that it provides additional
allowances for units expected to install controls under the rule. EPA
believes that the commenters' arguments that the continued use of title
IV allowances penalizes sources that installed controls prior to the
Acid Rain Program are unfounded. First, these controls were installed
over 20 years ago and are at this point a sunk cost. Second, these
control installations were completed within a regulated electricity
sector, such that in most cases the cost of installing these controls
should have been recovered through an electricity price rate increase.
Third, these controls were installed in response to requirements
separate from both CAIR and the Acid Rain Program. Fourth, Congress was
clearly aware of the issues raised by commenters when designing the SO2
trading program in 1990, and consciously used a formula for future
allocations for the length of time it believed was reasonable. In
general, the Acid Rain Program has enjoyed 10 years of operation without
substantial concern over this issue and with industry at-large
appreciating the program's merits in providing a cost-effective,
flexible, and fair way to provide environmental protection. Finally,
analysis by one of these two commenters, which estimates the windfall of
allowances that a hypothetical unscrubbed coal-fired unit would attain
by installing a scrubber and reducing emissions, neglects the fact that
this unit would have to endure the costs of installing controls. Thus,
the ostensible windfall would be significantly smaller than was
suggested by the commenter.

[Analysis of SO2 Allocation Options Presented in the Notice of
Reconsideration]{.underline}

In the Notice of Reconsideration, EPA compared three alternative SO2
allowance allocation methodologies to the approach in the final CAIR.
However, in these analyses, EPA examined how allowances would be
distributed to individual companies instead of examining how they would
be distributed to States. According to the petitioner, the allowance
distribution will result in the petitioner's relatively low-emitting
units being forced to buy allowances from other companies' relatively
high-emitting units. They thus argue the allocation approach used in
CAIR is per se inequitable and unreasonable. To evaluate this concern,
EPA compared projected allocations not just to individual units, but to
individual companies who own these units under various methodologies
relative to projected SO2 emissions of all the units owned by those
companies.

EPA believes that, for purposes of evaluating the various allocation
methodologies, computing allocations on a company-by-company basis is
more appropriate than comparing allocations on a unit-by-unit basis.
While one unit could be allocated fewer allowances under one approach,
the approach could result in another unit owned by the same company
being allocated more allowances, which may offset the smaller allocation
of the first unit. If the units are at the same source, the allowances
can be used to cover emissions from either unit; if the units are at
different sources, it is often the case that allowances can be
transferred from one source to the other at little or no cost.[^6] Thus,
EPA analyzed the projected distribution of allowances at the parent
company level (*e.g.*, at the holding company level where applicable).
EPA also analyzed the distribution of allowances at the operating
company level. Performing the analysis at the operating company level
recognizes that holding companies may incur costs to shift allowances
between operating companies (which typically consist of units within a
single State), especially in States with price-regulation over power
generation. EPA performed this portion of the analysis to test the
assumption that these costs would not have a major effect on the outcome
of its analyses comparing the various allocation approaches.

EPA utilized the best heat input and emissions data currently available
to the Agency. EPA's analyses encompassed about two-thirds of the total
number of CAIR plants, over 95 percent of total annual allocations for
all methodologies, and about 97 percent of the total projected emissions
in the CAIR region. These percentages apply to each of the analyses EPA
conducted: those for the years 2010 and 2015 and for both sets of
projected emissions data, the CAIR control case and base case. (Figures
and tables from analysis presented in the reconsideration notice can be
found in the docket, EPA-HQ-OAR-2003-0053, "SO2 Allowance Allocation
Methodology Comparative Analysis Data Files".)

The three alternative allowance allocation methodologies EPA analyzed
were suggested by various commenters during the rulemaking process and
this reconsideration process. These methodologies are:

-   Allocating allowances based on more recent heat input data;

-   Allocating allowances based on more recent heat input data adjusted
    for fuel type (*e.g.*, coal, oil and gas); and

-   Allocating allowances based on more recent heat input data adjusted
    both for fuel type and for coal type (*e.g.*, bituminous,
    sub-bituminous and lignite).

In comparing the CAIR SO2 allocation approach and the three alternative
methodologies, EPA took into account certain factors that are applicable
to the CAIR final allocation approach but not to the three alternative
methodologies. For all four methodologies, EPA analyzed the resulting
total allowance allocations, and the total projected emissions, for
companies' sources located in the States subject to CAIR. In addition,
for all the methodologies, EPA analyzed the relationship between
allowances and emissions in two ways. First, EPA calculated the ratio of
allowances to total projected emissions before CAIR controls (base case
emissions). This provides a reasonable estimate of the extent to which
each company's future emissions will exceed its allowances and, thus,
indicates how much effort a company must expend for compliance either by
purchasing allowances or installing controls. Second, EPA calculated the
ratio of allowances to total projected emissions after the installation
of CAIR controls (control case emissions). This provides a reasonable
estimate of the number of allowances a company would need to purchase or
would be able to sell after any controls are installed. Some companies
with low-emitting units may have excess allowances to sell even if no
controls are installed.

In its analysis of the CAIR approach, EPA also considered both the
allowance allocations and the emissions for companies' units both within
the CAIR region and outside the CAIR region. EPA believes that this is
appropriate because, under the CAIR approach, if a company's units
outside the CAIR region have more title IV allowances than needed to
cover their emissions under the Acid Rain Program, the company might be
able to transfer, at little or no net cost, excess allowances to the
company's units in the CAIR region for use to cover emissions under the
CAIR trading program. Under the three alternative methodologies, all of
which would require creating new CAIR SO2 allowances independent of the
existing title IV allocations, CAIR sources could not use title IV
allowances held for sources outside (or inside) the CAIR region for
compliance with the CAIR SO2 allowance holding requirement.

Further, in the analysis of the CAIR approach, EPA considered the
allocation of title IV allowances to CAIR units that are not currently
in the Acid Rain Program but that could opt into the Acid Rain Program
and receive title IV allowances ([see]{.underline} 42 U.S.C. 7651i and
18 CFR part 74; and the discussion below concerning the ability of units
to opt in). This analysis assumed that companies owning non-Acid Rain
units subject to CAIR would elect to opt into the Acid Rain Program
because they would receive title IV allowances to cover a portion of the
units' emissions under CAIR. EPA believes this assumption is reasonable
because any of these units has the option of becoming an Acid Rain
Program opt-in unit and thereby providing the company additional
allowances, at little or no additional cost, and the value of title IV
allowances could be substantial. In contrast, the analysis of the three
alternative methodologies did not consider the impact of Acid Rain
Program opt-ins because these approaches do not use title IV allowances
for CAIR compliance.

EPA's analysis indicated that while allocations vary from company to
company under the four methodologies, overall the distributions of
allowances that companies received relative to their projected emissions
for the CAIR control case are very similar. EPA came to similar
conclusions when looking at the base case.

[Response to Comments on EPA's analysis]{.underline}

EPA received several comments on various aspects of the SO2 allocation
analyses presented in the Notice of Reconsideration. A few commenters
claimed that EPA should have focused its analyses on State budgets
rather than on projected allocations to companies because, with an
alternative allocation approach, States would have the responsibility
for allocating allowances to their respective affected sources and could
meet control requirements differently than assumed in EPA's analyses.
Further, these commenters claimed a State-by-State analysis is more
consistent with the analysis of NOx allocation methodologies in the
Notice of Reconsideration and the final CAIR itself. Finally, one
commenter noted that company-specific analysis can obscure
state-by-state variation, and may not be reliable given continual shifts
in ownership structure.

EPA agrees with the commenters that one method of evaluating the
reasonableness of SO2 allocation approaches is (in addition to
company-by-company analyses) to compare State budgets calculated
according to various methodologies. EPA performed the company-by-company
analyses described above in response to a specific petitioner's claims
that the SO2 allowance allocation approach created inequities at the
company-level. Despite one commenter's assertion that such an analysis
is made unreliable by constantly changing corporate structures, EPA
believes that such an analysis remains instructive. A State-level
analysis provides additional perspective on the impact of various
allocation approaches, though of course, it will obscure some of the
potential company-level variability among allowance approaches.

EPA presented such a State-by-State analysis in the final CAIR RTC
(final CAIR Corrected Response to Significant Public Comments on the
Proposed Clean Air Interstate Rule, Corrected April 2005 (Docket Number
OAR-2003-0053)). EPA recognizes that the analysis prepared for the CAIR
RTC did not consider two of the alternative methods discussed above. For
today's notice, EPA has analyzed State budgets calculated under eight
different approaches (title IV and seven alternatives). These eight
approaches are described in Table 1, below.

Table 1. Description of Allocation Approaches Included in EPA Analysis

  -------------------- -------------------------------------------------------
  **Approach Name**    **Description of Approach**

  EPA Title IV         Title IV allocations adjusted for the 2.86 to 1
                       allowance retirement ratio in 2010-2014, and the 3 to 1
                       allowance retirement ratio in 2015 and thereafter.
                       EPA's chosen approach.

  Average 1999 -2002   For each State, calculates the average heat input over
  (Pure) Heat Input    the years 1999-2002. Apportions the region-wide SO2 cap
                       to individual States based on each State's share of the
                       total region-wide average for those years.

  1999 -2002 Heat      For each State, calculates the average adjusted heat
  Input w/ Fuel        input over the years 1999-2002. Adjusts heat input
  Factors              using factors of 1.0 for coal, 0.009 for natural gas,
                       and 0.3 for oil. Apportions the region-wide SO2 cap to
                       individual States based on each State's share of the
                       total region-wide average adjusted heat input for those
                       years.

  1999 -2002 Heat      For each State, calculates the average adjusted heat
  Input w/ Fuel        input over the years 1999-2002. Adjusts heat input
  Factors & Coal Type  using factors of 2.6 for bituminous coal, 1.0 for
                       subbituminous and lignite coals, 0.2 for natural gas,
                       and 0.7 for oil. Apportions the region-wide SO2 cap to
                       individual States based on each State's share of the
                       total region-wide average adjusted heat input for those
                       years.

  Average 1999 -2002   For each State, calculates the average heat input from
  Heat Input Coal +    coal- and oil-fired units over the years 1999-2002.
  Oil                  Apportions the region-wide SO2 cap to individual States
                       based on each State's share of the total region-wide
                       average heat input from these units for those years.

  Average 1999 -2002   For each State, calculates the average emissions over
  SO2 Emissions        the years 1999-2002. Apportions the region-wide SO2 cap
                       to individual States based on each State's share of the
                       total region-wide average emissions for those years.

  Average 1999 -2002   For each State, calculates the average output over the
  Generation Output    years 1999-2002. Apportions the region-wide SO2 cap to
  (all sources fossil  individual States based on each State's share of the
  and non-fossil)      total region-wide average output for those years.

  1999 -2002           For each State, calculates the average output from
  Generation Output    fossil fuel-fired units over the years 1999-2002.
  (Fossil-fuel-fired   Apportions the region-wide SO2 cap to individual States
  units only)          based on each State's share of the total region-wide
                       average output from these units for those years.
  -------------------- -------------------------------------------------------

As is shown in Table 2, the first component of EPA's State-level
analysis compared the individual State shares of total region-wide SO2
allocations under the various approaches. The revised analysis reaffirms
EPA's original conclusion, which was that calculating State budgets
using the title IV allowances results in about 80 percent of the States
receiving a percentage of total SO2 allocations that is within the range
of the percentages that resulted for these States under other suggested
SO2 allocation approaches (Sulfur Dioxide Allowance Allocation
Methodology Comparative Analysis Technical Support Document(Docket ID:
EPA-HQ-OAR-2003-0053)). In other words, 80 percent of States get neither
the most nor the least allowances relative to what they receive under
the other allocation approaches, under the title IV approach.
Furthermore, when compared specifically to the methods supported by
commenters (pure heat input, heat input with fuel factors, heat input
with fuel factors and coal type, coal and oil heat input and average
output all), distribution of State budgets using title IV allocations
results in an individual State receiving its smallest or greatest share
of total SO2 allocations relative to what the individual State receives
under the alternative approaches the same number of times as the pure
heat input methodology and fewer times than the other methodologies
supported by commenters (see the last three rows of Table 1). Such
results suggest that this approach performs as well as three of the
other allocation approaches suggested by commenters, suggesting that
EPA's argument that its chosen allocation approach is reasonable. While
the coal and oil heat input approach appears to perform best in this
analysis, this approach received more limited commenter support.

In examining the results of this analysis for the State's of the
commenters that submitted adverse comments on the use of title IV (FL,
IN, MN, NC, SC), it becomes apparent that each allocation approach makes
some States better off and others worse off. For example, North Carolina
receives 3.8 percent of the total region-wide SO2 budget under the title
IV approach, and South Carolina receives 1.6 percent. Under a heat input
with fuel factors approach, South Carolina receives 2.3 percent of the
total budget, while North Carolina receives only 2.2 percent. Similarly,
while Florida receives its largest share of allowances under a fossil
output-based approach or pure heat input approach, Minnesota performs
receives its greatest share of allowances under an approach using heat
input with fuel factors. Both Florida and Indiana receive more
allowances under the title IV approach than they would under the heat
input with fuel factors approach. [^7]

  ------------------------- ------- ----------- ----------- --------- ----------- ------------- --------------- -----------
  [Table 2 -- States Share                                                                                      
  of Budget under Various                                                                                       
  Allocation                                                                                                    
  Approaches]{.underline}                                                                                       

  **State**                 **EPA   **Average   **1999      **1999    **Average   **Average     **Average1999   **Average
                            Title   1999 -2002  -2002 Heat  -2002     1999 -2002  1999 -2002    -2002 Output    1999 -2002
                            IV**    (Pure) Heat Input w/    Heat      Heat Input  Emissions**   All**           Output
                                    Input**     Fuel        Input w/  Coal +                                    Fossil**
                                                Factors**   Fuel      Oil**                                     
                                                            Factors &                                           
                                                            Coal                                                
                                                            Type**                                              

  **AL**                    4.4%    4.3%        4.9%        5.2%      4.7%        5.0%          4.7%            4.2%
  ------------------------- ------- ----------- ----------- --------- ----------- ------------- --------------- -----------

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

                                                                                                                                                   

          **DC**               0.0%    0.0%          0.0%          0.0%           0.0%          0.0%          0.0%          0.0%                   

          **FL**               7.0%    7.7%          5.6%          6.7%           7.3%          6.0%          7.2%          7.7%                   

          **GA**               5.9%    4.1%          4.7%          5.3%           4.5%          5.2%          4.5%          4.2%                   

          **IA**               1.8%    4.7%          5.4%          4.4%           2.3%          1.4%          1.5%          1.8%                   

          **IL**               5.3%    6.5%          7.9%          7.9%           5.2%          4.7%          6.6%          4.4%                   

          **IN**               7.0%    1.9%          2.4%          1.2%           7.5%          8.6%          4.6%          6.2%                   

          **KY**               5.2%    4.9%          6.0%          7.3%           5.8%          5.8%          3.5%          4.5%                   

          **LA**               1.7%    3.3%          1.6%          1.0%           1.5%          1.1%          3.4%          3.6%                   

          **MD**               2.0%    1.8%          1.9%          2.3%           2.0%          2.7%          1.9%          1.7%                   

          **MI**               4.9%    4.2%          4.4%          3.7%           4.3%          3.7%          4.1%          4.2%                   

          **MN**               1.4%    1.9%          2.3%          1.1%           2.2%          1.0%          1.9%          1.7%                   

          **MO**               3.8%    1.4%          1.0%          1.0%           4.1%          2.4%          2.9%          3.4%                   

          **MS**               0.9%    3.6%          4.3%          2.3%           1.1%          1.2%          1.6%          1.6%                   

          **NC**               3.8%    4.0%          2.2%          2.7%           4.3%          4.7%          4.5%          3.8%                   

          **NY**               3.7%    3.7%          4.5%          5.5%           3.4%          2.7%          5.3%          3.9%                   

          **OH**               9.2%    6.4%          7.9%          9.6%           7.5%          12.2%         5.4%          6.5%                   

          **PA**               7.6%    6.0%          7.1%          8.4%           6.9%          9.5%          7.4%          6.1%                   

          **SC**               1.6%    2.0%          2.3%          2.9%           2.2%          2.1%          3.4%          2.0%                   

          **TN**               3.8%    3.0%          3.7%          4.4%           3.5%          4.0%          3.5%          3.0%                   

          **TX**               8.9%    15.3%         9.4%          5.5%           9.0%          6.0%          13.9%         16.6%                  

          **VA**               1.8%    2.3%          2.5%          3.1%           2.5%          2.3%          2.8%          2.3%                   

          **WI**               2.4%    4.4%          5.4%          6.7%           2.8%          2.0%          2.2%          2.2%                   

          **WV**               6.0%    2.5%          2.9%          1.8%           5.2%          5.8%          3.4%          4.5%                   

                               100%    100%          100%          100%           100%          100%          100%          100%                   

          \# of times          3       4             1             7              0             2             4             4                      
          method                                                                                                                                   
          provides                                                                                                                                 
          least                                                                                                                                    
          allowances                                                                                                                               

          \# of times          2       1             5             6              0             4             4             4                      
          method                                                                                                                                   
          provides                                                                                                                                 
          most                                                                                                                                     
          allowances                                                                                                                               

                                                                                                                                                   

          **Total**            **5**   **5**         **6**         **13**         **0**         **6**         **8**         **8**                  
          **(most +                                                                                                                                
          least)**                                                                                                                                 
  ------- ------------ ---- -- ------- ------- -- -- ------- -- -- -------- -- -- ------- -- -- ------- -- -- ------- -- -- ------- -- ----- ----- -----

**Source: EPA, 2006.**

Two commenters performed alternative analyses of State budgets, modeled
after the calculations done for the CAIR Reconsideration related to NOx
budgets (CAIR Statewide NOx Budget Calculations, EPA Docket Number
OAR-2003-0053, December 2005). The commenters claim that their analysis
proves that EPA's SO2 allowance allocation approach is inferior to a
fuel-adjusted heat input method, such as the allocation approach used in
the CAIR NOx model trading rule. They assert that EPA's analysis of NOx
allocation methodologies is also the appropriate way to compare the
reasonableness of the SO2 allocation alternatives.

As EPA explained in the NOx TSD, to quantitatively evaluate whether the
fuel factor approach is providing States with annual NOx budgets that
more closely reflected their projected emissions, EPA calculated the
arithmetic mean of the (absolute) difference between the ratio of each
State's allowance allocation under each approach to its projected
emissions under CAIR (coverage ratio), and 1.0 (i.e., the value
representing a State's projected emissions matching the State's CAIR NOx
budget). In other words, EPA calculated how far off the State's coverage
ratio was from 1.0, and then determined the average value of this
difference for each approach.

One commenter performed a similar analysis of State budgets, comparing
each State's projected emissions to its projected allowances under each
allocation method. The commenter analyzed the results in relation to a
coverage ratio of 1.0 (as EPA did in its NOx analysis) and averaged the
values for each approach. Another commenter performed a similar
analysis, but presented the results as the cumulative value (sum) of
absolute differences between the coverage ratios and 1.0.

EPA disagrees with the commenters' assertion that the methodology that
the Agency used to evaluate State NOx allocations should be the primary
means by which to evaluate the reasonableness of the SO2 allocation
methodology. As explained in the CAIR preamble, in the case of SO2, EPA
needs to balance various considerations, including the need to allocate
SO2 allowances in a way that is less disruptive to the title IV program.
In light of these considerations, minimizing the disparity between a
State's allocation and projected emissions cannot be the the primary
objective. For SO2, there is a pre-existing national trading program
(the Acid Rain SO2 trading program) that Congress intended to continue
as a viable program into the future and under which allowances have been
allocated in perpetuity. For NOx, there is no pre-existing national
trading program where efficiency and effectiveness would be jeopardized
by creating new CAIR NOx allowances. There is, of course, a pre-existing
regional NOx ozone-season program covering a portion of the CAIR region
(the NOx Budget Trading Program, established by regulation, rather than
directly by Congress). Under the existing NOx ozone-season program, no
State has allocated allowances past 2009 (and only a handful of States
have allocated allowances past 2008). Therefore, in contrast with EPA's
determination concerning SO2 allocations, evaluation of potential
approaches to NOx allocations did not involve concerns about
Congressional intent to preserve an existing trading program and about
preserving the value of allowances already allocated in perpetuity. For
NOx, EPA does not need to consider other important policy concerns that
are important for SO2 (as explained above and in the CAIR final rule).

While the methodology used by EPA to evaluate NOx allocation
methodologies for CAIR can be applied to analysis of SO2 allocations,
EPA believes that the commenters performed their State-by-State analyses
incorrectly, overlooking a fundamental difference between the CAIR NOx
and SO2 trading programs, which is the existence of a significant bank
of pre-2010 allowances that will be eligible for use for compliance with
CAIR. Because of the existence of an SO2 allowance bank, EPA believes
that the commenter's comparison of allocation approaches using a
coverage ratio of 1, which would assume that in a given year total SO2
emissions in the region are equal to the total region-wide SO2 budget,
is not appropriate for evaluating the SO2 State budgets resulting from
the various SO2 allocation methodologies. A State that had a coverage
ratio of 1 would have enough allowances to cover its emissions, and
while this ratio would be a meaningful target in the context of the CAIR
NOx trading program, it is not for SO2, because 2010 and 2015 emissions
will be higher than the region-wide cap due to the use of banked
allowances. For SO2, the region-wide ratios of allowances to projected
emissions are 0.70 for 2010 and 0.60 for 2015. On average, one would
expect States to have coverage ratios similar to the region-wide
average.

While in both the NOx annual and NOx ozone season trading programs some
allowances beyond the State Budgets, (i.e., compliance supplement pool
allowances in the annual program and banked allowances from the NOx
Budget Trading Program in the ozone-season program) will be available to
sources, the amounts of these extra allowances will be too small the
affect the State-by-State NOx analysis. Consequently, EPA believes that
a more appropriate way to evaluate SO2 allocation methods is to use the
0.70 (for 2010) and 0.60 (for 2015) coverage ratios, rather than a ratio
of 1.0. Further, because each allocation methodology results in
allocation that are advantageous for different companies and States, EPA
believes that the reasonableness of a given allocation method should be
judged by its overall impact on companies and States, not its specific
impact on any single company or State or on a few companies or States.

EPA has redone the commenters' analysis, using the methodology used by
EPA in its analysis of NOx allocations and corrected coverage ratios
described above. This analysis is presented in the Technical Support
Document "CAIR SO2 Allocation Approach Analysis," available in the
docket. While the title IV SO2 allocation approach does not perform the
best of the allocation approaches considered, the differences observed
among the approaches are of a lower magnitude than those suggested by
the commenters. The commenters did not provide any benchmark in their
analysis for assessing whether or not a given allocation approach was
reasonable. Further, although the commenters discuss some of the
implications of the differences observed between an allocation approach
based on fuel factors and the allocation approach based on title IV,
they do not provide with their analyses any meaningful arguments that
EPA's approach is not reasonable.

As EPA noted earlier in this section, there are a number of ways by
which to assess the equitability of a given allowance allocation
approach. EPA believes that a further understanding of the overall
relative impacts of the various allocation methods, EPA believes that it
is useful to apply the statistical concepts of (1) bias and (2)
consistency. EPA determined that an appropriate statistic for examining
the bias of a given allocation approach is the average difference
between a State's coverage ratio and the coverage ratio for the entire
region (*e.g.*, 0.70 for 2010 or 0.60 for 2015). The degree of bias
inherent in a given allocation approach cannot be discerned from the
absolute value statistic, because it ignores the degree to which
positive and negative differences cancel each other out. A perfectly
unbiased distribution under a given allocation approach would be one
that resulted in an average difference of zero, meaning that on average
a State-by-State coverage ratio higher than the regional coverage ratio
is balanced out by a ratio below. Another useful statistic is the
percent of time that the allocation approach yields a State coverage
ratio that is high (or low) relative to the regional coverage ratio.
Lack of bias would be indicated if 50 percent of the State coverage
ratios are higher than the regional coverage ratio, and 50 percent are
lower.

EPA evaluated the four allocation approaches considered during the CAIR
rulemaking (title IV, pure heat input, heat input with fuel-factors, and
heat input with fuel factors and coal type factors) along these metrics.
From EPA's calculations (Table 3), all the approaches are biased high
for 2010 and all but one is biased high for 2015 (with CAIR controls).
The average differences for EPA's approach, 0.04 (range, 0.03 to 0.69)
in 2010 and 0.15 (range, -0.15 to 0.17) in 2015, are among the closest
to zero compared to the alternatives examined. The one approach (heat
input with fuel and coal adjustment factors) that exhibits less bias
than the title IV approach in 2010 exhibits bias of the same magnitude
(but opposite direction) as the title IV approach in 2015. In addition,
the percent of positive differences for EPA's approach for 2010 and 2015
are near 50 percent and do not greatly vary from the alternative methods
analyzed. This demonstrates that EPA's approach provides a reasonable
result.

[Table 3. Evaluation of Bias and Consistency of Four Different SO2
Allocation Approaches, 2010 and 2015]{.underline}

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

                  ** **      **2010**       ** **       ** **                ** **      **2015**    ** **       ** **

                  **EPA      **Average      **1999              **1999       **EPA      **Average   **1999      **1999
                  Title IV** 1999 -2002     -2002**             -2002**      Title IV** 1999 -2002  -2002**     -2002**
                             (Pure)**       **Heat              **Heat                  (Pure)**    **Heat      **Heat
                             **Heat         Input w/            Input w/                **Heat      Input w/    Input w/
                             Input**        Fuel                Fuel                    Input**     Fuel        Fuel
                                            Factors**           Factors &                           Factors**   Factors &
                                                                Coal                                            Coal
                                                                Type**                                          Type**

  Average         **0.04**   0.09           0.69                0.03         **0.15**   0.15        0.17        -0.15
  Difference                                                                                                    

  Percent         **39%**    39%            43%                 48%          **52%**    48%         52%         43%
  Positive                                                                                                      
  ------------ -- ---------- ----------- -- ----------- ------- --------- -- ---------- ----------- ----------- ---------

Source: EPA 2006

One commenter, who disagreed with EPA's focus on how states fare under
different methodolodies, suggested using an "effective emission rate
comparison." However, the commenter proceeded to perform this comparison
using of the ratio of the adjusted state SO2 budgets to recent adjusted
heat input in each affected state. The commenter fails to realize that
using the adjusted state SO2 budget in the numerator and adjusted heat
input (i.e., the heat input values adjusted with fuel factors, which
were used to calculate the State budgets) in the denominator results in
a constant ratio across states. Based on the commenter's arguments, it
appears it should have used the adjusted state budget divided by the
actual projected heat input. This approach, however, would not result in
the constant effective emission rates, which the commenter insinuates is
most desirable. The commenter's argument, therefore, is faulty.

One commenter criticized EPA's company-by-company analysis on the
grounds that EPA determined allowance allocations under the various
allocation alternatives using on the title IV-based CAIR State budgets,
rather than using State budgets that were calculated using corresponding
heat input allocation methodology. EPA agrees with the commenter that
determination of company allocations under a given alternative
allocation methodology should be based on State budgets calculated using
the same methodology. EPA has reanalyzed company level allocations using
this approach, and the revised analyses are included in a technical
support document [See]{.underline} Final Reconsideration TSD for SO2
Allocations and State Budgets (Docket ID: EPA-HQ-OAR-2003-0053). The
results of the revised analyses are very similar to those reported in
the Notice of Reconsideration, and the conclusion stated in the text of
that notice, as follows, remains valid:

> *"*While allocations vary from company to company under the four
> methodologies, overall, the distributions of allowances that companies
> received relative to their projected emissions for both the base case
> and control case are very similar. In other words, no methodology
> stands out as providing a more reasonable method of allocation across
> all companies when examining allowance needs under either the base
> case or \[CAIR\] control case*."*

EPA's analyses for 2010 and 2015 for parent/holding companies and
owner/operating companies all show similar results.

[Potential for Regional]{.underline} [Emissions Increases]{.underline}

As discussed above and in the CAIR preamble, another important reason
for use of the title IV allowances is to avoid SO2 emissions increases
in 2010 and thereafter in non-CAIR States. If title IV allowances were
not used in the CAIR SO2 trading program, the resulting reduction in the
value of title IV allowances would result in an increase in emissions in
non-CAIR States. EPA estimates that emissions "leakage" of title IV
allowances from the CAIR region into the non-CAIR region would be
approximately 260,000 tons annually in 2010 and thereafter.

One commenter argues that EPA has not sufficiently evaluated and
compared the impact of the potential for increases in CAIR region
emissions under the approach of using title IV allowances that could
result from allocations to title IV opt-in units and title IV allowances
traded into the CAIR region from non-CAIR States to the potential for
emissions increases in non-CAIR States from "leakage" of title IV
allowances from CAIR States to non-CAIR States under an allocation
approach that does not rely on title IV.

EPA has in fact considered the issue of emissions "leakage" outside of
the CAIR region throughout its analysis of CAIR, and also analyzed the
potential increases outside of the CAIR region if EPA were to not use an
allocation system based on title IV. EPA estimates, based on its CAIR
analysis, that title IV allowances from the non-CAIR region equivalent
to about 150,000 tons of SO2 emissions may be traded into the CAIR
region in 2010, which represent about 4 percent of the projected CAIR
region emissions in 2010. This compares to approximately 260,000 title
IV allowances, representing that many tons of SO2 emissions, that
sources in non-CAIR States would have incentive to use (rather than
control emissions) if we chose an alternative system that is not based
on title IV (an increase equal to about 30 percent of the 0.9 million
tons of emissions EPA projects for non-CAIR region), because title IV
allowances would have no economic value.

EPA has also considered the impact of opt-in unit allocations and
projects that in 2010 allowances equivalent to approximately 25,000 tons
could be generated by units opting into the Acid Rain Program and used
for compliance in the CAIR SO2 trading program. This is less than one
percent of the projected CAIR region-wide emissions in 2010.
([See]{.underline} technical support document.) Thus, EPA believes that
the effect of selecting the title IV allocation approach for SO2 under
CAIR will not significantly affect the overall SO2 emission reduction
objectives of the rule.

It should also be noted that an alternative to including non-title IV
sources under CAIR and allowing them to use opt-in allowances from title
IV would be excluding these units altogether from CAIR. In choosing to
opt-in to title IV to provide allowances for use under CAIR, these units
would have to reduce emissions from the baseline at which they were
allocated in order to generate excess title IV allowances. Thus, actual
cumulative net emissions increases within the CAIR region from title IV
opt-in sources subject to CAIR are unlikely. Alternatively, excluding
these units from CAIR and keeping the same SO2 allowance retirement
ratios (and the same State budgets) would achieve many, but not all, of
the highly cost-effective SO2 reductions and could result in emissions
leakage within the CAIR region at these sources, as generation (and thus
emissions) shift from the EGUs covered by the cap to EGUs not covered by
the cap.

[Opting into the Acid Rain Program]{.underline}

As discussed above, EPA's analyses of the distribution of allowances
under EPA's allocation approach included allowances allocated to CAIR
units that can opt into the title IV Acid Rain Program. The statutory
and regulatory provisions governing Acid Rain Program opt-in units allow
units that are subject to CAIR, but not to the Acid Rain Program, to opt
into the Acid Rain Program. Under section 410(a) of the Clean Air Act,
the owner or operator of any unit that emits SO~2~ and "is not, nor will
become, an affected unit" under the general applicability provisions of
CAA title IV (i.e., starting in 2000, CAA sections 403(e)(for new units)
and 405 (for existing units)) may apply to have the unit become an
opt-in unit under the Acid Rain Program. 42 U.S.C. 7651i(a). (The
separate treatment of "process sources" under sections 410(a) and (e) is
not applicable to electric generating units covered by CAIR.) Section
410 was added to the Clean Air Act by the Clean Air Act Amendments of
1990, which were enacted on November 15, 1990.

EPA interprets section 410(a) to allow any SO2-emitting unit not
currently covered by the general applicability provisions to opt into
the Acid Rain Program and receive SO2 allowances, provided that certain
requirements (*e.g.*, emissions monitoring and reporting requirements
under part 75 of the Acid Rain regulations) are met. The use of two
separate terms, one to refer to a unit that "is not" an affected unit,
and the other to refer to a unit that "will not become" an affected unit
reflects the fact that there are two separate applicability provisions,
section 405 applying to units in existence and generating electricity
for sale when the CAA Amendments were enacted and section 403(e),
applying to units to be constructed at some later date. In short,
section 410(a) included language using both a verb in the present tense
(i.e., "is not") to refer to existing units and a verb in the future
tense (i.e., "nor will become") to refer to begin generation or begin
construction in the future. EPA does not interpret the term "nor will
become" to bar, from opting in, currently operating units that are not
covered by the generally applicability provisions but that may become
subject to those provisions sometime in the future. Consequently, a unit
that currently has an exemption from the general applicability
provisions (*e.g.*, an exempt cogeneration unit under CAA section
402(17)(C) or 405(g)(6)(A)), may opt in under section 410(a)) even if
the exemption may be lost sometime in the future. Such a unit may become
and remain an opt-in unit until the unit loses its exemption.

This interpretation of section 410(a) is reflected in the implementing
regulations. For example, § 74.2 states that the opt-in regulations
apply to units that "are not affected units under § 72.6 \[the general
applicability provisions\]\...and that are operating and are located in
the 48 contiguous States of the District of Columbia". 40 CFR 74.2. The
opt-in regulations do not exclude operating units that are currently
exempt from the general applicability provisions but that may
subsequently lose their exemption. Moreover, § 74.46(b)(iii)
specifically addresses how to treat opt-in allowance allocations for
operating units that opt in but subsequently become subject to the
general applicability provisions. The provision explains how to treat
such allowance allocations for the year in which the units lose their
exemption and for subsequent years. This supports EPA's interpretation
that currently exempt units may become opt-in units even though they may
lose their exemption in the future.

EPA notes that the additional cost for CAIR units of opting into the
Acid Rain Program will be minimal. The major cost for any unit to opt in
is the cost of meeting emissions monitoring and reporting costs under
part 75. Whether or not they become Acid Rain Program opt-in units, all
units under CAIR already have to meet, and incur the costs of, part 75
emissions monitoring and reporting requirements. EPA also notes that
currently under the Acid Rain Program only a small number of units have
opted into the program. Because EPA anticipates that the existence of
the CAIR program will result in more units opting in, EPA will work with
potential opt-in sources to consider opportunities to improve the opt-in
program.

**B. Fuel Adjustment Factors Used to Set State NOx Budgets**

As described in the December 2, 2005 Notice of Reconsideration for CAIR,
EPA received several petitions for reconsideration asking EPA to
reconsider its decision to use fuel adjustment factors (FAF) to
establish NOx budgets for State in the CAIR region. Petitioners
contended that the Agency did not provide adequate notice and that the
use of the FAF approach adversely impacted States with large gas- and
oil-fired generation portfolios. Given the significant public interest
in this issue, EPA granted reconsideration and solicited additional
public comment on this issue.

The Notice of Reconsideration explained that EPA believes that it
provided adequate notice both that the fuel adjustment factors might be
used and of the calculation procedures that it would use to determine
the specific factors. Nevertheless, in light of the significant public
interest in this issue, EPA granted reconsideration on the the use FAFs
(i.e., 1.0 for coal, 0.4 for gas, and 0.6 for fuel oil) in the
development of statewide NOx budgets. The Notice of Reconsideration
provided an additional opportunity for public comment on the issue and
presented additional analysis that EPA conducted to further explain the
impact of these factors on State annual NOx budgets. That additional
analysis demonstrated that the factors selected are reasonable and
decrease the disparity between most States\' projected electric
generation unit (EGU) emissions and their State NOx budgets. The Notice
of Reconsideration did not propose to change any aspect of how the CAIR
apportions the regionwide NOx budget among States.

Today's action responds to public comment received on the Notice of
Reconsideration and presents some additional analysis that supports the
analysis presented in the Notice of Reconsideration.

[Background on the Use of NOx FAFs in the Statewide NOx
Budgets]{.underline}

The CAIR establishes regional emission budgets for annual and seasonal
NOx emissions. These regional budgets are then further divided into
State budgets, with a share of each total regionwide budget apportioned
to each State in the corresponding CAIR region. The CAIR determines each
State's pro-rata share of the regionwide budget by using that State's
share of the regionwide heat input, as adjusted by the FAFs (i.e., 1.0
for coal, 0.4 for gas, and 0.6 for fuel oil). Petitioners asked EPA to
reconsider this methodology.

As explained in the Notice of Reconsideration, States choosing to
participate in the trading program may allocate their statewide budgets
to sources in their respective State. In a cap-and-trade system,
however, the methodology used to allocate allowances in any given year
would not affect where control technologies are installed.[^8] Rather,
the determinant would be the cost of adding controls compared to the
cost of buying, or the profit from selling, allowances. Controls are
expected to be installed where it is relatively less expensive, without
regard to which units received the initial allocation of allowances.
Further, the total cost to industry of controlling emissions and the
total amount of reductions achieved would not be affected by the
allocation methodology in a given year (for a permanent system). The
allocation method, however, could have financial impacts on individual
units and companies. A unit that receives more allocations than it has
emissions would get a benefit at the expense of a unit that does not
receive enough allocations to cover its emissions. While States choosing
to participate in the cap-and-trade program can determine how to
allocate allowances among their units, companies in States whose budgets
exceed projected EGU emissions would likely receive a financial benefit
while companies in States whose budgets are lower than their EGU
emissions would likely incur additional costs. In the absence of other
considerations, EPA believes that it is in the public interest to reduce
the disparity between the number of allowances in a State budget and
total projected State EGU emissions. In the case of NOx allowances,
there are no considerations that offset the desirability of reducing the
disparity between a State's budget and projected emissions. This
contrasts with the case of SO2 allowances, as described above, where
there are counter-balancing considerations, such as the importance of
preserving the efficacy of the existing title IV SO2 trading program.

1.  Summary of Additional Analysis Presented in the Notice of
    Reconsideration

The Notice of Reconsideration presented two analyses that EPA conducted
to evaluate the potential impact of using the adjusted heat input method
versus the simple heat input method on State annual NOx budgets: one
regionwide analysis and a second State-by-State analysis.

The regionwide analysis of the potential impacts compared regionwide
budgets using both approaches (i.e., simple heat input and fuel factor)
to the regionwide projected emissions of units fired with that fuel.[^9]
That analysis illustrated that: under either approach, the portion of
the State budgets derived from the heat input from the gas-fired units
generally exceeds both the historical and the future projected emissions
from these units; the fuel factor approach generally provides additional
allowances to States with large amounts of coal-fired units that are
making the majority of the investments in emission control measures and
technologies; and, using the fuel factor approach, the disparity between
the number of allowances provided to each type of fossil fuel-fired
electric generation and the projected emissions for each fossil fuel
type is less than under the simple heat input method.

The second analysis presented in the Notice of Reconsideration examined
the potential impacts of the two approaches for developing Statewide
budgets (i.e., simple heat input and fuel factor) on a State-by-State
basis. That analysis showed that States receiving fewer allowances using
a fuel factor approach, generally still receive Statewide budgets that
are greater than their projected emissions in 2009 and 2015. This
results because a substantial portion of their generation portfolio
consists of gas-fired sources with generally low NOx emission levels.
More specifically, the analysis illustrated that while States dominated
by gas-fired generation (i.e., District of Columbia, Florida, Louisiana,
Mississippi, New York, and Texas) receive fewer allowances under a fuel
factor approach, they are provided with reasonable Statewide budgets
that are comparable to their projected emissions in 2009 and 2015. In
addition, this analysis shows that, relative to the simple heat input
method, the fuel factor method reduces the disparity between projected
State emissions and State budgets, e.g., allocating State budgets that
are generally closer to projected State emissions.

EPA conducted the same analyses for the annual NOx programs proposed for
Delaware and New Jersey, which are being included in the CAIR PM2.5
finding of significant contribution in a separate rulemaking published
today. This analysis showed results similar to that found for the other
CAIR PM2.5 States.

Finally, to ensure that our estimates appropriately reflect the
distribution of emissions in the case of higher electricity demand and
increased gas and oil prices, the Notice of Reconsideration presented
EPA analysis based upon a sensitivity run using EIA's forecast of higher
electricity demand and gas and oil prices. This run produced very
similar emissions results to the original NOx analysis, showing that
EPA's original analysis is robust enough to support the fuel adjusted
heat input approach finalized in CAIR. (See the "CAIR Statewide NOx
Budget Calculations Technical Support Document, EPA 2005, for additional
discussion of the analysis.)

2.  Public Comments on Analysis Presented in the Notice of
    Reconsideration

Many commenters supported the EPA analysis presented in the Notice of
Reconsideration that demonstrated that:

-   under either approach, the portion of the State budgets derived from
    the heat input from the gas-fired units generally exceeds both the
    historical and the future projected emissions from these units;

-   the fuel factor approach generally provides additional allowances to
    States with large amounts of coal-fired units that are making
    majority of the investments in emission control measures and
    technologies; and,

-   using the fuel factor approach, the disparity between the number of
    allowances provided and the emissions is less than under the simple
    heat input method.

[Adverse Comments on the Notice of Reconsideration]{.underline}

a\. Comments on EPA's Characterization of Operational Costs for
Low-Emitting Generation in Analysis

Some commenters contended that EPA analysis of the projected impacts on
different types of power generation (i.e., coal-fired, gas- and
oil-fired units) was inaccurate because it did not reflect inherent
differences in the cost (e.g., fuel costs) to operate each type of unit.
Specifically, the commenters claim that gas-fired units "have incurred
historical costs to burn a cleaner but higher-priced fuel." The
commenter continues with "while gas-fired plants have continually paid
the price for cleaner fuels, under CAIR these owners may be penalized
with additional costs of purchasing allowances." The commenters believed
that, as a result, EPA analysis of the potential impacts of using the
FAF approach -- which was based on comparing CAIR NOx allowances to the
projected emissions -- has not properly considered the economic impacts
to these units and their customers.

EPA disagrees that higher fuel costs of oil- and gas-fired units are not
properly considered in the analysis of potential impacts of using the
FAF method in developing statewide NOx budgets. In projecting which
sources would install advanced controls under CAIR, EPA modeling
factored-in the operating characteristics of the each source, including
fuel costs.[^10] This modeling showed that coal-fired units -- not gas-
and oil-fired units -- would make the significant investment in advanced
controls in order to achieve the CAIR mandated emission reductions. The
commenter did not demonstrate that EPA modeling, used in the development
of CAIR and the Notice of Reconsideration analysis, mischaracterized the
operating costs of these units. Further, the commenter did not explain
how a decision to build a gas- or oil-fired unit prior to CAIR that has
high operating costs, warrants an award of valuable allowances to offset
operating costs that they would have with or without CAIR. Notably,
although natural gas inherently burns with lower NOx emissions, its
choice in the CAIR region historically is based much more on the
economics to meet electric demand requirements -- electric generation
from natural gas has been the cheapest approach.

In addition, it is not clear why the commenter believes that using the
FAF approach would result in gas-fired units having to purchase NOx
allowances. Analysis presented in the Notice of Reconsideration showed
that, in general, States that with predominantly gas- and oil-fired
generation are provided with reasonable statewide budgets that are
comparable to their projected emissions in 2009 and 2015. If the States
were to directly pass through allowances to their gas-fired units, these
units would still have excess allowances. Furthermore in most cases,
these States still receive a larger budget than they need to cover their
projected emissions.

In conclusion, EPA believes the projected emission levels used in EPA's
analysis of the potential impacts of using a FAF method to apportion
statewide NOx budgets appropriately considers the operational costs of
oil- and gas-fired units.

> b\. Comments on EPA Projections of Oil- and Gas-Fired Boilers
> Retirement and Impacts on Analysis

A few commenters believed that EPA inaccurately accounted for their
projected emissions because the IPM modeling did not consider
requirements, outside of environmental regulatory programs, to maintain
reserve electricity generation capacity. The commenter claims that, as a
result, there are oil-fired units that would continue to operate even
though IPM projects that they would retire because they are no longer
economical to run. The commenter believes that this potential
underestimation of projected NOx emissions is significant enough to
change the outcome of EPA's analysis which demonstrated that
predominantly gas-fired States would have receive CAIR NOx allowances
sufficient to account for their future NOx emissions.

EPA disagrees with the commenters' contention that the potential
underestimation of emissions for oil-fired boilers would significantly
impact the EPA's analysis comparing apportioning statewide NOx budgets
using simple heat input and the FAF approach. The EPA analysis showed
that Florida, the State of concern to the commenter, has coverage ratios
(i.e., the ratio of the statewide NOx budget and the projected NOx
emissions) of 1.45 and 1.35 under CAIR in 2009 and 2015, respectively.
In other words, the statewide NOx budget provides 145 percent of the
allowances that Florida sources would need to account for their
projected emissions.

EPA modeling projected that approximately 11 percent of the oil- and
gas-fired generation capacity (other than coal-fired generation and
combined-cycle turbines) would retire early in both 2009 and 2015,
respectively. These retirements comprise 4 and 5 percent of Florida's
total capacity in 2009 and 2015, respectively. Even if it was necessary
for all of these units to remain in operation to comply with
requirements for reserve capacity, it is not clear that this relatively
small portion of the total capacity would emit enough NOx to
significantly change the outcome of the EPA analysis. Should all or some
portion of these units remain in service, Florida's NOx budget -- which
is 45 percent and 35 percent above their projected emissions according
to EPA analysis -- would have a surplus of allowances that it could
provide to these units to offset emissions. Further, these units could
choose to reduce their emissions using a range of advanced control
options that, in some cases, achieve greater emission reduction levels
than found in coal-fired units.

3\. Public Comment on the Notice of Reconsideration Discussion of Notice

Several commenters supported EPA's position that adequate notice was
provided on the use of FAFs in the development of the statewide NOx
budgets. Many of these commenters also supported the analysis EPA
presented in the Notice of Reconsideration (discussed below.)

Other commenters maintained that the final CAIR did not provide
sufficient notice on the use of the FAF approach to developing statewide
budgets. The methodology used for developing the statewide budgets, the
FAFs, and the actual statewide budgets were discussed in detail in the
CAIR NFR (70 FR 25230) and supporting documentation.[^11] By granting
reconsideration and, thereby, requesting public comment on this issue in
response to the Notice of Reconsideration, the Agency has provided an
additional opportunity for public involvement. As a result, EPA believes
that it provided ample notice and opportunity for comment on the use of
fuel adjustment factors, the calculation procedures used to determine
the specific factors, and the specific factors themselves.

4\. Use of FAF Approach to Determining Statewide NOx Budgets in the
Final CAIR

Today's action does not change the use of the FAF methodology to
determine the statewide NOx budgets for the CAIR. While EPA believes
that adequate notice was provided on the use of the FAF approach and the
specific FAFs, EPA granted the petitions on this issue in consideration
of general public interest in the matter. EPA believes that today's
action, in conjunction with the Notice of Reconsideration, adequately
responds to concerns raised by the petitioners.

**C.** **PM2.5 Modeling for Minnesota**

One Petition for Reconsideration asked EPA to reconsider whether
emissions from Minnesota significantly contribute to downwind
nonattainment of the PM2.5 NAAQS. The petitioner (Minnesota Power, or
MP) asserted that EPA's modeling failed to account for certain emissions
reductions required by State programs (especially those required under
the Minnesota Emissions Reduction Program, or MERP). In granting
reconsideration, EPA explained that it was aware of the emission
reductions in question when it made the significant contribution
determinations in the final CAIR. EPA had accounted for these reductions
during the rulemaking by conducting a sensitivity analysis (available in
the CAIR docket), but had not conducted revised air quality modeling (70
FR at 72279-280). In response to the reconsideration petition, EPA
conducted revised air quality modeling which used the inputs reflecting
emission reductions required by the MERP. This modeling showed
(consistent with the sensitivity analysis) that Minnesota contributes a
maximum of 0.20 ug/m3 to the downwind PM 2.5 nonattainment area of
Chicago-Gary-Lake County, IL-IN. This modeling thus supported EPA's
conclusion that Minnesota's contribution met the criteria in CAIR for
determining "significant contribution." [Id.]{.underline} This revised
air quality modeling used the same modeling platform used for all of the
air quality modeling in CAIR. In the Notice of Reconsideration, EPA
solicited comment on the inputs used to model Minnesota emissions, but
declined to reconsider or reopen for public comment issues relating to
the air quality modeling platform itself. [Id.]{.underline} at 72280.

Most of the comments received on this issue in response to the Notice of
Reconsideration supported EPA's conclusion. These include comments from
the Minnesota Pollution Control Agency (MPCA), the entity with the most
direct knowledge of emission reductions required by state programs. EPA
also received no adverse comments from Xcel Energy, the entity that
entered into the MERP with the MPCA and whose projected emission levels
were the centerpiece of the reconsideration petition. In fact, no other
power generation source in the Minnesota besides Minnesota Power offered
adverse comments.[^12] EPA views these comments as confirmation of the
reasonableness of the modeling approach used by EPA to assess
significance of contribution of the State. EPA also views these comments
as confirmation that its revised modeling accurately accounts for the
MERP reductions.

Minnesota Power (MP) did not comment on the revised emissions modeling
done for power sector units in Minnesota and instead directed its
comments to the original emissions modeling done for the Final CAIR that
did not fully account for the MERP reductions. MP does not directly
challenge EPA's conclusion that the revised modeling accurately accounts
for the emission reductions required by the MERP. MP claims,
nonetheless, that the model inputs for the final CAIR modeling (not the
modeling done for the Notice of Reconsideration, as just noted) contain
errors. To the extent these alleged errors relate to the MERP, EPA has
corrected the errors as explained above.[^13] The additional "errors" of
which MP complains relate to inputs regarding the
[projected]{.underline} 2010 emissions for certain units in Minnesota.
Although MP states that EPA has mischaracterized emissions from some
units, EPA believes that the emissions projections done to provide
inputs for the revised air quality modeling described in the Notice of
Reconsideration are appropriate.

EPA believes its method of projecting power sector emissions for units
in Minnesota reflects a more accurate and robust method for projecting
emissions than the method used by MP. MP presents a method for
projecting 2010 emissions for certain select units using the combination
of a 2001 emission rate (based on Title IV data) and EPA's projected
2010 heat input projection under the 2010 base case (no CAIR). MP
applies this method to several of its own units and several owned by
Xcel Energy.

MP claims that if these lower emissions were used as inputs to the PM2.5
modeling, that modeling would show that Minnesota's contribution is
below the PM2.5 significance threshold of 0.2 µg/m3. However, the
petitioner was selective in its application of its methodology for
projecting emissions. MP applies their method only for units where that
method results in emissions projections that are lower than the original
EPA emissions projections. Application of this approach to all units in
Minnesota would result in emissions levels for several units in 2010
that are above EPA's projections. In such cases, however, MP relies upon
the lower EPA projections. Selectively developing projections in this
manner is an insufficient approach for developing power sector forecasts
(see further discussion on IPM below).

MP also comments that "EPA had erroneously assigned 2010 sulfur dioxide
emission rates on scrubbed Minnesota units at values as much as double
that of the performance levels posted in 2001." [MP Comment]{.underline}
p. 4. After reviewing the modeling results, EPA is unable to find any
instances in Minnesota where EPA projected SO2 emission rates of
scrubbed units from the revised power sector modeling that are double
that of the 2001 performance level. [Id.]{.underline} Although the
emission rates are higher in EPA 2010 projections for the 3 Sherburne
County Plant units than 2001 levels, they are well within permitted
levels at those units and reflect projected changes in unit operations
to maximize efficiency (see further discussion on IPM below).

MP also claims that "NOx emission rates deviated between 2001 and 2010
without supportive operating rationale." [Id.]{.underline} The
difference in NOx rates that MP alludes to is again based upon the
modeling for the Final CAIR, not for the Notice of Reconsideration. In
addition, MP's characterization is inaccurate. First and most important,
EPA's 2010 projections of NOx emission rates are generally lower than
2001 NOx emission rate data for Minnesota units. EPA's projections show
that for the 7 non-MERP units in Minnesota where MP provided revised NOx
emission estimates, 4 units have lower emission rates in 2010 under EPA
projections and only 3 units will have higher emission rates (compared
to 2001 data). Of the 3 units where the 2010 emission rate values are
higher for those units in EPA revised emissions modeling versus 2001
data, EPA finds that one unit is higher by 2 percent and two units are
higher by about 7 percent. Differences in emission rates of this
magnitude can occur for a variety of reasons and without significant
operational changes to a particular unit. Also, the petitioner has also
failed to demonstrate that EPA's projected NOx emission rates are
inaccurate.

Another comment from MP stated that "the EPA IPM modeling had shifted
heat input from large, lower emission units to higher emission units."
Id. A comparison of the historical data from 2001 with the revised
emissions modeling does not support this broad conclusion. Heat input
usage does not change significantly, and although there are some shifts
in heat input usage between 2010 EPA projections and the 2001 data,
these shifts occur where the IPM projects it will be cost-effective to
make relatively small changes to where electricity is produced. In
addition, EPA does not accept the suggestion that because a certain rate
applied in 2001 it should be applied in 2010. This argument is not
adequate and ignores the many other factors that may change in the
future which could cause a change in the way a unit produces
electricity. These include (among others) fuel supply and demand
dynamics, the cost of technologies to reduce emissions, relative
performance changes in power generation technologies, and the price of
an allowance. EPA used a version of IPM completed in 2004 that
incorporated the best available data for EPA's power sector database and
the most recent cost and performance of technologies at that time,
focusing on what emissions and emission rates are likely to occur in
2010 with full consideration of all the key factors of power plant
operations that can influence future emission levels.

The power sector is a complicated, interrelated, and interdependent
system of operation, and must be looked at holistically to ascertain the
sector's response to a certain set of conditions or constraints. The
petitioner's approach selectively chooses the methodology for
determining emissions at certain units and ignores the changes that may
occur at other units as a result. In addition, it is easy to question
the choices or assumptions that one makes for selective forecasts of
this nature, since methodologies can be developed to support foregone
conclusions, like lower emission levels in a future year. For this
reason, EPA uses the Integrated Planning Model to develop its power
sector emissions projections.

IPM is a detailed, sophisticated, and comprehensive electric power
sector model that is used to derive all manner of projections for the
power sector and is used to develop the power sector emissions
projections that are used in air quality modeling. The model accurately
reflects the power sector and contains millions of variables to best
ascertain how specific facilities will produce electricity to meet
demand in the most cost-effective manner possible. The variables are
based upon the best available data, both current and anticipated, and
include permitted emission rates for units, unit efficiency, cost data,
and operational constraints. This model has been used to support the
development of Title IV of the Clean Air Act (the Acid Rain Program),
the NOx SIP Call, the Clean Air Interstate Rule, the Clean Air Mercury
Rule, and the Clean Air Visibility Rule. In addition, it is used by the
Federal Energy Regulatory Commission, private sector, non-profits,
research groups, States, and regional planning organizations for power
sector projections. The model has undergone extensive peer-review and
scrutiny, and EPA believes it is an appropriate tool for use in
developing power sector emission projections and better accounts for the
many dynamics that exist in the power sector
(<http://www.epa.gov/airmarkets/epa-ipm/index.html>).

MP does not challenge the use of IPM for developing power sector
emission projections for certain units, but comments that at other
units, a revised methodology should be used. EPA believes that a
holistic approach is necessary and using a modeling tool that reflects
the integrated nature of the power sector as accurately as possible is
the most rational approach to forecasting emissions for all units
comprehensively.

To its credit, MP also points out that emissions from the Taconite
Harbor Facility (a facility that was recently converted from an
industrial source to an electricity generating source) were not included
by EPA in either the power sector emissions data or in other emissions
inventory used for CAIR modeling. EPA will include the facility in the
next version of the IPM. If the facility had been included in the
inventory, emissions in Minnesota would have been higher by almost 2,000
tons of SO2 and about 1,150 tons NOx than what EPA projected (according
to the commenter). Since EPA did not include this facility, EPA believes
that its own projections of emissions in Minnesota underestimate likely
future emissions.

MP also stated that it is "noteworthy that there are other reductions
that Minnesota Power has not modeled that should warrant consideration
by EPA, including those resulting from emission controls provided on
Minnesota BART eligible units for the regional haze program." MP Comment
p. 6. The Regional Haze program requires Best Available Retrofit
Technology or BART to be installed and operational on sources that the
State finds subject to BART within five years after EPA approves a
State's regional haze SIP. These SIPs are due in December, 2007. EPA
does not believe that States will require the installation or operation
of BART controls before 2010. Thus, it is highly unlikely that 2010
emissions would be affected by the BART requirements. In addition, MP
does not quantify any reductions it believes will occur due to the
application of BART in Minnesota. Thus, MP has not established that
there will be additional reductions due to BART that must be taken into
account when projecting 2010 emissions for units in MN. It is also
important to note that EPA has determined that CAIR achieves greater
progress than BART, and may be used by States in the CAIR region as an
alternative to BART.

In sum, EPA continues to believe its emission projections have
reasonably accounted for emission trends within Minnesota and fully
account for emission reductions attributable to the MERP. EPA believes
the inputs used for the modeling discussed in the Notice of
Reconsideration are reasonable and rational projections of 2010
emissions in Minnesota.[^14] For these reasons, EPA is not making any
additional changes to the inputs to the PM2.5 modeling for Minnesota,
beyond those changes described in the Notice of Reconsideration.

For more detail on EPA's characterization of power sector units in
Minnesota and power sector emission inputs to the air quality modeling,
please see the Technical Support Document titled "Emissions in
Minnesota: Additional Analysis as Part of the CAIR Reconsideration" that
is part of the record for this proceeding.

Minnesota Power also raised a new issue in its comments on the Notice of
Reconsideration, which is that EPA should use a more recent version of
its modeling platform to conduct air quality modeling. MP argues that if
EPA had done so, Minnesota would be below the PM2.5 significance
threshold. EPA's modeling for the entire final CAIR (as well as the
revised Minnesota air quality analysis) used the Community Multiscale
Air Quality (CMAQ) model 4.3. Minnesota Power, however, advocates use of
the post-CAIR CMAQ 4.5. The commenter states that the CMAQ 4.5 includes
corrections to a mass stability problem in the version (4.3) used by
EPA.

As noted earlier, EPA stated when granting reconsideration that it was
not reopening any issues dealing with the modeling platforms used for
the revised Minnesota modeling. We reiterate that position here. EPA
used CMAQ 4.3 for all of the air quality analyses conducted for the
final CAIR, and provided full notice and opportunity to comment on the
appropriateness of the model. See 69 FR 47828 (August 6,
2004)(announcing plan to use CMAQ 4.3 for the final rule); see also 70
FR 25234-36 (summarizing the use of CMAQ 4.3). There was ample
opportunity to comment on any issues regarding the adequacy of the model
during the rulemaking. Nor is the existence of a new iteration of the
model "grounds for ... objection ar\[ising\] after the period for public
comment" (CAA section 307 (d) (7) (B)). Predictive models are of course
open to the possibility of updating and so are often adjusted. Such
adjustments do not normally occasion new opportunities for comment,
particularly after the close of a rulemaking. Indeed, doing so would
create a perverse incentive to leave models unadjusted. The ultimate
issue is whether the model used in the rulemaking bears a "rational
relationship to the characteristics of the data to which it is applied".
[Appalachian Power v. EPA]{.underline}, 249 F. 3d 1032, 1052 (D.C. Cir.
2001). There has already been full opportunity to comment on this issue.

Accordingly, after careful examination of Minnesota Power's petition, as
well as all comments submitted in response to EPA's notice, EPA
continues to find that Minnesota emissions contribute significantly to
downwind nonattainment of the PM2.5 NAAQS. EPA is therefore not amending
the rule to remove Minnesota from the CAIR PM2.5 region.

**D. Inclusion of Florida in the CAIR Region for Ozone**

Several petitioners sought reconsideration of EPA's determination to
include Florida within the CAIR ozone region. Although there were
substantial arguments that EPA had already provided adequate notice on
this issue (see 70 FR at 72280; several commenters also indicated that
this issue had already been noticed sufficiently), EPA decided to grant
the petition.

EPA included Florida within the CAIR ozone reason because emissions
passed all of the contribution metrics EPA uses to evaluate significance
of contribution for ozone, and because highly cost effective controls
are available to control NOx emissions from the state. Specifically,
Florida is contributes significantly to nonattainment of the 8-hour
ozone NAAQS in Fulton County, Georgia (which includes Atlanta). See 70
FR at 25249 (Table VI-9).

Many commenters agreed with EPA's analysis. Other commenters (notably
the petitioners) argued, however, that Florida should not be included
within the CAIR ozone region at all, or that at most, only the northern
portion of the State should be included. Although the reconsideration
petitions originally challenged EPA's factual basis for including
Florida within the CAIR ozone region, the petitioners have abandoned
this claim because they essentially duplicated EPA's modeling results
relating to magnitude of contribution, frequency of contribution, and
relative amount of contribution (the three factors EPA evaluated in
determining whether an upwind State's contribution to a downwind State
could be considered significant). Rather, the commenters are now
challenging how to interpret the relative amount of contribution factor.

In assessing relative amount of contribution, EPA stated that the amount
would not be considered to contribute significantly if it was "less than
one percent of total nonattainment in the downwind area". 70 FR at
25191. The average percent of nonattainment of Florida to Fulton County
is 0.81 %. Cite.[^15] Commenters argued that because 0.81 % is less than
one percent, the relative amount of contribution is too small and
therefore should not create a significant contribution linkage.

For all relative amount of contribution calculations (not just those
involving Florida and Fulton County), EPA rounded the average percent of
contribution figure up or down to the nearest integer value, so that
values 0.5% and higher were rounded up to one percent, and values less
than 0.5% were rounded down to zero.[^16] EPA agrees with the
petitioners (and other commenters) that it would have been preferable if
EPA had stated this rounding protocol explicitly. [^17] That being said,
however, it is commonplace to round fractions up or down to the nearest
integer. As to the commenters' argument that an effective average
percent of contribution of .5% is too small to be considered
significant. Commenters further argued that EPA was applying the
rounding protocol inconsistently because in other instances, which they
view as comparable, EPA truncates fractional digits (i.e. simply
eliminates them), rather than round them. The examples given are in
applying the ozone magnitude of contribution metric (actual amount of
ozone contributed by emissions in the upwind State to nonattainment in
the downwind area), and the annual average PM 2.5 contribution
threshold.

EPA does truncate when determining each of these metrics. The ozone
magnitude of contribution metric quantifies a maximum impact (in parts
per billion) on predicted exceedances for a downwind nonattainment area.
The exceedance level -- i.e. the level of the standard \-- for the
8-hour ozone NAAQS is 85 parts per billion ('ppb') is obtained by
"report\[ing\] parts per million values to the third decimal place, with
additional digits to the right being truncated". 40 CFR Part 50 App. I
("Interpretation of the 8-Hour Primary and Secondary National Ambient
Air Quality Standard for Ozone") at 2.1.1. The truncation in the
magnitude of contribution metric is thus directly related to the form of
the NAAQS itself. Because the magnitude of contribution metric is tied
directly to the 8-hour NAAQS exceedance level, EPA uses the identical
truncation protocol as is used in the NAAQS. In contrast, the average
percent of nonattainment metric is not directly related to the form of
the 8-hour ozone NAAQS (indeed, it is not related at all). As stated
earlier, and illustrated in note above, the metric assesses overall
impacts which are expressed by aggregating all the impacts of a State on
a downwind receptor divided by the total impacts from all anthropogenic
emissions. Since there is no direct comparison with the ozone NAAQS,
there is no reason to utilize the conventions used in expressing that
NAAQS.

The comments also maintain that EPA used a different protocol to
evaluate when an upwind State's contribution to downwind nonattainment
of the PM 2.5 NAAQS is significant. EPA's metric for determining
significant contribution to PM 2.5 NAAQS nonattainment is 1 % of the
standard, or .15 ug/m3 which EPA rounds up to 0.2 ug/m3. 70 FR at 25191.
EPA took this step to avoid expressing the contribution metric using a
greater level of precision (i.e. a greater number of digits) than are
used in the NAAQS itself. [Id.]{.underline} Since the PM2.5 contribution
metric is expressed as a direct percentage of the NAAQS itself, it is
appropriate that it conform to the form of the NAAQS. The percent of
nonattainment metric at issue here, as explained above, is not directly
related to the form of the 8-hour ozone NAAQS, so there is no reason to
adopt the conventions which are part of that form. For the same reason,
there is no inconsistency in EPA's approach in choosing for purposes of
PM contribution expressed in terms of a percent of the PM 2.5 NAAQS to
use the conventions used in the form of that NAAQS.[^18]

The comments go on to say that even if it is reasonable to include
Florida within the CAIR ozone region, only a portion of the state (the
northern portion as delineated in the comments) should be included
rather than the entire state. The comments note that EPA itself excluded
a small part of the southern portion of Florida, and argue that this
approach should be extended based upon modeling results presented with
the comment.

This is not true for the remainder of the State. The commenters have the
burden of demonstrating that EPA's approach of assessing significant
contribution based on the collective emissions from the entire state
lacks rationality. [Appalachian Power v. EPA]{.underline}, 249 F. 3d
1032, 1050 (D.C. Cir. 2001); see also [State of Michigan v.
EPA]{.underline}, 213 F. 3d 663, 683-84 (D.C. Cir. 2000) (burden is on
the party seeking to exclude a portion of a State to demonstrate that
the portion is "innocent of material contribution") . As EPA explained
in responding to these same commenters' motions for a stay of the rule
in the D.C. Circuit (which response is part of the administrative record
for this proceeding), not only have the commenters failed to carry their
burden, but their modeling confirms that Florida represents a classic
instance of collective contribution to downwind nonattainment. The
commenters' report shows that both the (posited) northern and southern
regions contribute substantial portions of the total ozone loading from
Florida to Fulton County, namely 69 per cent from the northern region
and 31 per cent from the southern region. Ozone Report at 5-3.[^19] Nor
does there appear to be any principled basis for the north --south
divisions put forward in the comments. Not only does the report
underlying the comments itself concede that there are a multitude of
potential divisions (the Report suggests six ozone subregions in various
permutations, and the Report further states that "clearly numerous other
ones could be also be constructed" (Ozone Report at 5-1)), but that the
ones put forward were done so essentially to show that the (posited)
northern portion met significance criteria but the (posited) southern
portion(s) does not. Ozone Report at 3-2. The suggested division(s) for
ozone are not even the same as the one the commenter asserts are
necessary for assessing contribution of PM2.5. Ozone Report at ES-2, PM
Report at ES-1.[^20] This frankly appears to be more an arbitrary
balkanization than a principled division. Accordingly, EPA is not
accepting the commenters' arguments that contribution must be assessed
on a different basis than EPA used in the rule.

**E. Impact on CAIR Analyses of D.C. Circuit Decision in [New York v.
EPA ]{.underline}**

As described in the December 29, 2005 CAIR Supplemental Notice of
Reconsideration**,** "Rule To Reduce Interstate Transport of Fine
Particulate Matter and Ozone (Clean Air Interstate Rule): Supplemental
Notice of Reconsideration" (70 FR 77101-13), EPA decided to grant
Petitioner's request that EPA reconsider the impact of [New York v.
EPA]{.underline}, 413 F.3d 3 (D.C. Cir. 2005) on certain analyses
prepared for the final CAIR. One petitioner claimed that this June 2005
opinion of the D.C. Circuit raised questions about the sufficiency of
certain analyses prepared for the CAIR. Among other things, the opinion
vacated a provision of the New Source Review (NSR) regulations, commonly
known as the pollution control project (PCP) exclusion. The CAIR
Supplemental Notice of Reconsideration explained that EPA reviewed the
petition for reconsideration and analyzed the potential impact of [New
York v. EPA]{.underline} on CAIR analyses regarding cost-effectiveness
and timing. This analysis indicated that, as a result of the [New York
v. EPA]{.underline} decision, some electric generating units (EGUs) that
install SO2 and/or NOx controls for CAIR may incur relatively minor
additional costs and a few such units may be subject to additional
permitting requirements, but that these potential impacts will neither
affect the highly cost-effective determination that the Agency made in
CAIR nor impact the timeframe for CAIR reductions.

The CAIR Supplemental Notice of Reconsideration presented this and
concluded that the potential impacts of the D.C. Circuit Decision in
[New York v. EPA]{.underline} do not alter the final highly
cost-effective determination made in the final CAIR and do not affect
the feasibility of implementing the CAIR reductions in the required
timeframe. Thus, the CAIR Supplemental Notice of Reconsideration did not
propose any modifications to the final CAIR.

Today's action finalizes EPA's determination that no modifications to
the final CAIR are needed to address this issue and responds to public
comments received on the CAIR Supplemental Notice of Reconsideration.

1\. [Background on the Impact on CAIR Analyses of D.C. Circuit Decision
in New York v. EPA]{.underline}

For background information on this issue, please refer to the CAIR
Supplemental Notice of Reconsideration (70 FR 77103-13**).**

2\. [Additional Analysis on the Impact on CAIR Analyses of D.C. Circuit
Decision in New York v. EPA Presented in the CAIR Supplemental Notice of
Reconsideration]{.underline}

The CAIR Supplemental Notice of Reconsideration presented analysis that
EPA conducted to evaluate the potential impact on CAIR Analyses of the
D.C. Circuit Decision in [New York v. EPA]{.underline}. The analysis
first examined the potential cost and timing impacts of the decision,
assuming units would take measures to mitigate any potential significant
collateral increases in emissions of NSR-regulated pollutants. Then, the
analysis examined the potential impact of NSR permitting on the CAIR
cost-effectiveness and timing analyses.

First, the analysis looked at the potential costs and timing
implications of measures that could be taken to mitigate collateral
emission increases and thus avoid NSR permitting. As part of the
analysis, EPA made several assumptions it believes to be generally very
conservative. However, the analysis still showed that the potential
impacts would neither affect the highly cost-effective determination
that the Agency made in the CAIR nor impact the timeframe for CAIR
reductions. ([See]{.underline} 70 FR 77105-9).

Second, the analysis examined the potential impact of NSR permitting. It
showed that, although sources installing controls for CAIR generally
will have options to avoid triggering NSR for collateral increases, some
sources may conduct projects that could result in a net emissions
increase despite possible mitigation measures. These sources might
therefore apply for and obtain the necessary NSR permits to address such
increase. EPA's analysis showed, however, that the impact of permitting
of such sources on EPA's CAIR analyses is minimal. The Agency believes
that the impacts of choosing to undertake NSR for these units are not
substantial enough to affect the CAIR highly cost-effective
determination or the feasibility and timing analysis. ([See]{.underline}
70 FR 77109-11).

Overall, the analysis presented in the CAIR Supplemental Notice of
Reconsideration showed that the decision to vacate the PCP exclusion
under NSR does not require any modification of the final CAIR. The
Notice thus did not propose any changes to the CAIR.

3\. [Public Comment on the CAIR Supplemental Notice of
Reconsideration]{.underline}

EPA received several comments on the Supplemental Notice of
Reconsideration.[^21] Most of the commenters supported the conclusions
in EPA's analysis regarding the impact of the [New York v.
EPA]{.underline} decision on both the cost-effectiveness analysis and
timing analysis prepared for CAIR. Some commenters, however, did
disagree with some aspects of the analysis that EPA performed in coming
to its conclusion.

One commenter, who generally agreed with EPA's conclusion that the
potential impacts of D.C. Circuit Decision in [New York v.
EPA]{.underline} do not alter the final highly cost-effective
determination made in the final CAIR and do not affect the feasibility
of implementing the CAIR reductions in the required timeframe, disagreed
with several points in the supporting analysis. First, the commenter
does not believe that the emissions increases associated with coal
switching identified in two categories of controls in EPA's analysis
would be considered in calculating collateral emission increases. While
EPA agrees that in most cases coal switching would not be included in
calculating collateral emission increases for a PCP, this
inclusion/exclusion is dependent upon the specific permit of the
affected source. In its analysis, EPA made the conservative assumption
that coal switching would be included in calculating collateral emission
increases for PCPs involving SCR and/or FGD retrofits.

In its cost-effectiveness analysis, EPA also made the conservative
assumptions that all EGUs that will install SCR and/or wet FGD will
experience a significant emissions increase in sulfuric acid mist and
that all of those EGUs will install a wet ESP to mitigate those
emissions. The commenter believes these assumptions are unrealistic. The
Agency agrees that these assumptions lead to an overestimate of the cost
impact of the decision in [New York v. EPA]{.underline}, since the
number of EGUs with collateral increases in sulfuric acid mist will be
much smaller than the universe assumed in EPA's analysis and that the
BACT determinations in those cases with significant increases in
sulfuric acid mist may not involve the installation of wet ESP due to
its high cost. As mentioned in the CAIR Supplemental Notice of
Reconsideration, historically, BACT for sulfuric acid mist at combustion
sources generally has been switching to lower sulfur coal or
installation of wet FGD.

The commenter argued that EPA improperly assumed that condensable
emissions are regulated as a component of PM, and suggested that EPA's
analysis was flawed in this respect. It should also be noted that EPA is
not taking action to change the manner in which EPA treats condensable
emissions. Further, the status of condensable emissions as a regulated
NSR pollutant does not change the outcome of the Agency analysis
discussed here. This analysis, which assumed that sulfuric acid mist
would be regulated as a component of particulates, concludes that the
[New York v. EPA]{.underline} decision will not change the conclusions
of the cost-effectiveness and timing analyses prepared for CAIR.[^22] If
EPA were to assume, as the commenter suggests, that these emissions are
not regulated as NSR pollutants, the conclusion of EPA's analysis would
only be strengthened.[^23]

The same commenter also suggested that for some large EGUs burning high
sulfur coal and installing wet FGD, sulfuric acid mist emissions may
exceed the NSR threshold. While this may be true in some cases, EPA does
not feel that this will undermine the conclusions of the analysis in the
CAIR Supplemental Notice of Reconsideration because of the very
conservative assumptions made throughout the analysis (For purposes of
its cost analysis, EPA assumed that these units installed wet ESP). It
is difficult to estimate the number of such units without permit
information for all units at which this may occur. Further, as mentioned
in the CAIR Supplemental Notice of Reconsideration, much of the SO3
produced by SCR does not reach the stack; SCR conditions favor a
reaction between SO3 and ammonia that produces ammonia bisulfate, which
condenses to form solid PM, the majority of which will be captured in
the unit's particulate control device. Thus, EPA does not feel that many
such units will reach the NSR threshold for sulfuric acid mist.

Another commenter disagreed with EPA's assessment of potential
collateral increases in CO from low NOx burners (LNB). While EPA
believes that installing combustion control systems can lead to
collateral increases in CO, triggering NSR, *generally* LNB will not
significantly affect the combustion process and production of CO. It is
the Agency's position that increases in CO can be minimized through
adjustments of combustion control systems (*e.g.*, good combustion
practices), and at this time there are no other cost-effective control
options for reducing CO. Therefore, even in cases where NSR is
triggered, no significant additional control costs would be incurred.

A third commenter asserts that "based upon EPA's discussion in the
Reconsideration Decision, \[the commenter\] understands that only those
analyses performed by EPA and described in the Reconsideration Decision
are needed to assess whether a PCP undertaken for CAIR compliance would
increase emissions of any NSR regulated pollutant in an amount that
exceeds the applicable NSR significance level. If there are other
methods or means by which EPA believes a PCP performed for CAIR
compliance would trigger NSR, or if, using EPA emission increase
methodologies, EPA believes or would find that other air pollutant
emissions would increase above an applicable NSR significance level as a
result of PCPs that are expected to be performed for CAIR compliance,
then the Reconsideration Decision is deficient."

The analysis presented in the CAIR Supplemental Notice of
Reconsideration addresses only those general categories of projects that
would have qualified as PCPs under the NSR rules vacated by the court
and that we believe have the potential to increase collateral emissions
of NSR regulated pollutants enough to trigger NSR. It is not our intent,
nor is it within the scope of our analysis, to consider at this time
what permitting requirements might apply to all categories of pollution
control activities (including those that were not listed as a PCP under
the NSR rules) that might be undertaken by EGUs attempting to comply
with the CAIR requirements. The analysis was conducted to determine
whether the elimination of the PCP exemption would impact the
cost-effectiveness and timing analyses for the CAIR. Potential
permitting requirements for categories of activities that would not have
been subject to that exemption are not relevant to that analysis.[^24]

On all other major points, commenters agreed with EPA's analysis, and
half of the commenters also explicitly agreed with EPA's conclusion that
impacts of D.C. Circuit Decision in [New York v. EPA]{.underline} do not
alter the final highly cost-effective determination made in the final
CAIR and do not affect the feasibility of implementing the CAIR
reductions in the required timeframe. It should also be noted that other
than the four commenters, no other affected parties offered problems
associated with the impacts of D.C. Circuit Decision in [New York v.
EPA]{.underline} that might undermine the final CAIR cost-effective
determination and timing of compliance dates.

Today's action does not modify the final CAIR. In the CAIR Supplemental
Notice of Reconsideration, EPA announced that it would reconsider the
impact of the [New York v. EPA]{.underline} decision on
cost-effectiveness and timing analyses prepared for the CAIR. The EPA
analyzed the potential impact of the decision and solicited, considered
and responded to public comment on that analysis. The EPA's analysis
shows that the D.C. Circuit Decision in [New York v. EPA]{.underline}
does not significantly impact either the CAIR cost-effectiveness
determination or the compliance dates. For that reason, EPA has
determined that modifications to the final CAIR are not warranted. The
Agency believes that installation of emission controls for CAIR, as well
as other programs, is extremely beneficial and is working on ways to
minimize permitting issues associated with installation of these devices
in a way that is consistent with the D.C. Circuit Decision in [New York
v. EPA.]{.underline}

**IV. Statutory and Executive Order Reviews**

**A. Executive Order 12866: Regulatory Planning and Review**

Under Executive Order 12866 (58 FR 51735, October 4, 1993), the Agency
must determine whether the regulatory action is Asignificant@ and,
therefore, subject to Office of Management and Budget (OMB) review and
the requirements of the Executive Order. The Order defines Asignificant
regulatory action@ as one that is likely to result in a rule that may:

\(1\) have an annual effect on the economy of \$100 million or more or
adversely affect in a material way the economy, a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or State, local, or Tribal governments or communities;

\(2\) create a serious inconsistency or otherwise interfere with an
action taken or planned by another agency;

\(3\) materially alter the budgetary impact of entitlements, grants,
user fees, or loan programs or the rights and obligations of recipients
thereof; or

\(4\) raise novel legal or policy issues arising out of legal mandates,
the President=s priorities, or the principles set forth in the Executive
Order.

Pursuant to the terms of Executive Order 12866, OMB has determined that
this is not a significant regulatory action. This notice does not
promulgate any modifications to the CAIR.

**B. Paperwork Reduction Act**

This action does not promulgate information collection request
requirements under the provisions of the Paperwork Reduction Act, 44
U.S.C. 3501 et seq. Number range CHAPTERTherefore, an information
collection request document is not required.

Burden means the total time, effort, or financial resources expended by
persons to generate, maintain, retain, or disclose or provide
information to or for a Federal agency. This includes the time needed to
review instructions; develop, acquire, install, and utilize technology
and systems for the purposes of collecting, validating, and verifying
information, processing and maintaining information, and disclosing and
providing information; adjust the existing ways to comply with any
previously applicable instructions and requirements; train personnel to
be able to respond to a collection of information; search data sources;
complete and review the collection of information; and transmit or
otherwise disclose the information.

An agency may not conduct or sponsor, and a person is not required to
respond to a collection of information unless it displays a currently
valid OMB control number. The OMB control numbers for EPA\'s regulations
in 40 CFR are listed in 40 CFR part 9.

**C. Regulatory Flexibility Act**

The Regulatory Flexibility Act generally requires an Agency to prepare a
regulatory flexibility analysis of any rule subject to notice and
comment rulemaking requirements under the Administrative Procedures Act
or any other statute unless the Agency certifies the rule will not have
a significant economic impact on a substantial number of small entities.
Small entities include small businesses, small organizations, and small
governmental jurisdictions.

For purposes of assessing the impacts of today=s notice on small
entities, small entity is defined as: (1) a small business that is a
small industrial entity as defined in the U.S. Small Business
Administration (SBA) size standards. (See 13 CFR part 121.); (2) a
governmental jurisdiction that is a government of a city, county, town,
school district or special district with a population of less than
50,000; and (3) a small organization that is any not-for-profit
enterprise which is independently owned and operated and is not dominant
in its field.

After considering the economic impacts of today=s notice on small
entities, I certify that this action will not have a significant
economic impact on a substantial number of small entities. This notice
does not impose any requirements on small entities. This notice does not
promulgate any modifications to the CAIR. We continue to be interested
in the potential impacts of the notice on small entities and welcome
comments on issues related to such impacts.

**D. Unfunded Mandates Reform Act**

Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Public Law
104-4, establishes requirements for Federal agencies to assess the
effects of their regulatory actions on State, local, and Tribal
governments and the private sector. Under section 202 of the UMRA, EPA
generally must prepare a written statement, including a cost-benefit
analysis, for proposed and final rules with "Federal mandates" that may
result in expenditures by State, local, and Tribal governments, in the
aggregate, or by the private sector, of \$100 million or more in any 1
year. Before promulgating an EPA rule for which a written statement is
needed, UMRA section 205 generally requires EPA to identify and consider
a reasonable number of regulatory alternatives and adopt the least
costly, most cost-effective, or least-burdensome alternative that
achieves the objectives of the rule. The provisions of section 205 do
not apply when they are inconsistent with applicable law. Moreover,
section 205 allows EPA to adopt an alternative other than the
least-costly, most cost-effective, or least-burdensome alternative if
the Administrator publishes with the final rule an explanation why that
alternative was not adopted. Before EPA establishes any regulatory
requirements that may significantly or uniquely affect small
governments, including tribal governments, it must have developed, under
section 203 of the UMRA, a small government agency plan. The plan must
provide for notifying potentially affected small governments, enabling
officials of affected small governments to have meaningful and timely
input in the development of EPA's regulatory proposals with significant
Federal intergovernmental mandates, and informing, educating, and
advising small governments on compliance with the regulatory
requirements.

The EPA has determined that today's notice does not contain a Federal
mandate that may result in expenditures of \$100 million or more for
State, local, and Tribal governments, in the aggregate, or the private
sector in any 1 year. Today's notice does not add new requirements that
would increase the cost of the CAIR. Thus, today's notice is not subject
to the requirements of sections 202 and 205 of the UMRA. In addition,
EPA has determined that today's notice does not significantly or
uniquely affect small governments because it contains no requirements
that apply to such governments or impose obligations upon them.
Therefore, today's notice is not subject to section 203 of the UMRA.

**E. Executive Order 13132: Federalism**

Executive Order 13132, entitled AFederalism@ (64 FR 43255, August 10,
1999), requires EPA to develop an accountable process to ensure
Ameaningful and timely input by State and local officials in the
development of regulatory policies that have federalism implications.@
APolicies that have federalism implications@ is defined in the Executive
Order to include regulations that have Asubstantial direct effects on
the States, on the relationship between the national government and the
States, or on the distribution of power and responsibilities among the
various levels of government.@

This action does not have federalism implications. It would not have
substantial direct effects on the States, on the relationship between
the national government and the States, or on the distribution of power
and responsibilities among the various levels of government, as
specified in Executive Order 13132. The CAA establishes the relationship
between the Federal Government and the States, and this action would not
impact that relationship. Thus, Executive Order 13132 does not apply to
this action.

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

Executive Order 13175, entitled AConsultation and Coordination with
Indian Tribal Governments@ (65 FR 67249, November 9, 2000), requires EPA
to develop an accountable process to ensure Ameaningful and timely input
by Tribal officials in the development of regulatory policies that have
Tribal implications.@

For the same reasons stated in the final CAIR[^25], today's notice does
not have Tribal implications as defined by Executive Order 13175. It
does not have a substantial direct effect on one or more Indian Tribes,
since no Tribe has implemented a federally-enforceable air quality
management program under the CAA at this time. Furthermore, this action
does not affect the relationship or distribution of power and
responsibilities between the Federal government and Indian Tribes. The
CAA and the Tribal Air Rule establish the relationship of the Federal
government and Tribes in developing plans to attain the NAAQS, and
today's notice does nothing to modify that relationship. Because this
notice does not have Tribal implications, Executive Order 13175 does not
apply.

If one assumes a Tribe is implementing a Tribal implementation plan, the
CAIR could have implications for that Tribe, but it would not impose
substantial direct costs upon the Tribe, nor would it preempt Tribal
Law.

Although Executive Order 13175 does not apply to the CAIR or this notice
of final action on reconsideration of the CAIR, EPA consulted with
Tribal officials in developing the CAIR.

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

Executive Order 13045: AProtection of Children From Environmental Health
and Safety Risks@ (62 FR 19885, April 23, 1997) applies to any rule that
(1) is determined to be Aeconomically significant@ as defined under
Executive Order 12866, and (2) concerns an environmental health or
safety risk that EPA has reason to believe may have disproportionate
effect on children. If the regulatory action meets both criteria, the
Agency must evaluate the environmental health or safety effects of the
planned rule on children, and explain why the planned regulation is
preferable to other potentially effective and reasonably feasible
alternatives considered by the Agency.

This notice is not subject to Executive Order 13045 because it does not
involve decisions on environmental health risks or safety risks that may
disproportionately affect children. The EPA believes that the emissions
reductions from the CAIR will further improve air quality and children's
health.

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

Number range CHAPTERExecutive Order 13211 (66 FR 28355, May 22, 2001)
provides that agencies shall prepare and submit to the Administrator of
the Office of Regulatory Affairs, OMB, a Statement of Energy Effects for
certain actions identified as "significant energy actions." Section 4(b)
of Executive Order 13211 defines "significant energy actions" as "any
action by an agency (normally published in the [Federal
Register]{.underline}) that promulgates or is expected to lead to the
promulgation of a final rule or regulation, including notices of
inquiry, advance notices of final rulemaking, and notices of final
rulemaking (1) (i) a significant regulatory action under Executive Order
12866 or any successor order, and (ii) likely to have a significant
adverse effect on the supply, distribution, or use of energy; or (2)
designated by the Administrator of the Office of Information and
Regulatory Affairs as a "significant energy action." The final CAIR is a
significant regulatory action under Executive Order 12866, and EPA
concluded that the final CAIR rule may have a significant adverse effect
on the supply, distribution, or use of energy. The impacts are detailed
in the final CAIR (70 FR 25315). Today's notice is not a significant
action under Executive Order 12866 and does not change EPA's previous
conclusions.

**I. National Technology Transfer Advancement Act**

Section 12(d) of the National Technology Transfer Advancement Act of
1995, Public Law No. 104-113, section 12(d) (15 U.S.C. 272 note) directs
EPA to use voluntary consensus standards in its regulatory activities
unless to do so would be inconsistent with applicable law or otherwise
impractical. Voluntary consensus standards are technical standards
(e.g., materials specifications, test methods, sampling procedures, and
business practices) that are developed or adopted by voluntary consensus
standards bodies. The National Technology Transfer Advancement Act of
1995 directs EPA to provide Congress, through OMB, explanations when the
Agency decides not to use available and applicable voluntary consensus
standards.

Today's notice does not involve technical standards. Therefore, the
National Technology Transfer and Advancement Act of 1995 does not apply.

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

Number range CHAPTER Executive Order 12898, "Federal Actions to Address
Environmental Justice in Minority Populations and Low-Income
Populations," requires Federal agencies to consider the impact of
programs, policies, and activities on minority populations and
low-income populations. According to EPA guidance,[^26] agencies are to
assess whether minority or low-income populations face risks or a rate
of exposure to hazards that are significant and that "appreciably exceed
or is likely to appreciably exceed the risk or rate to the general
population or to the appropriate comparison group." (EPA, 1998).

In accordance with Executive Order 12898, the Agency has considered
whether the CAIR may have disproportionate negative impacts on minority
or low income populations. The EPA expects the CAIR to lead to
reductions in air pollution and exposures generally. Therefore, EPA
concluded that negative impacts to these sub-populations that
appreciably exceed similar impacts to the general population are not
expected. For the same reasons, EPA is drawing the same conclusion for
today's notice to reconsider certain aspects of the CAIR.

**K.** **Congressional Review Act**

The Congressional Review Act, 5 U.S.C. 801 et seq., as added by the
Small Business Regulatory Enforcement Fairness Act of 1996, generally
provides that before a rule may take effect, the agency promulgating the
rule must submit a rule report, which includes a copy of the rule, to
each House of the Congress and to the Comptroller General of the United
States. The EPA will submit a report containing this notice and other
required information to the U.S. Senate, the U.S. House of
Representatives, and the Comptroller General of the United States prior
to publication of the notice in the [Federal Register]{.underline}. A
major rule cannot take effect until 60 days after it is published in the
[Federal Register]{.underline}. This action is not a \"major rule\" as
defined by 5 U.S.C. 804.

**L. Judicial Review**

Section 307(b)(1) of the CAA indicates which Federal Courts of Appeal
have venue for petitions of review of final actions by EPA. This section
provides, in part, that petitions for review must be filed in the Court
of Appeals for the District of Columbia Circuit if (i) the agency action
consists of \"nationally applicable regulations promulgated, or final
action taken, by the Administrator,\" or (ii) such action is locally or
regionally applicable, if \"such action is based on a determination of
nationwide scope or effect and if in taking such action the
Administrator finds and publishes that such action is based on such a
determination.\"

Final actions described in this Notice of Final Action on
Reconsideration are \"nationally applicable\" within the meaning of
section 307(b)(1). This Notice explains the final actions EPA is taking
on the petitions for reconsideration of the CAIR. It describes EPA's
final action on the six issues for which EPA previously granted
reconsideration, and provides notice of EPA's decision to deny
reconsideration of several additional issues. EPA has determined that
all of these actions are of nationwide scope and effect for purposes of
section 307(d)(1) because the actions directly affect the CAIR, which
previously was found to be of nationwide scope and effect. Thus, any
petitions for review of the final described in this Notice must be filed
in the Court of Appeals for the District of Columbia Circuit within 60
days from the date this Notice is published in the [Federal
Register]{.underline}.

Rule to Reduce Interstate Transport of Fine Particulate Matter and Ozone
(Clean Air Interstate Rule): Reconsideration

page 61 of 61

**List of Subjects**

**40 CFR Part 51**

Administrative practice and procedure, Air pollution control,
Intergovernmental relations, Nitrogen oxides, Ozone, Particulate matter,
Regional haze, Reporting and recordkeeping requirements, Sulfur dioxide.

**40 CFR Part 96**

Administrative practice and procedure, Air pollution control, Electric
utilities, Nitrogen oxides, Reporting and recordkeeping requirements,
Sulfur dioxide.

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Dated

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

Stephen L. Johnson

Administrator

[^1]: These letters are available in the CAIR Docket.
    (OAR-2003-0053-2209 and 2210).

[^2]: This letter is also available in the CAIR Docket
    (OAR-2003-0053-2208).

[^3]: [State of North Carolina v. EPA]{.underline} (No. 05-1244);
    [Minnesota Power v. EPA]{.underline} (No. 05-1246); [ARIPPA v.
    EPA]{.underline} (No. 05-1249); [South Carolina Public Service
    Authority et al.]{.underline} v. EPA (No. 05-1250); [Entergy Corp.
    v. EPA]{.underline} (No. 05-1251); [Florida Ass\'n of Electric
    Utilities]{.underline} (No. 05-1252); FPL Group v. EPA (No.
    05-1253); [Northern Indiana Public Service Co. v. EPA]{.underline}
    (No. 05-1254); [South Carolina Electric & Gas Co. v.
    EPA]{.underline} (No. 05-1256); [Integrated Waste Services Ass\'n v.
    EPA]{.underline} (No. 05-1257); [AES Corp v. EPA]{.underline} (No.
    05-1259); [City of Amarillo, Texas et al. v. EPA]{.underline} (No.
    05-1260); [Appalachian Mountain Club et al. v. EPA]{.underline} (No.
    05-1246 ); [Duke Energy v. EPA]{.underline} (No. 05-1246).

[^4]: See [www.regulations.gov](http://www.regulations.gov/), Docket ID
    No. EPA-HQ-OAR-2003-0053.

[^5]: EPA's methodology to calculate the Regional and State budgets is
    described in the TSD in the docket
    <http://www.epa.gov/cair/pdfs/finaltech06.pdf>

[^6]: Some individual company commenters alleged that this is not
    applicable to them because they have contractual arrangements that
    prevent such intra-company transfers of allowances. However, even if
    certain companies cannot freely transfer allowances among their
    units, the net financial impact on the company of some of its units
    having more and some of its units having fewer allowances than they
    need is the same because the units with excess allowances selling
    these allowances at market prices will offset the units needing
    allowances and purchasing at market prices.

[^7]: Also, it is worth noting that these five commenters are all in
    cost-of-service States, where they should be able to pass through
    costs. In other words, sources in these States are likely to recover
    their cost of compliance, and the rate impact in these States,
    spread over all generation, transmission, and distribution is likely
    to be minimal. For instance, EPA's RIA for CAIR forecasts a les than
    one to a little more than one percent increase in average
    electricity prices in 2010 and 2015 respectively. The region
    containing North Carolina and South Carolina is forecast to have a
    1.5% and a little over 2 percent price increae in 2010 and 2015
    repsectivley.

[^8]: A permanent allocation approach, such as the CAIR allocation
    methodology in the model trading rules, should not affect where
    controls are installed. This is true []{.mark}regardless of the type
    of approach used to permanently allocate allowances (e.g., heat
    input, adjusted heat input, or output). The use of an updating
    allocation system, on the other hand, could have some impact future
    generation.

[^9]: It should be noted that simple heat input or adjusted heat input
    are used to set State budgets and do not imply that States would
    allocate allowances to units in that manner. In the proposal, EPA
    gives States flexibility in the distribution of allowances.

[^10]: IPM modeling uses "model plants" to represent the characteristics
    of a group of actual facilities.

[^11]: Both the "Corrected Response to Significant Public Comments on
    the Proposed Clean Air Interstate Rule\" (pp. 520-576) and the
    "Technical Support Document for the Clean Air Interstate Rule Notice
    of Final Rulemaking, Regional and State SO2 and NOx Emissions
    Budgets" include information on the use of FAFs for developing the
    statewide NOx budgets.

[^12]: Another power company in the Midwest region, Midwest Generation,
    supported EPA emissions assessment for Minnesota.

[^13]: The revised IPM modeling performed for the reconsideration fully
    accounted for emission reductions attributable to the MERP. These
    include emission reductions from the repowering of the two units at
    the Riverside plant from coal to natural gas and the retirement of a
    third coal unit at the plant. The inputs to the revised modeling for
    the Notice of Reconsideration also accounted for emission reductions
    from retrofit of the coal unit at the Allen S. King plant with
    advanced pollution controls (scrubber for SO2 removal and selective
    catalytic reduction technology for NOx removal) and for emission
    reductions from re-powering of two units at the High Bridge plant
    that will re-powered from coal to natural gas. It should be noted
    that MP has submitted revised projected emission levels for certain
    Xcel units covered by the MERP. These projections do not correspond
    precisely with the projections EPA used in its revised modeling (but
    are very similar). However, as explained below, EPA believes the
    projections for these units used by EPA are more accurate than the
    projections MP suggests should be used.

[^14]:

[^15]: There are three parts to the calculation of the average percent
    of nonattainment metric. In step 1, the ozone values for each of the
    exceedance periods in a particular downwind area (here, Fulton Co.)
    are summed over the three episodes. In step 2, the total ozone from
    the previous step that is due to anthropogenic sources is calculated
    based on the source apportionment results. In step 3, the
    contributions from a given source region to this downwind area are
    summed over the exceedance periods. The total contribution
    calculated in step 3 is then divided by the total nonattainment
    ozone resulting from manmade sources in step 2 to determine the
    fraction of ozone that is due to emissions from the upwind source
    area. The fractional value is multiplied by 100 to express the
    metric in terms of percent. The values in steps 1 and 2 are reported
    to the nearest integer. The value in step 3 is reported with one
    digit to the right of the decimal place. The final average percent
    of nonattainment value is reported to the nearest integer.

    Applied to Florida NOx emissions to Fulton County, this methodology
    yields the following:

    Step 1: Over the three episodes modeled, there was 120,511 ppb of
    ozone greater than or equal to 85.0 ppb (the level of the 8-hour
    NAAQS) in Fulton County.

    Step 2: From source apportionment modeling, 96,067 ppb of the ozone
    in Fulton Co. was determined to be of anthropogenic origin.

    Step 3: 781.0 ppb of the 8-hour ozone greater than or equal to 85.0
    ppb was determined via the source apportionment approach to be from
    emissions in Florida. Thus the average percent nonattainment is 0.81
    percent. This value was rounded to 1 percent.

[^16]: These commenters pointed out correctly that EPA also rounded
    values two digits to the right of the decimal point up or down to
    the next highest value, so that (for example) .45 % would be rounded
    up to .5% (and then further rounded to one percent). This protocol
    has no practical consequence here.

[^17]: \[

[^18]: EPA in fact uses standard rounding conventions in compiling PM2.5
    monitoring results for comparison to the level of the annual PM 2.5
    NAAQS. See Part 50 App. N at 2.3.

[^19]: Other comparisons likewise show that the contribution is
    collective across the State, not regionalized. The average percent
    contribution is 0.25 percent for the southern portion and 0.55 for
    the northern portion; the highest daily average is 1.88 ppb for the
    southern portion and 3.42 ppb for the northern portion; and the
    maximum 8-hour contribution is 2.11 for the southern portion and
    3.80 for the northern portion. Ozone Report at Table 5-2 at page
    5-3.

[^20]: The commenters' explanation for this inconsistency is that the
    difference "merely reflects the unsurprising reality that modeling
    contribution to different pollutants (PM2.5 and ozone) yields
    slightly different results." FPL Group comment p. 7.

[^21]: These documents are available in the docket for the CAIR
    (EPA-OAR-2003-0053).

[^22]: The commenter challenges these conclusions and says they only
    hold true if condensables are not regulated. However, the commenter
    offers no analysis to support this assertion or to identify any
    errors in EPA's analysis to support this argument.

[^23]: The commenter further notes that it would disagree with the
    conclusions in EPA's analysis if it assumes condensables are
    regulated; however, it does not provide any analysis to demonstrate
    that EPA's conclusions are flawed. As explained above and in the
    Supplemental Notice of Reconsideration, EPA's analysis shows that,
    even when very conservative assumptions are made, the court decision
    does not alter the conclusions of the analyses supporting the CAIR.

[^24]: The analysis addresses all relevant categories of PCPs of which
    EPA is currently aware. The commenter failed to identify any
    concrete problems that they were concerned about facing or other
    relevant categories of PCPs. Moreover, in addressing the relevant
    general categories of PCPs, EPA does not purport to make
    determinations about whether NSR would be triggered in any specific
    PCPs undertaken to comply with the CAIR, EPA will consider, and make
    determinations based on, the specific circumstances of those
    projects.

[^25]: www.epa.gov/cair.

[^26]: U.S. Environmental Protection Agency, 1998. Guidance for
    Incorporating Environmental Justice Concerns in EPA's NEPA
    Compliance Analyses. Office of Federal Activities, Washington, D.C.,
    April, 1998.